Public Policy
The recently concluded legislative session of China’s National People’s Congress (NPC) sheds light on the policies and programs that will affect international businesses with operations and investments in China over the coming year and beyond. This year’s meeting, which concluded on March 11, was particularly significant because the NPC reviewed and approved the country’s five-year plan for 2021 to 2025 and a document that outlined long range objectives through 2035. The annual NPC sessions are largely ceremonial events, but they are nevertheless indicative of the Chinese Government’s priorities.
Chinese officials are formally evaluated for their effectiveness implementing these plans, so whole-of-government and industry efforts will be undertaken to ensure they are met. Companies with exposure to China should understand how the year’s goals and the plan’s targets may affect their businesses. This article discusses the top lines from the legislative session. Future articles will examine in further detail policy initiatives, including in specific sectors, relevant to clients with China-related business activities.
Economic Targets
Premier Li Keqiang announced a GDP growth target “in excess of 6 percent” this year. Although stimulus programs to counter the economic effects of the coronavirus are rapidly winding down, China is expected to easily attain this goal. To meet the country’s 3 percent inflation target, the government has tightened borrowing by local governments and instructed commercial banks to dial back lending. The finance ministry’s 3.2 percent deficit target is lower than last year’s target of 3.6 percent.
Chinese policy makers are relying on increased consumption and an expansion in exports to help meet the GDP growth target. Several ministries have announced programs to stimulate domestic consumption and multiple provinces have set or raised consumption targets. This is in line with China’s new “dual circulation” growth model, in which growth is more reliant on domestic economic activity and external economic exchange plays a supplemental role.
Economic Targets for 2021
- GDP growth in excess of 6 percent
- New urban jobs of 11+ million
- Urban unemployment rate of 5.5 percent
- CPI increase of 3 percent
- Steady increases in the volume and quality of imports and exports
- Basic equilibrium in the balance of payments
- Steady growth in personal income.
Technology Strategy
A key theme throughout the legislative session and in the five-year plan is boosting technological prowess and high tech industries. The government specifically listed artificial intelligence (AI), quantum computing, integrated circuits, life science and health, neuroscience, biotechnology, aerospace, deep earth and deep sea as important technologies.
As part of its technology strategy, China announced it will increase government-funded investment in basic research, promote education and skills development, invest in national laboratories, and finance strategic national science and technology projects. China also announced policies to stimulate private sector investment in R&D, including increased tax incentives. Chinese provinces and municipalities will implement policies of their own to support these goals and to foster greater R&D investment in their jurisdictions.
Environment
Despite lofty language describing China’s green ambitions, details on China’s plans to achieve carbon neutrality by 2060 were not released during the legislative session. The government did, however, indicate that it will continue to strengthen policies to promote new energy vehicles, green technologies, and environmentally friendly consumption. To resolve the long-standing contradiction between promoting economic growth and protecting the environment, the government announced a target to reduce energy consumption by 3 percent per unit of GDP. Sectoral plans detailing the country’s environmental and greenhouse gas targets will be released later this year.
Hong Kong’s Electoral System
On the final day of the legislative session, the NPC approved measures to overhaul Hong Kong’s electoral system. Among the measures approved were the creation of a committee to assess the “patriotism” of Chief Executive and Legislative Council candidates and an expansion in the number of seats for officials appointed by Beijing on the committee that selects the Chief Executive. China described the measures as necessary to close “loop holes” in Hong Kong’s electoral system. The United States, UK, and the EU have criticized them as undemocratic.
Military Affairs
The legislative session confirmed that the policy of upgrading the country’s military capabilities remains unchanged. The inclusion of a 6.8 percent increase in defense spending to more than 1.3 trillion yuan ($209 billion) this year is higher than in recent years and is noteworthy because the overall budget number is virtually unchanged from last year. Defense ministry spokesman Wu Qian explained that the budget increase was necessary to catch up with the United States and to “fight and win” on the modern battlefield.
Looking Ahead
NPC Chair Li Zhanshu announced that the country’s legislative priorities for 2021 include “new laws to combat foreign sanctions, interference and ‘long-arm jurisdictions.’” These laws are expected to build on the blocking regulations announced in January 2021 to help insulate Chinese firms from foreign sanctions targeting third countries.
In addition to laws countering foreign sanctions, the NPC chair listed other legislative targets that could affect firms operating in China, including a personal information protection law, and revisions to the Company Law, the Enterprise Bankruptcy law, and the Anti-Monopoly law. Other pending legislation includes a law on activities in Antarctica, a land border law, and a revision to the Law on Scientific and Technological Progress. Covington’s China team will actively monitor these laws as they are developed to assess potential impacts on our clients.