2022 Global Policy Outlook – China

Political outlook:

On Nov. 12, 2021, State Council held a meeting to study and implement the guiding principles of the sixth plenary session of the 19th Central Committee of the Communist Party of China (CPC), including measures to improve people’s well-being, to promote common prosperity, to deepen reform and opening-up, and to handle new economic challenges while carrying out regular COVID-19 prevention measures. On Nov. 16, 2021, the full text of the resolution on the major achievements and historical experience of the Communist Party of China (CPC) over the past century, approved at the 6th plenary session of the 19th CPC Central Committee, was also released. Resolving the Taiwan issue and achieving complete reunification of the motherland are specified as a key unswerving historic task of the CPC and will continue to be the focus of the government. Although the resolutions still complimented the CPC’s achievements in reform and opening up of China, the resolutions’ coverage of previous efforts at reform was dwarfed compared to the description of other parts of CPC’s history.

On improving people’s well-being and promoting common prosperity, which will remain a key theme in Chinese government policy for the foreseeable future, it is expected that property tax on all residential and non-residential properties (excluding rural households) will be introduced over the next five years as a pilot program in 10 urban cities. The program may be extended to other regions in due course. Property tax is seen as taxation for unreasonable income and redistribution of wealth, as well as a means to deter speculation of real estate properties. As China’s state-owned media Xinhua has put it, “houses are for living in, not for speculation.”

President Xi Jinping took on COVID early in 2020 when it hit China and declared it a “people’s war” to fight the invisible enemy by mobilizing the force of the whole country. The war on COVID was fought under Xi’s personal leadership, and so his reputation goes hand-in-hand with the nation’s success in beating the virus.  It is expected that China’s policy of zero tolerance to COVID, large-scale compulsory tracing and testing efforts, and local area lockdowns will continue until Xi has officially won his third term appointment. Disruption to normal work and life is expected to continue for the bulk of early 2022.¹

The threat of lockdown due to COVID, coupled with power rationing due to shortage of power supply in China brought on by extreme weather condition and uneven price regulation, may force factories to halt production and contribute further to supply chain shortages this winter. This, together with China’s long-term goal of peaking carbon emission by 2030 and achieving carbon neutrality by 2060, has created more urgency for the Chinese government to push for the development and wider availability of renewable energy. Electric vehicles and renewable energy are expected to be key industries encouraged by the central government.

To promote Xi’s thoughts of great rejuvenation of the Chinese nation (including resolving the Taiwan issue), we also expect military-related industries, such as manufacturing of semiconductor chips and artificial intelligence technologies, to continue receiving state support.

Other policies that will continue to be of focus include:

・Promotion of state-run digital yuan currency for broader usage in China and beyond

・Anti-trust / anti-unfair competition policies in key industries currently dominated by the private sector

・Tightened control on data collection, use and transfer

・Crackdown on non-public run media and other previously unregulated sectors and industries, imposing requirement to obtain regulatory license/ special government approval for previously unregulated businesses in order to curb instability

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

_{1  Specific cities and towns (including Chengdu) started implementing even stricter measures against COVID known as “time and space accompaniment,” whereby anyone who, within the last 14 days, has spent 10 minutes or more within the 800-meter x 800-meter vicinity of a person later diagnosed to be carrying the COVID virus, would be traced and asked to undergo two compulsory COVID tests during which that person would have to strictly stay home until both tests came out as negative. Should such wide-scale tracing and testing requirement start applying to other major cities in China, material disruption to people’s work and social life would be expected.}

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