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16 Apr 13
China policy direction emerges from the 12th National Congress

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Introduction

China’s 12th National Congress has confirmed that policy reform within this superpower shows no signs of slowing.

China specialist and Partner Susan O’Rourke summarises the country’s emerging policy directions, providing a vital insight for investors and companies considering doing business with China.  She draws on information provided by Zhang Ping, Chairman of China National Development and Reform Commission (NDRC), on 6 March 2013 along with various China Daily Reports during 5 – 8 March 2013.

Susan O’Rourke says a further deepening of reform, increased domestic demand, environment protection, urbanisation and regional development are considered the hot topics.

Further reform

The transformation of government functions tops the reform agenda. In short, the direction is to ensure the market’s fundamental role in allocating resources while allowing social organisations to play a greater role in managing social issues.

In what could be considered the first action of such reform, regulatory powers and commercial operation under the existing Ministry of Railway will be split.  Regulatory power will be transferred the Ministry of Transport while commercial operations will be run by a (State owned) company.

Reform of the financial system also appears to be at the frontline. The Qianhai Pilot Zone, a stretch of 15-square-km of reclaimed land in Qianhai Bay in western Shenzhen near Hong Kong and Macao, is considered a testfield for the mainland’s financial opening up, after steps taken by the government to boost the internationalization of the Chinese currency RMB.

New Communist Party of China (CPC) chief Xi Jinping chose Qianhai as the location for his first inspection tour outside Beijing, after being elected general secretary of the CPC Central Committee in November. Xi’s visit has been compared to Deng Xiaoping’s famous South China Tour in 1992 and widely viewed as a gesture of his focus on economic reform.

The Qianhai zone will take on reform measures in the sectors of finance, taxation, legal system, talents, education and medical treatment and telecommunications. Efforts will be made to encourage financial innovation in Qianhai, including preparations for a cross-border loan issuance experiment and the establishment of a trial zone to run cross-border RMB businesses.

Reform direction

Chairman of China National Development and Reform Commission (NDRC), Zhang Ping stated that the key areas for reform, either this year or the next future years, are:

  • further improve China’s fundamental economic system: i.e. unswervingly develop a public economy and at the same time unswervingly encourage the private economy
  • deepen the reform of State-owned enterprises
  • promote the reform of the financial system
  • promote the reform of investment and capital raising systems
  • continue price reform
  • reform of the semi-government sector, and
  • reform of the income distribution system.

Domestic demand and fixed-asset investment

Enhancing domestic demand will remain China’s long-term strategy for economic development.  Policies are being implemented to stimulate domestic consumption and improve the efficiency of government investment in order to expand demand.

High on the agenda is expanding individual consumption by enhancing people’s ability to consume, keeping their consumption expectations stable, boosting their desire to consume, improving the consumption environment and making economic growth more consumption-driven.

The Chinese Government has identified both metropolitan and rural policies stating it will create more jobs in cities and boost salaries in a way that will not damage enterprises’ efficiency, while in rural areas, the government will keep raising the state purchase price of farm produce.

Policies also include more public spending in the areas of education, social security and healthcare in the hope that this will reduce the need to maintain large savings accounts and thus increase people’s willingness to spend.  The government will focus on social infrastructure, such as public housing, hospitals, schools and the renovation of dilapidated houses in rural areas. More government money will go to irrigation facilities, rural roads, power and water supplies in rural areas, as well as utilities in cities.

In underdeveloped west China, the government will continue to build highways, railways and airports.

Environment

The environment will be a key consideration in future development with policy announcements to tackle air-pollution and improve energy efficiency and reduce emissions. In January, the Ministry of Environmental Protection (MOEP) said the total output of environmental protection industries is expected to reach 4.5 trillion yuan.

To tackle the air pollution problem, China is seeking advanced technologies from across the globe to apply to its anti-pollution drive.  ‘Special emissions restrictions’ will be imposed on major industries from steel and petrochemicals to cement, non-ferrous metals and coal-fired power from April 2013.

The Chinese Government’s energy plan includes:

  • actively developing clean energy
  • increasing installed power-generating capacity of hydropower by 21 million kilowatts
  • increasing nuclear power by 3.24 million kilowatts
  • increasing wind power by 18 million kilowatts, and
  • increasing photovoltaic power by 10 million kilowatts.

Urbanisation

China’s urbanisation rate has risen to approximately 52.8 per cent. It is believed that urbanisation offers the largest potential for China to expand domestic demand. This potential, together with other opportunities brought by further reforms, will play an important role in China’s durable and healthy economic development.

The government will be focusing on better planning to improve the quality of urbanisation to address problems such as inadequate services provided to new urban dwellers from rural areas, backward infrastructure and an imbalanced distribution of resources between megacities and small and medium-sized cities. This policy should see the size of megacities reasonably controlled and small and medium-sized cities and small towns rigorously developed.  The government is hoping to issue an ‘Urbanization Layout’ in the first half of this year.

Regional Development

The government has stated that the Regional development strategy is very important to the advancement of modernisation. Largely speaking there are four regional areas with respective development strategies:

  1. Eastern region - has taken the lead in development;
  2. Western region – implementation of large-scale development as a priority;
  3. North-east region – revitalise the region as an old industrial basis; and
  4. Central region – develop Urban Agglomerations and undertake industrial transfers from the Eastern region. Developments currently underway include:
    1. Chang-Zhu-Xiang Urban Agglomerations Development in Hunan province (Agglomeration of three cities - Changsha, Zhuzhou and Xiangtan);
    2. Urban Agglomerations Development in Hubei province, with Wuhan as the centre connecting another nine neighbouring cities;
    3. ‘Industry Pilot Zone’ in the part of Anhui along the Yangtze River to undertake industries ‘transferred out’ of the Eastern region;
    4. Central City Group across three provinces (Hubei, Hunan and Jiangxi) – currently under discussion.

The government aims to narrow the gap between different regions. Large-scale development in west China is the priority.  Guizhou province is probably the one ‘benefiting’ the most from this policy setting. The poverty-stricken south-western province has set an annual GDP growth target of 14 percent over the next five years.

In 2012, the State Council announced the further promotion of sound but rapid economic and social development in Guizhou in a document outlining a series of policies allowing the province to protect its ecology, strengthen industrialization and urbanization, and accelerate economic development.  Statistics from the provincial government forecast that 1 trillion yuan ($160 billion) will be invested to strengthen infrastructure construction this year.


Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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