On 7 May 2025, China’s financial authorities, led by the People’s Bank of China (PBOC), announced a sweeping 10-point monetary policy package designed to bolster market confidence and support economic stability. Unveiled at a joint press conference with the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC), the measures respond to global economic uncertainties, including heightened US tariffs and domestic restructuring challenges. For British businesses, this package signals both opportunities and complexities as China seeks to maintain its position as a global economic powerhouse while fostering a more resilient domestic market.

The package, described by PBOC Governor Pan Gongsheng as a “coordinated” effort, includes a range of tools aimed at injecting liquidity, lowering borrowing costs, and supporting innovation-driven growth. Key among these is a 10-basis-point cut in the 7-day reverse repo rate, from 1.5% to 1.4%, and a 25-basis-point reduction in interest rates for structural monetary policy tools. Additionally, the PBOC has lowered the reserve requirement ratio (RRR) for banks, freeing up capital for lending, particularly to small and medium-sized enterprises (SMEs) and technology-driven firms. These steps, as reported by CGTN, are intended to stabilise market expectations and shore up economic momentum amidst external pressures.

China’s economic context underscores the urgency of these measures. The country has faced significant headwinds from a second trade war with the United States, with US tariffs impacting exporters and global trade dynamics. Bloomberg notes that Beijing’s response includes not only monetary stimulus but also efforts to mobilise medium- and long-term capital to support domestic industries. The package also introduces new financing tools for tech enterprises, reflecting China’s ambition to lead in sectors like artificial intelligence and green energy. For UK firms, particularly those in technology or manufacturing, these initiatives could open doors to partnerships or market entry, provided they navigate the accompanying regulatory landscape.

A notable aspect of the package is its focus on supporting SMEs, which are critical to China’s economic fabric. Enhanced financing mechanisms, including targeted loans and bond issuance support, aim to bolster these businesses, many of which have been hit hard by global market volatility. The CSRC has also outlined plans to deepen capital market reforms, encouraging listings by high-tech firms and improving market access for institutional investors. According to Reuters, these reforms are partly a tactical response to US trade pressures, aiming to reduce reliance on external markets. For British SMEs, this could mean increased opportunities to collaborate with Chinese counterparts, particularly in consumer goods and services, where demand remains strong.

However, the package is not without its challenges. While the monetary easing is designed to stimulate growth, it also raises concerns about potential inflationary pressures and asset bubbles, particularly in China’s property sector, which has been a focal point of economic strain. The South China Morning Post highlights that the government is simultaneously rolling out measures to stabilise the job market and boost domestic consumption, indicating a multi-pronged approach to economic recovery. For UK businesses, this dual focus on stimulus and stability suggests a market that is both dynamic and unpredictable, requiring careful strategic planning.

The international backdrop adds further complexity. The package comes at a time when China is pushing for greater internationalisation of the yuan, capitalising on volatility in the US Treasury market. A survey by Renmin University’s International Monetary Institute indicates growing enterprise interest in using the yuan for international settlements, a trend that could reshape trade dynamics. For British firms, this shift may necessitate adjustments in payment and financing strategies, particularly for those engaged in cross-border trade. The CBBC advises UK companies to leverage local expertise to navigate these changes effectively.

The package also aligns with China’s broader geopolitical and economic strategy. Reports from Yahoo Finance suggest that China has agreed to suspend certain non-tariff barriers to US imports, hinting at a potential de-escalation of trade tensions. This development, coupled with the monetary measures, reflects Beijing’s intent to balance domestic priorities with global engagement. For UK businesses, this creates a window of opportunity to engage with a market that is actively seeking to diversify its economic partnerships, particularly in sectors like education, healthcare, and green technology, where British expertise is well-regarded.

For British companies, the implications of the 10-point package are significant. The emphasis on technology and innovation opens avenues for UK tech firms to explore collaborations, though increased regulatory scrutiny in high-tech sectors, as seen in the 2025 Negative List for Market Access, necessitates robust compliance measures. The healthcare sector, buoyed by China’s focus on domestic consumption, presents opportunities for British pharmaceutical and medical device companies to tap into a growing market. Similarly, the easing of financing for SMEs could facilitate joint ventures or supply chain partnerships, particularly for UK firms in consumer goods, where China’s middle class continues to drive demand.

The UK-China economic relationship provides a strong foundation for capitalising on these opportunities. The CBBC underscores the potential for British SMEs to benefit from China’s expanding consumer market, though success hinges on understanding local regulations and building strategic partnerships. The monetary package, by enhancing liquidity and market access, could amplify these opportunities, but firms must remain vigilant about competitive pressures and policy shifts.

Critics of the package argue that while it addresses immediate market concerns, it may not fully resolve deeper structural issues, such as China’s reliance on debt-driven growth or vulnerabilities in its property sector. Bloomberg notes that monetary policy alone cannot address all economic imbalances, particularly in a global environment marked by trade disruptions. For UK businesses, this underscores the need for a long-term perspective, balancing short-term gains from market openings with caution about macroeconomic risks.

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China has unveiled its 2025 Negative List for Market Access, marking another stride in its ongoing efforts to open its economy to both domestic and foreign investors. Published by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on 25 December 2024, the updated list reduces the number of restricted sectors and refines regulations to foster a more unified national market. While this development signals Beijing’s commitment to liberalisation, it also introduces new oversight for emerging industries, reflecting a cautious approach to balancing economic growth with regulatory control. For British businesses eyeing opportunities in China, understanding the nuances of this list is crucial for navigating the evolving market landscape.

The Negative List for Market Access, first introduced in 2018, serves as a cornerstone of China’s market reform strategy. Unlike the Foreign Investment Negative List, which specifically governs foreign investors, the Market Access Negative List applies to all entities—domestic and foreign—operating within China. It delineates sectors where investment is either prohibited or restricted, with the latter requiring special approvals or compliance with specific conditions. The 2025 iteration, effective from 1 February 2025, reduces the total number of restricted and prohibited items from 123 to 115, a modest but significant step towards easing market entry barriers. This reduction follows a trend of gradual liberalisation, with the 2021 list having cut entries from 131 to 123.

A key feature of the 2025 list is the removal of several longstanding restrictions. Notably, the requirement for domestic equity holding in certain manufacturing sectors has been lifted, allowing greater flexibility for foreign investors. Restrictions on investment in traditional Chinese medicine production and the operation of performance venues have also been relaxed, opening avenues for cultural and health-related enterprises. These changes align with China’s broader economic goals, including boosting domestic consumption and supporting small and medium-sized enterprises (SMEs), as outlined in the NDRC’s accompanying statement. For British firms, particularly those in healthcare or cultural industries, these adjustments could unlock new opportunities to engage with China’s vast consumer base.

However, the liberalisation is tempered by new regulatory measures targeting emerging sectors. The 2025 list introduces stricter oversight for industries such as drones, internet services, and artificial intelligence (AI). Investments in these areas now require additional approvals, reflecting Beijing’s intent to safeguard national security and maintain control over rapidly evolving technologies. This move comes amidst global concerns about data privacy and technological sovereignty, with China’s Ministry of Industry and Information Technology (MIIT) emphasising the need for “secure and controllable” digital infrastructure. For UK tech companies, this heightened scrutiny may pose challenges, necessitating robust compliance strategies to navigate the regulatory landscape.

Beyond the list itself, the NDRC and MOFCOM have launched a nationwide campaign to dismantle hidden market access barriers. This initiative aims to address local protectionism and inconsistent regulations that have long frustrated businesses operating across China’s diverse provinces. The campaign, set to run through 2025, will focus on streamlining administrative processes and ensuring that national policies are uniformly implemented. According to a report by Bloomberg, this push for a unified market is part of China’s response to external pressures, including the recent US-China trade war, which has underscored the need for a resilient domestic economy. For British businesses, a more consistent regulatory environment could reduce operational uncertainties, particularly for those establishing supply chains or distribution networks across multiple regions.

The timing of the 2025 Negative List’s release is noteworthy, coinciding with a period of economic recalibration for China. The country has faced challenges from US tariffs and global market volatility, prompting Beijing to bolster domestic growth through monetary stimulus and market reforms. The People’s Bank of China recently cut its policy rate and lowered reserve requirements to support an economy strained by external trade pressures. Against this backdrop, the Negative List serves as both an economic signal and a practical tool, reassuring investors of China’s commitment to openness while addressing internal structural issues.

For British companies, the implications of the 2025 Negative List are multifaceted. Sectors such as education, where restrictions on foreign-invested institutions have been eased, present opportunities for UK universities and training providers to expand their footprint in China. Similarly, the relaxation of rules in the healthcare sector, particularly around traditional Chinese medicine, could attract British pharmaceutical firms interested in collaborative research or market entry. However, the increased scrutiny of tech-related investments underscores the importance of due diligence. Partnering with local firms or leveraging the expertise of the CBBC can help mitigate risks and ensure compliance with China’s complex regulatory framework.

The broader context of UK-China economic relations also shapes the significance of the Negative List. Despite geopolitical tensions, trade between the two nations remains robust, with UK exports to China reaching £28.5 billion in 2024, according to the UK Department for Business and Trade. The CBBC has highlighted China’s consumer market and growing middle class as key drivers for British SMEs, particularly in consumer goods and services. The 2025 Negative List, by reducing barriers in these sectors, aligns with these opportunities, though firms must remain vigilant about local competition and evolving regulations.

Critics argue that while the Negative List represents progress, it falls short of transformative reform. Some sectors, such as telecommunications and financial services, remain heavily restricted, limiting foreign participation. The introduction of new controls in high-tech industries has also raised concerns about regulatory unpredictability, particularly for firms reliant on innovation-driven growth. China’s balancing act between liberalisation and control reflects its broader strategy of fostering economic self-reliance while engaging with global markets. For UK businesses, this duality necessitates a strategic approach, balancing optimism about new opportunities with caution about regulatory hurdles.

China’s 2025 Negative List for Market Access is a step towards greater economic openness, offering British businesses new avenues for investment while introducing challenges in emerging sectors. By reducing restricted sectors and tackling local barriers, Beijing is laying the groundwork for a more integrated national market. For UK firms, success in this evolving landscape will depend on thorough market research, strategic partnerships, and a keen understanding of China’s regulatory priorities. As China navigates global economic headwinds, the Negative List underscores its determination to remain a key player in international trade, inviting British businesses to engage with its dynamic market while adapting to its unique challenges.

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China’s most important annual governmental meetings are slated to start on Saturday, March 4 in the Great Hall of the People in Beijing. The “Two Sessions” meetings, which refer to the annual meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), will preside over the main economic agenda for 2023, as well as significant governmental restructuring.

2023 will mark the first year of re-opening after the Covid-19 pandemic, and the government has already set its sights on full economic recovery and high growth as the year’s top priority. Although the lifting of Covid-19 restrictions in late 2022 has already boosted economic activity – the official manufacturing PMI reached the highest level in nearly 11 years in February – there remains a range of challenges, including sluggish domestic demand, persistent problems in the housing market, and unequal development across the country.  The economic and legislative decisions made at the Two Sessions are of high importance to business leaders and foreign investors in China; they serve as a valuable window into China’s politics and reveal Beijing’s priorities and policy direction for the coming year. Below we look at some of the most likely outcomes of the Two Sessions and discuss how they could impact businesses.

2023 GDP growth target

One of the most important announcements that will be made during the Two Sessions is the annual GDP growth target. In 2022, the GDP growth target was set at “around 5.5%”. However, China’s GDP growth rate missed the target, growing 3% year-on-year, due mainly to the large outbreaks of Covid-19 experienced over the year. In recent months, provincial and municipal governments have announced local GDP growth targets for 2023, giving an indication of the overall sentiment in the country.  In general, the provinces and municipalities have set very ambitious growth targets for 2023:

• At the higher end, the provinces of Hainan, Tibet, Xinjiang and Jiangxi have set targets of between 7 and 9.5%
• At the lowest end, Beijing, Tianjin, Shanghai, and Guangdong have set targets of between 4 and 5.5%.

The average of all the regional growth targets is around 5.9%. Although some of these targets may seem very ambitious, it is important to note that the single largest factor for decelerated growth in 2022 – Covid-19 restrictions – has been removed. In addition, low base effects from the slow GDP growth recorded in 2022 will mean that high growth rates in 2023 will be highly likely. For these reasons, we expect that the government will feel confident in setting a growth target similar to that of 2022.  The GDP growth target will have a major effect on the policy agendas of local governments. A more ambitious growth target will mean more effort will be put into short-term growth, which could come in the form of more infrastructure investment, incentive policies, and consumption vouchers, whereas a lower target will allow for governments to formulate longer-term development plans and address more systemic issues.

Government restructuring

The 14th NPC is expected to approve some structural changes to the government. This is a regular occurrence in China, with each new NPC making some tweaks at the beginning of its session every five years. The changes are not always big, but may nonetheless have a significant impact on how policy is formulated and implemented over the next five years.

The structural changes made in 2018, when the 13th NPC convened for the first time, were much more widespread than usual, and saw the creation of new ministries and branches of government, including the National Supervisory Commission, an anti-corruption agency. The new structural reforms have already been drafted and deliberated by the government on at least two occasions this year: during the Politburo meeting on February 21, as reported by Xinhua, and during the second plenary session of the 20th Central Committee of the CPC, which took place from February 26 to 28. According to the readout of the second plenary session, the session “agreed to submit some of the contents of the Party and State Institution Reform Plan to the first session of the NPC for review. The plan is therefore expected to be approved and released during the course of the Two Sessions, but no details have yet been made public.

One possible piece of information we have on the proposed plans comes from the The Wall Street Journal, which quoted unnamed sources saying that the government was planning on resurrecting the Central Financial Work Commission (CFWC) as part of an overhaul of the financial system. The CFWC was a financial supervisory body that was set up in 1998 in the wake of the Asian financial crisis, but was later dissolved in 2003. According to the The Wall Street Journal report, the reinstatement of this body will “largely serve a comparable function of consolidating all financial regulatory matters under a single authority”.  In addition to institutional reforms, the Two Sessions are also expected to confirm the appointments of several high-level positions, including the premiership (to which Li Qiang has already been confirmed), the vice premiers, and the heads of major governmental bodies, including the National Development and Reform Commission (NDRC), the Ministry of Finance (MOF), and the central bank (PBOC).  The appointment of these officials will give a good indication of where the country’s policies and development trajectory will go, as the officials will have a significant influence on policy decisions in their respective fields.

Policies impacting foreign businesses and investment

Since China’s reopening at the end of 2022, government officials have been promoting the role of foreign investment in China’s economic recovery. The CEWC, for instance, highlighted the need to increase foreign trade and investment cooperation to stimulate growth and proposed expanding market access as one of the means to increase foreign investment in China.

Several Chinese officials have also embraced pro-foreign business rhetoric, calling for improving the business environment to make it more attractive to foreign investors. On January 17, Vice Premier Liu He gave a speech at the World Economic Forum in Davos, in which he stated that China will continue to promote market opening, and also called for attracting foreign investment.  It is therefore likely that the Two Sessions will take a pro-business stance, reduce restrictions on market entry, and promote policies to attract foreign investment. The appointment of Li Qiang as premier also gives credence to this line of thinking, as he is generally seen as being in favour of foreign business and investment.

Legislative changes and policy priorities

With economic growth and recovery at the forefront of the agenda for 2023, we expect that many of the legislative changes and policies announced during the Two Sessions will focus in large part on areas such as advancing industry development, production, and consumption.  This may mean that other long-term structural changes and policies that were previously outlined as priorities, such as Common Prosperity, may be placed on the back burner in 2023 (though certainly not scrapped).

We may instead see more policies aimed at propping up various industries, in particular strategic industries that the government has an interest in growing, such as healthcare, strategic tech sectors (e.g., semiconductors), green technology, and agriculture to improve food security and self-sufficiency, among others. With regard to industry policy, we may see further easing of the so-called “tech crackdown”, which saw tightening regulatory oversight of internet and tech companies in late 2020.

Over the course of 2022, the government made several moves indicating that it would ramp up support for the technology sector. In January 2022, government ministries released the Opinions on Promoting Standardised, Healthy, and Sustainable Development of Platform Economy, which endorsed the technological advancements and international expansion of tech companies. Later, in May of the same year, Vice Premier Liu He explicitly reassured tech companies that the government would support them in going public on domestic and overseas stock exchanges.  Although the Two Sessions may not deliver specific regulations or policy directives, it is possible that the language regarding the tech industry will be increasingly supportive and encouraging, which could in turn translate into concrete policies in the future.

Another major legislative change that we can expect to be finalised during the Two Sessions is the passing of the amended version of China’s Legislation Law. The draft amendments to the law were released for public comment in December and January, after having been reviewed by the 13th NPC. The amended Legislation Law will further devolve certain legislative powers to provincial and municipal governments, giving them more authority to draft regulations on matters such as urban and rural construction and management, environmental protection, and historical and cultural protection. However, certain details on the scope of powers and fields were not yet clear, but may be addressed in the final version of the law that is passed. Giving more discretion to local governments to formulate and implement rules could enable a more flexible regulatory environment, but inconsistencies across China could also complicate compliance procedures, in particular for large companies with operations across multiple jurisdictions.

An agenda for growth

Whatever the details of the GWR or the policies that are announced during the Two Sessions, the outcome of the meetings is almost certainly going to be a pro-growth agenda. This could mean promises of more support for industry, possibly through further tax incentives, more market access, and measures to boost consumption.
From a business perspective, the Two Sessions will also provide insight into the industries that are a priority for the government and help to answer key questions on how it intends to regulate and oversee the development of various sectors and businesses.  Business leaders and foreign investors are therefore advised to keep a close eye on the announcements that will emerge over the next two weeks. In particular, it is important to be aware of any major legislative or regulatory changes that could impact compliance, while looking out for potential opportunities and benefits.

Entering China is a key decision for businesses of all sizes. Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can provide you with the platform to unlock your potential.

A version of this article was first published as ‘What to Expect from China’s 2023 Two Sessions and Government Work Report’ by Dezan Shira & Associates’ China Briefing.

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The first in the series will be held this month and is titled: China’s Domestic Agenda, what it means for you.

The context: This March, two of China’s most influential political bodies meet at the Two Sessions to decide the formal political priorities for the Chinese government over the coming year. In 2021, this session coincides with the adoption of China’s 14th Five-Year Plan, which outlines Beijing’s development priorities for the next five years.

Following an economically and politically challenging year, the question is, how will Beijing respond? The panel will decipher what these policy settings will mean for global business, domestic consumers, and the Chinese government.

The topics: The panel will address questions such as how will China respond to the global economic headwinds from Covid-19? What is the government’s domestic reform agenda for 2021, and what does this mean for business? Moreover, how will China manage its environmental and energy policy in light of recent commitments to carbon neutrality by 2060?

The speakers: Raymond Yeung, Chief Economist Greater China for ANZ Bank; Dr Jin Zhang, University Lecturer (Associate Professor) & Deputy Director of the China Executive Leadership Programme (CELP) at Judge Business School, Cambridge University; and Torsten Weller, Policy Analyst for the China-Britain Business Council

The event will take place on 25th March from 09.30-10.30 (GMT) / 17.30 – 18.30 (CST) and CBBC members should register for the event in advance. 

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China enters 2021 economically stronger relative to major economies than anytime since 2009. This apparent strength creates extremely high expectations for China to deliver on its forecasted economic recovery, on its rollout of vaccines in China and beyond, and on stabilising its geopolitical relationships. In a year when avoiding major risks and sources of instability remain paramount, China’s leaders will find it harder to keep the economy on track than anticipated.

Overall

Economic growth expectations for 2021 of 8% plus (real RMB terms) are pricing in perfection. There is little upside beyond this number and much downside. Most critical is the need to accelerate still sluggish consumer spending. The recent pivot in government policy to demand stimulation reflects growing concern in Beijing that consumers are not stepping up their spending as needed.

China’s export strength in 2020 has resulted from global demand for PPE, a global shift to online purchasing, and Chinese manufacturers stepping up to fill gaps left by manufacturers locked down in other markets. In 2021, post-vaccine manufacturers outside of China will fully recover. Additionally, the secular trend to move manufacturing (especially destined for the US) out of China will restart, and China-based manufacturers will feel the full impact of the RMB’s appreciation.

Domestically, infrastructure spending has run its course, offering little upside. The continued flirtation with bankruptcy of several of China’s leading property developers highlights fragility in this sector. Expect aggressive action to lower tax and other burdens on individuals. Concerns about growth will also push Beijing towards opening up further to foreign capital and business participation within China. Negative lists will shorten further and more licenses will be issued from basic materials to financial services.

Expect aggressive action to lower tax and other burdens on individuals. Concerns about growth will also push Beijing towards opening up further to foreign capital and business participation within China

Geographically, China’s economic centre of gravity continued its long-term shift southwards in 2020, as Tianjin fell out of the 10 ten cities by GDP, leaving only Beijing from the north on the list. Beyond the usual clusters of the Pearl River and Yangtze River Deltas, President Xi continues to push for the development of the Hainan Free Trade Port (HFTP), with preferential policies for industries from aviation to health and internet services, beyond traditional support for tourism sectors.

If China does achieve 8% growth in 2021 – with domestic inflation of 1-2% and currency appreciation of 3-5% – then the size of China’s economy relative to the US could exceed 75% in 2021 (using IMF forecasts), an outcome only likely to increase the political pressure in the US to “do something about China”.

Consumers

Covid has forced Chinese consumers to think harder about their spending and seek higher quality products

The Covid economic shock, though short, was traumatic for many lower-income Chinese consumers. China’s younger generations had not experienced anything as close to a recession prior to Covid-19 in 2020. The virus has forced them to think harder about spending, saving, and trade-offs in purchasing behaviour. While aggregate savings have grown this year — McKinsey reported the country’s household deposit balance increased by 8% over the first quarter to reach 87.8 trillion RMB, this was concentrated in high-income households.

These consumers said they planned to increase sources of income through wealth management, investments and mutual funds. But these richer consumers at least still have savings. Many at lower income levels found their modest savings entirely wiped out by the Covid lockdown. Unsurprisingly, they have been both unable and unwilling to jump back to prior spending levels. And probably won’t until they are convinced that a vaccine has eliminated the risk of recurrence.

The virus has also led consumers to seek better quality and healthier options: More than 70% of respondents in the McKinsey Covid-19 consumer survey will continue to spend more time and money purchasing safe and eco-friendly products, while three-quarters want to eat more healthily after the crisis. But not all spending has shifted to the “virtuous”: high-end malls in China have seen their sales grow 25-35% verses 2019 as the wealthiest consumers, unable to travel, spent much more within China than before.

When Chinese consumers do spend, they are increasingly focused on strong local brands.  In its BrandZ report, WPP showed a 30% increase in the value of the top 100 Chinese brands in 2020, almost all associated with their growing domestic success.  Likewise, China Skinny research highlights the phenomenal success of local brands such as Yatsen in beauty.

Of course, prior trends will continue. Chinese consumers will be more digital than ever before, with the major online battles in 2021 being over who gets to deliver fresh groceries to the home and who provides the digital health care solutions that exploded in popularity during 2020.

Industry sectors

An emphasis on the semiconductor industry is part of China’s dual circulation strategy

The most attractive sectors for investment in 2021 will be shaped both by recovering consumer demand, and by government priorities set out in the 14^th Five-Year Plan. The high-level outlines of the plan are clear – risk mitigation and stability, greater state involvement in business, focus on industries of the future (with a special emphasis on semiconductors), accelerating growth through consumption, and sustainable growth – all within the “dual circulation” logic.

The major online battles in 2021 (will be) over who gets to deliver fresh groceries to the home and who provides the digital health care solutions

Cross border trade flows will be impacted by priorities for both inbound and outbound goods.

Priority inbound sectors are those in which China wishes in the short term to ensure that it retains maximum access to global suppliers and in the medium term build up world-class domestic capabilities. Beyond semiconductors, particular priorities are Agriculture Tech and Biotech. AgriTech is not simply about providing a greater proportion of China’s food supply domestically. It is also about ensuring that food is grown from seeds where the IP is developed and owned in China.

Traditional energy supplies – oil, gas and the key minerals used in new energy vehicles (NEV) batteries – remain priorities for ensuring stability. Even under the latest plans, renewables will only provide 25% of China’s energy by 2030, much of the remainder will still need to be imported. In semiconductors, mainland China buys more than one quarter of all manufacturing equipment sold today (compared with less than 3% in Europe) to go along with the billions of dollars being invested in semiconductor research and start-ups. That proportion could rise above 30% in 2021.

Priority outbound sectors are largely emerging industries, where China already feels confident in its potential to be world-class and in which it seeks to ensure maximum access to markets beyond China. China’s asks in the EU-China investment agreement are very much focused on this. In this category are sectors such as new energy vehicles, green tech and smart tech. Smart tech covers many subcategories, often 5G enabled, from smart cities to smart factories and industrial IoT. In these sectors, China will seek to export not only hardware as usual but also software, and critically, the standards on which the Chinese products are based. Chinese produced NEV exports will range from Teslas made in China for sale in Europe and Teslas emerging China-owned competitors such as Nio, Xpeng and LiAuto, to sub-US$10,000 entry-level EVs to EV buses from BYD.

Should the EU-China Investment agreement be ratified, European companies should receive preferential market access in a number of these sectors in China, and Chinese companies will be permitted to push forward on their green energy and NEV investment strategies into the EU. The impact will not be as material and swift as the opening up of the financial sector to majority foreign-owned players was in 2020, and the text has not yet been finalised, but openings are promised in NEVs, cloud services, financial services and health.

Online grocery shopping will be the most contested and contentious consumer-facing sector in China in 2021, highlighting both the further digitalisation of the Chinese consumer and more aggressive intervention by Chinese regulators. Community grocery buying, where one person organises grocery purchase and delivery for the following day for a community of typically 30 of their neighbours, is seen as the next major showdown between China’s internet giants (including Meituan, where I sit on the board).

Online grocery shopping will be the most contested and contentious consumer-facing sector in China in 2021

As with many online to offline business models, economies of scale at the city level are key to success. While being so popular with consumers that it could reach close to 20% of grocery sales by 2022, the sudden emergence of grocery e-commerce will receive push back because of the disruption to fragmented, less efficient traditional channels – distributors (often state-owned) and local retailers (hundreds of thousands of mom-and-pop outlets). Regulators will use their new anti-monopoly powers to ensure an orderly evolution of the market.

Regulation

Cyber security regulations and personal data protection laws will become stricter

2021 will be a year of intense regulatory action in China. In multiple areas, regulators are on the front foot with a common intent to centralise and standardise regulations (eliminating provincial variations in how regulations are applied) and to better protect individuals and small business from predatory behaviours by larger businesses. These policies are targeted at all businesses and of course, foreign businesses will come under scrutiny as a result. Key areas include:

·       Anti-trust enforcement by SAMR will target discriminatory pricing, forced exclusivity, below cost pricing and acquisitions to pre-empt competition. Larger internet companies will find ways to adapt but some will see their margins impacted.

·       The corporate social credit system will become more effective at joining the dots to highlight corporate bad actors as the system more effectively consolidates data already held on corporations across multiple (largely local) databases.

·       Undercapitalised players in the financial sector will find they need to add billions of dollars in new capital requirements to sustain their existing business model and operators using a provincial license to operate nationwide will find that path no longer open. Sales of bank wealth management products will be restricted by new regulations on distribution, with third-party platforms removing many such products already in January.

·       New rules on personal data protection pile on top of existing cybersecurity and national security requirements. Consumer tolerance of abuse of their personal data has fallen rapidly in recent years and the government is catching up. More explicit opt ins for collecting data, restrictions on selling data to third parties, government approvals for taking data cross-border and even higher requirements on protecting minors’ data will apply. Sensitive data still walks out the door of corporations, taken by low paid employees as was the case with YTO earlier this year. Corporations will be expected to have policies to prevent this, and effective implementation of the policy. Breaches or failures to comply must be self-reported or corporations will face additional liabilities.

·       Technology exporters will need to navigate China’s new export control law, largely modelled on what China has seen applied by the US. Details of the law were laid out in December; many existing technology exporters are likely to find that they need additional licenses to exports in the future.

·       Taking lessons from governments around the world, Beijing has rolled out a national security screening process as part of the approval process for foreign acquisition of companies based in China.

Vaccines

Vaccine production and procurement provide an insight into how China’s industries work

As of late December, China has inoculated several million high-risk workers (overseas travellers, military, health workers, police officers, firefighters, transport and logistics workers) under emergency regulatory approvals for vaccine use, while at least five vaccines developed in China progress through Phase 3 trials in a dozen countries worldwide. Government officials have claimed 600 million doses will be available by year end and that over 2 billion will be produced in 2021.

China’s development of Covid-19 vaccines is a microcosm of how many industries work in China:

·       A major state-owned enterprise, Sinopharm, is the giant in the market. A Fortune 200 company with 100,000 employees and tens of manufacturing plants. In an ideal world, Beijing would like Sinopharm to be one of, if not the, “winner”.

·       Competing with Sinopharm are multiple private sector competitors ranging from long-established local companies (including Sinovac, Wantai) to relatively recent start-ups led by returnees from overseas (including Cansino, Clover) – often with only a few hundred research focused employees. They will need third parties to help scale production.

·       Government and university health institutes are partnering with corporate developers in public-private partnerships.

·       Fosun pursued a different path, but one common to many other industries in China – buy abroad and bring back to China. Pharmaceuticals is just one leg for Fosun, which is one of the largest private conglomerates in China, internationally owning businesses such as ClubMed and the UK football club Wolverhampton Wanderers. Fosun looked abroad, invested in BioNTech, secured exclusive distribution rights in China for their vaccine, and has now imported the first units.

·       These companies are listed across the world on exchanges in Shanghai, Shenzhen, Hong Kong and New York.

·       Vaccine technologies being worked on span the traditional to the leading edge, including 1) inactivated virus; 2) protein-based vaccine; 3) viral vector; and 4) mRNA/DNA.

·       At least two vaccine developers have links to the Chinese military.

The government will have to overcome some natural concerns about vaccines in China, given the industry’s poor track record of quality control. Expired polio shots, unsafe rabies vaccine and unsafe DPT vaccine incidents have all occurred in the past five years. Vaccination will be encouraged by requiring it for travel on trains and planes and entry to public buildings and by making vaccination free to consumers.

Despite these positive developments, China’s borders are unlikely to open wide quickly. Government officials will be conservative. Health-based reasoning could also get intertwined with geopolitics to leave potential travellers from specific countries at the back of the line for getting quarantine-free entry into China in 2021.

Hong Kong

Hong Kong will play a major role in the financial sector as mainland companies increasingly dominate

Entering 2021, Hong Kong remains China’s international financial centre, and through the narrow lens of that sector, had a surprisingly successful 2020 with IPOs continuing throughout the year, demonstrating that much of the sector’s activity can flourish even when arrivals at the airport fall to less than 1% of normal levels.

A personal milestone came when the Hang Seng Index adjusted the companies it includes to take out Swire Pacific (a member since the index was launched 51 years ago) and bring in Meituan, listed only two years ago. (I am a board member of both companies). Weighted by value, mainland companies now make up over 60% over the index. With the pressure to delist Chinese companies from the US only growing, underlying momentum supporting the financial market in 2021 remains strong.

With Hong Kong now on Wave four of the virus, there seems little likelihood that international business travel will return at any scale into Hong Kong until the second half of 2021. As a result, many business decisions remain on hold – whether to adjust the scale of operations in Hong Kong, whether to move activity into mainland China or elsewhere in Asia and the like. When the border with mainland China reopens, expect a step up in investment from mainland China in Hong Kong, of mainland companies expanding their operations in Hong Kong and mainland talent moving to Hong Kong. These secular trends have been on hold for 18 months now and will see a snap back in 2021.

Beyond China

The Belt and Road Initiative will lead to further Greentech infrastructure projects

China will continue with its multilateral engagement strategy, building off the successes of the Regional Economic Comprehensive Partnership (RCEP) and the China-EU Comprehensive Agreement on Investment from 2020. RCEP’s gradual tariff reductions and rules of origin for manufactured goods will deepen flows of goods between China and the 14 other member economies that in combination represent 30% of global GDP, even if it does little on services.

In 2021, China will also deepen its commitments to standards setting institutions such as the International Standards Organisation (ISO), the International Telecommunications Union (ITU), the International Electrotechnical Commission (IEC) and more, encouraging its companies and researchers to engage heavily in promoting China developed standards as global standards. In multilateral bodies shaping global climate change policies and global Covid vaccine distribution, China will seek to position itself as a more significant (in terms of offers made) and more reliable partner than the United States.

BRI will continue at scale in 2021. BRI will continue apace, with billions of dollars going into completing the backlog of agreed projects. The year will also see new variants of BRI emerge, for example:

·       Green energy BRI – fewer coal and more solar projects, more green finance for projects.

·       Smart or Digital BRI, more telecom than road infrastructure, more smart city projects, more smart car projects.

·       Healthy BRI covering everything from vaccines to hospitals and digital health solutions

Chinese businesses have low expectations for material change in their ability to do business in and with the United States in 2021. The optimistic hope for stability is simply to be able to better plan, make investment and sourcing decisions with certainty, and to be able to close partnerships with US companies at least in China, if not in the US.

It’s likely 2020 will prove to have been the last wave of Chinese companies listing in the US. This year will see a mix of forced delistings (currently the on again-off again delisting of the three Chinese telecom companies by the NYSE that reinforces the inconsistency of actual US policy towards Chinese business) and companies choosing to re-list in Hong Kong or mainland exchanges, even if they have only been listed in the US for a year or so.

Gradual supply chain reconfigurations will continue. As global trade renormalises China’s share of global manufactured goods, exports will fall back from the all-time high it reached in 2020 on the back of demand for PPE and will return to the gradual trend downwards as manufacturers add incremental new capacity closer to scale markets around the world. As part of this trend, expect to see many more Chinese companies opening factories not just in Vietnam and India but also across Africa, Mexico, Brazil, Turkey and Poland. For example, almost all Chinese smartphone producers now manufacture in India for India.

Companies that manufacture in China for China, whether Chinese or multinational, will largely continue to do so. For most, domestic demand consumes the significant majority of their output. These companies will engage in the growing wave of manufacturing upgrades in China – increasingly the global hub for what the future “smart factory” will look like. Companies that needed to shift production to avoid US tariffs have done so.

China and ESG

Even before President Xi’s commitments for China to become “carbon neutral” by 2060, Chinese businesses had been starting to take environmental, social and corporate governance (ESG) concerns more seriously. Consumer, investor and regulator demands were too strong to ignore. For Chinese companies listed in Hong Kong, disclosure requirements by the HKEX become higher each year and force companies to gather and review at board level data that they likely have never looked at before.

Questions from not just ESG funds, but almost all fund managers on ESG, put management on the spot during quarterly reporting calls. Gaining a higher ranking in ESG ratings, schemes from MSCI and Dow Jones are becoming something that company leadership wants to say it is ahead of its peers on. Even on mainland exchanges, one quarter of companies issued ESG reports in 2019, likely over a third did so in 2020, and domestic ESG rating schemes such as the Ping An-CEIS have launched.

Summary

Ahead of the COP meeting in November 2021, it is likely that Chinese regulators will take the opportunity to issue new ESG policies with tougher mandated disclosures. Clearly, there is a wide range of performance on ESG among Chinese companies, with “G” having the furthest to go, but at least on “E”, 2021 will see significant progress.

The 23^rd July 2021 is the 100^th anniversary of the founding of the Chinese Communist Party in China, coincidentally also the date of the rescheduled opening ceremony for the Tokyo Olympics. Hundreds of events are planned across China, from movies to parades and political speeches, to celebrate this anniversary. Ensuring all goes smoothly in the run up to the anniversary is a key objective. Domestically that requires stability – social, economic and political – above all else. While pursuing sector specific priorities in 2021, don’t lose sight of this overarching requirement.

The post What’s in store for China in 2021? appeared first on Focus - China Britain Business Council.

What was the background that led to you writing the ‘Towards a UK strategy and policies for relations with China’ report?

Trade and investment are very important, but so too are national security and values (in the broadest sense, such as freedom of speech, academic freedom, democracy). In the long run, our economic interests will suffer if our security and values interests are compromised.

I have been outside the British government since 2011, apart from the last four months of 2017 when I was asked to go back to the embassy in China to cover the Party Congress. My impression was that by then it was finally dawning on people that the assumptions behind the ‘Golden Era’ were mistaken and a new set of policies were needed. Yet it did not appear to me, admittedly as an outsider, that in 2017/18 deep consideration was being given or commissioned towards a rethinking and resetting. So, in early 2018 I thought that I would help to stir things up, encouraged, I may say by one or two people within government.

In the long run, our economic interests will suffer if our security and values interests are compromised

Resettling in the UK after 15 years abroad – or perhaps my own lack of application – delayed the start but I eventually started a series of long papers and other articles, all of which aimed to set the scene and suggest ideas for government to think about. I started in Feb 2019 with a paper ‘China–UK Relations Where to Draw the Border Between Influence and Interference’, because that issue was especially urgent; next a joint paper ‘Rising to the China Challenge’, which looked at the need for government to establish a cross-departmental mechanism to coordinate China policy; then a paper explaining why China will not be a superpower ‘Foresight 2020: The Challenges Facing China’ (don’t get me wrong: China will certainly be important, but we should not believe the myths); and finally in June this year ‘Towards a UK strategy and policies for relations with China’.

For those who have not yet read the report, what does a new China strategy look like for the UK in your view?

The title of my paper starts with the word ‘Towards…’. I don’t profess to present a fully formed strategy, emerging like Athene fully armed from the head of Zeus. As I and co-authors at the Policy Institute at King’s College made clear in a January 2020 article ‘Rising to the China Challenge’, the first steps are to get the right government structures in place. China is an issue which faces just about every government department, not just the economic and security ministries. It is the only country which does, apart from the US, and our relations with the US are such that we can pick up the phone and talk to whoever. So a strategy and policies are needed which are consistent across government – the debacle over Huawei and the sacking of Gavin Williamson for the NSC leak on the ‘decision’ back in May 2019 was clear evidence of that.

A new strategy should prioritise the UK’s own national security, interests and values, while at the same time trying to ensure that we maximise good relations with China

So a new strategy should prioritise the UK’s own national security, interests and values, while at the same time trying to ensure that we maximise good relations with China. The world, and in particular Xi’s China, has changed. So, unfortunately, there will be costs, particularly in those areas where we must necessarily diverge from the CCP. But I don’t see those being nearly as big as some suggest.

In your report, you call for the UK Government to set a policy on Chinese participation in the UK’s critical national infrastructure by the end of 2020. How do you see this working in practice?

I do think that we shall need to exclude Chinese companies, which have to obey the Party whether they are SOEs or private, from certain areas. Telecoms is one. The grid is another, although it might be acceptable to have Chinese participation in energy generation up to perhaps 15% of the total.

The question of R&D cooperation is also a thorny one. Given the desire of the CCP to impose its wishes on other countries – recent pressure, not least over Covid-19 supplies or the attacks on Australia – it makes no sense to strengthen the military capabilities of a potentially hostile power. So universities and companies will need to be sure that they are not cooperating in areas of technology which have dual civilian and military use. The government will need to set up consultation mechanisms for this. UK companies will also need to look to their reputations.

A lot of attention has been drawn to the UK Government’s lack of Chinese language skills. As a former British diplomat who has worked extensively in or on China, what is your view on this?

It is not just the lack of language skills, but a broader lack of ‘China literacy’ which is the problem. China skills are at a premium and the government has to compete with business and other fields in a way in which it did not when I started out. So I think that the government must prioritise these skills in recruitment, promotion, and encouragement in other ways. It might also need to look at being more flexible in terms of bringing in China expertise at a more senior level with exchanges with business or academia (there are problems such as lower civil service salaries, and the expense and slowness of vetting, so imagination and determination will be needed). The government could also strengthen its consultation with those in academia, think tanks, businesses as it researches policy. Finally, it needs to encourage education to give greater prominence. A good start would be to help set up an A-level in Chinese Civilisation. That would encourage the young to be interested in China and to learn Mandarin.

What role do you see for British companies in helping to chart a successful course for UK-China relations?

I am not a businessman and it is, therefore, dangerous for me to pontificate on how business should operate. The political climate is going to get more difficult. But I always point out that in the past when the UK was in the doghouse over the PM meeting the Dalai Lama, or Norway over the award of the Nobel Prize to Liu Xiaobo, or South Korea or Australia – the list goes on – nevertheless the exports of all those countries in all those years increased. Sure, some companies’ interests were hit, usually, those whose products could easily be sourced elsewhere or were politically symbolic, but overall trade prospered.

I see no reason for trade and investment not to help build a solid relationship with China

This reinforces the belief that China needs the democratic world as much as the democratic world needs China. So as long as UK companies research their China market and produce things that China needs at a good price, then, the effects of Covid-19 permitting, I see no reason for trade and investment not to help build a solid relationship with China. I think that too often the press and government look at things through a political lens. But in the meantime business goes on, because it is in both sides’ interests. Business is the cake; ministerial visits, political agreements and so on, are the icing.

 It is vital to present a united front with the EU and other liberal democracies

Quite apart from political disagreements, the most important point for businesses is the achievement of a ‘level playing field’. The argument for further and timely opening in China is important. Progress will be resisted: who, given the choice would not want an unlevel playing field – in their favour? That means that whatever your views on Brexit, it is vital to present a united front (to coin a phrase) with the EU and other liberal democracies. Finally, we should not get too hung up by a Free Trade Agreement. We should aim for one, but one that promotes a level playing field. Australia took 10 years to negotiate one and then for political reasons signed something which is far from ideal. For sure, we want an FTA, but we want a good one. And in the absence of that trade will go on.

The post Charles Parton’s report suggests a new UK relationship with China appeared first on Focus - China Britain Business Council.

This year’s Lianghui is particularly important given the ongoing pandemic: confirmation that it is taking place in May will be seen as a key marker in China’s process of getting back to normal. The full announcement by China’s National People’s Congress (in Chinese) can be read here.

Key Topics

During the ten day congress, the around five thousand members of the National People’s Congress (NPC) — whose opening ceremony is scheduled for May 22nd — and the Chinese People’s Political Consultative Conference (CPPCC) will convene in China’s capital to discuss and approve major legal and political decisions.

This year’s economic growth target will be set during the meetings. After the economy’s 6.8 percent year-on-year drop in the first quarter, the full year target will be closely watched as a signal about the health of the world’s largest economy.

The target will also indicate whether the Chinese leadership believes that it can achieve its long-term goal of doubling the country’s GDP by the end of 2020 compared to its level in 2000-level, and thus also attain its aim of establishing a ‘moderately prosperous society.’ After a revision of economic data last year, China would need at least 5.9% growth this year to reach this goal.

Achieving this goal has been a top priority for China’s President Xi Jinping, even though the sudden outbreak of COVID-19 has cast serious doubt over its feasibility. There has therefore been some talk of the government setting an unprecedented ‘two-year’ growth target, which would take the current crisis into account, but which could also create conflicting policy objectives for local policymakers and state-owned enterprises.

Besides growth forecasts, the Two Sessions will also pass the annual budget for China’s central and local governments and discuss and approve major legislation.

Foreign businesses should particularly pay attention to the pending amendment to China’s patent law as well as recent initiatives around China’s anti-monopoly law, the new energy law, and other regulations related to the implementation of the country’s new foreign investment law.

Nearly 3,000 party officials convene at the annual meet to discuss new laws

Background

The ‘Two Sessions’ meetings occupy a central position in China’s political calendar. The plenum of the NPC, whose 2,980 members convene only once a year, elects and confirms major government positions, including the Premier (currently Li Keqiang). It’s also the only body with the authority to pass and change laws in China.

The most significant recent NPC plenum meeting took place in 2018 when it not only amended China’s constitution – getting rid of previously enshrined term-limits for the country’s president – but also decided on a fundamental reorganisation of the central government’s ministries and agencies. Last year, the NPC passed a major new Foreign Investment Law.

The CPPCC, on the other hand, is the central pillar of the so-called ‘United Front’ which links the country’s main civil, professional, and cultural associations to the ruling Communist Party. Similar to corporatist structures in other countries, the CPPCC’s main function is to provide input and feedback on major policy initiatives.

The ‘Two Sessions’ first took place in September 1954 but moved to March in 1985 to make annual budgeting and economic planning easier.

Further Coverage

CBBC will be providing analysis for our members following the conclusion of Lianghui – including a webinar with Trivium and readouts from our policy team.

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