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Liang Hui 2020: ‘Supporting the Economic Recovery’

As is the case every year, this year’s Liang Hui – ‘Two Sessions’ – of the Chinese legislatures – serves as a vehicle for promoting the Government’s achievements and unveiling a range of new announcements.

It provides an opportunity to analyse how the Government perceives its record, identifies what will be coming over the following year, and determine issues of concern.

What is the Liang Hui?
The Liang Hui refers to the yearly gathering of the two primary Chinese legislatures: the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

Formally, the NPC is China’s highest legislative body. Its 175-member Standing Committee scrutinises most legislation during the year, but the full assembly discusses the most important bills during the Liang Hui sessions.

The CPPCC is an advisory body with no formal powers. However, its members can make suggestions and highlight issues in an official forum. It serves as a vehicle for slightly broader debate than the NPC, although within the umbrella of what is considered politically appropriate.

What’s important to watch at the Liang Hui?
The centrepiece of the Liang Hui is the Government’s Work Report, delivered and broadcast live by the Premier (Prime Minister) in person. The Premier not only reports on the Government’s progress over the previous year but also combines many new macro-level policy announcements.

Following the Premier’s Work Report, the NPC and CPPCC move into extended sessions, together with smaller ‘breakout’ discussions, some of which are reported on by media. The Liang Hui typically concludes by the Premier giving an extended press conference to an audience of journalists.

What’s new this year?
This year has been quite different, with the Liang Hui postponed from March and condensed from the usual two weeks of discussions into a single week.

During the Liang Hui, the Government was clear about China being in a difficult situation, faced not only with significant economic difficulties from the Covid-19 epidemic but also from weak world economic growth and ‘intensified’ international economic and trade friction – a code for political clashes, primarily with the U.S.

The Covid-19 pandemic provided the background to this year’s Liang Hui. However, the focus of announcements and discussion was around recovery from the economic downturn, and especially in supporting the workforce, i.e. employment and living standards.

The following sections outline highlights from discussion.

A key difference of this year’s Liang Hui is that the Government has not set an official GDP growth target in the Work Report for the first time. Not doing so sends a powerful message to the whole of the government apparatus that economic growth this year is not as important as expected.

From a fiscal point of view, Premier Li announced increased deficit spending of 3.6 per cent of GDP this year, up from 2.8 per cent in 2019, to raise over a trillion RMB. They would raise another trillion from new “special treasury bonds” – the first issuance of such bonds since 2007. This two trillion RMB would be used by local governments to support business and people through subsidies and tax cuts.

Support for Business
The Government has introduced many existing policies to reduce taxes and fees to support micro-businesses and SMEs throughout Covid-19. These will be continued or extended through 2020.

Such measures for micro, small, and medium businesses (SMEs) include:
• Contributions to old-age, unemployment insurance, work injury compensation schemes
• Reducing or cancelling VAT for small-scale taxpayers
• Exempting VAT on services such as public transportation, restaurants and hotels …tourism and entertainment … contributions to basic old-age insurance, unemployment insurance
• Encouraging banks to increase lending for small and micro-businesses, which will also gain from postponing loan repayments and payment of corporate income taxes until next year.
• Relaxing location restrictions on small businesses and the self-employed

Other measures will support all sizes of business, including:
• Continuing the reduction of electricity and broadband internet prices by 5 per cent and 15 per cent respectively.
• Lowering rents on state-owned premises, encouraging landlords to do the same in return for government policy support.
• ‘Markedly’ increase medium and long-term loans for manufacturers

These measures illustrate how the Government is spending heavily to support SMEs badly hit during the crisis. The government intends this to drive consumption and promote short-term economic recovery.

These subsidies and tax breaks will support micro/SME’s, although larger companies may benefit indirectly through support for their suppliers.

Many of the tax cuts and subsidies will benefit consumer services, thereby driving the economic recovery. The measures include food and beverage, shopping, tourism, also elderly/childcare services, e-commerce and express delivery, the latter two especially in rural areas. Businesses in these areas may gain from further liberalisation or support from local governments.

Consumers will be essential to China’s economic recovery, with some measures designed to improve consumer confidence as well as consumption itself.

Employment is the top priority for this year’s Liang Hui, mentioned in several areas of the Premier’s speech and following announcements.

However, despite many measures to support businesses – which will help retain employment rates – the Government expects an increase in unemployment, with a target urban unemployment rate of 6%, up from 5.5% last year, and aiming to create 9 million new urban jobs, down from 11 million.

The focus for employment will be on “college graduates, demobilised military personnel, rural migrants, people with disabilities, zero-employment families, and other groups facing difficulty finding jobs.” These are all slightly sensitive and vulnerable groups: new entrants to the workforce, those leaving the military, rural (and therefore poor) areas, and the potential long-term unemployed.

State-Owned Enterprise (SOE) Reform
Reform of SOEs will continue with a new three-year plan. The plan includes relieving SOEs from their remaining social obligations, as well as increasing mixed private-state ownership. This plan is yet another attempt at improving the profitability of SOEs. Whether it has much success remains to be seen.

Enabling Private Enterprise
The Government announced its intentions to set deadlines for official bodies to make overdue payments to private businesses and SMEs. Doing so would be a significant change – some debts have been so outstanding they have effectively turned some small companies into mini banks.

The Government is also looking to streamline business start-ups, pushing more government services for them to a single website and shift procedures online. These have been part of a longer-term trend in reducing administrative requirements for establishing new businesses which has been useful for many over the last half-decade.

Tech and R&D
Tech and smart manufacturing remain significant areas of government attention. Particularly worthy of note in discussion this year are e-commerce and courier services, especially in rural areas, online shopping and services all wrapped together in the ‘Internet Plus’ plan.

The announcements include new infrastructure roll-out for 5G and e-vehicle charging services, especially in rural areas.

Plans to ‘intensify international cooperation on science and technology’ are areas where the Government is hopeful of improved interaction with foreign business. Additionally, the Government aims to ‘accelerate the development of national laboratories,’ i.e. – indicating that they will continue to develop state-driven high-tech centres for research.

In addition to new R&D support, other educational announcements focused on vocational education, with a new target of 35 million vocational skills training opportunities and increasing enrolment in vocational colleges by 2 million. International business and organisations in education may wish to consider how to expand and position their offers to the vocational sector.

Given the Coronavirus disaster, the health sector featured heavily in discussion at the Liang Hui. Key to the future was Premier Li’s comment that the Government would not “let up on any front of our long-term fight against COVID-19”. His remark suggests that even given the importance of economic recovery, the Government will be cautious about a second Coronavirus outbreak.

Poverty Alleviation
Poverty alleviation remains an important (and unchanged) target, committing itself to ‘elimination of poverty among all rural residents living below the poverty line’. Poverty alleviation is a long-standing target and a particular interest of Xi’s. Foreign businesses that can credibly demonstrate support for poor or rural areas should do so.

Living and Working Standards
Living standards gained more attention at the Liang Hui than in previous years, indicating concern over possible public discontent from falling economic results.

The Government also announced of a new Civil Code (民法) detailing people’s rights, e.g. ‘new lawful rights and interests of women children, the elderly and people with disabilities’ and ‘a better system of handling public complaints’. The Code includes significant sections on privacy, indicating growing expectations of privacy controls over personal data. There were also promises to implement a system for the provision of legal aid.

These new privacy considerations illustrate an increased expectation of privacy protection. They are likely to be of most interest to tech companies but are also indicative of how privacy expectations are rising among both Government and consumers. Foreign organisations should be increasingly careful with consumer data from both a regulatory and from a consumer reputation perspective.

The importance of workplace safety has been rising in recent years. This year is no exception, with the Premier announcing a new campaign on this issue. Foreign businesses should take note of this and prepare to join. It makes 2020 a good time to promote company campaigns and policies on workplace safety.

Regional Integration
There was slightly less priority to regional development this year. However, the Government will continue its plans for regional integration, focusing on Beijing-Tianjin-Hebei, Greater Bay Area and Yangtze River Delta areas. Additional support comes from Hubei, poor areas and the development of the ‘Chengdu-Chongqing economic circle’.

Environmental Protection
The Yangtze Economic Belt was the highlight of remarks on environmental conservation. This area has featured many measures in recent months: several related provinces have previously announced an ‘Ecology and Green Development Demonstration Zone’, while Shanghai is notable for being the first major city in China to have rolled out a European-style consumer waste sorting system (others are due to follow).

Ecological protection in the Yellow River basin is also rising in priority, which may follow some elements from the Yangtze Belt.

These examples highlight how waste and plastic management are becoming more mainstream and where international companies can help drive implementation within their supply chains.

Foreign Trade and Investment
Foreign trade had a relatively short mention in this year’s Liang Hui. Most notable was an announcement that the ‘negative list’ of restricted areas for foreign investment will be ‘significantly shortened’.

The announcement raises expectations but unusually mentioned no details of sectors to benefit. Details will be critical to determine whether this heralds a minor change (as has sometimes been the case before) or a more substantial one. The lack of detail suggests that the Government has yet to conclude which sectors to open up.

Compared with 2019, there is less mention of the Belt and Road Initiative, with no mention of ‘doing more to attract foreign investment’, instead focusing on ‘stabilising the overall performance of foreign trade.’

That said, this year, the Government promised new free trade zones and bonded areas in Central and Western China, as well as supporting the growth in cross-border e-commerce. In this sector, major Chinese firms such as Alibaba and JD.Com have excellent track records.

The Government plans to hold the China International Import Expo (CIIE) for the third year running. The Government has placed much emphasis on this event, held in the Autumn, and has successfully attracted several foreign heads of state/government as guests of honour. This high-profile support makes it an excellent venue for international business to build government connections, if not direct commercial results. Given that the CIIE is a major international conference, it also implies that the Government will be expecting international travel to be back to normal by this point.

Foreign Policy
The few topics mentioned relating to foreign policy in the Premier’s speech are indicative of China’s current priorities:

• ‘safeguarding the multilateral trading regime’ and ‘reforming the WTO’
• ‘signing the ‘Regional Comprehensive Economic Partnership, ‘advancing free trade negotiations with Japan and the Republic of Korea’
• Implement the phase one China-US economic and trade agreement

These suggest limited but focused global engagement on trade issues while emphasising China as a regional power (although also engaging with its most difficult relationship, that of the U.S., where it can). It is indicative of a shift from a few years ago, which seemed to herald a more ‘global’ approach to issues.

Hong Kong
During the Liang Hui, the NPC approved a resolution that would impose a new Security Law on Hong Kong. This action has led to increased tension in Hong Kong, some concern from international business as well as a diplomatic ‘spat’ with the former colonial power, the United Kingdom and threats from the U.S.. At the time of writing, there is no end in sight and therefore no certainty for all concerned.

As can be seen above, many of the issues discussed within the Liang Hui (or omitted) could have significant implications for many foreign enterprises.

Most notable this year is the new emphasis on employment and living standards: if your organisation has good news to tell, this is likely to obtain positive reputational gain and beneficial coverage. If announcements can be linked to poor or rural areas, this would be even better.

More generally, international enterprises – companies and non-profit’s alike – should note the Government’s priorities and incorporate them into business plans and corporate messaging as much as possible.