BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/01

In mid-December, mainland China’s top decision-makers convened for the annual economic work conference. Reports from the meeting indicated that economic policy is likely to remain on its current course with stimulus supporting economic growth, efforts to improve the quality of growth and industrial development.

The government hopes to deal with slowing economic growth through tax cuts, reduction in fees paid to officials and increased public spending. The biggest spending increases will go to public services such as education, child care, health care, recreation and culture. A number of large investment projects were mentioned such as construction of 5G networks, development of rural transport infrastructure and upgrading of wastewater treatment facilities.

Even if the “Made in China 2025” programme was not mentioned specifically, the government will strive to increasing the sophistication of technologies used in manufacturing and give greater support to innovation. Another goal is to shutter unprofitable “zombie” businesses, while making state firms generally bigger and stronger. For example, China plans next year to turn the state railways into public corporations. Due to massive investment, China’s railways are currently struggling with trillions of yuan in debt while losing tens of billions annually. A science and technological innovation board was proposed for the Shanghai stock exchange.

There was also renewed commitment to opening up the economy to foreign investors. Direct investment by foreign firms in China will be made easier and intellectual property protections improved. Official payments related to imports will be reduced. Immediately after the meeting adjourned, China announced plans to amend the law governing foreign direct investment so that mandatory technology transfers are banned and state-owned enterprises eliminate all excess benefits. The measures as stated respond to many of the foreign grievances aired against China, but it waits to be seen what those measures look like when implemented.

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