Comprehensive review of the Central Economic Work Conference readout
China's eight economic priorities for 2021
Beijing issued the readout of the annual Central Economic Work Conference (Xinhua, CHN) on Friday evening. Below is a review of the readout with the original text, corresponding English translation and notes from your Pekingnologist.
The Chinese-language readout is over 5,000 characters long. Your Pekingnologist, who is by no means an economist, picks those parts that he thinks are most newsworthy and of value to an English-speaking audience.
Still, this is exceedingly lengthy so let’s cut the crap and get right to it:
this year is a very extraordinary year in the history of the People’s Republic of China. In the face of the severe and complex international situation, the difficult and heavy task of domestic reform, development and stability, especially the serious impact of the COVID-19 pandemic, we maintained strategic determination, accurate judgment of the situation, careful planning and deployment, decisive action, and did hard work, handing over an answer that makes the Chinese people satisfied, catches the world's attention and is worthwhile to be recorded in history.
NOTES: “We did exceedingly well. It’s historic.”
We have deepened our understanding of the regularity/laws of economic work under severe challenges: the authority of the Party Central Committee is the fundamental reliance of the entire Party, and the fundamental reliance of people of all ethnicities in times of crisis to rise to the occasion; at major historical junctures, before major tests, the judgment, decision-making power, action power of the Party Central Committee plays the decisive role; “people first” is the fundamental premise of making the right choice ......institutional advantage is the fundamental guarantee of the formation of a majestic force to overcome the difficulties ...... scientific decision-making and creative response is the fundamental method to turn crises into opportunities ...... scientific and technological self-reliance and self-improvement is the fundamental support to promote the development of the overall situation
NOTES: All the achievements come from the leadership of the Center/Core. The Chinese political system/governance model has its institutional advantage (compared to others) - and it worked. Self-reliance on science and technology is emphasized.
There remains many uncertainties in the changes of the pandemic and the external environment, and the foundation of China's economic recovery is not yet solid. Next year, the world economic situation is still complex and severe, the recovery is unstable and unbalanced, and the various types of derivative risks caused by the impact of the pandemic cannot be ignored.
NOTES: How China sees the situation beyond its borders, and in 2021.
Macro policy next year should maintain continuity, stability and sustainability. We will continue to implement a proactive fiscal policy and prudent monetary policy, maintain the necessary support for economic recovery, policy operations will be more accurate and effective and not take sharp turns, and grasp the policy timing and effectiveness……The proactive fiscal policy will improve its quality and effectiveness/efficiency and be more sustainable, to maintain an appropriate intensity of expenditure, and strengthen the financial support of major national strategic tasks, to take the initiative in promoting scientific and technological innovation, accelerating economic restructuring, rebalancing income distribution, to resolve the hidden debt risk of local governments. The party and government agencies will stick to tightening its belt. The prudent monetary policy should be flexible, precise and reasonably moderate, keep the growth rate of money supply and social financing basically matching the nominal economic growth rate, keep the macro leverage ratio basically stable, handle well the relationship between economic recovery and risk prevention, replenish bank capital through multiple channels, improve the rule of law of the bond market, increase financial support for scientific and technological innovation, small and micro enterprises and green development, deepen the market reform of interest rate and exchange rate, and keep the basic stability of the RMB exchange rate at a reasonable equilibrium level.
1) This is arguably the most information-rich paragraph on finance. The following is not investment advice and your Pekingnologist will not be held liable.
2) China has loosened its monetary policies in the aftermath of the COVID pandemic to support the economy, but recently there have been prominent voices calling for some tightening. For example, Lou Jiwei, the former Finance Minister, reportedly said (CHN) in November it’s now time to study tightening in an orderly fashion, while also adding “I just meant to study tightening, not to tighten it right now.”
From March to November, China’s M2 growth has been consistently over 10%, much higher than the economic expansion. Put that into the context of the readout’s keep the growth rate of money supply and social financing basically matching the nominal economic growth rate and this is a clear signal of tightening.
However, the readout also says to not take sharp turns, so tightening will not be abrupt.
Your Pekingnologist also wants to point out that if when coming across some Chinese official document saying not to take sharp turns, the first reaction should be a turn is coming, but just not sharp. So this would actually be a confirmation of tightening.
3) The readout says strengthen the financial support of major national strategic tasks, to take the initiative in promoting scientific and technological innovation, accelerating economic restructuring, rebalancing income distribution so for the items that are recognized by China as priorities, there will be money.
4) The party and government agencies will stick to tightening its belt means no raise - if not cuts - for civil servants, cuts in official business trips, no new office buildings or cars, etc.
5) Replenish bank capital through multiple channels suggests the banks are undercapitalized now and may issue bonds or shares to raise money. Your Pekingnologist doesn’t know finance enough to tell if the government will have the money or appetite to directly inject capital.
6) 完善债券市场法制 improve the rule of law of the bond market is important because lately there have been a number of defaults even by local state-owned enterprises which used to be deemed safe. And bondholders accused those defaulted deliberately transferred assets right before defaults in what the Chinese call 恶意逃废债 maliciously run away from defaulted debts. Beijing is signaling it won’t tolerate the practice and will hold those who would dare to do it accountable.
7) increase financial support for scientific and technological innovation, small and micro enterprises and green development signals continued preferred support for them in bank loans, bond issuance, IPOs, etc.
8) keep the basic stability of the RMB exchange rate at a reasonable equilibrium level. The RMB/yuan has strengthened against the USD since June but will Beijing intervene given further rises will dampen its exports’ competitiveness? The readout just uses the standard statement. It sounds like there will not be dramatic changes since there is nothing new.
The readout lists eight priorities and they start here
The meeting determined that the following key tasks should be carried out next year.
First, strengthen the national strategic science and technology forces. To give full play to the role of the state as the organizer of major scientific and technological innovation, adhere to the strategic needs-oriented, determine the direction and focus of scientific and technological innovation, and focus on solving major problems that limit national development and security. To give full play to the advantages of the new type of whole-of-nation system, enable the important scientific institutions and universities to play a good role in being “the national team”, and promote the optimal allocation of scientific research forces and resource sharing. To urgently develop and implement a ten-year action plan for basic research, focusing on the layout of a number of research centers in basic scientific disciplines……To strengthen international science and technology exchanges and cooperation.
1) Your Pekingnologist went through every readout of the Central Economic Work Conferences since 2012 and never once was science/technology as a standalone issue made the list of economic priorities, let alone top it.
The targeted sciences and technologies are those seen as limiting national development and security, which could include microchips, passenger jets (China’s been building C919 narrow-body jetliner as answer to Airbus A320s), AI and all those high-end stuff.
The backdrop is clearly the U.S. persecution of Huawei (and to a much lesser extent ZTE and TikTok), the blacklisting of numerous Chinese companies on the U.S. Commerce Department’s Entity List, which just added 80 more including China’s leading microchip manufacturer SMIC.
2) To understand 新型举国体制 the new type of whole-of-nation system one first needs understand what 举国体制 whole-of-nation system means. It is often used for describing for two areas, one in sports to win Olympic medals and the other in building 两弹一星 Two Bombs and One Satellite and others. Generally, it means the state set a goal and marshals all the state-run resources into them.
China’s recent achievements since the reform and opening up, including its manufacturing of everything from toys, TVs to mobile phones, and more recently the innovations such as 5G and mobile payment by the likes of Huawei, Alibaba and Tencent are broadly NOT regarded as part of the 举国体制 whole-of-nation system.
There is a view in Chinese society that the whole-of-nation system might be China’s only option back then when it was highly isolated and it may only work well in areas that won’t directly serve a large number of consumers in a competitive market.
The definition of 新型举国体制 the new type of whole-of-nation system is not exactly clear to your Pekingnologist, who believes it generally means a combination of the state and private strengths but still emphasizing the role of the state, for example in agenda setting.
3) 基础科学 Basic science has been consistently recognized in the Chinese discourse as where China lags far behind the West. So two sentences up there.
4) The last sentence To strengthen international science and technology exchanges and cooperation may sound trivial, but it may actually be very practical to scientists here and abroad: Beijing supports international seminars, workshops, conferences, and visits.
Second, to enhance the capabilities in autonomy and self-control of the supply chain and the industrial chain. The security and stability of the industrial chain and supply chain are the basis for building a new development pattern. We must make up for the shortcomings and forge the long plank (of the bucket, as in the Bucket Theory), implement research projects in key, core technology for the weak links of industries, solve a number of bottleneck problems as soon as possible, and work hard in the areas where we have industrial strengths, establish more unique technologies.
1) Again, it’s in fact about technology. The lack of self-reliance in technologies that constitute unavoidable link in the industrial chain or supply chain is a big headache. In the example of Huawei, the U.S. cutoff of microchip supply and Android operating system strikes a blow to its high-end mobile phones, especially the sales in international markets where the Google framework is required by users.
卡脖子 can be literally translated as holding one’s neck/throat - Beijing believes China is being held at its neck on certain technologies and is determined to break out of the difficulty, ASAP.
2) 独门绝技 unique technologies effectively means Beijing wants more special proprietary technologies that can be used as an insurance policy for counter actions in technology.
Third, adhere to the strategic basis of expanding domestic demand……effective institutional arrangements must be made to reasonably guide consumption, savings and investment. The most fundamental thing to expand consumption is to promote employment, improve social security, optimize the income distribution structure, expand the middle-income group……abolish some administrative restrictions on consumption purchases in an orderly fashion……To strengthen unified planning and macro guidance, coordinate the layout of industries and avoid redundancy in emerging industries
1) China is an exporting powerhouse but the role of exports in its economy has been considerably diminishing in recent years. With the coronavirus hurting overseas demand, Beijing has been increasingly turning to the domestic market.
As Peking University professor Michael Pettis emphasized in yesterday’s Pekingnology newsletter, the key for Chinese economy is a rebalancing of income, so that consumption surges.
Beijing recognizes to expand consumption, basically it needs to empower households with more money, but not just handing out cash - promote employment, improve social security, optimize the income distribution structure.
2) Abolish some administrative restrictions on consumption purchases in an orderly fashion is a good signal for, perhaps, automobile manufacturers. Quite some Chinese mega cities restrict car sales or their time on city roads because of traffic jams. Looks like those restrictions will be phased out where and when appropriate.
3) 避免新兴产业重复建设 avoid redundancy in emerging industries is also targeted. For example, in the red-hot campaign to strengthen domestic microchip manufacturing, a lot of chip plants sprung up across China, including one alleged investment of $18.5 Billion in Wuhan running into big trouble. Beijing doesn’t want to see more bubbles such as the one in electric vehicles.
Fourth, comprehensively promote reform and opening up ...... implement a high level of openness to the outside world, promote reform and openness to energize each other ...... optimize the environment for the development of the private companies ...... to relax market access, promote fair competition, protect intellectual property rights, build a unified big market, create a market-oriented, rule of law, international business environment ...... to crack down on all kinds of debt evasion ...... to actively consider joining the Comprehensive and Progressive Trans-Pacific Partnership...... to improve the security review mechanism, pay attention to the use of internationally accepted rules to protect national security.
1) China recently promoted the theory of “dual circulation”, which has been construed as relying less on foreigners. So the emphasis on promoting reform and opening up, while in line with Chinese policies since 1978, is also targeted.
2) Back in the old days such as before joining the WTO, a big argument in favor of embracing the world was getting the foreigners in can 倒逼 force competition on domestic industries and regulatory regimes. With the RCEP signed, the near accomplishment on the China-EU investment treaty and the active consideration of joining CPTPP, it’s interesting to see 推动改革和开放相互促进 promote reform and openness to energize each other back into play.
3) crack down on all kinds of debt evasion resonates with the 完善债券市场法制 improve the rule of law of the bond market above.
4) Security review mechanism brings back the memory of Ministry of Commerce’s intervention in the ultimately failed sale of TikTok to Microsoft. Here is the U.S. Congressional Research Office’s review of China’s New Export Control Law and Related Policies.
Your Pekingnologist is not sure if something more is implied here - for example, the Nvidia-Arm merger has yet to be approved by Beijing and CLSA says Nvidia’s acquisition of Arm could be a ‘nightmare’ for China.
Fifth, to take care of the issues of seeds and arable land ...... strengthen the construction of seed banks. We will respect science and implement strict regulation, and orderly promote the industrial application of biological breeding. To carry out technology research to solve the bottleneck problems in seed supply. To firmly guard the red line of 1.8 billion mu (1.2 million square kilometers) of arable land, resolutely curb the use of arable land for non-agricultural use, prevent arable land from being used for non-food use ...... to improve capacity of the supply of food and important agricultural products......
1) This is more specific than usual, when agriculture was generally talked about more broadly as a whole.
2) Chinese media routinely find (CHN) Chinese farmers are relying too much on imported seeds, despite the absolute number is quite small compared to total imports: just 475 million US dollars in 2018. The issue is usually framed by Chinese media as a sort of a security issue - our own seeds are not competitive and we are relying on foreign seeds to grow corps! And that’s perhaps the necessary backdrop to understand why this is such a national priority.
Beware: the phrase 卡脖子, or holding one’s neck/throat, commonly used to describe microchips, is applied to seeds as well.
3) Do not expect China to loosen the restriction on rural lands so as to make more land available for cities’ non-agricultural use. Beijing takes food supply very seriously.
4) Mixed signals on genetically modified (biological breeding) crops. Respect science is in fact pro-GM, but implement strict regulation is not. China has yet to approve the plantation of GM rice, its staple food, despite vehement and frustrating calls from domestic scientists.
Sixth, to strengthen anti-monopoly and prevent the disorderly expansion of capital…… The state supports companies innovative development of serving as a platform and enhancing their international competitiveness, and supports the common development of public and private companies……It is necessary to perfect the legal rules on the determination of monopoly regarding “platform companies”, on the collection and usage of data, and on consumer rights protection. Regulations should be strengthened, regulatory capacity should be enhanced, and monopolistic and unfair competition should be firmly opposed. Financial innovation must be carried out under the premise of prudent supervision.
1) You are welcome to go back to newsletters on Dec. 11 and Dec. 15, where Pekingnology was among the first and loudest to spot the big change.
2) It’s not all bad news for Chinese Big Tech, since state support is mentioned here, and in particular their international competitiveness is also mentioned, and of course the support of private companies.
3) But there will be specific rules on Chinese Big Tech, and their misconduct should be firmly opposed. So they should tread carefully. And especially Alibaba’s Ant (Financial) Group - the last sentence seems specifically for you!
Seven is to solve the outstanding problem of housing in large cities. Housing issues are related to the well-being of people's livelihood. We will adhere to the position that houses are to live in, not for speculation……Attach great importance to the construction of subsidized rental housing, accelerate the improvement of long-term rental housing policy, and gradually enable renters and purchasers/owners of housing to enjoy equal rights in public service. Standardize the development of long-term rental housing market. Land supply should be tilted toward rental housing construction, there will be a separate plan for land dedicated to rental housing. Explore the use of “collective construction land” and unused land of enterprises and institutions to build rental housing, where both state-owned and private enterprises are asked to play a role. Reduce the tax burden of rental housing, rectify the order of the rental market, regulate market behavior, and implement reasonable control of rents.
1) PKU’s Michael Pettis told Pekingnology yesterday he believes let local governments build very cheap housing and give it away for free to the workers is the best China can do in badly-needed income transfer. Well, it appears Beijing is asking local governments, which control urban land, and SOEs and private companies to subsidize renting - providing land specially for rental could be seen as a sort of subsidy.
2) Don’t expect relaxation of the widespread, strict control on house buying in Chinese cities. The cliche of 房子是用来住的、不是用来炒的 houses are to live in, not for speculation stays in place and unchanged.
3) Expect SOEs and private companies, should they have the money, to build apartment buildings and rent them to employees in big cities, since this is now not only greenlighted but also demanded.
4) Perhaps unknown to and different from many cities in the Western world, China actually doesn’t have rent control. But it’s been mentioned now.
Number eight is to do a good job in working towards carbon peak and carbon neutrality. China's carbon dioxide emissions strive to reach the peak by 2030, and strive to achieve carbon neutrality by 2060. We should urgently develop action plans to reach the peak of carbon emissions by 2030, and support places where they have advantages to take the lead in reaching the peak. To accelerate the adjustment and optimization of industrial structure and energy structure, promote the early peak of coal consumption, vigorously develop new energy. Accelerate the construction of the national energy rights and carbon emissions trading market…We should carry out large-scale national greening action…
NOTES: The language is pretty straightforward.
1) There are concerns and suspicions towards China’s climate goals. So it’s good to see those goals enshrined in one of the eight priorities of the national economic work - ministry and local officials do pay attention to these.
2) Support places where they have advantages to take the lead in reaching the carbon peak is pretty interesting. China traditionally promotes a sort of competition between its regions - your provinces grew 7% in GDP, then my province needs to be 7.5% - as a way of promoting national advance. So will there be a competition between provinces or cities in which first reaches the peak? If so, it will be an interesting incentive to local governments in combating climate change.
3) China is a world leader for afforestation, and will plant even more trees.
The eight priorities end here.
The prevention and control of the pandemic should not be relaxed at all. We shall stick to "prevent import externally, prevent rebound internally"with strict prevention, to ensure that there is no large-scale import or rebound (of coronavirus cases).
NOTES: Tough language on coronavirus as usual. Do not expect relaxation of inbound travels or border controls or against COVID-19 anytime soon.
We should continue to stimulate the vitality of market entities, improve tax and fee reduction policies, strengthen inclusive financial services, and make greater efforts to promote reform and innovation, so that market entities, especially small, medium and micro enterprises and individual business households, can increase their vitality.
At a last note, there is no mention of a numerical target for economic expansion next year, just 要促进经济运行保持在合理区间 to promote economic operation to remain in a reasonable range, a standard statement. But traditionally Central Economic Work Conference readouts didn’t mention numerical targets either, so this is not a surprise.
For your reference, Xinhua has published an English-language round-up, which is not a full translation.
This newsletter is penned by Zichen Wang, founder of Pekingnology.
(Many thanks to DeepL, a terrific translator which significantly cut the workload.)