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State capital will be invested into key areas concerning the national economy and people's livelihoods, technology, defence and security to serve the country’s strategic goals, according to the policy document. Photo: 81.cn

China sets out stall ahead of NPC with pledges for market-oriented, local government finance reforms

  • List of reform promises by the ruling Communist Party and the State Council largely reiterates Beijing’s earlier reform pledges announced in a blueprint in late 2013
  • The rescheduled National People’s Congress (NPC) will take place on Friday with China’s economy slowing amid the fallout from the coronavirus outbreak

China has renewed its pledge to undertake market-oriented reforms of its economy and to better regulate local government finances ahead of what is expected to be lively debate at the meeting of the National People’s Congress this week on proper government policies to respond to the rising challenges in the domestic and foreign environments.

The publication of the list of reform promises by the ruling Communist Party and the State Council, the government’s cabinet, came at a time when the world’s second largest economy is suffering a heavy blow from the coronavirus outbreak.

The document largely reiterates Beijing’s earlier reform pledges announced in a blueprint in late 2013, although little progress has been made in aspects of opening up the yuan capital account and liberalising the land market.

The new policy document insists that China will promote the strategic role of a state economy.

“State capital will be invested into key areas concerning the national economy and people's livelihoods, technology, defence and security to serve the country’s strategic goals,” the document said.

At the same time, Beijing will work to increase its “macro control” capabilities over its economy.

In a break from the previous macroeconomic policy framework, China will now put employment policy at centre of the system, along with traditional monetary and fiscal policies.
In particular, it said China will maximise the use of big data and artificial intelligence to spot major economic and social risks.

The document stressed the central government’s ongoing efforts to better regulate local governments finances, which are increasingly under pressure as China’s economy slows after years of heavy borrowing.

China’s economy shrank 6.8 per cent in the first quarter of 2020 from a year earlier, and its fiscal revenues fell 14.5 per cent year-on-year in the first four months of the year to 6.213 trillion yuan (US$874 billion), the Ministry of Finance said on Monday.

A report published by Beijing-based think tank, the National Institution for Finance & Development, earlier this year found that the growing financial problems facing local governments were related to China’s tax system which focused on empowering local governments to drive economic growth.

The [progress] of making the yuan an international currency, in general, has been stuck
Zhou Hao

However, the blueprint lacked key details and timelines for the intended changes.

In terms of opening up, the Chinese government said it would conduct market opening up “in a bigger scope, a broader range, and a deeper level”. Meanwhile, it highlighted the role of “party leadership” in implementing the blueprint.

But according to analysts, many statements in the policy document are turning into slogans instead of actionable policies.

China said it would “steadily” promote the international use of yuan, but Zhou Hao, senior emerging market economist at Commerzbank, said it is more “realistic” for China to focus on its regional use, rather than broadening the use of the currency across the globe.

“The [progress] of making the yuan an international currency, in general, has been stuck,” Zhou said.

This article appeared in the South China Morning Post print edition as: Beijing pledges market reforms as NPC debate looms
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