Forty years and on: Shenzhen Special Economic Zone aiming for a higher goal
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On August 26, 2020, Shenzhen marks 40 years since being designated as a “Special Economic Zone”. As the first of its kind on many levels, what will be next for Shenzhen? How can Shenzhen continue to be the showcase of the reform and opening up of China? On August 18, 2020, representatives of the public sector, private sector, and academia shared their thoughts on this matter during a seminar held by China Development Institute.
Date: August 18, 2020
Host: CDI
Theme: Forty years and on: Shenzhen Special Economic Zone aiming for a higher goal
Recovery slows, but continues
Industrial output rose 4.8% y/y in July, the same rate as in June, down 1.1 pps from Q4 2019. Investment grew 8.3% y/y, up 2.7 pps from June, and up 2.9 pps from Q4, and is still mainly driven by state investment, with a growth rate of 12.7% y/y. The best performer among fixed asset investments is real estate, with a growth rate of 11.6% y/y in July, up 3.7 pps from Q2.
Consumption is still weak, and was down -1.1% y/y, and up 0.7 pps from June, showing customers’ caution over COVID-19. In July, exports grew 10.4% y/y, up 6.1 pps from June, and up 6.4 pps from H2 2019, possibly due to the halt of overseas production. Imports are fluctuating significantly, and aren’t showing any trend. They rose 1.6% y/y, down 4.6 pps from June.
Producer price growth is trending up. The ex-factory price index of industrial goods rose 0.4% m/m and fell -2.4% y/y. PPI rose 0.9% m/m, and fell -3.3% y/y. Growth of the two indices is down 0.6 and 1.1 pps from June. But we expect future producer prices to at most rebound to their pre-pandemic growth rate levels. CPI rose 2.7% y/y, up 0.2 pps from June. We expect its rise to be temporary.
Major financial indicators have been falling, or flat. M2 rose 10.7% y/y, down 0.4 pps from June. Loans rose 13% y/y, down 0.2 pps from the end of June. M1 grew 6.9% y/y, up just slightly, by 0.4 pps.
On August 14th, a pioneering digital currency initiative initiated by the People’s Bank of China stated that that it would expand the trail program to a number of large cities, with the involvement of the big four state banks. China’s Alibaba has already entered into a “strategic partnership” with the Central Bank over the sovereign digital currency plan. We view digital currency reform as part of the Chinese government’s grand Fintech plan. It will make financial transactions easier, by reducing the intermediary role of commercial banks, directly benefiting small and medium-sized firms.
CDI researcher speaks on coronavirus control and economic recovery in online lecture
On August 11, Dr. Guoping Zhang shared views on China's experience and practice on coronavirus prevention and control, and elaborated on the economic recovery action plan and challenges brought by the pandemic. This lecture was part of the online training program "Enhancing Trade Competitiveness for Goods and Services: Issues and Strategies in Post-Pandemic World" organized by Mekong Institute. Participants of the program include mid-level officials from government ministries and departments, think tanks, academic and research institutions, as well as those from the private sector representing business associations, export companies, and SMEs representing Lancang-Mekong countries.
China’s US$68 billion Greater Bay Area rail plan for faster, easier city links
China will invest CNY 474.1 billion (US$67.9 billion) to improve rail connection in the Greater Bay Area, building 775 km (480 miles) of intercity railway and five transport hubs, according to a plan approved by the National Development and Reform Commission (NDRC).
The Greater Bay Area is an ambitious scheme announced by the Chinese government in 2017 to link Hong Kong, Macao and nine cities in Guangdong province to form an integrated mega economic and technology hub capable of rivalling San Francisco’s Silicon Valley, writes South China Morning Post.
In recent years the scheme has been gradually rolled out with the construction of the Hong Kong-Zhuhai-Macao Bridge and the Hong Kong-Guangzhou high-speed train, as well as inter-region cooperation on other infrastructure projects, education and scientific research.
The connectivity programme, which was approved on 30 July by the NDRC, China’s top economic planning agency, is intended to cover all cities in the area above county level with 5,700 km of railway by 2035. By then, passengers would be able to commute between major cities in the Greater Bay Area within an hour, major cities to smaller cities within two hours, and major cities to capitals in surrounding provinces within three hours, according to the plan.
Under the scheme, transport hubs will be built within cities, connecting airports, train stations and linking intercity rail systems with inner city transport. Hong Kong and Macao would also be better integrated into the regional grid, the plan said.
Currently, connectivity was limited in the region, said Guo Wanda, executive vice-president of the China Development Institute, a Shenzhen-based think tank.
“There are still too few [railway] lines between cities, it’s inconvenient to switch from railways to subways and other services [in different cities] – including ticketing and road signs – are not integrated,” he said.
Under the new plan, small and medium-sized cities would be better connected, instead of being overshadowed by major cities, said HuoWeidong, who has a doctorate from the Institute of Guangdong, Hong Kong and Macao Development Studies at the Sun Yat-sen University in Guangzhou.
In addition, Huo described the new plan as a “breakthrough in design” because it would consider intercity connection as a “hub-to-hub” concept compared with the old “city-to-city” model, easing the movement of people, business and goods.
“The hub-to-hub design will also strengthen the connection of major airports and small and medium-sized cities, and I am confident that this will present opportunities attractive to overseas investors,” he said.
Immediate effects of the plan included boosting the economy within the Greater Bay Area, said Peng Peng, executive director of the Guangdong System Reform Research Society.
“Guangdong, the largest province in terms of foreign trade [in China], has been hit hard by the coronavirus pandemic and [the souring of] US-China relations. We can’t depend on foreign trade for the recovery,” he said. “In the short term, the room for boosting domestic demand will be limited. So infrastructure construction will be the main avenue for growth.”
However there were difficulties in carrying out the plan, such as financing, Peng said.
“Guangzhou’s financial situation is [less robust than] Shenzhen’s. A critical factor [for this project] is whether local governments can arrange the financing smoothly,” he said.
Strong rebound, even without a major stimulus
GDP rose 3.2% y/y in Q2 -- a remarkable performance amid global pandemic. In June, industrial output was up 4.8% y/y, and up 0.4 pps from May, though has still not reached the pre-pandemic level, and was down 1.1 pps from Q4 2019. Investment, mostly driven by state investment, was up 5.6% y/y, up 1.7 pps from June and down 0.2 pps from Q4 2019.
Retail sales of consumption goods fell -1.8% y/y in June, up 1 pps from May. Exports rose 4.1% y/y in June, achieving positive growth for three consecutive months, averaging 4.5% y/y, higher than the growth rate of H2 2019. Imports were up 6.2% y/y, turning positive for the first time.
The ex-factory price index of industrial products fell -3% y/y in June, and PPI fell -4.4% y/y, up 0.7 and 0.6 pps from May, respectively. CPI slightly rebounded, rising 2.5% y/y, up 0.1 pps from May, and increased 0.4% y/y, after removing the seasonal factor.
The main financial indicators were still strong in June. M2 rose 11.1% y/y, the same rate as in May. The still-increasing adjusted M1 rose 7.3% y/y. Savings deposits from non-financial institutions were up 13.2% y/y.
The market has seen a steady increase in money market rates since early May, and the highest 10-year sovereign bond yield in five months. And although People’s Bank of China Governor Yi Gang signaled a fresh liquidity injection two weeks ago, it is taking an unusually long time to be delivered. We expect the strong growth rebound has made monetary loosening exit early. This is partly in order to avoid asset bubbles, in line with the recent housing price surge in major cities like Shenzhen, where housing prices have risen 20% over the past two months, and as seen in the stock market rally.
Financial centre futures conclave - bringing together representatives of financial centres to build on our common interests
At a time when the global economy is facing a major shock from the Covid-19 pandemic, financial centres will play an enormous role in assisting recovery, as well as being candidates for recovery themselves.
On July 15, representatives of financial centres across the world were brought together during the online conclave co-organized by Z/Yen Group and China Development Institute in discussion of areas of common interest on restarting economies, adjusting strategies, and renovating financial centres for the next decade. Speakers include: The Right Honourable The Lord Mayor of The City of London, Alderman William Russell, as well as Alderman and Sheriff Professor Michael Mainelli.
Unlock the door to opportunity
Author: Fan Gang, President of China Development Institute
Only through further opening-up its economy can China boost its global competitiveness
The remarkable achievements China has made over the past four decades in institutional reform and economic development is a result of its opening-up policy and the development of its export-oriented economy.
Opening its economy enabled China to give its productive forces full play, and to export labor-intensive products in exchange for urgently-needed machines and technologies. Opening the domestic market and introducing foreign investment was crucial for China to grow its economy. It allowed China to learn advanced technology and science from other countries. Large numbers of students, scientists and technical professionals went abroad for studies and exchanges.
Opening-up also allowed China to engage in global affairs through joining international organizations. China's entry into the World Trade Organization in 2001 marked another milestone in its process of going global.
Today China is witnessing changes in the global landscape unprecedented in a century. The COVID-19 pandemic is having a huge and far-reaching impact on the global economy and trade, bringing more uncertainties to economic globalization. Undoubtedly, during the period of the 14th Five-Year Plan (2021-25), China will face a more complex, harsh, and changing external environment, which will bring unprecedented challenges as well as opportunities. To navigate through the complex and challenging global environment, China must further open its doors and safeguard an open world economy, thus gaining the initiative in global competition, promoting comprehensive in-depth reform and quality development, and fostering a stable and sound global environment.
With a population of 1.4 billion people, China has a per capita GDP of around $10,000, roughly one-fifth or one-sixth that of developed nations, and a large rural labor force is seeking employment in the urban economy. China needs to expand domestic demand and foster its domestic market while tapping into the global market and using global resources to fulfill its potential in production, and narrow the gap with developed nations.
Only through further opening its economy can China keep advancing its science and technology level and research capacity, and increase its global competitiveness. Although China has made significant progress in science and technology over the past four decades and is leading in some areas, it is still lagging behind in many others, while being on the lower end of the industrial chain, as well as facing external constraints in some key technologies. China should strengthen independent research and development by further opening-up.
Further opening-up would enable China to attract more innovative personnel. China should foster its own talent pool by accelerating the development of education and scientific research while also attracting global talent. China should encourage foreign enterprises to set up research institutes in China and improve its talent import systems by providing more convenient services for foreign professionals such as for visa, work permits, residency and the lives of their families to build a good work and living environment for them.
In improving business conditions, China could attract more foreign investment and prevent foreign enterprises from leaving China, as some foreign politicians threaten to decouple from China and even block China. China should shorten the negative list for foreign investment access, orderly open the service sector, encourage foreign investors to engage in research and development and allow foreign enterprises to take part in major science and technology projects. China should implement the Foreign Investment Law, treating domestic and foreign companies equally. Increased production and investment of foreign enterprises in China will help boost the country's GDP, create more jobs and elevate incomes, while strengthening China's weak links and cementing its position in the global industrial chain.
Only through further opening the economy can China promote reform and create a vibrant and competitive market mechanism. For example, further opening the financial market is driven by China's own demand for developing and perfecting the financial market. The further opening-up of the financial market and easing of access restrictions will bring in more global financial institutions which will lead to fiercer competition in the domestic market. Higher-level competition will foster stronger competitiveness. China can only integrate into the global financial system by participating in global competition. Fiercer competition will help the country identify areas in need of reform, improve market regulation and optimize the allocation of resources.
Only through further opening the economy can China optimize the management and service system for foreign investment, thus forging a group of world-class Chinese multinationals. Chinese companies need to go global to tap into resources to grow stronger.
Only through further opening the economy can China improve the international economic cooperation mechanism and boost the capacity of participating in global economic governance. A growing Chinese economy has laid a solid foundation for the country to engage in global economic governance, but it should also bolster its soft power. Especially, China should improve its capacity in line with high standard global trade rules. In this way, China will be able to counteract the trend of anti-globalization, sustain multilateralism and realize the ideal of building a community with a shared future for humankind by implementing and promoting international cooperation initiatives such as the Belt and Road Initiative.
Source：https://www.chinadaily.com.cn/a/202007/14/WS5f0cef39a310834817259286.html
Coping with Covid-19 – stepping up Sino-Japan economic and trade cooperation
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The global economy has been hit harder during the Covid-19 pandemic. As two of East Asia’s major players, China and Japan’s robust regional collaboration will help mitigate the negative effects of Covid-19, as well as to stabilize regional economy and facilitate future economic growth. In this regard, academics from China, Japan and the USA have joined together to debate the potential ways for strengthening Sino-Japan economic and trade cooperation in a time of global pandemic.
Date: June 28, 2020
Host: CDI
Theme: Coping with Covid-19 – stepping up Sino-Japan economic and trade cooperation
COVID second wave lowers our growth forecast
Industrial output rose 4.4% y/y in May, up 0.5 pps from April, comparable to its pre-pandemic level, and was down just 1.5 pps from Q4 2019. Investment was up 3.9% y/y, and up 3.1 pps from April, down 1.5 pps from Q4. Government investment is the main force lifting overall investment growth.
Consumption demand continued to recover in May. Retail sales of social consumption goods fell 2.8% y/y, up 4.7 pps from April. The global pandemic is not showing any sign of abating, and is heavily impacting trade. In May, exports were up 1.4% y/y, down 6.8 pps from April, while imports plunged 12.7% y/y.
Prices are all falling, creating conditions for future money expansion. The CPI rose 2.4% y/y, down 3 pps from January, mainly driven by food prices. Producer prices fell further. The ex-factory price index of industrial goods decreased 3.7% y/y, and the PPI fell 5% y/y, down 0.6 and 12 pps respectively from April.
Monetary policy is expanding. Major financial indicators all show upward trends. At the end of May, M2 was up 11.1% y/y, and M1 up 6.8% y/y, up 2.3 and 2 pps from the end of February.
On June 12th, Beijing reported its first local coronavirus case, after more than 50 days with zero new locally-transmitted cases. A total of 236 new confirmed cases had been recorded by the writing of this report. Even though such numbers seem insignificant, much evidence shows that COVID-19 might be entering a second phase. This has significantly increased public, and investor, sentiments of uncertainty. Our own survey data shows that 30% of Chinese people believe this virus will persist for a long time. Factoring in the worsening global situation, we are revising downward our GDP growth forecast to 1.4%, which is below other major forecasts, such as that of the IMF.
Innovation of Institutional Integration – Hainan Free Trade Port
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On June 1, 2020, the Overall Plan for the Construction of Hainan Free Trade Port was released, making China’s Hainan Province the world’s largest free trade zone. To better understand its implications, CDI researchers gave an interpretation and analysis of the policies laid out in the plan.
Date: June 7, 2020
Host: CDI
Theme: Innovation of Institutional Integration – Hainan Free Trade Port
