CHINAMacroReporter

The Chinese Government’s 9 Economic Policy Priorities in 2018 (and beyond)

[China Econ Observer] 1.Supply-side Structural Reform 2.Innovation 3.The “three critical battles” 4.Deepening reforms 5.Rural revitalization 6.The regional development strategy 7.Increasing consumption and improving investment 8.Opening up 9.People’s wellbeing
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April 16, 2018
The Chinese Government’s 9 Economic Policy Priorities in 2018 (and beyond)

The Party and government have clearly outlined the key economic policy priorities for the next twelve months. Nine key policy buckets are designated throughout the government work reports from the Two Sessions, and they follow directly from Xi Jinping’s report to the 19th Party Congress.

These are the government’s nine policy priorities in 2018.

1. Supply-side Structural Reform

Supply-Side Structural Reform (SSSR) is the over-arching economic policy framework in China. It has five elements – cutting capacity, deleveraging, property destocking, reducing costs for business, and addressing the economy’s weaknesses. Priorities for 2018 include reducing taxes and fees for business, while cutting steel and coal capacity by 30 million and 150 million metric tons, respectively.

2. Innovation

Making China a “technological superpower” is the guiding star for industrial policy. The government has made no secret about its goals to build a world-class semiconductor industry and dominate Artificial Intelligence in the coming decade. To support this push, the government is effectively becoming the largest venture capital fund in the world. The key priority for 2018 is to do more to attract global talent.

3. The “three critical battles”

Xi Jinping identified the “three critical battles” for 2018 late last year. These are areas in which top leadership wants to make concrete progress over the next twelve months. They are: addressing financial risks, dealing with pollution, and alleviating poverty. While SSSR and innovation are medium-term policy drivers, the “three critical battles” are top priorities for this year.

4. Deepening reforms

The key reform goals are to strengthen SOEs while also trying to encourage private sector participation in the economy. Xi Jinping’s version of “reform” is not the liberalizing kind. Expect SOEs to continue to be beefed up and consolidated, while the government seeks to improve the private business environment by improving intellectual property rights. Fiscal improvements are also a critical element of the reform agenda, as they will support the push for a more unified and efficient national market.

5. Rural revitalization

The rural revitalization strategy is a counterpart to China’s urbanization strategy. Rather than solely seeking to move individuals into urban areas on a wholesale basis, China’s leadership wants to make rural areas more enticing places to live through better infrastructure and public services. Rural residents’ land rights will also be extended by 30 years, once each individual’s initial lease expires.

6. The regional development strategy

Chinese leaders increasingly conceptualize the nation’s development through large regions, rather than along provincial lines. The push toward regional coordination is meant to better integrate swaths of the country, reduce internal barriers to trade and investment, and achieve economies of (very large) scale.

7. Increasing consumption and improving investment

China is still trying to rebalance its economy toward consumption. One key area will be preferential tax policies for purchases of new energy vehicles. This statement may be promising for some foreign companies, “We will support private actors in providing more services in healthcare, elderly care, education, culture, and sports.” However, there are no bold plans for improving investment – the basic plan is to keep dumping infrastructure money into central and western China.

8. Opening up

China’s leadership realizes that it still needs FDI, especially because they need to offset their own outbound spending. Because of that, we expect some genuine loosening to finally take place, especially in the financial sector. Outbound is all about the Belt and Road. On trade, look for the inaugural China International Import Expo to be heavily promoted.

9. People’s wellbeing

Better jobs, more entrepreneurs, higher incomes, improved education, and implementing the Healthy China strategy – those are the goals in this area. The government and Party are taking them seriously, but don’t expect immediate progress, as these are difficult problems.

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