Tag Archives: National People’s Congress

Beijing Takes Hong Kong Law Into Its Own Hands

Hong Kong skyline, September 2014

THE NIGHTMARE OUTCOME for Hong Kong of Beijing’s resumption of sovereignty in 1997 was that it would become just another large city in southern China.

That fate looked a huge step closer with the National People’s Congress reviewing a new security law for Hong Kong on May 22 that it is expected to approve by its conclusion on May 28.

The security law, which is required under the Article 23 of the Basic Law that sets outs the governance of Hong Kong’s ‘one country, two systems’ arrangements, would ban ‘treason, secession, sedition and subversion’ as well as foreign political organisations from conducting political activities in Hong Kong and Hong Kong political organisations from establishing ties in the opposite direction. It will also allow state security agencies to operate overtly in Hong Kong (they now operate covertly).

Moving the law forward now is a clear signal that Beijing has run out of patience with Hong Kong lawmakers’ inability to pass such legislation themselves. Not that its impatience was not already obvious. Thus Beijing is taking the law into its own hands, taking advantage of the NPC Standing Committee’s right to write law directly into the Basic Law that the Hong Kong administration then has to promulgate and implement.

Beijing is making no bones about its intent to have legislation in place so authorities can take ‘forceful measures’ to squash the mass pro-democracy protests that roiled the city last year and which were only brought to a halt by the Covid-19 pandemic.

Like all Chinese law, Hong Kong’s new national security law will have a broad, generalist framework. What will matter is how it is administered, and especially in a city like Hong Kong’s whose courts and legal system are distinct from the mainland. We have seen in other troublesome parts of China that what is locally held to be the expression of autonomous rights in the face of Party dictates can be readily labelled in Beijing as any or all of treason, secession, sedition and subversion, or even terrorism, also included in the draft security law.

Hong Kongers will be back on the streets, but Beijing’s discarding of the velvet glove, which has been in increasing evidence, may give any mass protests a different cast. The law’s provisions are even more severe than many Hong Kong activists had expected. More intimidatory tactics and the use of force against activists (and mainland dissidents based in the city) look certain.

Although Hong Kong does not have the death penalty, crimes endangering national security are capital offences in China.

The new law will also throw a dark shadow over September’s Legislative Council (Legco) elections in Hong Kong, which could deliver Beijing another bloody nose at the polls.

International reaction will be condemnatory, but whether this is followed up by action is debatable. The timing is provocative, given the deterioration of relations with the United States. The Trump administration has until the end of this month to certify Hong Kong’s autonomy from China under the Human Rights and Democracy Act that the US Congress passed last year. If it fails to do so, the city’s preferential US trading and investment status will be at risk.

US Secretary of State Mike Pompeo, whose public support for Taiwan and sharp criticism of China over the pandemic and the recent arrests of Hong Kong pro-democracy activists infuriates Beijing, is signalling that that certification is far from certain. However, the mood in Beijing appears to be to drive ahead regardless, and to ride this moment of opportunity for an ascendant China. That is the bigger prize.

However, the two systems in ‘one country, two systems’ will then mean two systems run by Beijing, not one by Beijing and the other by Hong Kong. Because that is how it works in Chinese cities.

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China’s New Foreign Investment Law Ready-Made For A Trade Deal

THE NEW INWARD foreign direct investment law, rushed forward and freshly rubber-stamped by the National People’s Congress, ticks all the boxes that Washington would want to see ticked.

But then it has been framed to do just that.

It overtly levels the playing field between foreign and Chinese companies in that it forbids forced technology transfer as a condition of foreign investment approval and makes it a criminal offence for officials to share foreign investors’ commercially sensitive information with Chinese firms (furnishing that information remains mandatory for local subsidiaries of international firms, however). Intellectual property protection is high on the list of US negotiators’ demands in the current round of US-China trade talks.

It also holds out an olive branch on another of their demands, greater market access, by adopting a ‘negative list’ system. Any sector not explicitly restricted will be open to foreign investors. However, there will still be 48 sectors that will remain off-limits, such as gene research, religious education and news media, or only conditionally accessible, such as oil and gas exploitation, nuclear power and airlines.

Regardless, both aspects can be packaged up to mutual advantage, a ‘win’ for the US side and a ‘concession’ by the Chinese one, though in truth they are neither.

When the new law comes into force on January 1, 2020, as with all Chinese legislation, it will provide a framework that will be open to interpretation and subject to enabling rules and regulations and the rigidity and frequency with which it is implemented.

Enforcement and redress via the courts is another matter. The judiciary is subordinate to the Party. Courts, particularly the new specialist business courts have due process, but also know their place. Every foreign firm investing and operating in China needs to appreciate that, and the difference between rule of law and rule by law. China has the latter.

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Steady GDP Growth Target Reflects Measured Derisking

Chinese Premier Li Keqiang delivers his work report at the first session of the 13th National People's Congress in the Great Hall of the People in Beijing, March 5, 2018. Photo credit: Xinhua.

THE OFFICIAL GDP growth target for 2018 is ‘around 6.5%’, the same as last year, when the outcome was a forecast 6.9%, Prime Minister Li Keqiang (above) told the National Peoples Congress in his annual work report. However, the aspirational text from last year on the upside of the target has been dropped for this.

More significantly, the deficit target has been cut for the first time since 2012, to 2.6% of GDP from 3.0%, and monetary policy is to remain neutral, suggesting a tightening of the fiscal screw as authorities’ preferred way to de-risk the financial system.

If the 6.5% growth target is hit, China will be comfortably on course to achieve the goal set in 2010 of doubling per capita GDP by 2020 and thus making it a ‘moderately well-off society’. Growth needs to average only 6.3% between 2018 and 2020 for the target to be achieved.

Less certain is the extent to which quality of growth will replace quantity, as advertised at October’s quinquennial Party Congress. Li repeated the intention to reduce debt-fuelled investment, pollution, poverty and industrial overcapacity, in line with the Party line, but a 6.5% growth target would imply more economic stimulus or less fiscal drag than might otherwise be expected under the managed long-term slowdown and rebalancing of the economy.

That continues incrementally. He Lifeng, head of the National Development and Reform Commission, said on the sidelines of the NPC that consumption is likely to contribute around 60% to economic growth in 2018, up from 58.8% last year and barely 56% five years ago.

He also identified plate glass, cement and electrolytic aluminium as among the next round of target industries for capacity cuts.

The new GDP growth target also implies that the pace of structural financial reform will remain cautious, as it has been for some time. Deleveraging via cracking down on corporations, as happened to Anbang and more recently CEFC China Energy, will continue to be a way of removing excess financial risk from the system while serving the twin goal of aligning private sector foreign direct investment with the national interest.

Similarly, on the debt issue, Finance Minister Xiao Jie indicates that administrative action will be taken against irregularities in local government financing. Local governments account for 55% of the combined debt of central and local governments of  29.95 trillion yuan ($4.75 trillion) at the end of last year.

While some progress has been made on both reducing local government debt levels and structural reforms to local government financing, local governments remain overly dependent on land sales, with the concomitant risk of abuse.

However, a trade war, depending on its severity and duration, might make all that moot.

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Growth, Reform, Stability: Two Out Of Three At Best

Prime Minister Li Keqiang delivers his work report to the National People's Congress in Beijing, March 2016

THE NATIONAL PEOPLE’S Congress, China’s parliament, has approved the 13th Five-Year Plan. No surprise to anyone and done with less discussion or even token dissent than is customary.

But China has a blueprint for its economic development for 2016 to 2020. It is much the same blueprint as the top leadership had approved when it wrapped up the fifth plenum of the 18th party congress last October.

Sustaining growth while rebalancing the economy will be top priorities, regardless of the uncertainties of the country’s economic situation and resistance, particularly within state-owned enterprises, to reforms — resistance that Xi’s anti-corruption campaign is steadily rooting out.

Improving social welfare, creating jobs, raising people’s incomes and improving food safety are the chosen mechanisms for doing that. The plan calls for:

  • the annual growth rate to stay above 6.5% over the next five years;
  • 2010 GDP and 2010 per capita income for urban and rural residents to double by 2020;
  • a further 100 million people to move to cities from rural areas by 2020. The proportion holding urban residency hukou to reach 45%;
  • innovation to play a key role, with the tech sector contributing 60% of new growth within five years. R&D investment is to be equivalent to 2.5% of GDP (up from 2.1% in 2015);
  • water and energy consumption per unit of GDP to be cut by 23% and 15% and carbon dioxide emissions to fall 18% on the same metric as China’s strives to meet its international commitments to reducing emissions and increasing clean energy usage;
  • growth to change from being investment- and export-led to driven by domestic consumption and services; yet
  • 30,000 kilometres of high-speed rail tracks to be laid by 2020, against 19,000 kilometres this year, including a second line to Tibet linking Lhasa to Chengdu.

The plan also mentions a potential 180 kilometres undersea rail tunnel connecting Fuzhou to Taipei, building a Chinese space station, launching a homemade aircraft carrier and establishing hard caps for coal use by 2020.

Those may be categorised as aspirational goals ahead of 2021’s 100th anniversary of the party’s founding, but the practical and arduous challenge before then is moving manufacturing up the value chain from commodities processing and cheap exports and to increase services share of the economy.

Like Japan and South Korea before it — and the industrialised nations of the West before them — China will confront the simple truth that rebalancing productive capacities will come at the cost of structural changes that have political ramifications.

For the party, whose monopoly on power depends on sustaining rising standards of living for all, it is critical that that transformation is handled in a way that is not socially destabilizing. Unlike in a relatively unskilled economy, as a nation moves up the value chain, job-losers quicky find that whatever skills they have are not necessarily readily transferable to the available employment.

And only so much of China’s excess industrial capacity — and its accompanying labour — can be exported via its basic-infrastructure-heavy ‘One Belt One Road’ initiative, which in any case will take decades to implement.

At the end of the NPC session, Prime Minister Li Keqiang, seen above delivering his work report, promised the plan’s 6.5% growth target would be met, and said that taxes and red tape would be cut to ensure it was. But it is the structural reforms that are truly needed to make good on that figure.

The Catch-22 is that economic stabilization is a pre-requisite for the reforms, especially within the state-owned sector, but disaffected workers on the streets and volatile financial markets will be dealt with by carrot-and-stick measures that will delay reform, not bring it forward.

In the meantime, for this year, the fiscal deficit will be increased to 3% of GDP from last year’s 2.4% to juice growth and buy social stability.

Sustaining growth, instituting structural reforms and maintaining social stability are conflicting goals. One will have to give. Tackling overcapacity and deleveraging corporate debt and the shadow banking system will necessarily fall down the priority list.

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An Architect For A Rich China

RATHER LIKE FINANCIALLY threadbare English nobility marrying American new money in the 19th century China’s Communist Party is embracing the country’s new self-made wealth. Five of the country’s ten richest people will attend the National People’s Congress — China’s parliament — which convenes for its annual showpiece plenary on Thursday. Thirty-six of the country’s 100 richest people will be involved in either the NPC or the meeting of the top political advisory committee that precedes it.

The incongruity is not as pronounced as it might first seem. The trend of the Party co-opting new wealth — and the nascent political interest it represents — is not new, even if it has not been given the same degree of public attention before. Nor are the newly rich necessarily popularly reviled. Many citizens see them as aspiration-worthy models of self-made success, and stark contrasts to the beneficiaries of the corruption and cronyism that has long flourished in the creases where state-owned businesses, government officials and Party elites converge.

Many of these new multibillionaires have made their fortunes in areas such as the internet, e-commerce and telecoms where there were not state vested interests in the first place. As well as having them on the inside of the tent rather than outside it, the new leadership may well find them useful role models in support of President Xi Jinping’s ‘four comprehensives,’ a collection of objectives being bundled up as an ideological foundation for Xi’s vision of the ‘Chinese dream’ — and his contribution to the Party’s theoretical canon.

The quartet of building a moderately prosperous society, deepening (economic) reform, rule by law, and strict party discipline provide plenty of echoes — as does the presence of glorious wealth at the NPC — of Deng Xiaoping’s economic liberalisation of China. That is no accident. Xi continues to establish himself as the country’s paramount leader and take on the Deng-like mantle of being the architect of the country’s future prosperity.

Deng helped a handful of Chinese get rich first, and they they helped a second, if still privileged wave to do so on the back of three decades of helter-skelter growth founded on infrastructure investment and cheap export manufacturing. Xi has to scale that to the mass of Chinese citizens in a more equitable way if the Party is to maintain the legitimacy of its political monopoly. That in turn means making economic growth sustainable by rebalancing the economy on the fulcrum of domestic demand while avoiding the pitfalls of its debt legacy from the old model.

More of his blueprint, in the form of the new five-year plan, will be revealed in more detail over the coming weeks, starting with Prime Minister Li Keqiang’s ‘work report’ to the NPC, which will likely enshrine a new GDP growth target of ‘around 7%’, to replace the existing ’around 7.5%’.

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China’s Income-Tax Cut Postponed

Proposed income tax cuts that would have taken 50 million people out of having to pay tax have been put on hold. State media’s report of the closing session of the National People’s Congress said the proposal wouldn’t be put to a vote until after more public opinion had been sought and further discussion undertaken. That won’t take place until later this year.

It is highly unusual for the legislature to do anything but rubber stamp legislation put in front of it. The finance ministry had approved, and the State Council signed off on the proposed tax cut, which would have raised the threshold at which income tax kicks in to 3,000 yuan a month from 2,000 yuan a month as part of the broad range of measures to offset the impact of inflation on low- and middle-income Chinese.

Question now is whether this presages a broader range of tax changes to tackle inflation–raising the threshold to 5,000 yuan a month is being talked about along with lessening the number of tax bands at which higher rates start and raising their thresholds, too–and whether some of the additional cost will be clawed back by higher taxes on higher earners. We are also intrigued by where the undermining of the initial proposal lies.

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Wen Rips Into Washington

No sign of any rapprochement in relations with the U.S. at Prime Minister Wen Jiabao’s customary post National People’s Congress press conference. He ripped into Washington over Taiwan, the Dalai Lama, the yuan, the Copenhagen climate conference, you name it. “These have seriously disrupted Sino-U.S. relations,” he said. “The responsibility did not lie with China,” adding that “we oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies.”

Wen also made a rare public admission that a downturn in the economy and social unrest could be a threat to the Party’s rule. A combination of inflation, a widening income gap and corruption could be “strong enough to affect our social stability and even the stability of state power,” he said.

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Wen Provides Lots Of Familiar Numbers, But No New Stimulus One

A two-hour speech, as dry as tradition demands, but not a mention of the expected additional stimulus spending.

In his annual report to the National People’s Congress, Prime Minister Wen Jiabao ran through familiar economic themes and numbers:

it would be the most difficult year China has faced;

8% GDP growth was the target, raising domestic demand a goal, 9 million new jobs the aim;

the 22% increase in central government spending will go on infrastructure; local governments will largely finance a 23% rise in spending on education and of 38% in health care;

the budget deficit would be a  record 950 billion yuan, or 3% of GDP;

corruption would be rooted out and social unrest triggered by unemployment (9 million urban jobs would be lost) would be closely monitored:  “We will improve the early warning system for social stability to actively prevent and properly handle all types of mass incidents,” Wen said.

Perhaps the most telling line was that “As long as we adopt the right policies and appropriate measures and implement them effectively, we will be able to achieve [the 8% growth] target,” suggesting that the government feels its 4 trillion yuan November stimulus package is working, and that it doesn’t need to top it up, at least not at this point.

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Red Tape Reorg

The much-touted government streamlining was announced at the National People’s Congress, the first since, er, the last Congress in 2003 and the fifth in two decades.

The number of ministries will be reduced by a whopping one to 27 through combination and incorporation of agencies, with five super-ministries being created for the environment, transport, housing and construction, human resources and social security, and industry and information, which will regulate the telecoms and Internet industries, absorbing the powerful telecoms authority. The health ministry recovers food and drug safety regulation. Xinhua has details.

The bigger winner is State Environmental Protection Administration, which gets elevated to full ministry status responsible for setting emission standards and curbing pollution. It will include a new national energy commission to manage state energy consumption. There will be no new energy ministry, super or otherwise.

The medium-sized winner is the railways ministry, which has managed to stay outside the new transport super-ministry. That will oversee only water, road and air transport, plus the postal service.

The bigger loser is the National Development and Reform Commission, the top planning agency, which will lose some of its power to micromanage the economy though contract approval and licensing. Instead it will concentrate on macroeconomic policy, including energy security, which is outside the new environmental super-ministry’s remit.

Beijing also plans to strengthen coordination between the commission, the central bank and the finance ministry to make economic policy more effective. It isn’t yet clear if there will be a new coordinating body for the three agencies, as has been rumored.

How much red tape will really be cut and whether there will be fewer turf wars, especially if and when the reorganization reaches down to central, provincial and local officials remains to be seen. The carve-up of key areas like energy and transport, where an entrenched old guard has managed to defend its own, doesn’t bode well.

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Wen Springs No Surprises

Thin pickin’s in Prime Minister Wen Jiabao’s “state of the nation” address to the National People’s Congress.

Controlling inflation remains the no 1 economic issue, China is committed to continuing reforms and opening of its economy; tackling income inequality is the no 1 social priority, China is committed to continuing to crackdown on corruption, pollution and misgovernment. The Olympics are important.

The only policy takeaways: More tightening of monetary policy and a cut back in investment spending to control inflation is on the cards. But that’s hardly unexpected either.

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