China’s Annual Party Conclave Goes Modest

The National People’s Congress fortnight-long meeting which began Monday in Beijing, is normally a backslapping affair during which the 3,000 delegates, arriving in luxury cars, flashing their Rolex watches and wearing their best suits, rubber-stamp whatever decisions government and Communist Party leaders put in front of them.

This year is decidedly different. The mood is no-nonsense and businesslike. National catering industry revenues slowed in 2013 to their lowest rate of growth in 21 years and the high-end segment has gone negative, an indication that President Xi Jinping’s unyielding rectification campaign is biting.

The cadres coming to Beijing are careful not to show off their riches. Li Xiaolin, the daughter of former Chinese premier Li Peng, was photographed carrying a cloth handbag to a congress session this week, having eschewed her usual Chanel. Li allegedly helped arrange a multi-million-dollar deal in 1995 for Zurich to buy into a Chinese insurer — long before foreign companies were allowed to make such investments.

At least 14 deputies have been netted in the CCP’s crackdown on corruption, evidence that corruption has penetrated into every corner of Chinese society and that Xi is out to clean it up. It appears likely that Zhou Yongkang, a retired member of the Politburo Standing Committee of the Chinese Communist Party (CCP) in charge of law enforcement, is about to become the highest-ranking official ever indicted on corruption charges.

In keeping with this new era, the conference – the annual dual conclave of the National People’s Congress and the Communist Party Central Committee – has outlawed smoking and the tea ladies. When high profile meetings have been held in the Great Hall of the People, attractive women walked around serving tea to senior officials on the rostrum. Former President Jiang Zemin, however, was caught in a series of snapshots peeping at one of them. The pictures went viral. This year, the cadres are being given bottled water and won’t be given a second bottle until the first is gone.

Then there is the work end. The Central Economic Working Conference in December listed six major tasks for 2014, including ensuring food safety, restructuring the state-owned enterprises to allow for private-public ownership, promoting emerging industries, driving up the quality of GDP to improve livelihoods, and deepening reform.

Spotlight on Li Keqiang Although it is clearly President Xi Jinping’s show, having consolidated power by putting himself in charge of three major policy-setting panels, it is up to his deputy, Premier Li Keqiang, to explain to lawmakers and the public what he has done in the past year and what his plans are for this year’s development.In his first government work report – his first policy address since taking office – he revealed his key economic targets. They include keeping GDP growth at 7.5 percent, holding down the Consumer Price Index to 3.5 percent, the same as last year and holding money supply growth at 13 percent. The fiscal deficit will slide up slightly to RMB 1.35 trillion.

In an effort to alleviate the local government funding crisis, Li said quotas for local governments to issue bonds would be lifted to RMB 400 billion to fund regional deficits. Urban employment is to be boosted to 10 million new jobs, a million more than in 2013.

Although Xi Jinping has repeated that market forces should have a “decisive role” in the economy and contradicted himself by saying state ownership have a leading role as well, privatization of the country’s lumbering state-owned enterprises offers unprecedented access for investors to quality assets.

Mixed Ownership for SOEs Developing a mixed-ownership economy is somehow aimed at resolving Xi’s two contradictory statements. There is no predefined rulebook and no timetable, according to an official with the State Assets Supervision and Administration Commission.

However, such major companies as Sinopec, PetroChina and Zhuhai government held GREE Electric, are inviting private stakeholders.

According to Zhou Liqun, the deputy general manager of China Cheng Tong International Investment Co., Ltd, mixed ownership could come in four packages. Enterprises concerning national security must remain to be wholly owned by the state. In enterprises concerning the country’s economic lifeline, the state must keep a dominant stake. In enterprises in pillar and high-tech industries, the state could hold a relatively high controlling stake; as for enterprises in competitive industries, the state could sell most or even all of its shares to private investors.

IPOs and M&As Private capital investing in SOEs shouldn’t be concerned about being as unequal partners. It is expected that the government will foster a good investment climate to protect overseas investors.

Mergers and acquisitions are expected to dominate the market for 2013, with the China Securities Regulatory Commission (CSRC) expecting to cut red tape to encourage M&As in the A-share market. In addition, the Shanghai Stock Exchange is planning a new board to host homegrown leaders in strategic and emerging industries, as opposed to start-up listings on the ChiNext board Shenzhen Stock Exchange. The Shenzhen Stock Exchange will also continue to focus on growth opportunities in China’s vast SME space.

Already this year so far, 48 companies have launched IPOs, six in Shanghai, 24 on the Shenzhen Growth Enterprises Market (GEM) and 18 on the Shenzhen Small and medium-size Enterprise Board. Apart from this, 28 enterprises have the green light to launch their IPOs, another four were approved but have withdrawn. CSRC has turned down nine applicants. In total, 694 enterprises have filed IPO applications and await the CSRC’s decision.

Regional Gov’ts to Experiment on Prop Tax Although some analysts have anticipated the introduction of a property tax, it is unlikely to be levied nationwide for a long time to come, leaving it to regional governments to decide whether to get on with property tax trials. Local governments are taking a close look at property levies as a way to find fundingin order to stabilize the liability side of their balance sheet. The total amount of debt on hook by the local administration, including contingent liabilities, have jumped to RMB17.89 trn as of mid-2013 from RMB10.72 trn in 2010. Selling land has been an all-time favorite tactic by local officials to fund the outlays. No wonder land price premium has been escalating at a rapid pace even in the face of cooling housing prices.

Bipolar Housing Policy Housing policy is expected to be bipolar in 2014, with the government likely to give support to the low end while continuing to suppress the luxury-end to reduce overall real estate risk. In terms of monetary policy toward the housing market, the PBOC in the ongoing lianghui have simply reaffirmed their long-standing call to crackdown on speculative buying and protect the needs of the real users.

Two-Child Policy The two-child policy has famously been underway since last year’s Third Plenum. Wang Pei’an, Vice Minister of the National Health and Family Planning Commission, said it is up to the provinces to decide when and how to implement the policy. Professor Zhai Zhenwu, Dean of the School of Sociology and Population Studies of the Renmin University of China, estimates that there are 15-20 million only-child couples in the country and the probability for them to have a second child is 60 percent. Therefore, a couple million more babies will be born in the country each year under the new policy. Because of this, population aging is expected to slow by two to three percentage points. Most of China’s 31 provinces have begun implementing the new policy or planning to do so within the year. The Ministry of Education has already started to work out plan for expanding the capacity of the country’s nurseries and kindergartens.

Still whether there will be more babies is questionable. In the cities such as Shanghai, Guangzhou and Beijing, the total fertility rate has already fallen well below the replacement rate because of social issues. Social engineering is extremely difficult. Just ask Singapore, whose government has been trying for three decades to raise its birth rate, among the lowest in the world. It has since resorted to inviting émigrés to raise the population level.

(Steve Wang is chief China economist and research director for REORIENT Securities Ltd. Of Hong Kong and a regular contributor to Asia Sentinel)