It is that time of year again, when the Chinese government swings open its doors, openly debates publics opinion, and invites the media in for unscripted no limits Q&A. Ok maybe not. If you want to get your head round the main points at this year’s China’s annual parliamentary session, then you could read last year’s summary writeup — not much has changed. Or this handy bullet point summary by Reuters. Instead of copying and pasting last year’s writeup, below are explanations of the key slogans the CCP likes to use when it likes to explain simple economic policies in complex ways.
1. The 13th Five Year Plan
Of course, the government’s latest economic plan, updated every five years, a relic of China’s command economy days. The 13th Five Year Plan is endorsed at the NPC meeting. The main concepts are “Innovative, Coordinated, Green, Open and Shared by All”, as seen in the policies below.
2. Stable growth
A popular phrase that emerged in 2015, a way for the CPC to justify to Chinese citizens increasing debt in a slowing economy. What this means is setting a (real or fake) GDP growth target this year of 6.5%-7%. The most widely reported and probably least consequential of the targets. But it will mean more fiscal expansion, widening the fiscal deficit to 3% of GDP, in order to hit the economic growth target. Another government strategy is to implement tax reform to reduce tax burdens (see last year’s Likonomics translation). “It is estimated the new total tax breaks will equate to more than 1% of GDP in 2016”. With respect monetary policy, according to UBS Chief China Economist Wang Tao, this implies more targeted easing, “not quantitative easing, and two more interest rate cuts by 25bps each time”, matched by rapid new loan issuance, more corporate bond and local bond issuance. Wang Tao estimates “overall credit, comprising social financing and local government debt, will increase by 14% this year, which means in 2016, new Renminbi loans could reach Rmb13tn, whilst new new social financing could reach around Rmb15tn”. Thus more leverage in China’s economy, so China credit will be an area to watch closely (again) this year.
3. Supply side reform
So hot right now. Readers of this site will be familiar with the term from the Likonomics translation a year ago. “Feeling the impact of the worldwide economic depression, China’s economy is facing great challenges and new unforeseen circumstances” is how the causes of China’s chronic oversupply problems are spun to Chinese readers. So not due to economic mismanagement inherent in China’s socialist market economy then. Experts believe solving this issue involves “loosening regulations, and unleashing entrepreneurial and innovation, to enable further economic development”. The director of the State Council Development Research Center explains this year the goals of supply side reform are to “cut overcapacity, reduce inventory, deleverage, and lower costs”. Another main goal is to deal with ‘zombie companies’, the local and central SOEs mainly in industry, operating at a loss. Of all the policies being implemented, this is the most pressing item on the agenda. The issues of SOE reform, unemployment, economic rebalancing, and local government debts are all tied up in this, the negative effects of which could drag on the economy for the next few years.
4. ‘One belt one road’
Third year in a row for this buzzword, one of Xi Jinping’s pet policies, combining the old Silk Road with the 21st century maritime trade routes. This is a boost for the poorer Western provinces in China, well their rich SOEs at least, and co-opts surrounding country economies economically and politically into China’s sphere of influence. The Chinese article mentions “the opportunity for China to cooperate with 60 other nations”, and mentions Xi Jinping twice, but fails to explain the policy’s economic impact. An economist working in the China International Economic Relations Center is quoted as saying “maybe the policy will be an important step and key element in developing China’s free trade zones”. So two years on Chinese experts are not sure either. Did we mention this is Xi Jinping’s pet policy?
5. People centric urbanisation
As opposed to the previous local governments’ profit at all costs urbanisation perhaps. “The 13th Five Year Plan aims to accelerate the conversion rate of rural hukou into urban hukou by 2020, placing citizens at the heart of a new style of urbanisation, the most important topic in this year’s parliamentary session, and many local government reports. The urbanisation will focus on renovating shantytown areas, underground piping, rural water and electricity networks, as well as the development of e-commerce.” These are important basic infrastructure investments that will benefit citizens livelihoods, but have been neglected in the past, as they generate little economic return for local governments. A key determinant of this next phase in China’s urbanisation is hukou policy reform. “Although 56.1% of China’s population live in urban areas, only 37% hold urban hukou. Increasing this ratio to 45% is now an official target in the government’s ‘National New Urbanisation Plan’.”
And for those interested, the remaining hot topics in 2016
6. Ecological development
7. City development
8. Made in China 2025 and Internet Plus
9. Property market destocking
10. Fight to eradicate poverty
11. Judicial system reform
12. Financial system reform to support the real economy
13. New era for the Chinese armed forces
Here are the buzzwords from previous years meetings:
2015 – New normal, Internet plus, SOE reform, rule by law, One belt one road, entrepreneurship
2014 – Regional development (Beijing, Tianjin, Hebei linkup, free trade zones, one belt one road), SOE reform
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