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Thoughts on Chinese economic policy

M S Siddiqui

The first annual session of the Chinese 13th National People's Congress (NPC), the country's top
legislature, will open on March 5, 2018 in Beijing. The first session of the 13th National Committee of
the Chinese People's Political Consultative Conference (CPPCC), the top political advisory body, will
open on March 3. It is expected that CPPCC will adapt new policy of opening up of economy, supply
side reform and poverty elevation strategy at the present context.

Chinese President Xi Jinping came up with the "targeted poverty reduction" strategy soon after
assuming office, vowing to alleviate impoverished people in rural areas and poverty-stricken
counties under the current standard by 2020.A series of initiatives proposed by Xi, including
accelerating global poverty reduction, strengthening cooperation in poverty reduction, realizing
diverse, independent and sustainable development and improving the global development
environment have been embraced by the UN and developing countries.

China attempted several radical reforms according to the November 1993 decision. The major ones
include unification of exchange rates and convertibility under the current account; the overhaul of the
tax and fiscal systems with the separation of national and local tax administrations; and
reorganization of the central bank, including establishing cross-province (i.e., regional) central bank
branches. China also started to privatize small-scale state-owned enterprises (SOEs), to lay off
excess state employees, and to establish a social safety net.

In order to change in relationship of the government business, it has considered three tasks
necessary: (i) transforming state-owned enterprises; (ii) promoting private enterprises; and (iii)
establishing the rule of law to govern the government-business relationship.

Afterwards, it has entered into a new phase of openness to global markets, as is evidenced by shift
in capital export from goods export, move to higher value chain and evolution from net capital import
to exporter.
* The shift from goods export to capital export: Since 2015, China's traditional export sector has
experienced a successive quarterly decline, while ODI has maintained an annual growth rate of
around 15 percent since 2012. Now the outbound investment is replacing export trade in increased
rate.

* The move up the value chain in global trade: High-tech products now account for
approximately 30percent of China's total trade volume, and over 35 percent of export trade.
Moreover, new business models such as cross-border e-commerce and 'market purchasing' are
emerging as new growth points in global trade. Cross-border e-commerce grew 30 percent in 2015,
while 'market purchasing' grew by over 70 percent.

* The evolution from being a net capital importer to a net capital exporter: In 2015, China's
outbound investment flows already exceeded inbound investment flows.

These changes offer foreign businesses the opportunity to invest in China's high-tech and advanced
industries and new business models, and require that Chinese businesses accelerate their efforts to
'go out'. It is now in discussion that China must recommit itself to its reform and opening up policy,
not least because further reforms would help it meet its own development goals, and avoid a trade
war with the US and Europe. It is expected that a more extensive package of market-opening
measures will be introduced to mark the 40th anniversary of China's reform drive. And some of these
reforms will go beyond "the expectations of the international community.

The immediate necessity involves shifting the economy from a phase of rapid growth to one of high-
quality development, and macroeconomic, structural and social policies require to be designed to
support this transition. It has three critical battles are: preventing and resolving major financial risks;
making targeted efforts to reduce poverty; and controlling pollution.

It requires further reform the supply-side structural reform (SSSR). The five components of SSSR -
cutting excess industrial capacity, destocking property inventory, corporate deleveraging, lowering
corporate costs and improving "weak links". SSSR embodies the Chinese government's flagship
economic policy. First outlined in 2015 and closely associated with China's president and "core
leader", Xi Jinping. SSSR aims to cut industrial overcapacity; destock excessive inventory
(particularly for housing); help indebted firms deleverage; reduce operating costs for businesses;
and upgrade the nation's industrial value chain.

SSSR is a key focus area already in the 13th FYP around which other development-related
initiatives will revolve. It has three major goals, all of which also hint at significant opportunity for
investment:

(1) Promote the upgrading of industrial structures in order to expand the effective supply of mid-
range and high-end goods and services, and meet consumers' increasingly sophisticated and
personalised material, cultural and environmental needs:

This provides an opportunity for FDI into China's advanced and emerging industries, and for ODI
that seeks out advanced technology and best practices abroad for reintroduction into the domestic
market.

(2) Strengthen market-oriented reforms in key sectors of the economy, correct misaligned policies
and institutions, and ensure a level playing field in which winners and losers are determined by the
market: This can maximise vitality at the microeconomic level and effectively facilitate flows of both
FDI and ODI.

(3) Meet the five targets of reducing industrial capacity, inventory, financial leverage and costs, and
correcting structural shortcomings: These efforts will broaden the channels of investment and help
foreign investors lower the cost and risk of doing business in China.

China's "targeted poverty reduction" strategy, to be more specific, means more targeted support
subjects, proper project arrangement, precise capital allocation, exact policy implementation and
personnel assignment as well as specific results, so that the benefits of each policy can be brought
to the recipients themselves.

It has targeted to lift 10 million people out of poverty each year from 2016-2020. Government is
working on several fronts in 2017 to reduce poverty: promoting industrial development in poor
regions; giving the poor easier access to employment services, healthcare and education; and
improving infrastructure facility in poor regions.

China has already lifted 700 million people out of poverty through more than 30 years of reform and
opening-up. The Chinese central and provincial governments reportedly has allocated of more than
100 billion yuan (about 14.5 billion U.S. dollars) for the first time in 2016. The figures showed the
central budget allocated 66.7 billion yuan for poverty reduction this year, up 43.4 percent year on
year, while that allocated by provincial governments rose more than 50 percent to top 40 billion
yuan.

To ensure fine tuning in focusing the poverty, arranging projects, using funds, delivering policy to
households, dispatching officials and assessing poverty alleviation results, the Government has set
up an individual file for each and every rural household in poverty, diagnosing the causes of their
poverty and offering targeted solutions according to their personal, household and external
conditions.

Government has worked to alleviate poverty by expanding production, relocating people from
inhospitable areas, compensating ecological conservation efforts and promoting education, to
provide social protection floors by improving basic social security system, to strengthen the weakest
link in development by accelerating development of areas inhabited by ethnic minorities, remote and
border areas and poverty-stricken areas, and to solidify foundation for development by improving
transport, water conservancy, energy and telecommunication infrastructure.

In 2016, 12.4 million people in China were brought above the current poverty line, with the poverty
incidence rate dropping from 5.7% in 2015 to 4.5%. The per capita disposable income in poor rural
areas was growing faster than the national average. Living and working conditions of the population
in impoverished areas were significantly improved.

Previous governments had undertaken few policies. Firstly, growth in agriculture is particularly
important for poverty alleviation. According to a research report released by the World Bank, growth
in China's agricultural sector is four times as effective in reducing poverty as growth in the secondary
and tertiary industries. Secondly, targeted poverty alleviation effort has helped narrow the gap
between different regions and accelerate economic and social development of poverty-stricken
areas.

Thirdly, China began to establish a social security system for rural areas in 2007. Measures such as
guaranteed minimum income, the new-type rural cooperative medical care system and the rural
pension insurance system have ensured provision of basic living and public services. Fourthly,
inclusive rural policies have benefited vast sections of the impoverished in rural areas.

In 2003, the country launched the "grain for green" campaign in poverty-stricken areas, and farmers
who returned their farmland to forests and grasslands were paid with allowances. In 2006,
agricultural tax was abolished, and a policy to provide general subsidies for agricultural development
was implemented. From 2008, nine-year free compulsory education began nationwide for all
children.

Fifthly, the basic land system and land operation pattern ensure that the poor benefit from
agricultural growth. The household contract responsibility system was adopted as the basic land
system in rural areas, according to which rural lands are collectively owned, but farmers enjoy long-
term use and management right of the land contracted. In the early 1980s, farmlands were
distributed to farmers in a basically equal manner, so that impoverished households could also
benefit from their farmland and agricultural development.

China also takes an active part in launching South-South cooperation by providing assistance to
other developing countries and aiding developing countries, especially the least developed countries
to eliminate poverty. Over the past 60 years, China has offered nearly 400 billion yuan ($58.27
billion) and dispatched more than 600,000 aid personnel to 166 countries and international
organizations, statistics indicated. Other countries will look forward to the policy taken by the global
leader and expect some benefit of right decisions.

The writer is a legal economist. mssiddiqui2035@gmail.com