Eye on China: Xi’s Economic Vision – AI & Social Credit – Pharma Opportunity – Beijing’s HK Stance

Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom from an Indian interests perspective. This week we cover changes in China’s economic policies, the World AI Conference in Shanghai, the visits of Rodrigo Duterte, Javad Zarif and Abdulla Aripov, the trade war and much more…

I. In China

This week began the countdown to the big National Day celebrations across China on October 1. What we have to look forward to is a massive spectacle, which will include a speech by Xi, a “military parade and mass pageantry,” performances and a fireworks show and an awards show. Take a look at this Xinhua feature, describing China’s “national character” as assured, responsible, dedicated and inclusive. Expect more such stuff over the weeks.

To the more routine activities, we saw this week the NPC Standing Committee ending its bimonthly session with a bunch of amendments to laws being approved. The list of laws revised includes, the drug administration law, laws on land administration and urban real estate administration and the resource taxes law. State media also reports that legislators reviewed reports on the reform and development of preschool education, the enforcement of the water pollution prevention and control law, and the enforcement of the law on employment promotion. In addition, extradition treaties with Vietnam and Sri Lanka were approved.

From an Indian perspective, the most significant of these is the changes to the drug administration law. First, this is, of course, being done given the demand for cheaper drugs in ChinaPTI reports that the changes mean drugs that are legal in foreign countries but not approved in China are removed from the category of fake medicines. The changes also promise leniency for those who bring drugs without an official approval into China. This Global Times report tells us that this could pave the way for Indian generics to enter the Chinese market. However, to strike a note of caution, this change doesn’t necessarily quicken drug approvals in China. Despite current changes supporting more manpower for regulatory processes, it all still remains cumbersome.

On the economic front, Xi chaired the fifth meeting of the Central Committee for Financial and Economic Affairs. The theme was better coordinated development across the country. The topline from the meeting was this: “China’s… structure of economic development is undergoing profound changes and central cities and city clusters are becoming the major vessels for development.” 

The other interesting remark is this: “the need to form unified, open, competitive and orderly markets of commodities and factors of production across the country to ensure that the market plays the decisive role in allocating resources, and improve the mechanisms for promoting integrated markets and regional cooperation.” This, of course, refers to cutting down on local government protectionism. One of the reasons why this is important is because the central leadership believes “Industry and technological collaboration between upstream and downstream enterprises is needed to build innovation-based and high value-added industrial chains.” And this is critical for future developmental goals.

Domestic consumption, of course, also remains key to China’s future development. This week, the State Council issued a guideline highlighting 20 measures to boost consumption. SCMP reports: “the new measures include directing e-commerce companies to partner with factories to customise production designs to improve sales; remodelling struggling department stores; turning old sports stadiums and old factories into shopping malls and entertainment centres; giving facelifts to commercial pedestrian streets; and speeding up the development of convenience store chains.” In addition, the NDRC says that it will “reasonably expand effective investment” to support economic growth by lowering the requirement of the minimum capital ratio for some infrastructure projects. Going back to unhealthy habits? Also announced this week were six new FTZs in Shandong, Jiangsu, Guangxi, Hebei, Yunnan and Heilongjiang.

Finally, some interesting trends emerged in China’s banking sector this week. First, Yi Gang met with leaders from 24 Chinese financial institutions, telling them to use its new loan prime rate (LPR) as soon as possible in making loans. The hope is that this will lower the cost of borrowing and stimulate economic activity, supporting small and medium enterprises. But in the process, there could be increased pressure on bank earnings. Data for this year so far tells us that while the big banks are doing okay, it’s the smaller ones that are a serious cause for concern. And this is a structural problem. For instance, on Friday, the China Banking and Insurance Regulatory Commission said that small and medium-sized bank inspections had revealed many violations of rules, with banks lending to undercapitalised real estate projects, over-indebted local government platforms, and firms found in violation of environmental laws. So far, three regional banks have been bailed out by Beijing this year. Chinese media report that the government is now considering new rules to manage the problems at smaller banks. These could require high-risk financial institutions, local governments and the country’s regulators to jointly take on the responsibility of risk resolution.

Also Read: Xi scores coup and grabs party backing to be ‘people’s leader’

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