SwedCham China Insights for the Week of 15 July – 19 July , 2024

SwedCham China Insights for 15 July – 19 July

Content Provided by Kreab

Top news of the week:

20th CPC Central Committee starts third plenary session

15 July 2024

The 20th Central Committee of the Communist Party of China (CPC) started its third plenary session in Beijing on Monday morning. The CPC gathering is expected to outline the general course of economic policy at a time the country is facing major challenges. The event could be the most important “defining moment” of President Xi Jinping’s rule since a similar gathering in 2013 that set out his vision for reforming the country.

IMF raises China's 2024 economic growth forecast to 5 pct

16 July 2024

The International Monetary Fund (IMF) released on Tuesday an update to its World Economic Outlook, predicting that China's economic growth rate will be 5 percent in 2024, an upward revision of 0.4 percentage points from the forecast in April.

China gives foreign companies equal support in equipment renewal, consumer goods trade-ins

17 July 2024

China provides equal support to domestic and foreign enterprises in participating in the large-scale renewal of equipment and the trade-ins of consumer goods, Vice Commerce Minister Ling Ji said on Wednesday. The country has made the strategic decision to promote a new round of large-scale equipment renewal and consumer goods trade-in, said Ling, and China hopes that foreign enterprises will seize the opportunities, delve deeper into the Chinese market and boost their investment in the country.

China's inflation may see mild recovery in H2 as demand improves

18 July 2024

China's inflation level, which held steady in the first half of this year, is expected to see a mild recovery in the coming months as demand continues to pick up, officials and economists have said. Supported by price rebounds in pork and services, the consumer price index (CPI) is likely to rise slightly in the second half, while the producer price index (PPI) might be back to growth in the fourth quarter.

China to raise gasoline, diesel retail prices

19 July 2024

China's top economic planner announced on Thursday that retail prices of gasoline and diesel will increase from Friday in response to recent changes in international oil prices.

Insight of the week:

China’s ruling Communist Party concluded its biennial policy meeting on Thursday with a communiqué, a press conference, and a conventional “Decision of the Plenum”. Held from July 15-18 as China verges on deflation and faces a prolonged property crisis, surging debt and weak consumer and business sentiment, the meeting delicately balanced growth and security amidst increasing uncertainties, focusing on state security, as well as deepening reform whilst emphasising the role of the government in the market economy. The resolution stressed that China will focus on boosting its economic, technological and defence capabilities.

Sober in its tone, the communiqué outlined a broad array of reform objectives to be achieved over the next five years, coinciding with the People’s Republic’s 80th anniversary. Notably, the party rarely imposes explicit deadlines on its reform agendas. As anticipated, the communiqué was brief and somewhat vague, whilst the Decision proves more a comprehensive. The documents provided valuable insights into the top leadership’s strategic thinking and policy orientations for the forthcoming years.

The word “reform” appeared 147 times, and “opening up” 35 times in the Decision. The mentioning of the top leadership was unprecedentedly minimal, especially comparing to the Party’s 20^th Congress. Statistically marking the significance and the urgency of deepening reform of the CPC Central Committee. Unlike the Western use of the word, which rather implies liberalisation, in today’s China, it means improving governance and increasing efficiency. The overarching aim of deepening reforms is to enhance and develop the system of socialism with Chinese characteristics and modernise China’s governance system and capabilities, the Decision revealed.  “By 2035, we aim to have established a high-standard socialist market economy, improved the system of socialism with Chinese characteristics, modernised our governance system and capacities, and basically achieved socialist modernisation,” it declared. This vision, it asserted, will lay a robust foundation for transforming China into a great modern socialist nation by mid-century. The communiqué’s overall message reiterated themes from previous meetings and speeches, emphasising that successful policy implementation remains crucial.

The impetus for technological advancement and the private sector – critical for job creation and innovation – arises as China’s post-Covid economic recovery exhibits inconsistencies. Economic growth decelerated in the second quarter, while public sentiment remains subdued due to an ongoing property market downturn, tepid financial markets, and escalating unemployment.

In the manufacturing sector, China faces challenges from a global shift in supply chains away from its market and intensified high-tech restrictions spearheaded by the United States. Additionally, trade tensions with the European Union have escalated, leaving exports of electric vehicles and certain new energy products in a state of uncertainty. These challenges have compelled Beijing to bolster the resilience and security of its supply chains. This includes a strategic initiative to establish a “strategic hinterland” to support key industries and enhance the national reserve system for essential resources.

Western business representatives in China have expressed discontent with Beijing’s medium-to-long-term economic vision, criticising the document summarising the Third Plenum for lacking specific measures to enhance the business environment, despite frequent assurances of support. Foreign enterprises in China are expected to adopt a wait-and-see approach before expanding their investments in the world’s second-largest economy, pending clearer indications of forthcoming reforms.

Interestingly, the notion of sustainability remains as a top priority in the Third Plenum while the CPC Central Committee agree to accomplish the goal of “Beautiful China,” while the other important goal of “Health China 2030” went missing in this Plenum – the goals and potential policy directions in health sector were rather blended into other sectors, for example “aging” for health services and “new quality productive forces” for biopharmaceutical innovations.

Some of the key factors that cause the market’s interests in the Decision include:
 

• Role of the Market and Government: China aims to create a fairer and more dynamic market by removing market restrictions while ensuring effective regulation to maintain order and address market failures.
• Legislation supporting private sector: China will legislate a specific “Private Economy Promotion Law” to support the development of the private sector.
• Financial Regulation: China plans to develop a financial law to enhance its financial regulatory system. Consistent with previous policies, the focus remains on "defusing risks" and ensuring all financial activities are regulated by law.
• Capital Market Reform and Opening Up: China will encourage long-term capital entry into the market, increase connectivity between domestic and international financial markets in a steady and prudent manner, and support qualified foreign financial institutions in participating in trial programs. In the meantime, China will develop a “Financial Law” to monitor all financial activities.
• Aging and population: China will develop a full-scale population development supporting and service system, to tackle with aging and low fertility rate. Also for the first time China confirmed to gradually extend age of retirement in the coming years.
• Fiscal and Tax System: The document indicates that while local governments will receive greater tax management authority, the central government will retain more fiscal power, and the proportion of central government expenditure will rise.
• Housing and Real Estate: Cities may reduce or eliminate housing purchase restrictions. The financing methods in the real estate sector, which have led to significant debt issues, will be reformed, and the housing taxation system will be improved.
• Technology and “New Quality Productive Forces”: There will be a stronger emphasis on innovation in key technologies such as next-generation information technology, artificial intelligence, aviation and aerospace, new energy, new materials, high-end equipment, biomedicine, and quantum technology. Investments from angel investors, venture capital, and private equity will be encouraged to support these developments.
• AI Security: China will establish a more well-rounded AI monitoring and management system, while coming up with a generative artificial intelligence development mechanism at the national level.
• Foreign Sanctions and Foreign Affairs: China will enhance mechanisms to counter foreign sanctions, interference, and long-arm jurisdiction to protect national interests and security.