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By Invitation: Order in Xi Jinping's Parliament
China's Parliament, the National People's Congress [NPC], and the British parliament have both been in critical sessions during the last couple of weeks. The two Parliaments have debated and dealt with great challenges to the future of their respective countries. Britain's Parliament is fighting intensely on how and when to leave the European Union. China's Parliament was debating sagging economic growth rates, a looming trade war with the US, and a whole array of other internal and external risks. While the two Parliaments are a far cry from each other, one word unites their recent proceedings: "Order". But, while 'order' is what the British Parliament's Speaker is desperately trying to maintain amidst the chaos surrounding Brexit, 'order' was a given during the Chinese Parliament's highly orchestrated 10 days session which was held from 5-15 March. The NPC followed its pre-planned agenda down to the last minute, and unlike Theresa May's troubles in Britain, there was no indication of opposition to the Chinese leader and his government. 

Challenges acknowledged
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‌China is not on a safe course, however, warned Premier Li Keqiang in his annual work report. He noted that "we must … be clear about the problems and challenges our country faces in its development" and that "only alertness to danger will ensure safety". The Premier's main diagnostics of China's challenges focused on the slowing growth of the global economy and the downward pressure on the economy.

He also argued that China's capacity for innovation is not strong, and that China is lagging behind the advanced level in the world in terms of core technologies. In addition, he called for better environmental protection which continues to be a "weighty task". He also admitted that there is a lot of public dissatisfaction in areas such as education, healthcare, elderly care, housing, food and drug safety, and income distribution, and that the government is often inefficient and pointlessly bureaucratic in the execution of its tasks.
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To see this as a smothering criticism of the state of the nation and the government's work would be off the mark, however. Rather, Li Keqiang wanted to be realistic about the challenges and risks facing China and its government, and his bottom line was quite optimistic: "China is still in an important period of strategic opportunity for development and has ample resilience, enormous potential, and great creativity to unleash."

2019 in targets

Li explained the plans for the government's work during the coming year in great detail as usual, and the key targets set were:

*Annual GDP growth: 6-6.5 percent
*‌Over 11 million new urban jobs
‌‌*Urban unemployment rate : less than 4.5 percent
‌‌*CPI increase: round 3 percent
*A basic equilibrium in the balance of payments, and stable, better-structured imports and exports
‌‌*A macro leverage ratio that is basically stable, and effective
‌*10 million less people in rural areas
‌‌*Personal income growth that is basically in step with economic growth
‌‌*Further improvement in the environment
‌*A drop of around 3 percent in energy consumption per unit of GDP
‌*Continued reductions in the discharge of major pollutants

‌‌‌Whereas China's economic growth rate has now hit what Xi Jinping has called the 'New Normal', the final figure and its consequences are hotly debated. First of all, there are doubts about the accuracy of the GDP figure and its measurement. According to a study quoted by South China Morning Post on 7 March, China has overestimated its nominal and real growth rates by about 2 full percentage points on average between 2008 to 2016. The miscalculation will be increasing each year. Secondly, in a widely publicized lecture from December last year, a Chinese Professor of economics at Renmin University in Beijing, Xiang Songzuo, revealed that while the number that China’s National Bureau of Statistics gives for China's GDP growth rate in 2018 is 6.5 percent, a research group under an "important institution" released an internal report which showed that by two different measurements China's GDP growth rate in 2018 was either about 1.67 percent or negative. The lecture was later removed from the Chinese internet. Finally, even if the official figures are trustworthy, as most experts still seem to believe, Paul Krugman argues that with China's continued high investment levels as compared to consumption diminishing returns are bound to kick in. He finds that he potential for future growth in China has diminished for two reasons: "technology has converged to that of other advanced countries, and the working-age population has stopped growing". Yet, Krugman notes: "Chinese policymakers seem to be doubling down on supporting investment, instead of rebalancing the economy towards higher domestic consumption, for instance by returning profits from state-owned enterprises to the public and strengthening the social safety net."

Business-friendly policies

To deal with lower growth and to meet the targets set, Li Keqiang proposed a new stimulus package. He promised large-scale tax cuts for the main industries, including manufacturing, as well as for small and micro- businesses. He promised a reform of the VAT system with a cut of the current rate from 16 to 13 percent in manufacturing and other industries. The rate in the transportation, construction, and other industries will be lowered from 10 to 9 percent. The VAT threshold for small enterprises will be raised from 30,000 to 100,000 RMB in monthly sales for small-scale taxpayers.

In addition, the market reforms in the electric power sector will be continued, and surcharges on electricity prices will be cut. Costs of power production will be reduced to allow for a reduction of 10% of electricity prices for industrial and commercial businesses. In addition, the government will reduce enterprise contributions to social insurance schemes by significantly lowering the share borne by employers for urban workers' basic social insurance.

Li argued that all of these cuts would help alleviate the difficulties currently troubling China's enterprises. Adding up, the cuts in taxes and social insurance contributions of the enterprises would amount to nearly 2 trillion RMB. The cuts will necessarily shift new costs to the government which will have to increase revenues and reduce expenditures. The main resource for new revenue will have to come from upping the profit taxes of state-owned financial institutions and enterprises directly under the central government, Li said, exactly as suggested by Paul Krugman.

Li's list of business-friendly policies continued. The number of approvals needed by businesses will be reduced. Government services to businesses investors and startups will be improved, and more private actors will be encouraged to start up high-tech ventures. Finally, Li promised reforms to the unpopular toll road system, by promising cuts on tolls on highways and bridges. These measures follow efforts in recent years which have moved China fast up on the World Bank's Ease of Doing Business rankings. In 2018, China jumped 32 places from no. 78 to no. 46.

Trade War with the United States

The Chinese economy is affected by the ongoing trade war with the United States. The trade war centers around American claims about unbalanced bilateral trade, differential treatment of foreign and Chinese companies, local protectionism in China, exclusion of American companies from specific strategic sectors, forced technology transfers and theft of American IPR by Chinese entities. The US has also been hammering on China's most recent policy for industrial upgrading, "Made in China 2025", for being unfair to foreign enterprises. The plan focuses on supporting the development of new strategic industries and on making them internationally competitive. It intends to raise the domestic content of core components and materials to 40% by 2020 and 70% by 2025.

While China contests all of these claims and accuses the US of "trade bullyism", it is noteworthy to see how the Chinese government tackled the trade war at the NPC session. First of all, it was mentioned only in passing in Li's report. He simply stated that "[w]e handled economic and trade frictions with the United States appropriately", and he warned against increasing unilateralism in international trade. Secondly, he avoided mentioning "Made in China 2025" at all, while it was referred to twice in his report to the NPC in 2018. The omission may well be interpreted as a hand reached out to the US. Yet, the work report maintained a strong focus on the need to support R&D and innovation in critical sectors.

Foreign Investment Law

A new Law on Foreign Direct Investment was put on the table and approved by the NPC. It was apparently rushed through for its third reading. It aims to improve the investment environment and provide better access for foreign-invested enterprises to sectors that were previously out of bounds. Foreign enterprises will also be subject to national treatment in the future. Finally, the draft law includes a ban on mandatory technology transfers from foreign companies and encourages technological cooperation based on voluntary principles and commercial rules. A commentator in South China Morning Post noted that this is to be seen as a bid to tackle some of the key issues in the ongoing trade war with the United States.

‌Dissent between Li and Xi on the environment?

In recent years, China's environmental degradation and climate change have moved to the top of China's political agenda. During this process, the concept "ecological civilization" has become the Chinese leadership’s preferred policy framework for green development. The framework provides guidance for sustainable economic, social, and ecological development. While there has been a lot of resistance to strict environmental politics at the local level around China, the central leadership under Xi Jinping has become increasingly insistent on the need for a green turn to China's future development.

However, while Li Keqiang maintained the need to continue the efforts to implement measures under this framework and promised improvements across all key environmental indicators, he also opened a back door to more leniency towards reluctant enterprises. New approaches to environmental governance are necessary, he said. They should allow governments at all administrative levels to listen to the concerns of enterprises and provide better assistance and guidance to them. When the enterprises are requested to meet legal or regulatory environmental standards they should be given a reasonable grace period to do so. Governments should be discouraged to handle their tasks in a simplistic and crude way, or just shutting firms down to prevent them from continuing pollution.

Li's position seemed to be slightly at odds with that of his boss. At a panel discussion with the Inner Mongolia delegation to the NPC, China Daily quoted Xi Jinping for saying that the representatives should not sacrifice the environment for growth when encountering "just a little difficulty in economic development", and he called for continued efforts to maintain the government's strategic resolve in relation to ecological civilization.

Indeed, Chinese businesses often complain about harsh environmental regulations and punishments for trespassing them, but the government cannot only listen to them, it also has to be sensitive to civil complaints about businesses that violate environmental regulations. Traditionally, the economy would win over the environment in the mind of a local Chinese official, but Xi seems to think otherwise. In fact, at the press conference of the Ministry of Ecology and Environment at the NPC on 11 March, the first question asked by a reporter was exactly about Xi Jinping's remarks. The Minister responded that he was fortunate enough to have been sitting next to Xi Jinping in the panel and that he "learnt a lot, was inspired a lot, and felt joyful and excited" by Xi's words. He immediately promised to step up his efforts in the Ministry. This could be interpreted as a subtle reminder to his immediate boss, Li Keqiang, not to get his priorities wrong. 

The status of Xi Jinping

There have been many speculations about the status of Xi Jinping and the attitudes of the Chinese elites towards him, especially after his move to become a potential lifetime President at last year's NPC session. However, from a formalistic point of view, nothing has changed since last year. Xi's name was mentioned 15 times in Premier Li Keqiang's report to the NPC in 2018 and the same number of times this year. Only a few, vague criticisms were heard at the NPC and very few oppositional votes were cast during the proceedings. There is still order in Xi's parliament and he seems to have no real opposition at this stage. 

‌Joergen Delman

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