1. Premier Li defends low growth
Time to take a deep breath and get a drink.
The Two Sessions is officially over.
- The Chinese People’s Political Consultative Conference (CPPCC) concluded its annual session yesterday.
- The National People’s Congress (NPC) concluded its annual session today.
At the conclusion of the NPC’s session, the legislature approved the various work reports presented during the session, including the 14th Five-Year Plan.
The votes were not very contentious.
- For example, the 14th Five-Year Plan passed by a margin of 2873-11, with 12 abstentions.
As per tradition, Premier Li Keqiang held a press conference following the conclusion of the NPC.
Li’s press conference was a bit of a snooze fest.
But we did find this interesting: Li got a bit defensive about the government’s 2021 GDP growth target of “over 6%” (CNA):
- “6% is not low.”
But then Li admitted that the economy still faces some headwinds.
- “There is still a lot of uncertainty over the global economy’s recovery.”
- “Small, medium, and micro-sized enterprises are still in the process of regaining their vitality.”
Still, Li also wanted to be clear that this does not mean the government plans to step in and juice growth:
- “Going fast for a short while may not be stable; only by walking steadily, can we walk with power.”
The bottom line: Despite what Li says, 6% is low – at least when coming off of a pandemic year.
Our take: Policymakers didn’t want to be more aggressive with the target because they are still unsure what growth will look like this year.
2. The future of Hong Kong
Were you too busy reading up on the torpedoing of Hong Kong’s electoral system (see March 8 Tip Sheet) to look at what the 14th Five-Year Plan (FYP) said about the city’s future?
No worries, we’ve got ya.
The gist of it: Beijing wants to preserve Hong Kong’s attractiveness as an international finance and business center.
To this end, the 14th FYP promised mainland support for making the city into:
- An international financial, shipping, and trading center
- An international aviation hub
- A global offshore RMB business hub
- An international asset management center
- A risk management center
Some context: This might seem ambitious, but it’s mostly old news.
- Apart from making Hong Kong an international aviation hub and a risk management center, these priorities were already laid out in the 13th FYP (2016-2020).
One problem: One of Hong Kong’s biggest draws for foreign business has been its political autonomy – which is now basically kaput.
Get smart: Recent curtailment of political freedoms notwithstanding, Hong Kong will remain an important contact point for China’s continued integration with the global financial system.
- Politically, Hong Kong will never be the same.
- But last year’s forecasts that the city would lose its luster for foreign financiers and companies were premature.
3. RCEP gets ratified
The last week has been a roller coaster of “blink and you’ll miss it” Two Sessions excitement.
- Apparently, we blinked.
China’s National People’s Congress officially ratified the landmark Regional Comprehensive Economic Partnership (RCEP) at some point last weekend.
- Commerce Minister Wang Wentao announced the ratification on Monday.
Some context: The RCEP agreement was signed on November 15, linking 15 major Asia-Pacific economies in what is now the world’s largest free trade agreement (see November 16 Tip Sheet).
More context: Policymakers have spent the past few months pushing HARD for speedy implementation (see February 4 Tip Sheet).
China became the first signatory to ratify RCEP, around three months ahead of schedule.
What’s the rush? The trade pact can’t go into effect until it is ratified by:
- At least six of the ten Association of Southeast Asian Nations (ASEAN) member states
- At least two more of the non-ASEAN signatories – which include Japan, Korea, Australia, and New Zealand
Get smart: China wants this deal done – and being willing to fast-track ratification may put pressure on other signatories to get a move on.
Get smarter: China’s legislature was never going to block ratification of RCEP, but the agreement’s fate is much less certain in places like Australia and Myanmar.
4. That’s some high quality H2O
Aside from tackling carbon emissions, the 14th Five-Year Plan (FYP) laid out some other pretty nifty environmental goals.
The plan is gunning for:
- 87.5% of days to be good or excellent air quality in cities at the prefecture level and above
- 85% of surface water nationwide to be Grade III or better (i.e. suitable for drinking and swimming)
To get there, the 14th FYP wants to slash the output of major pollutants, reducing:
- Ammonia nitrogen by 8%
- Nitrogen oxide and volatile organic compounds (VOCs) by 10%
- PM2.5 intensity by 10%
These goals will squeeze the construction, steel, and chemical industries, with the plan calling for an end to energy and emission intensive projects.
The transportation sector also faces a green overhaul. The plan mandates:
- Increased use of railway and water-based transportation for medium-to-long distance cargo shipments
- Electrification of urban public transport and logistics vehicles
All this greening will require some serious green.
- We expect the government will try to lighten the load through tax incentives for energy conservation, environmental protection, and better resource utilization
Get smart: Restructuring the economy to meet China’s environmental goals will be a monumental endeavor.
- Beijing will look to ease the strain on businesses to the extent it can.
5. Making manufacturing great again
The 14th Five-Year Plan (FYP) also laid out some ambitious goals for the manufacturing sector.
The plan calls for ensuring that manufacturing’s proportion of GDP remains stable
- That may not sound like much, but remember that manufacturing’s value-add to GDP has been falling fast – from 31.6% in 2010, to 27.2% in 2019.
Policymakers are also aiming to build a higher-quality manufacturing sector:
- Former Ministry of Industry and Information Technology minister Miao Wei said China is a “third-tier” manufacturing power – citing Germany and the US as examples of “first-tier” manufacturing powers.
To close the gap, the14th FYP aims to slash costs for manufacturing companies, by:
- Increasing the quantity and efficiency of industrial land use with a revamped land allocation model
- Tilting equity investment and bond financing toward manufacturing and increasing the amount of medium- and long-term loans to manufacturing
- Allowing manufacturing companies to bid in market-based electricity transactions
- Lowering fees for port, road, and railway use
Get smart: Both the pandemic and US sanctions pushed policymakers to reevaluate supply chain risk.
Get smarter: Chinese policymakers don’t want to end up in a situation where they are dependent on another country for critical manufactured goods like pharmaceuticals or PPE.
- That’s of course the exact situation many countries found themselves in throughout the pandemic.
- Just as other countries want to reduce their reliance on China, Chinese leaders want ensure manufacturing self-sufficiency.
6. Muzzling the wolf pack
On Friday, He Yiting, former executive vice-president of the Central Party School called on officials to rein in excessive nationalism during a meeting with the Chongqing delegation to the Two Sessions.
A little about He: He is a senior Party bigwig with close ties to Xi Jinping.
- He has served as a policy advisor to both Xi and his predecessor Hu Jintao.
He thinks it’s time for China to tone its aggressive rhetoric down a notch (SCMP):
- “(China should) continue to expand opening-up, actively and prudently handle relations with major countries, and prevent the rise of domestic populism.”
And check this: Foreign Minister Wang Yi was present when He made his remarks.
- That means he was aiming his remarks directly at the Ministry of Foreign Affairs and its diplomats.
This *could* be part of a broader shift to make the diplomatic tone more…well…diplomatic.
Additional evidence: On Sunday, Wang tried to strike a conciliatory tone during a press conference on China’s foreign policy, putting a positive spin on Beijing’s strained relations with several other countries (see March 8 Tip Sheet).
Get smart: Nationalism is a double-edged sword. It allows the Party to tap into huge reservoirs of domestic support, but has also damaged China’s image abroad.
Our question: Will China’s foreign policy rhetoric soften noticeably in coming months?