1. State Council expands fiscal transfer program
Local government finances in China are not a pretty picture – and the central government knows it.
That’s why Wednesday’s State Council meeting decided to expand a program to transfer money from central coffers directly to local governments.
Some context: In May last year, as part of COVID relief efforts, the central government introduced a new mechanism to transfer fiscal funds directly to local governments – bypassing provincial authorities.
The mechanism was a big hit. So the central government has decided to make it permanent – and make it larger.
- The central government has budgeted RMB 2.8 trillion for direct transfers this year, up 65% from last year’s RMB 1.7 trillion.
At Wednesday’s meeting, Premier Li Keqiang reminded his colleagues what the money’s for:
- Offsetting the impact of the removal of some 2020 support policies
- Supporting employment and local businesses
- Funding basic services like healthcare and education
- Paying salaries for local government officials
Yep. You read that last one right.
Some local governments don’t even have enough money to pay salaries.
Get smart: Many local governments are under fiscal stress. The central government needs a more sustainable solution than just sending them money every year.
2. This land is our land
Wednesday’s State Council executive meeting didn’t just address fiscal transfers (see previous entry).
The assembled officials also approved updated implementation regulations for the Land Administration Law.
Some context: The Land Administration Law is a big deal. It dictates how land can be used.
We’ve been waiting for this. The law was updated back in January 2020. Then the pandemic hit. So it took a while to get these regs in place.
The big news: The new regs are aimed squarely at protecting farmland and farmers’ interests.
- Specifically, the new rules will make it harder for local governments to strongarm farmers into giving up their land.
It’s no secret why the new rules are addressing this issue.
- Local governments seizing farmers’ land has long been one of the biggest flashpoints for protests in China.
This could be important: The new rules mandate supervision mechanisms and regular inspections to ensure that local officials follow the rules.
Get smart: This is all part of Xi Jinping’s broader rural development agenda.
- Advancing that agenda requires policymakers to strike a balance between land reform, protecting farmland, and avoiding a backlash from rural residents who aren’t on board with changes.
- It’s not an easy task.
3. Read my lips: no new (digital) taxes
China’s existing tax system is equal to the task of taxing big tech.
That was the message from former Central Bank Governor Zhou Xiaochuan at the Boao Forum on Wednesday.
Some context: In recent months, policymakers have been mulling a digital service tax.
- Last month, Vice Premier Han Zheng told policymakers to take a good look at how best to tax big tech (see March 25 China Markets Dispatch).
During an interview with Caixin on Monday, Zhou said the existing tax system doesn’t need an overhaul (Caixin):
- “[We] should make the best use of the existing tax system.”
- “It’s unnecessary to reinvent the wheel.”
Zhou further explained:
- “In fact, most big tech companies are paying taxes according to the existing rules.”
- “The taxes that should be paid are being paid.”
Get smart: Zhou has always been a supporter of the tech industry.
- He may be questioning the wisdom of hampering China’s digital development through burdensome new taxes.
Get smarter: That said, Zhou is a banker, not an expert in tax policy.
- So it’s unclear how much weight his voice will carry among those responsible for actually formulating tax policy.
The bottom line: The debate around a digital service tax is just getting started.
4. Tesla pressured to surrender data
Yesterday we told you that Tesla has hit a speed bump in China.
- A protest at the Shanghai auto show, by a customer upset over faulty brakes, drew regulators’ attention (see April 21 China Market Dispatch).
The episode has gotten enough attention, in fact, that the market regulator (SAMR) has now told its local offices to look into the issue (Xinhua):
- “SAMR…instructed its Henan and Shanghai branches to safeguard customers’ legal rights and interests according to the law.”
- “Enterprises need to truly fulfill their responsibilities for product quality and safety.”
And that’s not all. The China Customers Association is also chiming in, calling for Tesla to (CCA):
- “Actively cooperate with investigations.”
- “Proactively provide relevant data and materials.”
- “Properly handle customer disputes.”
ICYMI: Local market regulators have said that Tesla has refused to grant backend data access to the concerned customer, who is now seeking SAMR’s help in getting the data.
On Wednesday, Tesla finally caved, issuing a statement on social media that read (Xinhua):
- “We are willing to fully cooperate, and provide the primary data for the half-hour before the accident to a third-party appraisal agency, or government designated technical supervision department, or the individual customer.”
Get smart: Getting Tesla to fork over its data is another win for regulators.
- This comes just one week after regulators got the company to commit to storing all its China-collected data within China.
Get smarter: Tesla better watch out. There are plenty of domestic players in China’s electric vehicle market looking to capitalize on any misstep by the American automaker.
5. NPCSC publishes full legislative agenda
Legislature nerds (you know who you are), rejoice!
On Wednesday, the National People’s Congress Standing Committee (NPCSC) released its legislative plan for 2021.
Some context: The legislative plan serves two purposes (NPC Observer):
- “Listing bills that are scheduled for review or research each year.”
- “Laying down guiding principles for all facets of the NPCSC’s annual legislative work.”
This year’s plan is MASSIVE: There’s a whopping 54 items on the agenda.
- That’s up from 25 items in 2020 – itself a record-breaking year.
Hold up: That’s nine items more than what was listed in the NPCSC Work Plan presented by Li Zhanshu at the Two Sessions.
So what gives?
Actually, the changes are not that big:
- The eight items already approved by the NPCSC this year – including the changes to the Hong Kong electoral system (see March 31 Tip Sheet) – were not counted toward the 45 items listed in the work report.
Using some quick math wizardry, that leave us with just one “new” addition to the agenda:
- The Tariff Law
Get smart: No matter how you count it, this constitutes a step change in China’s legislative activity.
- That’s indicative of the legislature’s growing importance in the Party-state power structure.