The state of the economy was uppermost on his mind when Premier Li Keqiang answered questions at his yearly press conference immediately following the closing session of the National People’s Congress (NPC) on March 15. The range of pre-arranged questions was much narrower compared to previous years, indicating that slowing economic growth and the influence of the world economic situation on China is the major focus of the Chinese leadership.

Premier Li Keqiang admitted that China’s economy has indeed slowed down, and so has the global economy. China has adjusted its GDP growth target for 2019 to a range from 6% to 6.5%, but he emphasized that China would not let economic indicators slide out of range. Premier Li said China made “strong, united efforts to advance supply side structural reforms” to achieve 6.6% GDP growth last year, against a backdrop of protectionism globally. He added that the country needed to take strong measures to cope with the current downward pressures on the economy, including quantitative easing. “However, such indiscriminate approaches may work in the short run, but may lead to future problems. We want to energize the market, instead,” he said. The Chinese government’s policies will remain stable stable in 2019, with an emphasis on continuing to cut taxes and fees as well as broadening market access and leveling the playing field.

The Premier said other measures include changing required bank reserve ratios and interest rates, but added China would not go for monetary easing. China would “support the economy, no matter what the situation is”. Larger tax and fee cuts for companies is the most important and crucial step in handling the pressures of the economic downturn. The VAT rate will be cut from April 1. “We will ensure the tax burden on companies only goes down,” Li Keqiang told hundreds of journalists at the Great Hall of the People in Beijing.

Li said he was happy with certain economic numbers. For instance, he said China’s fiscal deficit is budgeted to be 2.8% of GDP, which falls below the 3% line. He also said an economic growth rate between 6% and 6.5% is good. At the same time, the quality of these numbers are sometimes questioned – China’s official growth rate could be overestimated while its official fiscal deficit is widely seen as being underestimated. “China’s global ranking in terms of ease of doing business has moved up by 30 spots. There have been improvements, but we are still falling short in some aspects,” the Chinese Premier said.

“Big data suggests that ageing and child care services are two difficult issues facing China, and demands close government attention,” Li said as there are 250 million Chinese over 60, 170 million over 65, and up to 100 million below 6. “Services targeting these groups are lacking,” he commented. Li said there are only three beds for every 100 senior citizens and in big cities a person may need to wait till 90 for a spot in a care home.

Premier Li refused to be drawn into discussing the trade negotiations with the U.S., only saying that relations between China and the U.S. have gone forward despite the many twists and turns, due to mutual interests. “Economic decoupling between the U.S. and China is not realistic or feasible”, said Premier Li as he sidestepped questions on spying allegations made by the U.S. He did tell a reporter: “You said the Chinese government asks companies to spy on other nations. Are you talking about the government or individuals? This is not consistent with Chinese law, we did not do that and we will not do that in future.” The Chinese Premier said he was optimistic that the China-U.S. trade talks will yield results acceptable to both sides. “U.S.-China tensions are between two parties, we won’t exploit, let alone harm, the interests of third parties,” Li said when asked about relations with the EU. He said he will be going to Europe next month to promote ties.

Premier Li said the government should not exercise arbitrary oversight over new forms of business and business models, such as internet plus and the sharing economy, as they create new jobs and convenience for people. They should be allowed a chance to grow and develop. The Premier also said expressway tolls would be eliminated to ease traffic jams and promote industrial development, and that the price of electricity for industrial use would be cut by 10% this year.

At is closing session, the NPC gave approval to the new Foreign Investment Law (FIL). Only eight delegates voted against the law, and another eight abstained, while 2,929 voted to approve it. Fostering a favorable business environment by improving the rule of law and offering better legal services will be a priority for Chinese courts this year, Zhou Qiang, President of the Supreme People’s Court, said. The Foreign Investment Law will come into force on January 1, 2020.

The President of the Supreme People’s Court (SPC) pledged to increase pressure on financial crime after a sharp rise in prosecutions for illegal crowdfunding, pyramid schemes and bad loans. The Chief Prosecutor said 27,000 people were charged with running scams in 2018. Financial scams have spread rapidly across China in the past decade and victims of the schemes, which offer unrealistically high returns, often include the most vulnerable members of society such as low-income migrant workers, the elderly and the unemployed. Thirty-two officials at or above ministerial level were charged with corruption last year. Chinese courts across the country handled a surge in IPR-related cases – 288,000 of them, an increase of 42% year-on-year.

Premier Li’s “Report on the Work of the Government” was approved unanimously – 2,945 delegates voted in favor and three abstained – compared to 378 delegates who voted against Li’s first report as Premier in 2014. A total of 156 and 71 NPC delegates voted against the reports submitted by the President of the Supreme People’s Court and the Chief Prosecutor. Five to 10 years ago it was common for up to 600 of the nearly 3,000 NPC delegates to vote against the two reports to show their disapproval of China’s rampant corruption. Since then, the number of opposing votes has dropped, falling below 200 last year.

On March 15, the National People’s Congress (NPC) will vote on a new Foreign Investment Law (FIL). The Chinese government says it will level the playing field for foreign investors. Wang Chen, Vice Chairman of the NPC’s Standing Committee, said the legislation would “promote foreign investment, protect the lawful rights and interests of foreign investors in the new era”, and “foster a market environment in which domestic and foreign capital compete on a level playing field”. The United States and the European Union have repeatedly complained about poor market access, unfair competition, forced technology transfer and weak intellectual property protection. The legislation would replace three other laws governing foreign investment – the Chinese-Foreign Equity Joint Venture Law, the Wholly Foreign-Owned Enterprises Law and the Chinese-Foreign Contractual Joint Ventures Law.

But some in the foreign business community in China say the law lacks substance and is being rushed through to reach a deal with U.S. President Trump in the trade war. Article 22 explicitly prohibits administrative agencies and their staff from using administrative means to force the transfer of technology. “Many of the current issues with forced technology transfers arise from the complex interplay between different regulations rather than from express legal obligations, and it is questionable how effective the high-level prohibition will be in view of those underlying regulations,” Gordon Milner, Partner at law firm Morrison & Foerster said. “We are concerned that the drafting of the Foreign Investment Law (FIL) is being squeezed between the normal legislative process and the negotiation table with the U.S., in part to address the trade conflict,” said Mats Harborn, President of the European Union Chamber of Commerce in China, who called for a more considered and consultative drafting of the law.

“It has some good language in it, but it’s a lot shorter than the original drafts,” said Timothy Stratford, Chairman of the American Chamber of Commerce (AmCham) in China. “It is shorter because a lot of the implementing detail has been chopped out.” “While it may improve intellectual property rights protection, there’s little clarity on how the government will implement many of its provisions. A bigger issue is why there still needs to be a separate regime for foreign investors versus domestic players,” said Ker Gibbs, President of AmCham in Shanghai. There is a common view that the law is only as good as its enforcement – the details of which are scant in the draft document.

The NPC continued its deliberations last week following delivery of the report by Premier Li Keqiang at the opening session on March 5. The delegates discussed the government budget report and listened to reports on the work of the NPC Standing Committee, the Supreme People’s Court and the Supreme People’s Procuratorate. State Councilor and Foreign Minister Wang Yi held his yearly press conference.

Reading of the budget report revealed that the budget for science and technology would expand 13.4% to CNY354.31 billion this year, despite slower economic growth. Premier Li Keqiang said China would increase support for basic research and application-oriented research, stepping up original innovation and working harder to achieve breakthroughs in core technologies in key fields.

Although not mentioning the “Made in China 2025” program, Li said China would expand “smart plus” to transform and upgrade its manufacturing industry. “Made in China 2025” has been a waste of taxpayers’ money, China’s former Finance Minister Lou Jiwei has said. “Made in China 2025 has been a lot of talking but very little was done,” Lou, who is currently Chairman of the National Council for the Social Security Fund, said. “There was no need to talk about the year 2025 in the first place,” he said. “The government wants industries to be at the top notch by then, but those industries are not predictable and the government should not have thought it had the ability to predict what is not foreseeable. The resources should have been allocated by the market; the government should give the market a decisive role,” Lou said. Since the plan’s launch in 2015, the government has poured money into MIC2025 to try to turn a number of domestic industries – including artificial intelligence (AI), pharmaceuticals and electric vehicles – into global leaders by 2025.

At the opening session of the National People’s Congress (NPC), China’s parliament, Premier Li Keqiang delivered his work report, announcing a reduction in the GDP growth target for this year to a range of 6% to 6.5%, down from the 2018 target of “about 6.5%”. The actual growth rate last year was 6.6%. He also announced a lower growth in defense spending of 7.5% to CNY1.19 trillion, compared to 8.1% last year. The year 2019 is to be the fourth year of single-digit growth.

Another highlight of his speech was a reduction in taxes. Value-added tax (VAT) for the manufacturing sector will be cut from 16% to 13%, and that for the transportation and construction sectors will be lowered from 10% to 9%. The VAT cuts are bigger than expected, namely a 3 percentage points cut in VAT for manufacturers and a one percentage point cut for transport and construction firms. The three-tier VAT structure remains and the lowest tier of 6% VAT also remains unchanged.The fiscal shortfall as a result of the tax cuts will be made up by higher profit contributions by state-owned financial institutions and state-owned enterprises (SOEs), and a reduction in government spending. VAT is the single biggest tax item in China, with revenues in 2018 accounting for 40% of China’s total tax revenues. China’s new 13% VAT tax rate for manufacturers is not a low in Asia. Vietnam, South Korea, Australia and Indonesia all implement a 10% VAT tax rate. Premier Li warned that tax cuts will create a “huge burden” for governments at all levels, which will now need to tighten their belts, and SOEs will have to hand in more profits. Moreover, commercial banks will have to increase loans to small and medium-sized firms by 30% this year.

Premier Li also admitted that “trade disputes” with the U.S. had generated “negative impacts” on some business operations and market expectations. Amid the economic slowdown and restructuring, employment will receive greater attention this year. New graduates, retired army soldiers and migrant workers will be the main targets for government support. In reviewing China’s achievements in 2018, Li didn’t mention the “Made in China 2025” program. In fact, the phrase “Made in China 2025” was not even mentioned in this year’s government work report, although it was very prominent in last year’s report. “Both anticipated and unanticipated risks will intensify, and we have to be well prepared for a hard battle,” Premier Li Keqiang said.

A total sum of CNY577.6 billion is budgeted for investments this year, CNY40 billion more than last year. China Railway Corp plans to put a total of 6,800 km of new railway track into service this year, a 45% increase in expansion from 2018. Li Keqiang said the central government will cut its paperwork by at least one-third in 2019 and governments at all levels must stop pointless formalities and bureaucracy. “We should free government employees from the mountains of documents and endless meetings. Instead, they should spend their energy on solving real problems,” the Chinese Premier said.

The most important two weeks on China’s political agenda kicked off on March 3 when the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) opened its annual meeting, followed on March 5 by the second session of the 13th National People’s Congress (NPC). The CPPCC is an advisory body where proposals are submitted and discussed; while the NPC is China’s legislative body, supervising and setting government policy and enacting laws.

This week, China’s draft foreign investment law is to be submitted to the NPC session for review and approval. The progress of enacting the legislation has been comparatively fast, indicating the importance of promoting foreign investment. The Standing Committee of the NPC conducted two rounds of reviews within little more than a month, in late December and late January. Once implemented, the law will replace three existing laws on Chinese-foreign equity joint ventures, non-equity joint ventures and wholly foreign-owned enterprises, which were mainly legislated between 1979 and 1988 and then revised. The draft law reflects experience on foreign investment governance that China has accumulated over the past decade. A focus of the law is equal treatment of local and foreign companies. China will continue its efforts to open up the economy and reduce market access restrictions on foreign investment, the Ministry of Commerce (MOFCOM) said. “The country will continue to optimize the environment for foreign investment, improve the transparency of market supervision and better protect foreign companies operating in China,” said Ministry Spokesman Gao Feng. An amendment to the Patent Law is also expected to be approved.

At the opening session of the CPPCC National Committee, Chairman Wang Yang did not mention the trade war with the U.S., but the South China Morning Post reports that “tensions between the world’s two biggest economies apparently set the tone for the speech and dominated talk among delegates on the sidelines of the event.” He said the CPPCC would focus on politics and stability this year, help to build a “moderately prosperous society” and fight battles against financial risks, poverty and pollution.

Ahead of the two meetings taking place in the Great Hall of the People along Tiananmen Square, China Unicom Beijing announced the launch of 5G coverage on and around the square, providing high-speed connections for HD live streaming coverage of the two sessions.

Vice President Wang Qishan (left) and President Xi Jinping (right)

On March 17, Xi Jinping was elected to a second term as state President in a unanimous vote by the 2,970 delegates to the annual session of the National People’s Congress (NPC). For the first time Xi took an oath on the constitution in front of the NPC delegates.

Wang Qishan was elected Vice President with only one dissenting vote. Wang was Chairman of the Communist Party’s Central Commission for Discipline Inspection (CCDI) during Xi’s first term as Party General Secretary and State President as he led the fight against corruption. At the Chinese Communist Party’s 19th Congress in October last year Wang was not re-elected to the Central Committee and thus had to relinquish his seat on the uppermost level seven-member Standing Committee. Xi Jinping was also reconfirmed as Chairman of the Central Military Commission of the People’s Republic of China. Li Zhanshu received a unanimous vote to become Chairman of the National People’s Congress.

Wang Yang, a Member of the Politburo Standing Committee, was elected Chairman of the Chinese People’s Political Consultative Conference (CPPCC) at its closing session. Altogether 24 Vice Chairpersons and 300 Standing Committee members were also elected.

The NPC endorsed President Xi’s nomination of Li Keqiang to serve a second five-year term as Premier of the State Council, China’s central government. Xi’s top economic adviser Liu He was named a Vice Premier. The list of newly-appointed government ministers is available here. Wang Yi remains Minister of Foreign Affairs with the additional title of State Councilor; Liu Kun is Minister of Finance; Zhong Shan is reconfirmed as Minister of Commerce; and Yi Gang is appointed Governor of the People’s Bank of China (PBOC), replacing Zhou Xiaochuan, who had held the post for the past 15 years.

The NPC unveiled an ambitious plan to revamp the central government structure, with more than two dozen ministries and commissions affected. The number of ministerial-level government agencies will be reduced by eight, while seven vice-ministerial agencies will also be abolished. A new Ministry of Emergency Management, a Ministry of National Resources, and a Ministry of Veteran Affairs will be created. The most important new commission is the National Supervisory Commission under Director Yang Xiaodu. It reports directly to the NPC and combines the anti-corruption functions of the Ministry of Supervision and the Supreme People’s Procuratorate. Moreover, it has a higher rank than the Supreme People’s Court and the Supreme People’s Procuratorate. It has jurisdiction not only over Communist Party members, but over all public servants. The banking and insurance regulatory commissions will be merged. A new National Market Supervision and Administration Bureau will take on the responsibilities of quality checks, food and drug safety, anti-monopoly investigations and pricing administration – areas that previously fell under various government bodies. A separate commission will handle international development cooperation. The last reshuffle of a similar scale took place in 1998 when several ministries were abolished.

The National Development and Reform Commission (NDRC) will lose some of its powers with other agencies taking over some of its functions. The NDRC will lose responsibility for creating development zones to a new natural resources ministry, while its climate change unit will be transferred to the environment ministry. It will no longer approve agriculture investment projects and its antitrust team will come under the new market supervision administration. In addition, its oversight of “key national projects” will be transferred to the National Audit Office, and the new health commission will take over pricing of medicines and health care services. The Commission has been blamed for exacerbating overcapacity in industries ranging from steel to solar panels and of approving too many subway projects. The Ministry of Culture will be merged with the National Tourism Administration (NTA).

After the restructuring, China’s central government now has 26 Ministries and Commissions.

Following the closing session of the 16-day National People’s Congress session on March 20, Premier Li Keqiang – flanked by his four Vice Premiers – answered 15 questions of domestic and foreign journalists at a press conference.

Premier Li reconfirmed that China will open its economy more and more to the world, including specific sectors such as finance, care for the elderly and education. Import duties on cancer drugs will be cut to zero. Protection of intellectual property rights will be strengthened and the requirement of technology transfer in manufacturing joint ventures will be scrapped. He added that China needs to continue to make its market a fair one and give Chinese consumers greater choice. He also promised to streamline government procedures for businesses and cut the time needed to register a business in half. Local and state taxes needed to be merged. The Premier said China has always respected property rights and “contracts are not useless bits of paper”. The rights of home owners will be expanded.

He said that a trade war between China and the U.S. is not in either side’s interest, adding that the word ‘war’ was incompatible with trade. “We should act rationally, instead of being led by emotions.” China hopes to see balanced trade because “otherwise, it’s not sustainable”. He said China will open up domestic services, and U.S. firms can “grab the opportunity”. However, he called on the U.S. to relax restrictions on hi-tech exports, one of the causes of the bilateral trade deficit. Talking about avoiding financial risks, the Premier referred to the recent crackdown on tycoons, saying the economy faced some risk in the same way “that a big tree invites winds”, but he insisted there is enough capital in the banking system. The country has cut its budgeted fiscal deficit because revenues proved stronger than expected and the small deficit-to-GDP ratio means China won’t change its policy stance. The absolute amount of fiscal spending this year will still be larger than last year. The insurance and banking regulators had been merged to tackle loopholes in the system, he added.

China has the world’s largest social security system, but Premier Li acknowledged that some rural families are still reluctant to visit a doctor because of the high cost involved. He said the government wants to raise subsidies for basic health insurance, particularly for serious illnesses. He also said there had been problems paying pensions. The country now has 241 million people aged 60 or above, around 17.3% of the total population. Pension reform would continue.

Answering a question on the development of the internet, Premier Li said that the government’s Internet Plus scheme is an important economic driver and a major platform for the country’s sharing economy. The Internet Plus policy has been criticized in some quarters for creating excessive risk, but Li defended the policy by saying the government is working to link education, health and government services. He hoped that overseas listed internet firms would return to China.