1. Don’t call it a comeback…because it isn’t
As we continue our policy safari through the 14th Five-Year Plan (FYP), we’re pausing to see what the document had to say about some of China’s thorniest structural issues.
First up, boosting consumption.
Some context: Encouraging people to spend more is a key prerequisite for full economic recovery and a core plank of the dual circulation strategy.
Sadly, the FYP didn’t have any eye-catching solutions. It simply called for:
- Maintaining incentive programs to juice auto and home appliance purchases
- Opening the service sector to more players in order to better meet consumer demand in areas like healthcare, tourism, and entertainment
- Ensuring people are spending money on vacations
- Lowering the tax burden on consumers
More interestingly, the FYP provided the first official confirmation that there will be an action plan dedicated to expanding China’s middle-income group.
The plan will focus on raising the incomes of:
- Graduates from college or vocational schools
- Skilled workers
- Migrant workers
Some context: For the past few months, policy advisors have been buzzing about a plan to double the size of the middle-income group from 400 million to 800 million within 15 years.
Get smart: The government doesn’t have a silver bullet for boosting consumption in the short term.
The bottom line: We don’t expect to see a consumer comeback in China in 2021.
2. Boosting better baby making
Next up on our tour of intractable policy problems is China’s aging population.
ICYMI: China is facing a demographic crisis. The population is aging rapidly and the birth rate is plummeting.
The 14th Five-Year Plan (FYP) outlined steps to deal with this problem.
The idea is to encourage people to have more babies, by:
- Improving fertility policies
- Reducing childcare and education costs for bigger families
- Expanding parental leave
The plan also wants China’s oldsters to work for longer:
- “The statutory retirement age should be gradually extended.”
The 14th FYP also aims to ensure that retirees get their hard-earned pensions:
- Besides replenishing capital for the state-led pension system, the plan reiterates its commitment to developing a commercial pension scheme.
- Moreover, the banking regulator looks to be mulling setting up a new state pension firm to tackle the funding gap (Bloomberg).
The good news: According to Premier Li Keqiang, these challenges offer sweet opportunities for foreign investors and businesses (Economic Observer):
- “[This] will inevitably create more opportunities for foreign enterprises’ products, services and even investment, because our market is open.”
Get smart: Encouraging babies and raising the retirement age are necessary steps for addressing China’s demographic challenges. But the proposed measures do not go far enough, fast enough.
Get smarter: The real answer to China’s aging population would be to allow more immigration. But that ain’t going to happen.
The bottom line: China’s aging population is a major headwind to growth in the medium term.
3. Premier Li ignores US criticisms
Speaking of thorny issues…
In January, at the end of the Trump administration, Sino-US relations were at their lowest point since the establishment of ties in 1979.
The new Biden administration presents the opportunity for a reset of sorts.
- That’s why next week’s meeting between the countries’ top diplomats is highly anticipated.
Some context: Top Diplomat Yang Jiechi and Foreign Minister Wang Yi will meet US Secretary of State Antony Blinken and US National Security Advisor Jake Sullivan in Alaska on March 18 and 19 (Xinhua).
The Americans aren’t coming to make friends, according to US State Department spokesperson Ned Price, speaking on Thursday (SCMP):
- “We’ll be frank, and explain how Beijing’s actions and behaviour challenge the security, the prosperity, the values of not only the United States, but also our partners and allies.”
The Chinese side is not likely to acknowledge US criticisms, judging from Premier Li Keqiang’s press conference on Thursday.
- When asked about US concerns, Li ignored the question, instead saying that disagreements are “hardly avoidable” (Gov.cn).
Get smart: Both China and the US seem pretty insistent that the other side is to blame for the deterioration in bilateral relations.
- That makes an improvement in relations unlikely.
4. Rigorously reviewing recent rural and regional development plans
Are you sick of reading about the 14th Five-Year Plan (FYP)?
- So are we, but there’s still more to unpack, so deal with it.
Some of the FYP’s content doesn’t fit neatly into a sectoral heading, but that doesn’t mean it’s not important.
One such example: The three sections – spanning 30 pages – in the middle of the FYP devoted to:
- Rural revitalization
- A “new urbanization” strategy
- Efforts to “optimize the layout” of regional economies
Across these sections, policymakers outline an ambitious reform agenda to reduce restrictions on land, capital, labor, and goods flowing between urban and rural areas including:
- Lifting “hukou” residency restrictions and expanding social services for rural migrants settling in cities under 5 million people
- Building a unified market for rural and urban construction land
- Encouraging the financial sector to participate more fully in the rural economy
- Investing in infrastructure and logistics links between rural areas and cities
- Drawing fiscal support from flourishing developed regions to support development elsewhere
None of that will be easy.
The big picture: Bringing a few hundred million rural residents into the consumer class is key for China’s sustained economic development.
5. Legislators legislate about legislature
On Thursday, the National People’s Congress (NPC) approved amendments to two laws and regulations governing its own functions.
- The NPC Organic Law outlines the legislature’s organizational structure and the functions of its various bodies.
- The NPC Rules of Procedure chart the procedure for how the full NPC is to conduct its business.
It’s high time: Neither law has been updated since being enacted in the 1980s.
- Give the NPC Standing Committee (NPCSC) the right to reschedule NPC sessions
- Give the State Supervision Commission the right to directly submit bills to the NPC
- Detail the terms of NPC special committees
- Simplify the resignation procedure for NPCSC members
The changes also give the NPC the power to:
- Call the Supreme People’s Court, Supreme People’s Procuratorate, and the State Supervision Commission in for questioning
- Fire State Council officials and members of the Central Military Commission
And not to be missed:
- The amendments also added a new article requiring the NPC and the NPCSC to “adhere to the leadership of the CCP.”
Get smart: Most of these amendments will have little practical impact, as they are mainly meant to get the rules in line with current practices.
6. Passing gas through a bottleneck
On Thursday, the Ministry of Industry and Information Technology (MIIT) held a closed-door meeting to solve the bottleneck issues restricting the development of the industrial gases industry.
We know, it’s our favorite subject too!
Some context: Since 2013, policymakers have been signaling they want to develop so called “bottleneck techs” – aka core technologies – where China is dependent of foreign suppliers.
- After the US-China trade war kicked off in 2018, the issue has been viewed with increasing urgency.
More context: Industrial gases are crucial to several industries, including the electronics industry (which includes semiconductors).
- Foreign companies currently have an 88% market share for industrial gases used for electronics.
Details on what measures the government plans are still scarce.
But here’s what we can expect based on Thursday’s meeting’s attendee list:
- Financial support The Ministry of Finance and China Development Bank were both in attendance.
- Cross-agency efforts: MIIT, the National Development and Reform Commission, and the Ministry of Science and Technology were there too.
- Civilian and military involvement: Two civilian industry associations as well as the State Administration of Science, Technology, and Industry for National Defense and MIIT’s Military-Civilian Integration Promotion Department were also there.
Get smart: Assembling a team is much easier than coming up with a winning strategy.
Get smarter: Even with a winning strategy, it’ll be challenging to coordinate efforts across so many entities.