Resources

Saudi Arabia and China signed a strategic partnership agreement on Thursday during a visit by the Chinese leader Xi Jinping to the kingdom, underlining the growing ties between Beijing and a longstanding American ally that is seeking greater self-reliance.

Mr. Xi held talks with Crown Prince Mohammed bin Salman, 37, the de facto ruler of Saudi Arabia, in the first of a series of summits planned for the Chinese president’s three-day visit. After his bilateral meetings with Saudi officials, Mr. Xi is expected to attend twin summits with leaders from other Gulf, Arab and African countries, including Egypt, Djibouti and Iraq. The Palestinian Authority president, Mahmoud Abbas, is also expected to join.

“This will be the largest and highest-level diplomatic event between China and the Arab world since the founding of the People’s Republic of China,” a Chinese Foreign Ministry spokeswoman, Mao Ning, told reporters on Wednesday. “It will be an epoch-making milestone in the history of China-Arab relations.”

Saudi Arabia has long been a close ally of the United States, but its ties to China have been strengthening rapidly, turning what was once a mostly oil-based relationship into a more complex one involving arms sales, technology transfers and infrastructure projects. That shift predates the leadership of Prince Mohammed, who became heir to the throne in 2017: China eclipsed the United States as Saudi Arabia’s main trading partner years ago.

But Prince Mohammed has accelerated efforts to diversify Saudi Arabia’s alliances, trying to move beyond its reliance on the United States as its main security guarantor and weapons supplier to forge a more independent path.

Some of that is because of growing perceptions among officials, scholars and businesspeople in Saudi Arabia and the broader Middle East that the United States has lost interest in their region and is a superpower in long-term decline.

“I still think that the world is living within an American international security order,” though it is “stumbling quite frequently,” said Mohammed Alyahya, a Saudi fellow at the Belfer Center for Science and International Affairs at Harvard. “The worry is what will come in five years or 10 years.”

Saudi Arabia’s ties with the United States have been especially strained in the past few years, with President Biden pledging on the campaign trail to treat the kingdom like a “pariah” and pressing Prince Mohammed about the murder of Jamal Khashoggi, a Washington Post columnist and Saudi citizen killed by Saudi agents in Istanbul in 2018.

Early in his administration, Mr. Biden released a U.S. intelligence report that said Prince Mohammed had most likely ordered the killing — a charge the crown prince denies. More recently, the two countries have clashed over a decision to cut oil production by the OPEC Plus cartel, which Saudi Arabia effectively leads.

The official Saudi Press Agency reported that King Salman of Saudi Arabia and Mr. Xi had met and signed a “comprehensive strategic partnership” agreement, without providing further details.

Under the agreement, the two sides agreed to hold meetings between their heads of state every two years, according to the Chinese news agency Xinhua. Beijing also agreed to list Saudi Arabia as a destination for group travel and to expand cultural and people-to-people exchanges, Mr. Xi said on Thursday during his talks with Prince Mohammed.

Other pacts signed by officials during the state visit included a memorandum of understanding on hydrogen energy and an “alignment plan” between China’s Belt and Road Initiative and Saudi Arabia’s economic diversification program, the Saudi Press Agency report said.

Upon arrival on Wednesday, Mr. Xi was met by a grander reception than Mr. Biden received in July, when the American president visited the coastal city of Jeddah, partly in a bid to repair ties with the Saudi government.

Footage of Mr. Xi’s reception on Wednesday showed jets flying overhead with smoke trails in the red and yellow colors of the Chinese flag.

On Thursday, he was taken to the palatial royal court, where his car, a luxury Chinese sedan, was escorted by horse riders carrying Saudi and Chinese flags. Prince Mohammed greeted him with a warm handshake, contrasting with Mr. Biden’s greeting of a fist bump.

The crown prince’s moves to deepen relationships with countries like China, Russia and South Korea are partly driven by his desire to establish Saudi Arabia a power in its own right, rather than an expectation that any of them could replace the United States. In that context, the pomp and circumstance around Mr. Xi’s visit is as much a signal to his domestic and regional audiences as it is to the United States. Many officials in the Gulf are preparing for what they believe is an emerging multipolar world, in which the United States no longer plays as central a role as it has since World War II.

“The American hegemony today over the international order won’t continue, in my estimation,” Anwar Gargash, a diplomatic adviser to the president of the neighboring United Arab Emirates, said at a public lecture earlier this year. “China has become a central economic player, a central technological player, a very important political actor.”

Prince Mohammed wants to diversify the oil-dependent kingdom’s economy, develop a civilian nuclear program and build a robust local defense industry. Securing technology and know-how from China is key to those goals, and Saudi pundits often compare the kingdom’s economic transformation to China’s decades ago.

ٍSaudi and Chinese companies signed 34 agreements on Wednesday in fields including information technology, genetics, mining, hydrogen energy and manufacturing. One Saudi firm partnered with a Chinese company to set up an electric vehicle plant in the kingdom.

Huawei, the telecommunications conglomerate targeted by American sanctions, signed a memorandum of understanding with a Saudi government ministry, partly to enable Huawei to build a data center in the kingdom.

At a conference in neighboring Bahrain last month, Brett McGurk, the top U.S. National Security Council official for Middle East policy, cautioned that “certain partnerships” with China will “create a ceiling” for what the U.S. is able to provide its allies.

“But thus far, we are not seeing that type of relationship that is getting in the way of what we are working here to build,” he said.

--------------------------------------

Source: By Vivian Nereim for the New York Times

Mexico, despite its integration with the economy of the United States, as well as its historic distrust for and structural competition with the People’s Republic of China (PRC), is pursuing policies that are expanding options for that country, causing serious strategic implications for the United States and the region.

Mexico has always shown strategic ambiguity with respect to the PRC. It was part of the first wave of Latin American countries to establish relations with the PRC, doing so in February 1972. Mexico was also one of the first countries in the region recognized by the PRC as a strategic partner. The Chinese government recognized Mexico as a strategic partner in 2003, and the two governments established a high-level working group the following year. Enrique Pena Nieto, the president of Mexico at the time, met with his Chinese counterpart Xi Jinping three times during a six-month span in 2013, including in June 2013, when the two countries elevated their relationship to a “comprehensive strategic partnership.”

Despite the interest of individual Mexican businesspersons and politicians in profiting from Chinese investment and exports to the Chinese market, Mexico’s overall embrace of the PRC has been limited—mainly due to its integration with the U.S. through the North American Free Trade Agreement (NAFTA), and its close security relationship under the governments of Felipe Calderon and Enrique Pena Nieto. Mexico is currently one of a small group of countries in the Hemisphere that has not signed onto the 2013 PRC “Belt and Road” initiative.

Mexican experts consulted for this work also argue that the relationship was limited by structural competition between Chinese and Mexican industries, such as manufacturing, as well as distrust of the PRC within certain parts of Mexico’s business elite and society. There have also been difficulties within both Mexico’s business community and the Mexican government in understanding and promoting the nation’s interest toward China.

The relationship was also arguably impaired by the PRC’s displeasure with political actions by the Mexican government and its actions on projects displeasing the Communist Chinese government. These included then-President Felipe Calderon’s reception of Tibet’s Dalai Lama in 2011, the cancellation of the Mexico City to Queretaro rapid train project in January 2015, the stoppage of the China-focused “Dragon Mart” retail-wholesale-distribution hub in Quintana Roo in 2015, and the 2016 stoppage of the Chicoasen II hydroelectric project, in which the Chinese company Sinohydro was the principal contractor.

Although Mexico has continued its contradictory posture toward the PRC under the government of President Andres Manuel Lopez Obrador (AMLO), multiple factors have combined to bolster the importance of the PRC for the AMLO government. On one hand, its focus on state-led growth—including its prioritization of a state role in the petroleum, electricity, and mining sectors—have decreased the interest of market-oriented players in Mexico in those sectors. As a result, Chinese loans, tied to work by PRC-based companies, have remained as one of the few remaining options. Indeed, PRC-based companies play a key role in AMLO’s signature infrastructure project, the Maya train, as well as in the lithium, petroleum, electricity, and manufacturing sectors, as discussed in subsequent sections. At the same time, the expanded vulnerability of Mexicans due to the lingering economic effects of COVID-19, the inflationary effects of Russia’s invasion of Ukraine, and lackluster prospects for Mexican GDP growth increase the importance of Chinese demand for Mexican products in sectors such as pork and tequila, where they make such purchases.

The expanding possibilities for the PRC in Mexico under AMLO are reinforced by the country’s Sinophile Foreign Minister Marcelo Ebrard. In his previous role as mayor of Mexico City, Ebrard was one of the first major local-level Latin American officials to travel to the PRC and played a key role in supporting connections between Mexico City-based institutions and businesspersons with the PRC during that time. As Foreign Minister, Ebrard showed his interest in the PRC by traveling to the country in July 2019 to promote expanded economic and other forms of engagement. Ebrard also played a key role in Mexico’s engagement with the PRC in conjunction with the country’s role as President of the Community of Latin American and Caribbean States (CELAC) from 2020-2021, including the December 2021 China-CELAC forum and the associated generation of the 2022-2024 China-CELAC joint action plan.

Patterns of Trade

As with many other countries in Latin America, Mexico’s bilateral trade with the PRC has increased exponentially since the PRC was admitted into the World Trade Organization (WTO) in 2001. Total trade between Mexico and the PRC expanded from USD $7.3 billion in 2002, just after the PRC was admitted into the WTO, to $85.8 billion in 2020, an 11.7-fold expansion.

Mexico has historically run deficits with the PRC. In 2020, its imports from the PRC of $77.9 billion were ten times greater than the $8.0 billion in goods and services that it exported to the country.

It is important to note that Mexico’s trade with the PRC consistently continues to be eclipsed by its trade with the U.S. By comparison to Mexico’s previously-noted $85.8 billion in trade with the PRC in 2020, its trade with the U.S. for the same year was $516.5 billion. Moreover, in contrast to its consistent enormous deficits with the PRC, Mexico has consistently had a surplus with the United States. In 2020, for example, Mexico’s exports of $338.7 billion in goods and services to the US were almost double its $177.8 billion in imports from the country that same year.

Although the aggregate numbers show that the U.S. is both a much more significant and much more beneficial trade partner to Mexico than the PRC, the possibilities of doing business with the PRC continue to capture the attention of certain portions of Mexico’s political and business elites. Such sentiments reflect perceptions of the possibilities stemming from the size of the Chinese market and the resources that its banks and state-owned enterprises (SOEs) can potentially bring to bear as a partner. 

Despite the broader patterns, such interest also reflects the hopes of individual Mexican businesspersons and other actors of benefitting from particular projects with the PRC.

The subsequent sections examine major Chinese projects in particular sectors of the Mexican economy.

Petroleum

China was a relative latecomer to the Mexican petroleum sector. China National Offshore Oil Company (CNOOC) entered the Mexican market in December 2016 with its purchase of rights to exploit a deep-water block in the Perdido basin, adjacent to U.S. oil fields in the Gulf of Mexico. CNOOC reportedly paid a premium for the rights, illustrating its prioritization of securing a presence in Mexico’s oil sector, then open to private-sector participation under the Peña Nieto government, although the block’s performance has reportedly underwhelmed Chinese expectations.

Just as PRC-based banks offered a $10 billion loan to Brazil’s Petrobras in 2009 when they were pursuing opportunities in that nation’s oil sector, in 2014, the PRC reportedly offered Mexico’s national oil company Pemex a $5 billion line of credit to support its expansion of capabilities. This move reflected the desire of Chinese companies to establish a presence in Mexico’s oil sector. However, the Mexican government never took the PRC up on the offer. In 2020, the PRC offered $600 million to help finance the AMLO government’s signature Dos Bocas refinery, although as with the previous offer, Mexico does not appear to have pursued this offer either. Nonetheless, as the AMLO government continues to push forward with its state-led development of the petroleum sector, the PRC has shown itself to be willing to provide the funding. Up until the writing of this work, Mexico’s need for energy financing under AMLO has not grown sufficiently to agree to China’s often predatory loan terms.

Mining

China’s role in Mexico’s traditional mining sector has historically been relatively limited. In 2009, China’s Jinchuan group committed to invest $600 million in the Bahuerachi mine, located in the southeast region of the Mexican state of Chihuahua. Many of the Chinese projects are, however, small-scale, in areas where irregular mining is commonly tied to other illicit activities. Examples include the 11 small mining sites operated by China Unified Mining Development in the states Guerrero, Michoacan, and Colima. Similarly, the Tianjin-based company Shaanxi Dongling Group also made a modest investment of $3.4 million in the Los Vasitos mine in Sinaloa.

China’s most notable engagement in the Mexican and mining sector is in lithium, where, in 2021, the PRC-based firm Ganfeng spent $264 million to acquire 100% ownership in the Bacanora lithium deposit in Mexico’s Sonora desert. In April 2022, however, the Mexican Congress, dominated by AMLO’s MORENA party, passed a bill nationalizing the lithium sector and announced plans to review existing contracts, putting the status of the just-made acquisition by Ganfeng in question. In June, however, AMLO appeared to reverse his actions, declaring that previously granted lithium contracts “would be respected,” effectively ceding to Chinese pressure and negating the point of his nationalization of the sector.

Electricity

In electricity generation, Chinese progress has been mixed. Work on the $414 million, 240-megawatt Chicoasen II hydroelectric facility, awarded to a Chinese contractor Sinohydro, was halted in 2016 due to a labor dispute. Nonetheless, in 2020, the AMLO government announced that the plant would be completed, the only hydroelectric facility in Chiapas state. It is currently planned to begin operating in 2025.

Beyond Chicoasen II, in November 2020, the China State Power Investment Corporation (SPIC) acquired Mexico’s largest private renewable energy producer, Zuma. The Zuma acquisition gave SPIC a substantial presence in operating wind and solar power facilities across Mexico. The acquisition was surprising, mainly because it occurred at a time in which the AMLO government was publicly and controversially advancing policies and a law to prioritize electricity generation by the state entity Corporacion Federal de Electricidad (CFE).The AMLO government was also downplaying the value of renewable energy generation and blocking other firms from operating renewable electricity plants. Since the acquisition by SPIC, Zuma has maintained a relatively low profile. It is not clear whether, like Ganfeng in the lithium sector, Zuma hopes to use broader PRC leverage as a market and source of loans and investments, specifically to secure an exception for Zuma from AMLO’s broader plans to favor the state entity CFE over U.S., Canadian, and other private sector electricity providers.

Manufacturing

The Chinese have long had a small but important position in the Mexican manufacturing sector, partially oriented towards accessing the U.S. market through Mexico’s trade integration with it under NAFTA and subsequently through USMCA. Early investments from PRC-base firms include the construction of a garment factory by Sinatex in Ciudad Obregon, investment by Golden Dragon Precise Copper Tube Group in a plant in Coahuila for manufacturing copper tubes, and a computer manufacturing plant in Monterrey by the Chinese firm Lenovo, the firm’s largest factory in North America.

In the automotive sector, the Chinese company FOTON established a component manufacturing facility in Veracruz. PRC-based FAW began work on a final assembly auto factory in Michoacan, although the venture in the end did not prove viable. Other Chinese automakers FOTON, BAIC, JAC, Chang’an, and BYD are all present in the Mexican market. In 2020, BYD announced a contract to supply 1,000 electric taxis to the Mexican market. Chinese bus manufacturers, including Yutong, are also selling products to Mexico City and other Mexican municipalities.

Despite such advances, PRC-based manufacturers have been looked upon with suspicion by their Mexican competitors. As noted previously, in 2015, a large-scale project by Mexican businessman Carlos Castillo to set up a China-oriented retail wholesale distribution hub in Quintana Roo, called Dragon Mart, was stopped following an extended series of legal battles concentrating on its alleged environmental and other impacts.

Transportation Infrastructure

China’s role in Mexican infrastructure projects, previously characterized by high profile failures such as the cancelled Mexico City-Queretaro high speed train, has begun to take on new life under AMLO.

Presently, the Chinese company China Communications and Construction Corporation (CCCC) is a key partner in AMLO’s signature project to develop the south of Mexico, specifically through the $7.4 billion, 1,500 kilometer Maya train project. Not only did CCCC win the contract for the first segment of the project, but its partner Mota Engil is 30 percent owned by CCCC.

Beyond the Maya train, in November 2020, PRC based China Railway Road Corporation Zuzhou won a $1.6 billion contract for the renovation of Line One of the Mexico City Metro, and is reportedly also interested in bidding for a $29.4 million contract to supply rail cars to the line.

Telecommunications

In telecommunication, the Chinese company Huawei has operated in Mexico since the early 2000s, alongside its smaller PRC-based counterpart ZTE. Not only does Huawei have a strong position in the Mexican smartphone market, but 80 percent of Mexican telecommunication infrastructure currently is reportedly supplied by Huawei, including its role in Mexico’s 4G “shared network” project, begun in 2013. Mexican billionaire Carlos Slim, and his company America Movil reportedly work closely, although not exclusively, with Huawei. Huawei is also currently conducting pilot projects for the deployment of 5G in Mexico, and is reportedly strongly positioned to take a leading role in 5G in the country as it is rolled out.

Other Digital Technologies

Beyond telecommunication, Huawei is building substantial cloud computing capacity in Mexico, targeting new technology-oriented and other Mexican small businesses to provide services to.

In the surveillance technology industry, in 2021, the PRC-based company Hikvision acquired a major stake in Syscom, Mexico’s largest surveillance system company.

The PRC-based ride sharing company Didi Chuxing entered the Mexican market in 2018 and is growing strongly there. Indeed, Mexico and Brazil are the two countries in which the Chinese company has most successfully expanded its presence in Latin America during the pandemic.

Finance

In traditional banking, Bank of China, HSBC, ICBC, and other institutions are well established in Mexico. With the exception of HSBC, which is one of Mexico’s most important financial institutions, the activities of PRC-based banks in the country are concentrated on supporting Chinese clients operating in the country, as well as Mexican companies wishing to do business in the PRC, where the relationships of PRC-based banks in China give them a comparative advantage. In addition, the Chinese electronic payment system UnionPay is also broadly available in Mexico.

Although Mexico has a burgeoning non-traditional financial sector, the role of PRC-based firms in the sector has been relatively limited by comparison to their growing presence in Brazil, where Alibaba acquired a $200 million stake in Nubank in 2018.

Beyond the commercial and political influence that comes from China’s growing commercial presence in, and ties with Mexico, the operation of cartels and other transnational criminal organizations in Mexico creates an additional problem. 

Chinese criminal entities in Mexico and the PRC play an increasingly important role in helping Mexico-based criminal organizations to launder their proceeds in ways difficult to monitor for Western authorities. To this end, the expanding array of legitimate transactions and accounts by Mexico-based entities in PRC-owned banks in the country expands options for criminal organizations, which launder their money in accounts in the PRC, to gain access to those funds in Mexico.

Intellectual Infrastructure

Although the effectiveness of the Mexican government and business elites in engaging with China has been subject to criticism, the country has one of the most developed intellectual infrastructures in the region for studying and engaging with the PRC. This includes five PRC-sponsored Confucius Institutes across the country (two in Mexico City, and one each in Nuevo Leon, Yucatan, and Chihuahua). Mexico also has multiple private and public universities with Chinese studies programs, including Mexico’s National Autonomous University (UNAM), whose China studies center CECHIMEX is arguably one of the most capable such institutions in Latin America. Such intellectual infrastructure contributes to a cadre of Mexican diplomats and businesspersons with capabilities in Chinese language, politics, and business, but not necessarily effective business initiatives or policy which optimally serves Mexico’s national interests.

Conclusion

Over the last two decades, as the PRC has expanded its economic and political engagement in Latin America and the Caribbean, Mexico has represented a bulwark against that expansion. The progress that the PRC and its companies are beginning to make under the AMLO government with respect to Mexican infrastructure projects, the digital sector, and other areas of the Mexican economy has significant strategic implications for Mexico, the United States, and the region.

As illustrated in this work, AMLO’s increasing need for the PRC and its resources is already manifesting itself in subtle compromises that his administration has made towards Chinese companies with respect to lithium, and possibly electricity generation, among other areas. While Mexico’s linkages to the United States in terms of trade, investment, geography, and family are far greater than Mexico’s ties to the PRC, the government’s increasingly complicated economic and fiscal situation—driven in part by the populist orientation of the AMLO government—as well as the hopes and perceptions of Mexican businesspersons, should not be underestimated. A Mexico whose economic and political elites are significantly penetrated by the PRC, and whose political orientation is swayed by that leverage, would have cascading effects with respect to facilitating China’s advance in other parts of the Hemisphere as well, particularly Central America and the Caribbean, where Mexico has had some historical influence. Such an advance would significantly complicate the position of the United States in its own near abroad, particularly as the rest of the Hemisphere increases its engagement with China and its need to work with it. The result could likely be an unprecedented wave of political transitions and economic and fiscal crises that push the region in a direction ever less disposed to cooperate closely with the United States.

--------------------------------------

Source: By Dr. Evan Ellis for Global Americans

THE US AND CHINA APPEAR TO HAVE REALISED THE CONSTRAINTS PLACED UPON THEM BY THEIR INTERDEPENDENCE AND ARE SEEKING TO EASE RELATIONS AS A RESULT, WITH HIGH-LEVEL GOVERNMENT-TO-GOVERNMENT ENGAGEMENT BETWEEN THE PAIR RAMPING UP SIGNIFICANTLY OVER THE PAST YEAR. HOWEVER, COMPANIES FROM THE US AND BEYOND WILL NEED TO CONTINUE TO TREAD CAREFULLY IN AND AROUND CHINA.

In American political circles, China is seen as both a disease and a cure. As President Biden leads the Democrats to the polls for the mid-term elections in November, detente with China could stave off inflation, which analysts expect to be the number one issue among voters. However, a China-dominated world would also be “darker and harsher for American families, and it’s one [the US] needs to stand against,” according to US Secretary of State Antony Blinken.  Meanwhile, among Democrats and Republicans alike, polling suggests that voters believe that limiting China’s power and influence is a top priority and that they feel ‘cold’ towards China, despite also considering climate change to be the number one national security threat and only solvable through compromising with China. 

It is an equally complex picture on the other side of the Pacific. Despite the increasing frequency of rhetoric coming out of Beijing signalling that China feels comfortable pitting itself against the US in Asia-Pacific affairs (eg, the Taiwan Strait does not constitute international waters) Beijing is discovering that it is going to need to work with Washington if it is to make the region more agreeable to China’s rise. Very tellingly, Chinese foreign minister Wang Yi recently failed to persuade 10 countries in the Pacific to sign a regional agreement on trade and security, demonstrating that Beijing’s neighbours are not about to turn their backs on the US and accept China’s worldview. What is more, as in the US, there is also the issue that domestic political concerns demand boosting trade and investment between the pair – the zero Covid strategy isn’t going to pay for itself. 

Finally, both countries’ respective business communities have made it clear that they would value relations easing to a more predictable and manageable level. US companies in the country’s technology sector, in particular, have lost billions of dollars’ worth of business due to the Trump administration’s decision to put Chinese technology companies with ties to the military on a ‘black list.’ Meanwhile, Chinese firms are continuing to look overseas for investment opportunities that are more stable than those on offer at home, and see the US as a key growth market, assuming the geo-political climate improves.

Background

For all the headlines trumpeting the prospects of a second Cold War and the tweets by American and Chinese politicians and thought leaders alike seeking to stir up their respective bases to distrust and demonise the other, US-China relations fundamentally appear to be easing. Circumstances change, and the current circumstances in which the US and China find themselves warrant both sides taking time to reflect on their respective priorities. 

This de-escalation comes from a high starting point, make no mistake, and will not result in US-China relations returning to a level of amicability similar to that which was maintained by both sides during the Obama administration. It’s unlikely that President Biden will be received by President Xi any time soon as a guest of honour at the Forbidden City (as was President Trump) nor will he want to be seen as accommodating China by offering a bow to his Chinese hosts (American media lambasted President Obama over this in 2012). Furthermore, hostility over topics such as Taiwan, Xinjiang and Hong Kong, as well as fair trade practices, will probably remain – but both sides appear to recognise the need to bring the rhetoric down a notch.

A little more conversation, a little less action, please 

Recently, both sides have become far more vocal on an apparent shared desire for more talks. Presidents Xi and Biden last spoke in March, and another call is reportedly in the works for as soon as July. The pair also spoke in November 2021, while their call in September of that year was the first in seven months, indicating that both sides see value in increasing the frequency with which they speak. And it’s not just at the president-to-president level: other senior officials, such as US Defence Secretary Lloyd Austin, Chinese Minister of National Defence Wei Fenghe, US Trade Representative Katherine Tai, US Treasury Secretary Janet Yellen, and China’s economic tsar, Vice-Premier Liu He, have all increased the frequency with which they engage with one another, too. 

That said, just because American and Chinese leaders are engaging more does not necessarily mean they agree on more. Indeed, the recent meeting at the Shangri-La Dialogue between Lloyd Austin and Wei Fenghe demonstrates this well, for the pair presented duelling narratives at the annual gathering of the great and good of Asia-Pacific defence and security. What’s more, the US is not always speaking to the right person, particularly on the subject of Taiwan. For example, while Wei Fenghe is nominally Lloyd Austin’s direct counterpart, Austin reports directly to President Biden, whereas Wei answers to China’s Central Military Commission, the vice-chair of which, Xu Qiliang, is seen as having the ear of President Xi.

Agree to disagree 

While both sides seem to place increasing value on engagement, there are issues where the two sides will continue to disagree vehemently – international free trade and Xinjiang are two prime examples. The US and China might have come to recognise the constraints of their interdependence, but that does not mean that they will not move to advance their respective agendas in matters which fall outside the fundamental areas in which they cooperate, such as the environment and growing non-sensitive bilateral trade and investment. 

US companies will still need to tread carefully around China, even if both countries’ officials are starting slowly to accommodate each other more at the highest levels of government. The US’ Uyghur Forced Labour Prevention Act (UFLPA) which came into effect on Tuesday 21 June, for example, requires companies that import goods from China’s Xinjiang region to provide “clear and convincing evidence” that no component was produced with slave labour; this is likely to be very difficult to do given the complexity of US firms’ supply chains. 

The UFLPA is a piece of legislation that, when viewed in isolation, suggests the Biden administration is continuing to take a hard line on China. Read it alongside President Biden’s recently announced plan to cut some tariffs placed on Chinese imports by the Trump administration, however, and it becomes clear that President Biden is signalling that trade with China remains important to the US, but within increasingly tightly defined parameters.

While the two will continue to disagree with one another on issues such as Taiwan and international free trade, both countries’ governments appear to have realised that there is room for greater pragmatism in areas such as the environment 

Tariffs 

One could argue that this is a more nuanced and pragmatic approach by the US towards its trade relationship with China, especially when compared with the Trump administration’s modus operandi of placing Chinese firms on sweeping blacklists imitating the various market access lists maintained by China. 

The US is standing up to China where their values do not align and compromising where it is in America’s interests to do so. This is further evidenced by the Biden administration’s plans to change its approach towards China over free trade, which up to this point has been to punish Beijing with tariffs. 

Lifting some of the tariffs on $370 billion worth of imported Chinese goods could alleviate inflation by as much as 1% over the next six months; with inflation in the US currently running at 8.5% on the year, that could be tempting.  

US Treasury Secretary Janet Yellen has said that some of the tariffs currently placed on Chinese imports serve “no strategic purpose,” while US Trade Representative Katherine Tai has indicated that the tariffs predominantly serve as a way of maintaining leverage over the Chinese in negotiations surrounding levelling the playing field for US firms in China and third markets. Removing some of the tariffs is in America’s interests as it will push down consumer prices and ease inflation; keeping others in place reminds China that the world’s most powerful economy takes issue with how it trades.

The CBBC view 

Though it may be hard to see, US-China relations appear to be thawing. While the two will continue to disagree with one another on issues such as Taiwan, international free trade, and human rights, both countries’ governments appear to have realised that there is room for greater pragmatism in areas such as the environment and bilateral trade and investment. Furthermore, even on those topics where they do not see eye to eye, the realisation that a conflict would not be in either country’s interests appears to be sinking in, leading to increased engagement on these sticking points. 

US companies will need to continue to tread carefully in and around China, and vice-versa, and their government affairs teams will have to pay even closer attention to the signals coming out of Beijing and Washington, such is the sensitivity of the relationship – but the US and China appear to have realised the constraint that is their interdependence, which is no small thing. 

------------------------------------

Source: China Britain Business Council

Pakistani Prime Minister Imran Khan is visiting China this week to attend the opening ceremony of the Winter Olympics and meet with Chinese leaders.

A spokesman for Pakistan's Foreign Ministry told media last Friday that Khan's visit would reinforce the all-weather strategic cooperative partnership between the two countries, in addition to advancing the objective of building a closer China-Pakistan bond with a shared future. Khan's trip is his first in nearly two years. However, some people are skeptical over the reasons for his visit.

Although Pakistani Foreign Minister Shah Mahmood Qureshi claimed last Thursday that the visit was aimed at expressing solidarity with Beijing, as some countries have boycotted the Olympics, some Pakistani media outlets report that Islamabad is eyeing a $3 billion (€2.6 billion) loan from China, the world's second-largest economy after the United States, in addition to pinning hopes on Chinese investment into six sectors.

The English daily Express Tribune recently reported that the government was considering requesting that China approve another $3 billion loan, which could be kept in China's State Administration of Foreign Exchange (SAFE) so as to boost its foreign exchange reserves.

Pakistan seeks investment in six industries

Islamabad is also seeking Chinese investment in the industries of textiles, footwear, pharmaceuticals, furniture, agriculture, automobile and information technology. The newspaper further wrote: "The government is expected to tell the 75 Chinese companies that it could provide access to trade routes to the Middle East, Africa and the rest of the world, offering greater incentives in the shape of reduction in freight costs."

Pakistan relies heavily on China for economic assistance and cooperation. The communist country has already pumped billions of dollars into the Islamic republic under the China-Pakistan Economic Corridor. Islamabad completed a number of energy and infrastructure projects under the CPEC.

Economist Kaiser Bengali believes that Pakistan is now 100% dependent on China for financial and economic assistance. He told DW that the immediate purpose of the visit is to seek the loan from Beijing, reflecting Pakistan's growing reliance on China.

"While the conditions of the IMF are made public, China keeps the terms and conditions of loans and projects secret, which leads to suspicions," he said.

Many nationalists in Pakistan's western province of Balochistan are skeptical of the Chinese investment, which they say does not benefit the residents of the region that houses the Chinese-run strategic Gwader port.

The residents of Gwader recently erupted in protest against the scarcity of drinking water, complaining that Chinese investment did not help improve access or help the province in other ways.

Some Baloch nationalists fear that, if Pakistan defaults on its loans, China would seek mining contracts in the mineral-rich province at an extremely discounted rate — or possibly take over the port.

Bengali said such suspicions are exacerbated by the secrecy surrounding Chinese development projects and the terms of the loans.

During the Cold War, the United States was the main ally of Pakistan, supplying the country with weapons and military training. Islamabad also joined western military alliances to counter communism.

Strained ties with West

Pakistan's ties with the United States were somewhat strained during the 1990s, but the country again became Washington's ally in the "war on terror" after the September 11, 2001, attacks. However, following the US pullout from Afghanistan, the South Asian country is now looking to the East for strategic alliances.

Talat Ayesha Wizarat, a Karachi-based expert in international relations, told DW that Pakistan is heavily dependent on China because the West did not turn out to be a reliable ally, abandoning Islamabad and instead cozying up to New Delhi, a common foe of both Pakistan and China.

Wizarat said loans from the International Monetary Fund came with strings attached, and added that Western-backed financial institutions asked about the details of CPEC projects.

She said that in contrast, China didn't put conditions on its loans. "It has already pumped billions of dollars into the CPEC but did not attach strings," Wizarat told DW.

The US has no interest in the region after pulling out from Afghanistan, she said. As a result, she added, Pakistan will need China's assistance to bolster its economy, stabilize Afghanistan, promote trade in the region and consolidate its defenses.

Under the Joe Biden administration, a new American grand strategy is coming into view. It is focused on the emergence of China as a peer competitor and organized for long-term strategic rivalry with Beijing to shape the rules, institutions, alliances, alignments and values that undergird world order in the 21st century. For three decades, the United States has watched the rise of China and debated its implications for American interests and the future of the US-led international order. Will China’s rise be peaceful? Will it be a “responsible stakeholder”? Will it seek integration into the world capitalist system dominated by the leading liberal democracies, or seek to contest and overturn it? Will “engagement” with China lead to a more open, pluralistic rule-of-law regime? What kind of challenge does China pose to the US and its allies and partners — military, economic, technological and ideological, or all of these? Will China use its growing power and wealth to try to “push” the US out of East Asia? In an era of intensified US-China competition, how will countries inside and outside of East Asia react and align themselves? Can the US and China find a way to coexist in a two-superpower world?

In the last several years, the answers have become increasingly clear, at least to the US foreign-policy establishment. As a result, a core set of convictions about the rise of China has crystallized to shape Biden administration strategy. First and foremost, China is now seen as a full-spectrum challenger to the US global position and the US-led liberal democratic world. In announcing the creation of a new China Mission Center, the CIA described China as “the most important geopolitical threat we face in the 21st century.” China is deeply embedded in the global system and world economy, and US-Chinese co-operation will be essential to manage problems of security, economic and environmental interdependence. But the US and China are also hegemonic rivals with very different visions of the world order, rooted in increasingly divergent developmental and order-building interests. The US wants to make the world safe for democracy, and China wants to make the world safe for the Chinese Communist Party (CCP) and political autocracy. The US believes — as it has done for more than two centuries — that it is safer in a world where the liberal democracies predominate.¹ China contests such a world. Therein lies the deep roots of Sino-American rivalry.

The Biden administration has thus moved to place long-term strategic competition with China at the center of its grand strategy. The abrupt and chaotic end of the American war in Afghanistan was seen by many as a decision by Biden to step back from global security leadership. But it is better seen as a strategic rebalancing of resources and commitments, repositioning the US to focus on East Asia and competition with China. The post-9/11 grand strategy of fighting a global war on terror has ended, giving way to a China-centered grand strategy organized around the balance of power, hegemonic competition and a struggle to shape the organizing logic of the global system. The Biden administration’s efforts to build counterweights to China in the Indo-Pacific — the Quad and the AUKUS agreement — are harbingers of this strategic reorientation.

Several convictions inform this new grand strategy. First, as China grows in wealth, power and global influence, it is increasingly turning into a “systemic rival” of the US, offering alternative leadership and order-building agendas. As Gideon Rachman notes, “the Biden team believe that China is determined to displace the US as the world’s pre-eminent economic and military power, and they are determined to push back.”² Fundamentally, China seeks to contest, weaken and shrink America’s liberal hegemonic presence in the world, paving the way for the elevation of its hegemonic leadership that champions an international order more congenial with its own illiberal regime principles and interests. Chinese President Xi Jinping seems to share this view, telling legislative officials in Beijing in April 2021 that “China can already look at the world on an equal level,” suggesting that it no longer sees the US as a superior force. China is a “systemic rival” because it challenges the full spectrum of US power, interests and values. This competition will play out over many decades and across a wide array of areas — military power, alliances and alignments, markets and trade, money and finance, next-generation technology, science and research, and democratic versus autocratic ideology and values.

Second, the engagement strategy of the 1990s that sought to integrate China into the liberal international order mostly failed. Welcoming China into the US-led system — capped by its membership in the WTO in 2001 — did not lead to the hoped-for liberal outcomes. China became more integrated into the world economy, and mutually beneficial trade and growth followed, but Beijing did not continue on its path of reform, opening and liberalization. 2018 was a turning point, when the Deng Xiaoping-era term limits on the Chinese presidency were dropped, making President Xi, in effect, “ruler for life.” The attack on democracy in Hong Kong, the oppression of the Uyghurs, the intimidation of Taiwan, the territorial aggrandizement in the South China Sea, the internal crackdown on Western influences, the cult-like elevation of “Xi Jinping thought” — these are markers of the path China is traveling. Under Xi, China has become more autocratic, anti-liberal, anti-democratic and internationally aggressive. Glimmerings of openness, reform, the rule of law and civil society outside the reach of the communist state have essentially disappeared. 

Third, the US is not capable of balancing against China’s illiberal hegemonic ambitions on its own. It will need to work with a coalition of like-minded states and associated partners to create alignments that strengthen the underpinnings of the liberal international order. In his recent UN General Assembly speech, Biden mentioned “allies” eight times and “partners” 16 times. After all, the China challenge is not just aimed at America’s global position. It is a challenge to the wider world of liberal democracies and their longstanding military, economic and ideological dominance in the global system. By working together, liberal democracies can exploit their power to shape global rules and institutions. This strategy of fostering co-operation among the democracies is not a project to build a unified Cold War-era “free world” bloc — this is not possible or even desirable. The goal is to build a wide variety of ad hoc groupings to aggregate military, economic and diplomatic capabilities in various zones of competition. Within East Asia, as Kurt Campbell and Rush Doshi have argued, the “purpose of these different coalitions — and this broad strategy — is to create balance in some cases, bolster consensus on important facets of the regional order in others, and send a message that there are risks to China’s present course.”³

Fourth, the most important step in countering Chinese ambitions is to make liberal democracy work at home. Demonstrating that liberal societies can function effectively and solve problems — this is the goal upon which everything else depends. American internationalism is only sustainable if it advances the life opportunities of the middle class. This means a New Deal-type effort to renew and rebuild American society and institutions, investing in a modernized economy, infrastructure, research and technology and clean energy. The competition between China and the US is really a competition over “modernity projects,” alternative models and ideologies of global development and socioeconomic advancement. America succeeded as a global power in earlier eras because its capitalist democratic model seemed to outperform its rivals. We are entering an era where this competition will again play out.

The ambitious proposals of the Biden administration — with massive funding plans for infrastructure, R&D, education and the social safety net — are driven by this deep worry about the future of liberal democracy in the US and abroad. In this sense, Biden’s grand strategy is an echo of Franklin Roosevelt’s New Deal-era agenda for domestic renewal.⁴ Today, as in the 1930s, the future of liberal open societies is uncertain. The emerging hegemonic rivalry between the US and China is really a competition to see which superpower can lead in solving the great problems of the 21st century. The viability for American and Chinese hegemony depends, in the final analysis, on the solutions and public goods that each generates for the world. It is a contest to see who can offer the world a better hegemonic deal.

Fifth, the struggle between China and the US will also center on competition to shape global rules, regulations, technological platforms, and the values and principles enshrined in global institutions and regimes. Multilateral institutions and regimes are not value-neutral. They can be more or less friendly to liberal democracy and human rights and more or less friendly to authoritarianism and autocracy. Technology platforms and their network externalities also can give one side or the other advantages. This struggle favors first movers and countries that work together with other countries to create “critical mass” coalitions. The US will seek to build coalitions with liberal democracies to strengthen their position in these diverse, technology-driven areas of global rule and regime-making.

Here, the Trans-Pacific Partnership (TPP) trade accord, negotiated by President Barack Obama, and later rejected by Donald Trump, is a model. It restricts state-owned enterprises from subsidized dumping, protects intellectual property rights, outlaws human trafficking and requires the legalization of independent trade unions and collective bargaining. The world trade system will have rules, and the question is whether they will or will not incorporate human rights and liberal democratic protections. This piece of the Biden strategy still hangs in the balance, endangered by anti-TPP factions on both the left and the right.

Finally, the US will need to build working relations with China, even as it competes. There are critical and growing “problems of interdependence” that can only be tackled through superpower co-operation. After all, even during the Cold War, the US and the Soviet Union worked together through the World Health Organization on finding a cure for small pox, and the two countries engaged in sustained efforts at arms control. The US should not need to “buy” co-operation from China on solving problems such as global warming by pulling its punches on issues such as human rights and Taiwan. The two superpowers will need to identify red lines and establish crisis diplomacy mechanisms to keep competition from spiraling out of control. Both sides will have incentives to build restraints and guard rails into their regional and global rivalry.

The emerging “systemic rivalry” between the US and China will shape world politics for decades. But there are restraints that will limit its intensity and dangerous consequences. One is on the Chinese side: the growth of Chinese power and its aggressive “wolf warrior” actions have triggered a regional and global backlash. If China’s foreign policy continues to become more aggressive and belligerent, it will generate even more pushback. In effect, China faces the problem that post-Bismarck Germany faced, and what historians call the problem of “self-encirclement.” Germany under Bismarck undertook elaborate efforts to reassure and diplomatically engage its neighbors. But by the turn of the century, post-Bismarck Germany began to destabilize and threaten Europe through its economic growth and military mobilization. For the same reasons, China should worry about how it exercises power and look for ways to avoid backlash and self-encirclement. At some point, China will want to moderate its ambitions and signal restraint.

For the US, restraint comes from the fact that most of its alliance partners are deeply tied economically to China. Across both Northeast and Southeast Asia, countries are simultaneously dependent on China for trade and investment and the US for security protection and the maintenance of the military balance. Remarkably, 100 countries in the world have twice as much trade with China as they do with the US. The US needs to worry that if it pushes too hard on its allies to confront or contain China, they will jump off the American bandwagon. The US will have incentives to pursue a “not too hot and not too cold” strategy in East Asia.⁵ It will need to reassure allies that America “is back” and that it intends to remain a provider of regional security and military balance. But it will also need to convey reassurance in the other direction, that it will not push frontline states into a war with China — or even force these states to make existential choices about which side they are on.

---------------------------------

By G. John Ikenberry for Global Asia

The European Union Chamber of Commerce in China has released its European Business in China – Position Paper 2020/2021 (Position Paper). This annual publication delivers to the Chinese Government over 800 detailed recommendations for improving the business environment, spread across 34 industry sectors and horizontal issues. The Position Paper details how persistent issues, such as limited market access and a complex regulatory environment, prevent European businesses from contributing fully to China’s sustainable development.

This significant amount of untapped market potential could help to not only boost economic growth, but also stave off serious problems that have for some time threatened China’s development, like its burgeoning debt situation and rapidly ageing population. While the European Chamber has been advocating for increased market access and a level playing field for its members for the past two decades, it is now critical for China to enact meaningful reforms due to the economic devastation wreaked by the COVID-19 pandemic and the looming threat of decoupling.

Although European companies remain committed to the market, a number of ‘dichotomies’ that have emerged in recent years raise questions over which direction China will eventually decide to move in:

• The ‘one economy, two systems’ model, which divides the private and state-owned economies
• The country’s economic potential versus its market access regime
• The persistent divide between China’s rhetoric and the reality on the ground
• The clash of China’s charm offensive towards European business and its ‘wolf warriors’ in Europe

These issues are further compounded by the increased politicisation of doing business in China. This is a serious factor that threatens business operations in ways that companies can neither predict nor control. European leaders currently still have the appetite for engagement, but public opinion in the Old Continent is souring on China: voters are voicing their concerns over the unbalanced economic relationship, allegations of forced labour in Xinjiang and the autonomy of Hong Kong. These issues present a real challenge for the EU and China to find an effective way forward before the window of opportunity closes.

It is therefore imperative that the EU and China strive for a political agreement on the Comprehensive Agreement on Investment (CAI) by the end of 2020. A half-baked deal that leaves the most critical issues unaddressed would be unwelcome and futile. Instead, it must deliver tangible results and secure open and fair markets on both sides to bolster the relationship and lay the groundwork for further productive engagement.

“Having inked bold economic agreements with numerous diverse partners in recent years, it is not revolutionary that the EU should expect a market that is as open and fair as its own when entering into such an agreement with China,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “After more than 30 painful rounds of CAI negotiations, there’s a real sense that this is now or never.”

Please click here to download the report (registration witth an email required).

Last week saw The Communist Party of China (CPC) unveiled a new leadership line-up for the next 5 years. Xi Jinping was again elected general secretary of the CPC Central Committee, leading its seven-seat Political Bureau Standing Committee. The other six members of the top leadership are Li Keqiang, Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng. For the first time, all Standing Committee members of the Political Bureau were born after the founding of the People's Republic of China in 1949.

Personal Profiles of the Standing Committee:

Xi Jinping

Xi Jinping, 64, retains his spot on top of the Party pecking order, entering his second term as General Secretary and third term on the PSC.

Xi is considered China’s most powerful leader since at least Deng Xiaoping, and perhaps even Mao Zedong. At the 19^th Party Congress, he became the only leader besides Mao to have his name written into the Party constitution while living. Last year, he earned the designation of “core leader” of the Party, a title his predecessor Hu Jintao did not obtain.

Xi also holds the titles of President of the People’s Republic of China and Chairman of the Central Military Commission.

Born in Beijing, he is the son of Party legend Xi Zhongxun. During the Cultural Revolution, he lived in a cave and performed manual labor in Shaanxi province. Before rising to the PSC in 2007, Xi held leadership positions in Fujian and Zhejiang provinces, as well as a brief stop in Shanghai.

Li Keqiang

Li Keqiang, 62, continues to hold the number two position on the PSC as Premier of the State Council, China’s cabinet. The position makes him head of the Chinese government and economic affairs.

Li holds a PhD in economics from China’s prestigious Peking University, and is known to hold more market-oriented policy preferences than many others in the Party. He rose through Party ranks as a member of the Communist Youth League, and was a protégé of former president Hu Jintao, who reportedly wanted Li to be his successor.

Prior to joining the PSC alongside Xi in 2007, Li held leadership posts in Henan province from 2002 to 2004 and Liaoning province from 2004 to 2007. He was born in Hefei, the capital of Anhui province.

Although he carries several responsibilities as Premier, including instituting economic reforms and combatting pollution, he is generally considered less powerful than his predecessors Wen Jiabao and Zhu Rongji.

Li Zhanshu

Li Zhanshu enters the PSC as the third-ranking member. He is a trusted associate of Xi, having been his chief of staff since 2012. At 67 years old, he narrowly avoided the age cut-off to join the PSC.

With his ascension to the PSC, Li is expected to head the National People’s Congress, China’s parliament. Currently, he is the Director of the General Office of the Communist Party of China and Chief of the General Office of the National Security Commission.

Li first met Xi when the two held Party positions in Hebei province, where he was born, in the 1980s. Li later held leadership positions in Heilongjiang and Guizhou provinces, as well as in the city of Xi’an, the capital of Shaanxi province.

Wang Yang

Wang Yang, 62, is the fourth-ranking member of the new PSC. He will reportedly take the position of Chairman of the Chinese People’s Consultative Conference, China’s top political advisory body.

Currently, Wang is China’s Vice Premier. Along with Li Keqiang, he is widely considered one of the most liberal reformers among China’s leadership, and is also connected to former president Hu Jintao.

Wang is credited with being instrumental in the development of Chongqing, where he was Party Secretary from 2005 to 2007. From 2007 to 2012, he was Party Secretary of Guangdong province, which has the highest GDP and largest population of China’s provinces.

Wang Huning

Wang Huning, 62, emerged from the 19^th Party Congress ranking fifth on the PSC. Wang has long been considered one of the Party’s top political theorists, and will head ideology, propaganda, and party organization.

He is currently the Director of the Central Policy Research Office, which is responsible for drafting the guiding theories and ideology of the Party.

Wang is widely considered to have been essential in forming the former president Jiang Zemin’s “Three Represents” theory, Hu Jintao’s “Scientific Development” theory, as well as Xi’s “China Dream” and “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”.

Wang rose to prominence through a brief but prolific career as an academic at Shanghai’s Fudan University, where he wrote on both foreign and domestic affairs. He is considered a close confidante of Xi, with whom his theory of “neo-authoritarianism” and tough stance on corruption has proved highly influential.

Zhao Leji

Zhao Leji, 60, enters the PSC in the sixth spot. He is poised to take over Wang Qishan’s role as Secretary of the Central Commission for Discipline Inspection, making him China’s anti-corruption czar.

Currently, Zhao is the head of the powerful Organization Department of the Central Committee, which manages personnel and promotions within the Party.

From 2003 to 2007, Zhao was Party Secretary of Qinghai province, where he was born, and from 2007 to 2012 was the Party Secretary of Shaanxi province. Zhao’s connections to Shaanxi province, where is family is originally from, are believed to be how he formed ties with Xi, with whom he is a strong supporter.

Han Zheng

Han Zheng, 63, takes the seventh and final spot on the PSC. He is tipped to take over the role of Executive Vice Premier.

Han has deep ties to Shanghai, where he was born, grew up, and attended university. He was Mayor of Shanghai from 2003 to 2012, and acting Party Secretary of Shanghai from 2006 to 2007. He succeeded Xi as Shanghai’s full time Party Secretary in 2012.

Han was known as a close associate of Jiang Zemin, who also has strong ties to Shanghai. He became acquainted with Xi when the two overlapped in Shanghai, with Han as Mayor and Xi and Party Secretary.

Mongolia’s economic potential is significant, with vast deposits of copper and coking coal situated close to its main market in China: according to World Bank estimates, Mongolia's economy in the coming decade will grow on average at 15 per cent. However, this potential is vulnerable as the country is increasingly reliant on two main commodities being exported to one country, making Mongolia susceptible to external shocks such as changes in commodity prices and demand in China. According to 2015 data from Trading Economics, China accounts for 89 percent of Mongolia’s exports and 26 percent of its imports and so the slowdown of the Chinese economy is of critical significance to Mongolia. Charting a course for the country from mineral wealth to long- term sustainable and diversified growth is a key task facing Mongolia.

Despite 70 years of Soviet domination, the majority of Mongolians today consider China a greater threat than Russia to its national identity and sovereignty. Although China is by far the bigger trade partner, Russia remains the more popular of its neighbors, however this might be changing.

The “Third Neighbor Policy” of building economic, political, social and military relations with outside countries, the United States foremost among them, speaks directly to Mongolian concerns about the influence of its neighbors. In the past the government has tried quietly to maintain as pragmatic an approach toward China as possible (despite strong public opinion to keep its distance). On Xi Jing Ping`s last visit in 2014, bi-lateral relations were upgraded to a “comprehensive strategic partnership”, and this has seen a distinct ramp up in Governmental relations.

Speaking of Xi JingPing`s visit, President Ts.Elbegdorj confirmed his satisfaction with the steady development of relations regarding the economy, culture, education, and humanitarian work and expressed the hope that the visit would serve as a “push to deepen the full strategic partnership between Mongolia and China.” Communications between Mongolia and China immediately dramatically increased, not only between citizens of both countries in the context of cultural exchanges, but also at the highest levels: President Ts Elbegdorj was in contact with Xi Jinping 5 times in 2014, and 3 times in 2015.
 

Infrastructure development.

Mongolia is keen to use China's rail network to deliver coal and other minerals to other markets as well as turning Mongolia into a "transit corridor" linking the Chinese and Russian economies. Integration of the Mongolian Steppe Route infrastructure project into the Chinese One Belt, One Road project in order to enhance cooperation in the field of agriculture and the creation of conditions required for increasing the export of Mongolian meat and meat products to China are well under way.

2014 saw a MOU for a high speed rail line project linking Beijing and Moscow through Mongolia signed by Russia and China during a visit to Moscow by the Premier of the PRC State Council Li Keqiang. This new passenger train project would reduce the 7000 km journey from 6 days to 2.

Growing debt crisis.

When a new Mongolian coalition government took office in 2012 facing extremely favorable economic conditions, including high mineral prices and strong demand from China. Gross domestic product had grown by 17.3% in 2011 and by another 12.3% in 2012. The mineral-rich country’s prospects were bright, however due to irresponsible borrowing (rapidly expanded spending on housing, government salaries, social welfare and pensions) over the last four years Mongolia now faces a debt crisis.

Mongolia became a significant global issuer of commercial paper. Between 2012 and June 2016, the government raised $3.6 billion, roughly one-third of GDP, on global bond markets, paying high interest rates. Adding in the swap arrangements with the Chinese central bank and other loan guarantees, Mongolia’s external debt position by 2015 became highly precarious, with total debt of more than 70% of GDP.

Coinciding with a continued collapse in foreign investment and a steady decline in global mineral prices due to China’s slowdown Mongolia’s growth has slowed sharply to 2.3% in 2015 and is likely to be zero or negative in 2016.

Looking to the future, three distinct possibilities arise:

Regional Renaissance: North-East Asia becomes more politically integrated, with strong economic growth. This
 gives Mongolia the opportunity to sell
 its main minerals and achieve economic diversification, and the challenge of managing export revenues in a way that prevents economic overheating and social unrest. The sector already accounts for
nearly 90% of the country’s exports and the foreign direct investment (FDI) it attracts amounted to nearly 50% of government revenues

China Greening: A revolution in environmental attitudes sees China lead the way in the “circular economy” and pioneering new products and services. This reduces demand for Mongolia’s main minerals, but opens up new opportunities to diversify into green products and services. Being next door to the world’s largest market presents a tactical advantage and tremendous opportunities, but also means the country’s economic performance is tightly coupled with that of China. This makes it important for Mongolia to understand emerging developments in China and what trade and investment opportunities they raise.

Resource Tensions: Geopolitical tensions ravage the region; natural resources are used for political leverage, making trade difficult. Mongolia struggles to access finance and markets for its minerals and to pursue diversification opportunities, but this scenario presents opportunities to carve out a role as a neutral and respected neighbour.

Mongolia’s newly implemented ‘third neighbor policy’ is one of the more innovative foreign affairs approaches in the country’s history. As the global political sphere changes rapidly, Mongolia’s political stability, economic developments, non-traditional national security environment, and far-sighted foreign policy strategies are crucial for continuing its democratic transition and keeping up with new developments in the Asia-Pacific

Every March, top lawmakers and political advisors gather in the capital from all over the country to attend the "lianghui," or "two meetings" where they review the performance of the government over the past year and hear new policies and major economic targets.

The two parts of the "lianghui" are the National People's Congress (NPC), which is the country's top legislature, and the Chinese People's Political Consultative Conference (CPPCC), a body that advises the government on a range of issues. The meetings typically last about 10 days.

Why is it important?

Premier Li Keqiang delivers a report on the government's work to the 3,000 delegates on the first day of the NPC conclave, which this year begins March 5. His press conference on the final day (March 15) is also closely watched because he fields questions from foreign journalists. The report Li delivers will announce China's targeted GDP growth for the year and other key figures, such as the national defense budget.

Compared to the Communist Party's big meetings, the "lianghui" is more visible, perhaps intended to provide the public with a bit of political theater.

What is the National People's Congress?

Technically it is the highest organ of state power. Its roughly 3,000 delegates meet once a year to ratify or approve policies, laws, the budget and top government personnel changes, which are mostly placed before it by other official organs. A 175-member NPC Standing Committee runs the legislature and passes laws between the annual meetings. It is chaired by Zhang Dejiang, No. 3 in the Communist Party after Xi Jinping and Li.

Has the NPC ever rejected legislation?

It has never voted down a proposed law, which has raised questions as to its function. However, since the legislature held its first meeting in 1954, there have been increasing instances of a lack of consensus. In 1982, three delegates abstained from a vote for the first time. The first "no" vote was cast six year later when Taiwan delegate Huang Shunxing voted against a nomination for chairman of the NPC's Education, Science, Culture and Public Health Committee. Then in 1992, only two-thirds of the legislature voted for the Three Gorges Dam project. More recently, hundreds of delegates have voted against or abstained from voting on the work reports given by the head of top prosecutor's office and the chief judge of the Supreme People's Court.

Who can be an NPC member?

Delegates are elected to five-year terms mostly by provincial people's congresses, who themselves are elected by lower-level assemblies. Only delegates at the lowest level – the county level or equivalent – are directly elected by the public. The People's Liberation Army also picks some members. The NPC has 2,943 members this year, meaning each one represents about 670,000 people. Some 406 delegates represent China's 55 ethnic minorities.

Then what does the CPPCC do?

The CPPCC is a collection of advisors that give party and government bodies suggestions on economic, political, cultural and societal issues. The membership is more varied than the NPC, and not everyone is a party member. Many CPPCC members are leading figures in fields such as academics, the legal profession and the business world. The body also has some star power, with luminaries like former NBA star Yao Ming and Hong Kong actor Jackie Chan holding posts.

CPC Central Committee's Proposal on Formulating the Thirteenth Five-year Plan on National Economic and Social Development - sets out the goals, principles and targets for China’s development in the next five years, and will have significant business implications, not only for China, but also for the world, given the size and global influence of China’s economy.
 

Background of the 13th FYP

China has made remarkable progress to date:

• Becoming the world’s second largest economy, the largest trading nation, the largest destination for foreign direct investment and the third largest global investor, together with the largest foreign exchange reserves.
• Achieving average GDP growth of 7.8% over the past five years, 48.1% of which was contributed by the services sector of the GDP, exceeding manufacturing and construction.
• Reaching an urbanisation rate of 55%, lifting over 100 million people have out of poverty in the past five years.

 Despite these achievements, the 13th FYP recognised that China faced several major structural challenges, including:

• over reliance on exports and fiscal investment for GDP growth
• industrial over-capacity and declining profits
• widening gap of development/income between regions and social groups
• severe environmental pollution and rising constraints of natural resources
• rising cost of labour, education, housing and healthcare
• an aging population
• government over-regulation and poor quality services.

China’s economic growth has slowed down to 6.9% in the first three quarters of 2015.

In the words of CPC leadership, China’s economic growth model is “unbalanced, uncoordinated and unsustainable”, and must be changed.

Objectives

The 13th FYP is the first five-year plan formulated under President Xi Jinping's leadership and considered strategically important as the year 2020 will be the centennial anniversary of the founding of the CPC and the deadline for realising China's goal of becoming "a moderately prosperous society in all respects". In other words, China needs to double its 2010 GDP and per capita income of both urban and rural residents by 2020 – an enormous task given the current economic uncertainties.

To achieve the goal, the party has underlined five guiding principles:

1. Innovation
2. Coordination
3. Green development
4. Opening up
5. Sharing

Specifically, in the next five years, China aims to:

• achieve more balanced, inclusive and sustainable development by coordinating a range of economic indicators;
• maintain medium-high economic growth;
• plan better allocation of resources;
• raise the efficiency of investment and companies
• promote advanced manufacturing and agricultural modernisation;
• become an innovation-driven nation;
• keep encouraging mass entrepreneurship;
• continue raising the service sector's contribution to GDP;
• further increase consumption's contribution to economic growth;
• increase the pace of urbanisation;
• narrow the income gap, eliminate poverty and improve people’s livelihood through expanding public services on employment, education, culture, social security and healthcare;
• further open up its economy; and
• strenuously promote environmental protection and low carbon growth.

President Xi Jinping later elaborated that, to achieve the goal, China would need to maintain an average annual GDP growth rate of 6.5% until 2020. This growth rate, coupled with a smooth transition to a growth model primarily driven by consumption and services, will hopefully guide the economy into its “new normal” period and help China avoid the “middle-income trap”.

Sector-specific  development plans

The CPC proposed the following specific action points and targets for each aspect of the 13th FYP.

1. Promoting innovation and technological advancement

In declaring China’s future development “must rest on the basis of innovation”, the CPC has made clear the strategic importance of innovation in the 13th FYP.

•  Call for exerting the leading role of science and technology innovation through strengthening basic research and re-innovation of existing technologies;
  • Encourage Chinese research institutions to conduct cutting-edge research and places significant value on “subversive technological breakthroughs”;
  • Implement the Internet+ Action Plan to develop application technologies for the Internet of Things
  • Change government functions from research and development management to “innovations services”, with a focus on making new breakthroughs in next-generation communications, new energy, new material, aerospace, biological medicine and smart manufacturing;
  • Provide better protection of intellectual property rights
  • Lay out the government’s plans to:
    • Set up a batch of leading innovation enterprises and to create and innovation cities and regional innovation centres;
    • Establish an Industrial Technology Innovation Alliance to promote cross-sectoral and cross-territorial innovation;
    • Give universities and research institutes the liberty to become innovation leaders with greater powers in making decisions on research and funding;
• Carry out several major national science and technology projects, and set up national-level laboratories in the next five years;
• Take the lead in organising international scientific programs and projects;
• Carry out its national big data strategy and promote open sharing of data resources;
• Encourage the integration of the Internet with traditional sectors of the economy and all kinds of Internet-based innovations, including those in industrial organisations, business models, supply chain and logistics;
• Promote start-up incubators and crowd-funding, and encourage angel investment and venture capital investment; and
• Build a ubiquitous and fast mobile information network to balance improvements to the transportation and mail delivery networks.

2. Industrial transformation

Manufacturing remains the keystone of China’s economic growth and the basis for building an innovation-driven nation as well as for overseas expansion.

• Press ahead with the Made in China 2025 initiative, which is China’s most comprehensive and ambitious industrial plan to upgrade its manufacturing;
• Concentrate on the development of the ten priority strategic industries, namely:
  • the next-generation information technology
  • numerical control tools and robotics
  • aerospace equipment
  • ocean engineering equipment and high-tech ships
  • railway equipment
  • energy saving and new energy vehicles
  • power equipment
  • new materials
  • medicine and medical devices
  • agricultural machinery
• Elevate China's position in the global value chain by adding more value and technology on more products;
• Increase the flexibility, intelligence and sophistication of the manufacturing sector;
• Absorb excess capacity in certain industries through economic and legal means to improve market exit mechanisms;
• Step up efforts to cultivate production-related services and improve market access;
• Facilitate the transition of manufacturing to a new growth model of production services;
• Promote clean industrial production, low-carbon development and energy conservation to ensure sustainable growth;
• Steer traditional manufacturing along an environmentally friendly path, establish a low-carbon production system and encourage businesses to upgrade their technology;
• Establish a green development fund to promote clean production through clean energy, green transportation, control of carbon emissions in major industries and a circular economy.

3. Enhancing environmental protection and green growth

Given China’s appalling environmental conditions in recent years, the CPC has been paying increasing attention to environmental protection and has vowed to build a “beautiful China” by “prioritising ecological progress and incorporating it into all aspects and the whole process of advancing economic, political, cultural, and social progress.”

Carbon emissions

• Embrace a "green development model” by implementing a more exacting environmental protection system to actively control and reduce carbon emissions, especially in major sectors such as electricity, steel, construction materials and chemicals;
• Support the preferred development zones to take the lead in achieving carbon peaking;
• Push for pilot projects on Near Zero Emission Zones.

Green transformation

• Establish a capping system on the total volume of pollutants and a permit system for companies to discharge their emissions;
• Establish a system to allocate pollution rights, carbon emission rights and energy and water use rights for enterprises, who will have to pay for the extra water and energy usage and waste discharges while reaping a profit by selling their surpluses;
• Promote the green transformation of the traditional manufacturing industry and speed up the development of low-carbon and recycling industries, with a commitment to make green competitiveness a new engine of economic growth;
• Implement a prevention and rehabilitation action plan for air, water and land contamination in the next five years;
• Control and reduce agricultural pollution.

Resource management

• Speed up the construction of “main functional areas” as the basis for spatial development and protection;
• Promote conservation of energy, water and land resources and implement the strictest water resource management and pilot a crop rotation and fallow system;
• Ban commercial logging of natural forest and improve forest growing stock. The country will also strengthen protection of endangered species through breeding centres and gene banks, while improving management and control of wildlife imports and exports including ivory.

As stipulated in the new environmental law, the 13th FYP reconfirms that government officials will be audited upon leaving their posts on the balance sheets of natural resources.

4. Energy revolution

• Advance the energy revolution by ramping up the exploration of clean, safe resources to replace coal and other fossil fuels in line with its green growth plans;
• Continue to develop wind, solar, biomass, water, geothermal and nuclear energy, and grant natural gas exploration rights to more companies and encourage exploitation of shale and coalbed gases. Nuclear power will be developed in a safe and efficient manner;
• Construct energy storage and smart grid and develop distributed power.
• Raise the energy conservation standards for buildings and promote green building and green building materials.
• Boost low-carbon public transportation with an improved rail transport system.
• Promote cycling and new energy vehicles to encourage a "green" and sustainable lifestyle.
• Take pro-active actions to control and cut carbon emissions, especially of energy-intensive industries such as power, steel, chemical and architectural materials,

In line with its international commitments[1]; According to official statistics, China is planning to invest US$6.6 trillion in the coming decade on low carbon technology, renewables, energy efficiency and emission reduction products, generating huge business opportunities for Chinese and foreign companies along the way.

5. Reforms of state-owned enterprises (SOEs)

Internal reforms

• Improve SOE vitality, controlling power, influence and resilience.
• Strengthen its supervision over state assets by shifting its focus to capital management.
• Encourage more state capital to be invested into the sectors and industries that are of significance to national security and the national economy.
• Reduce government intervention in the operation of enterprises, reduce administrative approvals, break regional market segmentation and sectoral monopolies and create a fair competitive environment for all enterprises.

Private sector participation

• Encourage the private sector to enter into industries dominated by SOEs and participate in SOE reforms through merger and acquisitions or mixed shareholding;
• Open up currently monopolised sectors, such as oil, natural gas, electricity, telecommunications, transportation and utilities, for private investment, in a bid to create competition;

6. Urbanisation and infrastructure investment

China is still at the early stage of urbanisation. The CPC anticipates over 100 million of farmers will become city dwellers, generating a market of US$6 trillion relating to their settlements and employment in the next five years.

Regional development plans

• Coordinate regional development to achieve balanced growth, by improving infrastructure development in the western region while rejuvenating the north-eastern industrial hub and facilitating the rise of the central region.
• Enhance support to less developed regions, such as ethnic minority communities and border areas as well as resource-strained and ecologically degraded regions, and help shift excess industrial capacity from the affluent coastal cities to developing western regions.
• Enlist the three grand regional integration initiatives – the “Belt and Road” initiative, the Beijing-Tianjin-Hebei integration plans and the Yangtze River Economic Belt - as strategic priorities for urban development in the next five years. (The Yangtze River Economic Belt alone covers 11 provinces and 40% of the population.)
• Support the development of a series of city clusters across the country.

Urban planning

• Call for proper and green city planning and industrial layout designs, and integrated growth of urban and rural areas.
• Support the enhanced connectivity of inter-city transport and communications as well as the development of green cities, smart cities and forest cities.
• Further reform the household registration systems (hukou system) to enable rural families to settle in cities and enjoy equal rights and the same treatment as city dwellers.

Infrastructure

• Expand the space for infrastructure construction and speed up the building of next-generation infrastructure projects that are high-speed, mobile, safe and ubiquitous;
• Improve the networks for water, rail, road, shipping, aviation, sewage and post services;
• Draw up plans to open up the competitive businesses of power, banking, transport, telecommunications, oil and gas and public utilities.

7. Promoting the development of culture

• Promote the development of public culture services, the cultural industry and the cultural market;
• Foster leading enterprises of culture and the creative culture industry;
• Promote the mass health building programme and do best for Beijing Winter Olympics in 2022;
• Push for a harmonised growth of traditional and new media industries;
• Speed up the construction of media digitalisation;
• Promote a wider spread of Chinese culture abroad

 8. Improving people’s health, education and livelihood

The government wishes to make consumption a key pillar of growth for China in the next five years. To make it happen, it recognises that it must properly address the following issues:

Healthcare

• Build a "healthy China" with an efficient basic healthcare system in both urban and rural areas by improving the management of public hospitals, unburdened from the necessity of seeking profit alongside personnel and remuneration systems appropriate to the health industry;
• Further improve the monitoring of healthcare quality and mechanisms to mediate medical disputes so as to restore harmony in doctor-patient relationships;
• Adopt cyber-medicine and optimised distribution of resources so as to improve the quality of basic health services;
  • Encourage the private sector to provide healthcare services by giving them the same status as public institutions;
  • Recognise prevention as the most efficient way to lower the costs for treating a wide range of illnesses;
  • Appropriately price medication;
  • Increase the free supply of HIV treatment medication;
  • Reduce the costs for treating other chronic diseases;
  • Support Traditional Chinese Medicine.

Population

• Adopt a two-child policy so as to promote the balanced development of the Chinese population. It is estimated that under this new policy, 6 million more babies will be born each year, generating an infant-related goods and services consumption market worth US$16 billion.
• Provide assistance to families who have been subject to the one-child policy but are now facing difficulties. Establish a family-based multi-level care service system with participation from communities and institutions to address the issues arising from ageing population;
• Gradually postpone the statutory retirement age.

 Social insurance

• Put into place "a more equitable and sustainable" social insurance scheme covering all citizens, with reduced premium rates;
• Expand investment channels for social security funds and intensify risk control in order to improve their investment returns;
• Raise the proportion of earnings from state assets which will be turned over to public finance, and transfer a portion of state assets to enrich the social insurance funds;
• Implement the critical illness insurance system at "full scale," which covers both urban and rural residents. (At the end of September 2014, about 650 million of the 1.3 billion Chinese were covered by critical illness insurance.);
• Make elderly care services a fully open market.

Education

• Improve the quality of education and bridge the urban-rural gap, providing subsidised education for all poor students for the duration of their nine years of compulsory education;
• Promote universal education for students of senior high school age, and remove senior high school education tuition fees for poor students and gradually waive tuition fees for vocational education;
• Improve the quality of higher education, by elevating the quality of certain universities and subjects to, or close to, the standards of top-ranking global schools;
• Promote fairness in education and speed up the standardisation process for urban and rural schools;
• Encourage the private sector to invest and provide diversified education services.

Income distribution

• Adjust the country’s income distribution system and narrow the income gap so as to "significantly" increase the wages of the low-income population, and increase the proportion of middle-income group.
• Promote the mechanism of collective negotiations for wages and further increase the minimum wage levels.
• Take a more positive approach by launching a free professional skills enhancement programme for the peasant workers and people from unprivileged backgrounds.
• Remove barriers and restrictions for employment, and encourage more people to start their own businesses.

Poverty reduction

• Adopt a series of targeted poverty-relief policies and improve infrastructure in rural areas, including roads, access to water, power and the Internet;
• Enhance education, healthcare and public services in poor areas, and to build a service system to take care of "left-behind" children, women and the elderly;
• Increase fiscal input and widen financing channels and mobilise social forces in the battle against poverty;

China has made remarkable progress in poverty relief. It was the first developing country to meet the Millennium Development Goals (MDGs) target of reducing the population living in poverty by half ahead of the 2015 deadline. Despite this, China still has 70 million people in the countryside living below the country's poverty line of 2,300 yuan (US$376) annual income by 2010 price standards.

9. Promoting global collaboration

A distinctive feature of the 13th FYP is that it’s the first five-year plan that shifts from the traditionally domestic focus to a much wider international perspectives by including more cross-border issues, in line with China’s rising position in today’s global economy.

Belt and Road[i]

• Call for the construction of regional transport passageways and “international economic cooperation corridors” along the route;
• Enhance energy cooperation;
• Jointly build offshore industrial clusters;
• Promote the development of local industrial capabilities.
• Bring benefits to the people of countries and regions along the route through collaborations in education, science and technology, culture, tourism, healthcare and environmental protection;
• Collaborate with international financial institutions, such as the Asian Infrastructure Investment Bank, the New Development Bank, together with China’s Silk Road Fund, to attract worldwide financial support.

Free trade zones

• Actively engage in global economic governance and actively influence the global economic agenda;
• Promote the multilateral trade negotiation process and accelerate the establishment of more Free Trade Zones (FTZ) as well as negotiations of the Regional Comprehensive Economic Partnership and APEC Free Trade Area. (At present, China has already signed 14 FTZ agreements with 22 countries and regions around the world, with another five agreements under negotiations.)

Sustainable development

• Actively participate in the UN climate change negotiations and cut its emissions.
• Expand the scale of foreign aid to developing countries and contribute to the 2030 Agenda for Sustainable Development.

These statements and plans, while demonstrating China’s commitments as a responsible player of the international community, reflect China’s confidence as a world power and its rising global perspectives and aspirations.

10. Foreign trade and investment

Inbound investment

• Improve investment environment and reduce market restrictions in order to attract foreign investment and technologies;
• Fully implement a pre-establishment national treatment to foreign investors.
• Adopt a “negative list” model, which states sectors and businesses that are off limits to foreign investment;
• Further open up currently monopolised sectors to foreign investment over the next five years, such as oil, natural gas, electricity, telecommunications, transportation and utilities, to encourage competition;
• Further open up the services sector, including banking, insurance, securities and elderly care ;
• Enter into mutual agreements on exempting visa requirements and bilateral investment treaties with more countries;

International trade

• Adopt a pro-import policy while continuing to promote its exports;
• Consolidate the market shares of exports;
• Expand the export capability of equipment and machinery;
• Further develop the trade in services;
• Explore innovative models of foreign trade, equipment manufacturing and services;
• Support will be given to coastal areas to participate in global economic cooperation.
• Establish advanced manufacturing bases and economic zones, and continue to improve border and cross-border economic cooperation zones.

Outbound investment

• Encourage Chinese companies to invest overseas and sell more Chinese equipment, technology, standards and services to foreign countries.
• Encourage Chinese companies to further their cooperation with foreign peers to improve their equipment manufacturing capabilities, added value and technological competitiveness.
• Further integrate into the world’s supply chains and value chains through establishing overseas production bases and financial services platforms.

11. Financial reform and Renminbi internationalisation  

Banking

• Develop universal financial services, especially to cover the needs of the poor and small enterprises;
• Accelerate reforms in China’s financial system to establish a transparent and healthy capital market and improve its efficiency in serving the real economy;
• Overhaul the issuance and trading mechanism of stocks and bonds;
• Encourage direct financing;
• Lower leverage ratio;
• Transform the banking system into a multi-level and diverse system, and provide more financial support to small and micro-sized businesses and rural regions and impoverished areas.
• Continue with the reforms of market-oriented exchange and interest rate calculations;
• Improve management and services of financial institutions;
• Reduce the cost of financing;
• Relax restrictions and allow more private entities to establish banks.

Financial innovation

• Promote and regulate the development of Internet financing
• Boost the development of new financing vehicles, such as P2P and crowd-funding;
• Speed up the establishment of a disaster insurance mechanism;
• Pilot the trading of insurance assets
• Provide strong support to green finance, including the issuance of green bonds.

In October, the Agricultural Bank of China issued its landmark listing of Renminbi and dollar-denominated green bonds with a total value of $1billion at the London Stock Exchange. The issue was four times oversubscribed.

 Financing for local governments

• Share fiscal revenues between the central government and local governments in a more reasonable way;
• Establish a standard financing mechanism for local governments.

Renminbi internationalisation

• Continue to press ahead with capital account liberalisation and the internationalisation of the Renminbi, which is already the world’s second currency for global trade finance and became the fourth most-used world payment currency in August 2015.
• Actively push for wider international support for the inclusion of the Renminbi in the IMF Special Drawing Right (SDR) basket.
• Gradually make the Chinese yuan convertible on the capital account;
• Further expand the investment quota for qualified foreign institutional investors (QFIIs);
• Increase the exposure and wide usage of the currency in international markets.

12. Promoting government reform

The government has vowed to promote the administration of rule of law, innovate its ways of macroeconomic control and social governance, and continue to fight corruption.

• Define the role of the government as providing universal and equal public services for education, employment, social security, basic healthcare and public health, public culture and environmental protection;
• Innovate the way it provides public services by procuring services from social organisations wherever possible;
• Restrict intervention in market activities, streamline regulations and fee collections;
• Reduce administrative approvals and create an open and fair market competition environment;
• Improve the transparency, predictability and consistency of various policies;
• Advance the timeliness and accuracy of the country’s economic operations;
• Set up risk identification and pre-warning systems on a wide range of aspects of the economy to improve its risk prevention and control capabilities;
• Cement achievements made in the anti-corruption campaign and tighten supervision and checks over power, in addition to working out an effective mechanism to stem corruption.

Next steps

According to China’s political process, the CPC is responsible for formulating a proposal document that maps out the goals, principle and targets for the next five-year plan. The State Council will then add flesh to the bones and work out a more detailed outline, which will then be submitted to the top legislature – the National People’s Congress - for review and ratification in March 2016.

Following that, each province and central government ministry will accordingly formulate its own five year plan and be responsible for implementations.

Source: Allan Zhang, Senior Asian economist and director of PwC Consulting