Coronavirus pushes PRC Government to market opening, high-tech investment, job creation

Much of the discussion at China’s annual Lianghui (or “Two Sessions” as it is known in English) last week went unreported by the Western media. Yet, much of the discussions and decisions taken will prove important to foreign businesses invested in China or trading with China as they related to further market liberalisation, investment in high-tech sectors and local job creation.Therefore, I thought readers might appreciate a broader perspective on what transpired at last week’s Lianghui.

Firstly, for those unfamiliar with the Lianghui, the term refers to the two meetings (hence, the “Two Sessions”) of the National People Congress (China’s parliament comprising both members of the Communist Party of China and a range of minor parties and independent politicians) and the Chinese People’s Political Consultative Conference, the latter of which is an advisory group comprising members drawn from business, China’s minor political parties, “independent” politicians, and religious groups (for example, the Patriotic Catholic Church and major protestant churches are represented on the body).

The Lianghui might be likened to the U.S. President’s State of the Union address or the Australian federal government’s Budget. Like those two events, the Lianghui provides an update on the state of the country’s economy and finances and sets out the nation’s legislative agenda for the year ahead. Unlike those events, the Lianghui runs for six days straight and features a range of ministers addressing the Lianghui on issues in their respective portfolios and their plans to address those issues in the year ahead or in the next Five Year Plan.

The Lianghui is usually held in March but this year was postponed to the final week of May due to the coronavirus pandemic. And, because of the disease, it for the first time applied social distancing measures and featured delegates wearing protective masks.

Some of the key discussions and decisions made include:

- Hong Kong Security Law - Decision to draft a national security law that will apply to Hong Kong. The law follows months of Beijing’s inability to address the long-running unrest in Hong Kong. The law will address terrorism, subversion, and “foreign interference” in Hong Kong’s affairs. Importantly Beijing probably expected the response by the US and many other Western countries. Apart from the US’s threat to introduce sanctions against China if it introduces the law, Beijing probably thought other countries would stop short of punitive measures – which, so far, they have. The decision reignited unrest in Hong Kong, which continues at the time of writing – which is also importantly the 31st anniversary of the 1989 Tiananmen Massacre.

- Economic growth – for the first time in its history, the Lianghui has not been presented with an economic growth target. This is due to the impact of the coronavirus on the Chinese economy in the first quarter of this year and the ongoing impact it is having on the global economy. Instead Premier Li Keqiang said the Government would focus on job creation and limiting unemployment. Premier Li also said the Government would continue its efforts to achieve its poverty alleviation targets for this year.

- Economic stimulus – A number of measures were proposed to bolster and stimulate the economy. These included ¥1 trillion (AUD$207 billion) of Central Government bonds to mitigate the impact of the coronavirus, increased funding for infrastructure, particularly for new and high-tech infrastructure such as the rollout of the 5G network across China, increased use of Artificial Intelligence and big data.

- Domestic consumption – domestic consumption would be supported by customer focused innovation, including e-commerce, and smart supermarkets and stores.

- Foreign investment – Commerce Minister Zhong Shan emphasised the need for further opening of the Chinese economy to foreign investment, and the need to protect the rights of foreign businesses including of intellectual property rights. Measures to attract more foreign investment would include a shortening of China’s “negative investment list”, a list of industries prohibited to foreign investment. There will be considerable interest in which industries will be removed from the list and therefore available for foreign investment.

- International trade – China’s commitment to globalisation was reiterated during the meetings with emphasis placed on the Belt and Road Initiative (BRI). It was noted that some 8,000 tons of goods were exported to Europe via freight trains between January and April of this year despite the drop in trade following the coronavirus pandemic. Trade with ASEAN countries has remained strong following the coronavirus pandemic and Beijing announced plans to further improve ties, particularly in emerging technologies such as smart cities, AI, and e-commerce. Importantly, tariff reductions and exemptions on key high-tech products in the interests of local consumers was slated for further consideration by the government.

- Health and welfare – There was a new focus on disease prevention and control in the wake of the coronavirus pandemic with a proposed new Biosecurity Law, increased powers for China’s Disease Control and Prevention Centre and a direct reporting line to the State Council (the executive arm of China’s Government), increasing stockpiles of protective medical supplies, strengthening laws to protect citizens in the event of an epidemic, and improvements to medical research and monitoring. China also emphasised its Health Silk Road Initiative to improve cooperation on public health issues between member states.

- Consumer rights – steps are to be taken to improve consumer rights through greater transparency by government publishing of consumer complaints.

- Food security –the government committed to ensuring food security and mitigating the risks of food shortages.

- Data security – given increasing importance of data there was considerable discussion about consumer rights and data security, and the need for China to increase spending on data security protection.

- Defence budget – the lowest increase in defence spending in more than 30 years was announced as resources are diverted to the Covid19 response.

- Environment – the Government said there would be a strong focus on groundwater protection and other key environmental priorities in the 14th Five Year Plan (2021-25). It also said it would do more to bolster the new energy vehicles (NEV) industry, including by extending tax exemptions and subsidies until 2022. The government said it would also encourage uptake of NEVs by government bodies, including for police vehicles. The need to continue to adhere to strict pollution controls was emphasised.

If you would like further information on any of the above matters and what they might mean for your business in China please email me at alistair@alistairnicholas.com.

Image on this page is provided courtesy of photographer Marco Verch under Creative Commons 2.0 licence via Flickr.com.