China's congress lays out ongoing reforms, nationwide negative list

By Sara Hsu

The National People’s Congress, which began on March 5 for its annual session, laid out two major reports on the economy. These include the Government Work Report and the Report on the 2018 Draft Plan for National Economic and Social Development. Both reports emphasize supply-side structural reform to cut overcapacity and deleverage as well as rural development. The reports also stressed innovation, which China has built upon under the Made in China 2025 program. Innovative areas focus on the internet, big data, and artificial intelligence, and the creation of institutions that foster such innovation.

Workers work in a factory of Jinglong Industry and Commerce Group in Xingtai, north China's Hebei Province, Jan. 25, 2017.[Photo: Xinhua]

Structural reform, rural development, and innovation have remained high on the list of policy priorities under Xi Jinping. On the opening day of the congress, Premier Li Keqiang emphasized that growth should be high quality, which may explain why many of the same reforms are ongoing, as they are set to be further deepened this year. Quality growth has also been stressed as China’s growth rate slows. The target rate for this year is 6.5%, a slowdown from the 6.9% growth rate experienced last year.

Supply-side structural reform and innovation

Supply-side structural reform has been a focus of reform for years, and this year is no different. State owned enterprise reform is a major component of this, as is the reduction of overcapacity. Mixed ownership for state owned enterprises (SOEs) has been a major emphasis, as has been reducing overcapacity and overproduction of commodities in government dominated industries.

Rural areas will face supply-side structural reform to increase production and efficiency, as well as to integrate primary, secondary, and tertiary industries into rural regions. These reforms include developing agricultural industrial parks and ensuring stable and efficient grain output. Another policy aim is to integrate industry and agriculture so that each promotes the other.

In terms of innovation, China continuing down the same path. Innovations in science and technology are to continue to be a focus, particularly in the areas of the internet, artificial intelligence, new energy vehicles, 5G mobile, and quantum communications. Institutions that promote innovation, including national laboratories and centers of research and development, will be developed. Internet Plus, or the integration of internet technology into traditional industries, was given a high degree of importance in improving employment and efficiency.

Nationwide negative list

China will also continue to improve the economy by expanding the market access via the negative list. This policy has been long in the making, and is an important economic reform.

The negative list for market access will continue to be implemented nationwide, as opposed to solely in free trade zones. The intention to implement the policy in 2018 was announced last year, and will help to further expand foreign investment throughout China. This reform represents a dramatic change from the current situation, in which foreign investment is restricted. The negative list will increase the role of the market in determining which sectors receive foreign investment.

The negative list has been tested in free trade zones in Shanghai, Tianjin, Guangdong, Fujian, Zhejiang, and Hubei. Each year, the negative list was reduced in these areas, which have been successful in attracting foreign investment. This has become especially important for China, as foreign investors have moved to less expensive locations due to rising labor and land costs.

China has also committed to lowering investment barriers in the services sector and reducing ownership limits in particular industries, including the telecom, health care, education, and new-energy vehicle sectors. The financial sector will also be opened up to some extent, with the removal of caps on foreign investment in banks, securities brokerage houses and fund management firms. Procedures for setting up foreign-invested enterprises are to be streamlined. All of this will help to maintain foreign investment in China in existing areas and to attract foreign investment to Western regions and inland.

Other policy announcements

Additional policy announcements include expanded military spending, a reduction in energy consumption, and increased consumption spending.

China will raise its military spending by 8.1% this year to 1.11 trillion RMB ($175 billion) in order to update its equipment and maintain its troops. China’s military spending is the second highest in the world, about a quarter the size of the United States.

Energy consumption per unit of GDP will be slashed by 3% in order to continue its war on pollution. Total energy consumption is to be capped at 5 billion tons of coal equivalent by 2020. China has already reduced household coal use and industrial emissions through tighter enforcement of regulations and changes in energy structure. As the country cracks down on pollution, thousands of firms and officials have been fined for violations. At the same time, some firms and households are shifting from coal to gas.

Consumer spending will be encouraged, particularly in services sectors like education and health care. Online shopping and tourism will also be supported. This will help China to become a consumer society, more like the West, in a bid to restructure the economy and raise living standards.

China’s annual congress and work report have revealed its policies for 2018. These include deeper changes to existing policies, as China aims for quality growth.

(Sara Hsu, associate professor, the State University of New York at New Paltz)