Breakdown of Li Keqiang’s Government Work Report
This is a breakdown of Li Keqiang’s speech to China’s National People’s Congress on March 5, 2021. I’ve highlighted the key points that I thought were worth noting. You can access the full text of the speech here. I’ll try and do a bit of a dive into the budget drafts later this week too.
As usual, Li began by talking about the past year, and in this case, the 13th FYP period too. A few interesting bits to note in his comments.
First, he feels that China “achieved major strategic success in our response to Covid 19” and he highlighted the target of poverty alleviation and building a moderately prosperous society. In other words, there’s a lot of confidence that the Party has heading into 2021.
Some key quotes:
“Facing shocks of a severity rarely seen before, based on what we had done to ensure stability on six key fronts we carried out the task of maintaining security in six key areas particularly job security, basic living needs, and the operations of market entities. By maintaining security we were able to deliver stability while also pursuing progress.”
“We reduced the burden on market entities by more than 2.6 trillion yuan for the year including 1.7 trillion yuan in social insurance premium cuts and exemptions.”
“A total of 11.86 million urban jobs were added, and the year end surveyed urban unemployment rate dropped to 5.2 percent.”
He then said: “The period covered by the 14th Five Year Plan will be the first five years in which we embark on a new journey to build China into a modern socialist country in all respects. China remains in an important period of strategic opportunity for development Yet, there are changes in both the opportunities and challenges we face. We should have an accurate understanding of this new stage of development, fully apply the new development philosophy, and accelerate our efforts to create a new development pattern to promote high quality development. By doing so, we will set the stage for building a modern socialist country in all respects.”
Breakdown of his priorities based on the draft 14 FYP:
“Development is the foundation, and it holds the key for addressing all the issues our country faces.” (This tells you a little bit about the Party’s view of the roots of its legitimacy.)
“We will keep major economic indicators within an appropriate range , set annual targets for economic growth in light of actual conditions, ensure that overall labor productivity grows faster than GDP, keep the 10 surveyed urban unemployment rate within 5.5 percent surveyed urban unemployment rate within 5.5 percent, and, and keep prices generally stable. Doing so will enable us to achieve higher. Doing so will enable us to achieve higher-quality development that is more efficient, equitable, sustainable, and secure.” (The important line here is the commitment to setting economic growth targets. One had assumed that since the 19th Party Congress, there was a movement to go away from these. Last year, there was no GDP target announced. This was partly due to COVID-19, but also was seen as taking advantage of the situation to move away from GDP targets as one sought “high-quality” over “fast” development. But this tells us that this effort has not proven effective.)
Li wants to expand “strategic scientific and technological capability underpinned by the development of national laboratories, strive to make major breakthroughs in core technologies in key fields , and formulate and implement a ten year action plan for basic research.” Through the 14FYP period, he plans to expand China’s R&D budget by 7% per year.
“We will give priority to domestic circulation, and work to build a strong domestic market and turn China into a trader of quality . We will leverage the flows of the domestic economy to make China a major magnet for global production factors and resources, thereby promoting positive interplay between domestic circulation and international circulation.” (Dual circulation gets a mention here. The idea is not just to expand domestic demand but also to get foreign investment largely driven to service domestic demand.)
“The strategy of new, people-centered urbanization will continue to be pursued. We will move faster to grant permanent urban residency to people who move to cities from rural areas , and raise the percentage of permanent urban residents to 65 percent of the population.” (One really needs to watch this space. Significant reform of the hukou system could have serious political-economy consequences. It will also put tremendous pressure on city infrastructure and local government spending. So there will need to be greater fiscal devolution to local authorities The aim of having 65 percent of the country’s population to be living in cities by 2025, compares with 60.6 percent at the end of 2019. This will mean 10 million people making the move each year to reach the target. SCMP reports that according to the draft 14FYP, the hukou system will be abolished in cities with up to 3 million people. It adds: “Cities with 3-5 million people will loosen residency requirements while megacities with a population of more than 5 million will introduce a points system – based on factors such as length of stay and social security payment records – to determine whether a person can become an urban resident. The draft said some exceptions would apply but did not say what they were. ‘Basic public services will be provided to residency holders. Local governments are encouraged to offer more convenience and improve their access to education and housing,’ the draft said.”)
“We will build a high quality education system by deepening educational reforms...We expect that the average number of years of schooling among the working age population will rise to 11.3. We will make all round efforts to build a Healthy China...We will implement the national strategy for addressing population aging, and improve the population services system with a focus on elderly care and child care. We will work to achieve an appropriate birth rate. The statutory retirement age will be raised in a phased manner.” (It would be interesting to see how the system responds to raising the working age population. The birth rate is unlikely to get a boost anytime soon.)
“We will move faster to build major ecological shields, develop a national park based nature reserve system , and expand forest coverage to 2 4 1 percent of China’s total land area...We will ensure that China meets the targets for its intended nationally determined contributions in response to climate change by 2030. We will expedite the transition of China’s growth model to one of green development...Energy consumption per unit of GDP and carbon dioxide emissions per unit of GDP will be reduced by 13.5 percent and 18 percent, respectively.”
“To ensure national economic security, we will carry out strategies for safeguarding food, energy and resource, and financial security.” (A good sense of what Beijing means when it talks about holistic national security.)
For 2021, here are the key points of focus:
consolidate and expand the achievements of the Covid 19 response and economic and social development;
ensure better coordination in pursuing development and upholding security;
ensure stability on six key fronts and maintain security in six key areas;
implement macro policies in a systemic and targeted way;
keep major economic indicators within an appropriate range;
continue to expand domestic demand;
strengthen science and technology to provide strategic support for development;
pursue higher standard opening up;
maintain social harmony and stability.
The main projected targets for development this year are as follows:
GDP growth of over 6 percent
over 11 million new urban jobs
a surveyed urban unemployment rate of around 5.5 percent
CPI increase of around 3 percent
steady increases in both the volume and quality of imports and exports
a basic equilibrium in the balance of payments
steady growth in personal income
a further improvement in the environment
A drop of around 3 percent in energy consumption per unit of GDP
a continued reduction in the discharge of major pollutants
grain output of over 650 million metric tons
An indication that the post-COVID-19 stimulus isn’t going to be withdrawn in a rush, Li said: “We will continue to ensure macro policies alleviate the difficulties of market entities and maintain necessary policy support for achieving this goal. We will avoid sharp turns in policy; instead, we should make adjustments and improvements based on new developments to reinforce the fundamentals of the economy.” He added, however: “No Covid 19 bonds will be issued. As government revenue rebounds , total government expenditures will be higher this year than last. We will continue to give priority to increasing support for efforts to ensure employment, living standards, and the operations of market entities.”
And here’s more: “General transfer payments to local governments will be increased by 7.8 percent, which is significantly higher than last year. This will include growth of more than 10 percent in both transfer payments for equalizing access to basic public services and rewards and subsidies to ensure basic funding for county level governments. We will make it a normal practice to directly allocate budgetary funds to prefecture and county level governments and place more funds under this mechanism. This year, 2.8 trillion yuan of central government funding, a figure much larger than last year, will be allocated in this way to provide timely and strong fiscal support to these local governments to benefit businesses and people.”
Li also announces support for small and medium enterprises:
“The VAT threshold for small scale taxpayers will be raised from 100,000 yuan to 150,000 yuan in monthly sales.”
“We will halve the income tax of micro and small enterprises and self-employed individuals on annual taxable income below one million yuan.”
“We will continue the policy of allowing micro and small enterprises to defer principal and interest repayments on inclusive finance loans, and increase support for inclusive finance via re lending and rediscounting.”
“Banks will be encouraged to increase credit loans and first time loans. We will extend the pay as you go lending model , channel more funds into scientific and technological innovation, green development initiatives micro and small enterprises, self employed individuals, and new types of agribusiness, and provide targeted support for enterprises and industries enduring a sustained hit from Covid 19. Inclusive loans to micro and small businesses by large commercial banks will increase by over 30 percent this year.”
There’s a lot more in this section where he talks about cutting costs for medium and small enterprises, reducing burdens, cutting Internet access rate, reducing toll and transportation costs, supporting employment generation, and so on.
Also useful to note is this comment in the context of financial risks, banks and online lending: “We will strengthen regulation over financial holding companies and financial technology to ensure that financial innovations are made under prudent regulation. We will improve the mechanism for managing financial risks, see responsibilities are fulfilled by all the stakeholders, and ensure that no systemic risks arise. Financial institutions must serve the real economy as they should do.”
On Science-Technology and innovation, he said:
Central government expenditures on basic research will increase by 10.6 percent. Research institutes will have more say about how funds should be used, and the mechanisms for assessing projects and evaluating personnel will be refined.
We will boost the principal role of enterprises in innovation , and encourage leading enterprises to establish innovation consortia. We will expand the channels that bring together enterprises, universities, research institutes and end users, and refine the equity based incentive mechanisms for scientific and technological advances. (I guess it bears watching how he does this. But the bit about innovation consortia informs of furthering the national champions system, I guess.)
We will continue to implement the policy of granting an extra tax deduction of 75 percent on enterprises R&D costs, and we will raise this to 100 percent for manufacturing enterprises.
The development of the 5G networks and 1000M fiber optic networks will be stepped up and their application will be extended to more settings. The layout of emerging industries will be planned in a well coordinated way. China’s National Quality Infrastructure will be strengthened; intensified efforts will be made…(this commitment to expand investment in quality infrastructure carries forward from last year)
Speaking of investment, the taps are going to continue to remain open. Li said that: “This year, 3.65 trillion yuan of local government special purpose bonds will be issued. The scope of use for such bonds will be expanded as appropriate, with priority given to funding for key projects already under construction. The central government will earmark a total of 610 billion yuan for investment in its budget. We will continue to support the construction of major projects that facilitate coordinated development among regions, and launch new infrastructure and new urbanization initiatives as well as major projects . We will also launch a number of major transportation, energy, and water conservancy projects, develop information networks and other new types of infrastructure, and work to modernize the logistics system.”
Moving on, in terms of education, Li made a number of commitments, including about “equitable education” but this is what caught my attention, given the sensitive nature of the issue. “Efforts to promote standard spoken and written Chinese will be stepped up. We will further the reform of educational assessment, and improve the mechanism of school family society cooperation in educating students.”
Towards the end, here’s what Li calls for:
“our governments at all levels must be keenly aware of the need to maintain political integrity, think in big picture terms, follow the leadership core, and keep in alignment with the central Party leadership We should stay confident in the path, theory, system, and culture of socialism with Chinese characteristics; and we should uphold General Secretary Xi Jinping’s core position on the Party Central Committee and in the Party as a whole, and uphold the Party Central Committee’s authority and its centralized, unified leadership.”
For cadres, he wants them to “work harder to improve Party conduct, ensure clean government, and root out corruption, and continue to implement the central Party leadership’s eight point decision on conduct. We in government must readily subject ourselves to the oversight of the law, supervisory bodies, and the people. We will intensify efforts to build a clean government and continue to prevent misconduct and corruption.”
Two more bits to note here. First, “We must guard against pointless formalities and bureaucratism and one size fits all approaches in our work…” and “We should keep everyone motivated in advancing reform and opening up, and further energize market entities and unlock social creativity.”
On the PLA, he said: “This year, we will thoroughly implement Xi Jinping’s thinking on strengthening the armed forces and the military strategy for the new era, ensure the Party’s absolute leadership over the people’s armed forces, and strictly implement the system of ultimate responsibility resting with the chairman of the Central Military Commission. We will, bearing in mind the goals set for the centenary of the Peo ple’s Liberation Army, continue to enhance the political loyalty of the armed forces, strengthen them through reform, science and technology and the training of capable personnel, and run them in accordance with the law. We will boost military training and preparedness across the board, make overall plans for responding to security risks in all areas and for all situations, and enhance the military’s strategic capacity to protect the sovereignty, security, and development interests of our country. We will improve the layout of defense related science, technology, and industry, and enhance the defense mobilization system.”
I didn’t think that there was anything remarkable that he said with regard to Hong Kong or Taiwan.