Addressing inequality

driving the day

1. Xi lays out economic philosophy (I)

On Monday, Xi Jinping gave a speech to ministerial-level officials at the Central Party School in Beijing.

Some context: Xi does this almost every year. It is similar to a kind of internal State of the Union address where Xi lays out the major themes that officials should focus on in the coming year.

This year’s speech focused on the economy.

Specifically, Xi laid out his thinking on the development philosophy underlining the 14th Five-Year Plan (2021-2025), which is currently being finalized and will be released in March.

First, Xi set the stage with some big picture thinking.

He told officials that, as the world changes, so too must the Party’s approach to economic development:

“The primary stage of socialism is not a static, unchangeable, and stagnant stage.”
“Nor is it a spontaneous, passive, and natural stage that will progress without much effort.”

Overall, changes in the world are in China’s favor:

“Development is changing in a way that presents both opportunities and challenges.”
“Most of [these opportunities and risks] are unprecedented, but on the whole there are more opportunities than challenges.”

The big message: If we get our act together, we can be the world’s superpower.

2. Xi lays out economic philosophy (II)

After his inspiring preamble (see previous entry), Xi got down to brass tacks.

Xi told the gathered officials that his “new development concept” is the key to realizing China’s economic potential.

Some context: Xi introduced the new development concept in 2015 as his overall approach to economic development. He has been fleshing it out ever since.

The readout from Monday’s speech is light on details.

But three themes stand out to us:

First, there is a clear focus on redistribution and addressing inequality. Xi specifically said that officials need to address “regional inequality, urban-rural inequality, and income inequality.”
Second, building self-sufficiency in technology is a strategic imperative. The government will identify technological choke points and task companies with addressing them.
Third, financial de-risking is here to stay. Deleveraging, reducing overcapacity, and reducing housing inventories all remain high priorities, and are a clear signal that credit growth will remain relatively restrained in years to come.

Get smart: Speeches like this do not lay out specific policy measures. But these are the overarching goals that will guide China’s economic policy for the next five years – and likely beyond.

finance economics

3. For whom the screw turns

They’re coming to get you, Baba.

On Saturday, Xinhua published an interview with Zhang Gong, the Party secretary of the State Administration for Market Regulation (SAMR).

His message: SAMR is coming after antitrust violators with renewed vigor.

Zhang said that creating a fair market environment was SAMR’s top priority (Xinhua):

“[M]arket regulatory authorities will focus on the key tasks of ‘strengthening anti-monopoly and preventing disorderly expansion of capital.’”
“[Regulators will]…accelerate the improvement of competition governance, and strive to create a fair competition system environment.”
“[We must] send a clear signal that, whether online or offline, no monopolistic behavior is beyond the reach of the Anti-Monopoly Law.”

Some context: Regulators’ decision in October to quash Ant Group’s planned IPO was the opening salvo in a new campaign to combat the abuse of dominant market positions by Chinese conglomerates.

In December, SAMR fined Alibaba for failure to obtain regulatory approval before increasing its ownership stake in a department store chain in 2017 (see December 15 Tip Sheet).

Get smart: This is only the beginning of Beijing’s antitrust crusade. While current efforts are focused mainly on big tech, Zhang’s comments indicate that the big boys in other major industries are destined to feel the swing of SAMR’s remorseless scythe.

politics policy

4. Emissions reduction debate heating up

Over the past two days, the environmental policy debate has been on fire.

What’s cooking: The environmental protection ministry (MEE) is in the midst of formulating a carbon emission reduction plan for the coming decade.

Some context: In September last year, President Xi Jinping pledged that China will reach peak carbon emissions before 2030 and achieve carbon neutrality by 2060 (see October 29 Tip Sheet).

The emissions reduction plan is likely to have a much bigger impact on inland provinces.

That’s because inland energy producing provinces account for much higher emissions than the energy consuming provinces on the east coast.

To deal with these issues, policy advisors have proposed:

Establishing an inter-provincial carbon trading mechanism
Taxing major emitters to fund carbon reduction projects in energy producing provinces
Considering population, GDP level, and the percentage of end-user fossil fuel consumption when distributing provincial carbon reduction targets

Get smart: Getting local authorities to agree on an action plan is no easy feat.

Everyone and their ayi want to retain maximum space for their own industrial development while letting others bear the brunt of the reduction responsibilities.

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5. Not yet peaked

The COVID-19 outbreak in Hebei province is still going strong.

Locally transmitted cases continued to rise over the weekend:

Between January 9-11, the province reported 168 new confirmed cases and 88 new asymptomatic cases.

On Saturday, Shijiazhuang’s newly appointed acting mayor Ma Yujun delivered some sombering news:

Ma said that the outbreak had not yet peaked and that there was a risk of it spreading further.

Indeed, earlier this afternoon two more Hebei cities – Xingtai and Langfang – went into lockdown.

And this is even more worrying: There are signs of the outbreak spreading to other provinces.

Since January 6, Shanxi and Xinjiang have reported a total of three asymptomatic cases linked to Hebei.

But not everyone is overly concerned.

Earlier today, prominent medical expert Zhang Wenhong predicted that (Caixin):

“The outbreak will undoubtedly be contained in a month.”

To help contain the outbreak, Shijiazhuang will receive an emergency shipment of 70,000 vaccine doses for front-line workers.

Get smart: The race between the growing outbreak and efforts to immunize and control the spread will be a test for authorities that have long boasted of the country’s achievements during the pandemic.

What to watch: Developments over the next few days will be decisive in the case of Hebei. Stay tuned.

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