China Daily | Observers Eye Policy Priorities at Two Sessions

By Andrew Moody | China Daily

Dr. Edward Tse was quoted in China Daily’s report on China’s upcoming Two Sessions. Dr. Tse commented on China’s dual economic structure and its innovations. Both are major underpins to China’s resilience in its economic development.

Edward Tse, founder and CEO of Gao Feng Advisory, a management consultancy, said Xi was right to do so.

“The real strength of the Chinese economy is that you have State-owned enterprises and private companies sitting side by side and having different roles to play,” he said.

“Although sometimes there are glitches, they actually complement each other. They give China’s economy this extraordinary resilience that is just not seen in other parts of the world. It is a real strength of China.”

However, Kuijs, at Oxford Economics, thinks it will be important for the government to do something to boost the private business sector, which he believes has been experiencing a loss of confidence.

“It would be good to see concrete, strong language on how policymakers are trying to improve the business environment,” he said.

“Reform of SOEs is not about privatizing them, but reducing some of their privileges so that there is more of a level playing field between the State-owned and private sectors. This has been problematic because a number of ministries and other entities that are supposed to regulate markets have been lobbyists and champions of SOEs in the past.”

The Government Work Report is also likely to focus on technological ambitions, particularly in areas such as advanced manufacturing, robotics and artificial intelligence.

The government’s aim is for the country to be a global technological leader by 2035 – as set out in Xi’s report to the Communist Party of China 19th National Congress in October 2017 – and a major collaborative effort is being made nationwide to meet this goal.

Tse, author of China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies are Changing the Rules of Business, said: “I am sure the work report will place great emphasis on the importance of innovation. It is an important part of the upgrading of the whole economy.

“For China to become an innovation nation requires major investment in research and development, some of it in fundamental research and some in more applied forms. The government wants local administrations, in particular, to seek out opportunities to work with private companies.”

Many observers will be looking to the report for measures to boost consumption. The government announced a series of tax cuts last year. Other such reductions for small businesses were announced in January, including the exemption of many micro businesses from value added tax.

Kuijs said, “Compared to earlier episodes of fiscal easing, we have seen this move toward tax cuts away from public investment.

“This way, you leave it up to the companies and people to spend the money. Evidence from around the world suggests, however, that you get less of a fiscal boost from tax cuts than from public investment, so we see this having more of a stabilizing effect on the economy than giving it a significant rebound in growth.”

One vital aspect of the economy remains the property sector, with the government wanting to curb speculation.

Many will be looking for indications in the report about the future direction of policy.

Sam Xie, head of research at commercial property consultancy CBRE China, said, “Several cities have already partially eased curbing measures such as sales restrictions, price limits and purchase limitations, while commercial banks have lowered mortgage interest rates.

“Third – and fourth-tier cities, many of which have a large volume of unsold inventory, may further loosen policies this year.”

Many observers expect the overall package of reforms to focus on improving the supply side of the economy, dealing with financial risk, particularly in the shadow banking sector and further opening up the economy.

Jiang Hao, a partner in Shanghai for management consultancy Roland Berger, said it is important that progress is made in all these areas.

“These measures and issues have been on the government’s agenda in recent times. It is critical for China to provide solid solutions in each of these areas to maintain the growth rate and also arrive at healthier development, while at the same time remaining internally competitive,” he said.

Jon Geldart, executive director, Greater China, for international accountants Grant Thornton, said he is expecting the report to flesh out the details of policy in some of these areas.

“I fully expect more detail and emphasis on these important areas. It is the ability of the central government to ensure effective and consistent application across all provinces that is the key to success. Provincial leaders need to commit to implementation and be held accountable to the Party and the people for so doing,” he said.

With the global economic outlook remaining uncertain, there will be keen interest worldwide in the report.

Magnus, at the University of Oxford China Centre, said: “None of the major engines of the world economy are firing at the moment. The US has lost its fiscal boost and there is no strong forward momentum from Europe.

“China has been slowing down, and what we are likely to see in the work report will be the government trying to continue to stabilize the economy. It would be unrealistic to see any major boost.”