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China Policy 2021

In December, 2020, the Central Committee of the Communist Party and State Council of the People’s Republic of China held the annual Central Economic Work Conference. This year’s conference is noted for its emphasis on reform, innovation and recovery, as 2021 marks the beginning of the PRC’s 14th Five Year Plan, which calls for the most significant reforms in decades.


The conference is attended by senior government leadership and indicates the direction of government policies over the upcoming year. This year, the government identified supply chain management, domestic consumption, strategic technological innovation and carbon emissions as key areas of policy development.


Businesses and enterprises operating in China should take note of these five highlights from the 2020 Central Economic Work Conference, as they pertain to the cultural context of doing business in China from 2021 onwards.


“No Sudden Changes”- Stability, Centralized Planning


The central government has guaranteed to continue, coordinate and refine its existing macroeconomic policies without disruption. This indicates that inflation, growth, employment initiatives and pricing policies will continue to proceed according to the same principles: stabilizing the economic fallout from the pandemic and steadily supporting recovery. Economic stimulus measures will not be abruptly discontinued even though China’s economy is projected to show substantial growth in 2021, with estimates as high as 8.1%. However, with the global economy still facing the challenge of containing the pandemic, and the potential for adverse trade policies towards the People’s Republic of China from various governments around the world, the central government is taking proactive steps to contain all risk factors.


Balanced Fiscal Policy- Support and Security


Top leadership responsible for policy direction indicated that reforms will continue for both the supply and demand side of the economy, balancing support with liability containment. The PRC will maintain a consistent ratio of debt-to-GDP throughout 2021 while aligning credit levels with currency availability. Meanwhile the corporate Bond market will be subject to reform in order to address widespread concerns over State Owned Enterprise performance.


Developing the Domestic Market- Independent Growth


The Dual Circulation policy calls for the development of a self-sustaining consumption driven domestic economy. When U.S trade policies directly targeted China’s exports beginning in 2018-2019, the vulnerabilities of the PRC’s growth strategy were considerably exposed due to the economy’s export-led growth model. The Dual Circulation model protects against external circumstances by shifting towards the domestic consumer economy as a key driver of growth, while continuing international trade an investment through strategically targeted investments. At the 2020 Central Economic Work Conference, increasing domestic demand was identified as one of the key objectives for 2021, providing the foundation for the twin-engine growth model over the next five years. Developing the domestic consumer economy will require creating employment, providing more urban housing, and addressing socioeconomic inequality. Policymakers at the conference called for demand-side reforms in order to develop the consumer market over the long term. The Central Government pledged to develop systems to incentivize investment, savings and consumption at targeted rates.


Sovereign Supply Chain – Industrial Self Reliance and Innovation


Policymakers emphasized the need to secure industrial and agricultural supply chains, ensuring that the country’s requirements for staple foods, raw materials, energy and manufacturing components remains uninterrupted by external circumstances. In terms of advanced technologies, this will require developing domestic solutions in order to avoid dependence on imported components such as microchips. In order to secure the domestic food supply, the Central Government announced its intention to maintain a minimum of 4.45 billion acres of farmland. While access to energy resources is similarly prioritized, the government’s goal to substantially lower emissions by 2030 and achieve carbon neutrality by 2060 also plays a significant role in developing a sovereign supply chain.


Digital Regulation- Universal Standards


The Central Government seeks to develop a regulatory framework for online platforms, in order to address concerns over certain services monopolizing the PRC market. By coordinating new digital standards with the universal platform of the ‘Digital Yuan’ currency, the PRC’s digital economy will set global industry standards by virtue of being the first to coordinate and integrate emerging FinTech standards, blockchain based financial services and digital investment platforms with the real economy while controlling against systemic risk.


The 2020 Central Economic Work Conference laid out important policy directions which carry implications for the business environment in China next year and over the upcoming decade. It is important to consider broader social circumstances when making investment decisions in China, particularly during this period of transition. We would be to advise you on how your company can make the most of 2021’s policy environment in China as the country begins to lead global economic growth.