Xi Jinping on China's major economic issues
With few days left until the annual Chinese People's Political Consultative Conference (kicks off on March 4) and the National People's Congress (kicks off on March 5), or "Two Sessions," which attracts widespread attention, economic issues will be one of the key focuses of this year's event, in addition to the highly anticipated government leadership reshuffle and reform of Party and state institutions. This is particularly noteworthy considering that this is the first "Two Sessions" held after China has optimized its COVID-19 response and also the first one after the 20th National Congress of the Communist Party of China (CPC).
This newsletter is committed to providing you with high-quality reporting on China. In today's issue, we present an article on major issues pertaining to the country's current economic work by Chinese leader Xi Jinping. The article was published in the Qiushi Journal, a flagship magazine of the CPC Central Committee, on Feb. 16. It was part of Xi's speech in the annual Central Economic Work Conference was held in Beijing on Dec. 15, 2022. Xinhua News agency released an official readout of the speech and key points of the conference in December.
If you compare the articles from December and February, you will find that some of the content from the December piece has been removed, while the February article has added many new contents compared to the previous version. I know that some people are trying to compare and study these contents in order to get a glimpse of the latest economic policy priorities. Therefore, GRR have created a markup version (and a no markup final version) of the English translation of the articles for your easy reference to see which content has been added and removed. The Chinese version is also provided in case you need it [The Chinese version was created by unknown individuals and circulated among China-watchers in February]. A screenshot is provided below as an example:
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Major issues pertaining to China's current economic work (markup version by GRR)
Major issues pertaining to China's current economic work (no markup final version by GRR)
Major issues pertaining to China's current economic work (Chinese markup version by unknown individuals)
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Major issues pertaining to China's current economic work
The economic work in 2023 will be complicated, and it is necessary to bear in mind the overall strategic picture, focus on the major problems, start with improving public expectations and boosting confidence in development, pay close attention to the major and key links to ensure everything is implemented as planned.
1. Vigorously expand domestic demand
Insufficient aggregate demand is an acute problem facing the Chinese economy. We must vigorously implement the strategy of expanding domestic demand and take more effective measures to ensure a positive cycle of social reproduction. China, through expanding domestic demand, has accumulated experience in successfully responding to the Asian financial crisis in 1998, the international financial crisis in 2008, and the impact of COVID-19 since 2020. The next step is to optimize policies to fully leverage the fundamental role of consumption and the key role of investment.
First, we must prioritize the recovery and expansion of consumption. With further progress in new industrialization, informatization, urbanization and agricultural modernization, consumption is now playing a foundational role in promoting economic growth. We must fully tap consumption potential by enhancing people's purchasing power, improving consumption conditions, and innovating consumption scenarios. Consumption is directly correlated with income. We must use multiple channels to increase urban and rural incomes, especially for those middle- and low-income urban residents with a high inclination to consume but had a relapse in consumption due to the impact of COVID-19. We must make appropriate increases in consumer credit and support consumption in housing improvement, new energy vehicles, elder care, and services in terms of education, healthcare, culture, and sports.
Second, we must effectively drive investment of the whole society through government investment and policy incentives. Currently, private investment expectations are low, so government investment has to play a guiding role in responding to cyclical economic fluctuations. Government investment should further reinforce the groundwork for long-term benefit, strengthen weak areas, and drive structural adjustment. We must speed up with the major projects in the 14th Five-year Plan (2021-2025), strengthen transport, energy, water conservancy, agriculture, and information infrastructure to effectively boost inter-regional connectivity. We must support urban agglomerations and metropolitan areas in their construction of modern infrastructure systems and implement action plans for urban renewal and rural construction initiatives. We will increase technological and industrial investments, advance the construction of major science and technology infrastructure projects and the improvement of R&D capability for key and core technologies. Policy-based finance must play a role of counter-cyclic adjustments by increasing financial support for major projects in line with national development planning and industry policies, while at the same time balancing the economic and social benefits. We must relax control over market access for non-governmental investment so as to attract more private investments to major state projects and projects aimed at strengthening areas of weakness. We must expand project reserves, improve preliminary work, and strengthen factor of production assurance.
We should continue to give full play to the supporting role of exports in the economy. We must stabilize exports to developed countries, expand exports to emerging economies, upgrade the processing trade, and improve the added value of exported goods, expand service trade, develop digital trade, and consolidate and expand export advantages in new industries such as new energy vehicles. We must expand imports of advanced technology, important equipment, and energy resources. We must make full use of the China-Europe Railway Express to accelerate the transformation of China into a trader of quality.
2. Move faster to modernize the country's industrial system
We must build internal foundations to take a firm foothold in the world. China has the most complete industrial system and a domestic market with the greatest potential in the world. We must improve resilience and security of industrial and supply chains, while paying close attention to addressing weaknesses and enhancing strengths.
First, we must ensure the smooth functioning of national economic cycles. China's economy must guarantee national security, meeting people's basic living needs, as well as the normal operation of infrastructure and basic industries. We should greatly promote food security and energy security, ensuring that China’s food supply remains firmly in its own hands. We must implement a new round of actions to increase China's grain production capacity by 50 million metric tons, improve productivity by better using arable land and technology, and yield more food by better utilizing China's land resources. We must put more efforts into the exploitation, storage, and production of important energy and minerals, as well as the coordinated integration of electricity generation, grid, load, and storage. We must accelerate the construction of a new energy system, encourage domestic enterprises to go global in groups, and push forward diversification of imports. Steps must be taken to enhance strategic goods reserve and security capacities.
Second, we must accelerate the upgrade and development of China's industrial system. We must plan ahead in key areas and comprehensively modernize our industrial system, so as to consolidate our leading position in traditional advantageous industries and create new competitiveness. We must seize the new opportunities generated by global industrial restructuring to open up new areas and succeed in new arenas. Traditional manufacturing is the foundation of the modern industrial system. We must accelerate digital transformation, promote advanced and applicable technologies, and move the manufacturing sector toward higher-end, smarter, and greener production. Strategic emerging industries are the pillars and arenas of future development. It is necessary to accelerate R&D and application of cutting-edge technologies such as new energy, artificial intelligence, biomanufacturing, low-carbon technology, and quantum computing and support enterprises that use special and sophisticated technologies to produce novel and unique products. We must vigorously develop the digital economy, improve the level of normalized supervision, and support platform companies in leading economic development, creating employment, and participating in international competition.
3. Effectively implement the "Two Unswervinglies"
There have been some misleading and even wrong argument in the society as to our commitment to the socialist market economy and the policy of the "Two Unswervinglies". Our position must be clear and unambiguous and we must continue reforms to develop the socialist market economy and adhere to the "Two Unswervinglies." [Note: The "Two Unswervinglies" refer to "unswervingly consolidate and develop the public sector and unswervingly encourage, support, and guide the development of the non-public sector. "]
First, we must deepen the reform of state-owned capital and state-owned enterprises (SOEs), while enhancing the core competitiveness of the SOEs. Three years of SOE reforms have borne fruit. In the new round of deepening the SOE reforms, we must focus on enhancing the core competitiveness and core functions, depending on the changing situations. China has a large scale of state-owned productive assets, yet some have low returns on assets and lack innovation capability. This is incompatible with the requirement that state-owned capital and SOEs should get stronger, better, and bigger, and that they should provide strategic support for the economy. We must continue to carry out function-based reforms, balance the economic and social responsibilities of SOEs, and establish a state-owned assets management system based on managing capital. We will give more play to state-owned capital operating companies, restructure the SOEs by way of the market, and create a number of innovative SOEs. We will improve modern corporate governance of SOEs with Chinese characteristics, build market-based operation mechanisms, and move faster to help Chinese companies become world-class outfits.
Second, we must improve the development environment for private enterprises and faciliate the growth of the private sector. The private economy plays an important role in economic and social development, employment, fiscal revenue, and technological innovation. Institutional and legal arrangements must be made to ensure the equal treatment of private enterprises and SOEs. Supportive policies and public opinion are also necessary to facilitate the growth of the private economy and enterprises. We must protect the property rights of private enterprises, and the rights and interests of entrepreneurs in accordance with the law. We need to comprehensively review and revise laws, regulations, and policies related to enterprises, and continue to remove barriers that hinder equal access. We must improve the fair competition system, oppose local protectionism and administrative monopolies, and create more opportunities for private enterprises. We need to strengthen management services for micro, small, and medium-sized enterprises (MSMEs) and support the development of MSMEs and individual businesses. Leaders at all levels should help solve problems and take practical actions for private enterprises so as to establish a cordial and clear relationship between government and business. SOEs, private enterprises, and foreign-funded enterprises must all operate in accordance with the law.
4. Make greater efforts to attract and utilize foreign capital
China's utilization of foreign capital continues to maintain rapid growth in 2022. Throughout the world, both developed countries and emerging economies have made attracting and utilizing foreign investment a major national policy, and international competition for attracting investment is becoming more intense. In that case, we must promote high-standard opening-up and attract global resources and production factors by leveraging the strengths of China’s enormous market and domestic circulation. We must not only retain high-quality existing foreign investment but also attract more investment to improve trade and investment cooperation.
First, widen market access. We must make appropriate reductions to the negative list for foreign investment, promote the opening-up of modern service industries, and give full play to the pioneering role of open platforms such as the pilot free trade zones, the Hainan Free Trade Port, various economic development zones, and bonded areas. The announced foreign investment access policies should be implemented promptly and effectively.
Second, comprehensively improve the business environment. We should implement national treatment for foreign-funded enterprises, promote fair competition, and ensure that foreign-invested enterprises participate in government procurement, bidding, and standard-setting on an equal basis in accordance with the law. We should strengthen the protection of intellectual property rights and the legitimate rights and interests of foreign investment. We must actively seek to join the high-standard economic and trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement (DEPA), proactively match relevant rules, regulations, management, and standards to deepen domestic reform in related fields.
Third, provide targeted services to foreign-funded enterprises. We should strengthen communication and exchanges with foreign investors, provide the greatest possible convenience for foreign investors to engage in trade and investment negotiations in China, and ensure that economic and trade personnel go abroad to attract investment on a regular basis.
5. Effectively fend off and defuse major economic and financial risks
We must adhere to addressing both symptoms and root causes, combining near-term measures with long-term strategies, and firmly guard against crossing the bottom line of systemic risks.
First, forestall systemic risks arising from the property sector. The property industry has a significant impact on economic growth, employment, fiscal revenue, residents' wealth, and financial stability. We must take proper measures to handle systemic risks and moral hazard, respond to various risks, and promote the steady development of the property market. Responsibility must be assumed by various regions and relevant departments. We must adopt city-specific measures, focus on improving market expectations, expand effective demand, meet people's basic housing needs and the need for improved housing conditions, support the implementation of childbirth and talent policies and address housing difficulties faced by our people, especially new urban residents and young people. We should encourage local governments and financial institutions to increase the supply of government-subsidized rental housing, and explore the construction of a long-term rental housing market. Sticking to the principle that "housing is for living in, not for speculation," we must thoroughly analyze major trends and structural changes in the supply-demand relationship and the urbanization pattern of the real estate market, and seize the opportunity to figure out fundamental strategies in the medium and long term to eliminate the drawbacks from the model of "high debt, high leverage, high turnover" over the years and promote the real estate industry's smooth transition to a new development model.
Second, forestall and defuse financial risks. Finance is crucial to the overall development. We need to coordinate the prevention of major financial risks and moral hazard, clarify the responsibilities of involved parties, act swiftly to prevent the formation of regional and systemic financial risks. We need to strengthen the centralized, unified leadership of the CPC Central Committee over financial work and deepen the reform of the financial system.
Third, prevent and defuse local government debt risks. We need to clarify the primary responsibility of provincial-level governments for preventing and resolving hidden debts, increase efforts to dispose of existing hidden debts, optimize the debt maturity structure, and reduce interest burdens. We should steadily advance the combined supervision of hidden debts and statutory debts of local governments, resolutely curb the increase of debt and defuse existing debt. We must prohibit all kinds of disguised borrowing behaviors and prevent the local state-owned enterprises and institutions from "operating as a vehicle." We need to strengthen the comprehensive governance of financing vehicles and promote their transformation according to their categories. We should deepen the reform of the fiscal and tax systems, improve the system for fiscal transfer payments, improve the fiscal system under the provincial level, steadily advance the construction of the local tax system, and strengthen the basic financial capacity and self-development capability of local governments.
There is still a lot of important work to be done in 2023. We must advance rural revitalization on all fronts, stabilize grain production, and ensure that people do not return to impoverishment in large numbers. We must facilitate the flow and circulation of production factors between urban and rural areas, and build a beautiful countryside that is desirable to live and work in. We must focus on building a high-standard socialist market economy, advancing high-standard opening up, and planning for a new round of comprehensively deepening reforms. We must prepare for the Third Belt and Road Forum for International Cooperation, and advance the high-quality joint development of the Belt and Road Initiative. We must deeply implement major regional strategies and promote coordinated regional development to complement each other’s strengths and bring out the best of each other. We must drive the green transformation of economic and social development, coordinate efforts to reduce carbon emissions, control pollution, expand green coverage and promote growth, and create conditions to accelerate the transition from controlling over the amount and intensity of energy consumption to controlling both the amount and intensity of carbon emissions. We must make further efforts to keep our skies blue, waters clear and lands clean, and therefore build a Beautiful China.
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