A REVIEW OF CHINA’S TWO SESSIONS

March 28, 2019 admin 0 Comments

From March 3 to March 15, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) convened in Beijing to review the government’s work from the previous year, and to set targets and laws for the rest of 2019 and early 2020.

While the meetings covered a wide range of issues, four developments were particularly prominent: 2019’s economic targets, tax cuts, the new foreign investment law, and focus on sustainability.

MORE TAX CUTS

The announced tax and fee cuts of RMB 2 trillion (USD ~300 billion) were greater than expected, primarily seeking to benefit manufacturers and small businesses. Value-added tax for manufacturers will drop from 16% to 13%, as the VAT rate for transportation and construction drops from 10% to 9%. The new cuts will go into effect on April 1, 2019.

The government is taking a fiscally lean approach rather than solely relying on fiscal stimulus, but government debt is still expected to rise.

NEW FOREIGN INVESTMENT LAW

The new foreign investment law seeks to modernize and balance the playing field for foreign and domestic businesses. It integrates three existing laws on Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and wholly foreign-owned enterprises, to create a uniform standard for future investments. This replaces the previous case-by-case system, while also reducing the need for foreign investment to receive express approval when entering China. The new measures also allow foreign businesses to invest in more areas, prohibit any coerced transfer of intellectual property, and allow foreign companies to take part in setting industry standards.

The law will go into effect on January 1, 2020, with implementation guidelines expected to be issued by different ministries and government agencies in the months beforehand.

SHIFT TO SUSTAINABILITY

The increasing importance of sustainable growth appeared in more meetings, discussions and resolutions mentioning the environment. In some cases, economic growth was directly ordered to not override the focus on environmental protection. This reflects the government’s ongoing policy-making shift from raw growth to quality growth, heightening the priority of living standards as economic growth decelerates.

ADAPTING INNOVATION

‘Made in China 2025’ was notably left out of any documents or speeches this year. While the national plan to enhance China’s indigenous technology may have lost its name, momentum on the innovation front has far from slowed. This year’s government work report continued the trend of highlighting cutting-edge technologies, focusing on improving artificial intelligence to accelerate China’s transition into an advanced manufacturing powerhouse.

The emphasis on manufacturing is a shift from previous work reports, which primarily focused on tapping AI to benefit consumer sectors such as health care and education. This indicates that the country’s high-tech ambitions are maturing and are steadily closer to being realized – with or without the Made in China label.

OUTLOOK

As a response to internal and external concerns over the past year, the Chinese market going forward will trend towards becoming a more favorable and equitable operating environment for businesses.

The changes will not be immediate. The benefits of tax cuts may be felt in the coming months, but there will be a period of adjustment to the new foreign investment regulations. While the law should be a significant positive step for all involved, how its language will be precisely implemented will require monitoring as the changes are rolled out.

For communications, President Xi placed precedence on societal satisfaction, reiterating the need for environmental sustainability and poverty alleviation. These can be tied into new key messages for clients and audiences. Innovation will continue to be a major point of emphasis for China, but it should be noted that ‘Made in China 2025’ is no longer the preferred nomenclature to describe it.

 

By Liu Meng, Senior Vice President, Weber Shandwick China

 

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