Financial Stimulus; WeChat and Alipay; Real Estate Stimulus; Ukraine; Taiwan;
Intelligence and Insights on China's government actions, foreign policy, economy, and the capital markets
China takes bold measures to stimulate the economy, from offering fiscal support to incentivizing infrastructure expansion. China is also tackling tax evasion to enhance fiscal revenue, aiming at Wechat Pay and Alipay platforms.
China BIG Idea is a reader-supported publication. To receive new posts and support our team’s work, consider becoming a free or paid subscriber.
Government in Action
China Plans New Stimulus Measures to Combat Slowing Growth
In its latest press release, the Ministry of Finance unveiled three fiscal policy focuses for 2022.
1. Expanded tax breaks and fee cuts for households and Small-Medium-sized businesses.
Finance Minister Liu Kun promised bigger cuts than in 2021, which totaled over RMB 1.1 Trillion in reductions.
The fee reductions have also been supported by the government’s deliberate measures to reduce the fees charged by platform companies on restaurants and small businesses.
2. Increased fiscal transfer from central to local governments in 2022.
The increased transfers are expected to balance local governments’ revenue reductions from reduced taxes and fees.
The purpose of the transfer is to “continue to favor regions with difficulties and underdeveloped areas.”
3. Enforced local governments to frontload infrastructure investments.
Xu Hongcai, the Vice Finance Minister, pointed to the issuance of RMB 484 billion worth of special bonds by local governments as evidence for progress in infrastructure spending to cushion the slow growth expected during the first half of 2022.
1/3 of the special bonds allocated to local governments in 2022 have been unleashed in January alone to arrest the economy from further sliding.
The fiscal stimulus is consistent with the easing monetary measures from the Central Bank.
It also highlighted two particular difficulties facing fiscal policies:
· New downward pressures from unresolved domestic issues of property market debt and strict anti-virus measures, and developing global headwinds in reduced relative export competitiveness and monetary policy cycle de-synchronization.
· Reconciling debt build-up and counter-cyclical necessity in fiscal policy setting; that is to say, the need for greater deficit spending amidst secularly reduced government income and to combat problems of weak demand.
Long-Term Lease Properties in Focus, as a Way of Infrastructure Investment
Five provinces and one metropolis have launched low-income rental housing development policies so far in 2022.
In 2022, 2.4 million low-income long-term lease apartments are expected to be offered according to the Ministry of Housing, primarily in the large cities that witness population in-flows. This is expected to induce RMB 300 Billion of new infrastructure investments.
Financial policies support low-income housing development.
China’s Banking and Insurance Regulatory Commission released a notice that low-term lease property development is not included when measuring real estate developers’ leverage ratios against the three red lines.
Banking institutions are also supporting the implementation of public REITS to ensure a financial market exit for developers of Long-term ease properties. The exit strategy through REITs will incentivize private property developers who have traditionally preferred a quick construction-cash model.
Alipay and Wechat Pay Tightened Rules on QR Code Payment
The Chinese Central Bank released a notice to enforce QR payment management measures, taking effect on March 1. The Notice stipulated that individuals will be banned from using individual QR codes to receive business payments.
The Central Bank has made some clear differentiations to alleviate market fear due to the wide usage of Alipay and WeChat Pay across the individual and business sectors.
QR codes are classified as individual QR codes and business QR codes. Individual QR codes are forbidden to receive business payments. Business QR codes can be granted free of charge.
IN PRINCIPLE, individual QR codes are banned from processing remote transaction payments.
The Central Bank has yet to clarify the benchmark used to define“individuals with clear characteristics of conducting business activities,” the segment which the Central Bank policy will affect.
Social media further swirled a message that Wechat Pay and Alipay will retrospectively investigate the past four years of individual payment records via their QR codes. People who have been using their QR codes to receive business payments, based on the pattern and frequency of transactions via the QR codes, will pay retroactively 4.5% taxes, plus fines and penalties on these business payments.
WeChat Pay and Alipay have denied authenticity.
More regulatory measures to tax the rich.
China has been tightening the tax surveillance on the entertainment industry. A series of A-list stars in China have been fined in extraordinary amounts in the past two years.
China has waged fines on the new KOLs from social media and the Livestream industry. China’s Livestream queen Viya and other social media celebrities were fined by dozens of millions to hundreds of millions of taxes.
Taxing the rich fits into China’s broader scheme of common prosperity. Collecting more individual tax revenue as an additional fiscal revenue source is a reasonable and plausible move.
China Responded Whether It would Wage Sanctions on Russia
Following the widely adopted sanctions on Russia across the West, Chinese Foreign Ministry Spokesperson Hua Chunying expressed that sanctions are not the effective pathway to solve problems. China is against using unilateral sanctions. She also pointed the criticisms towards the US, criticizing the US for” sending arms to Ukraine, elevated the Ukrainian tension, created fear, and painted a war.”
A leakage from a state-run social media accounts also accidentally recorded the government communications directive on the Ukrainian crisis. The directive says anti-Russian views will not be published. Supporting Western views will not be published.
Taiwan Ramps Up Protections for Semiconductor Secrets
On February 17th, the Taiwanese government enacted a new regulation to counter economic espionage, preventing China’s possible theft of semiconductor technologies from Taipei. In particular, the Cabinet fears that Beijing might use economic espionage and talent poaching to undercut its dependency on Taiwanese firms for advanced semiconductors. (source)
The law will be subject to parliamentary revisions and votes before it is enacted.
The proposal foresees new offenses for “economic espionage” under the national security law and punishments of up to 12 years of prison on those who leak core technologies to China or “foreign enemy forces.”
Moreover, the proposed law sets up an ad hoc court for economic espionage to speed up trials.
Finally, it tightens foreign investment screening and control to prevent Chinese firms from poaching talent through companies set up in a third country. (source)
The Cabinet’s spokesman Lo Ping-cheng has added that technologies such as TSMC’s 2-nanometre chipmaking technologies are considered vital to Taiwan’s security and should require enhanced protection.
In incendiary tones, Taipei’s Premier Su Tseng-chang stated that “the infiltration in Taiwan's industries from the red supply chain is getting more and more severe in recent years.” “They [China] poached our nation's high-tech talents and stole the nation's core and key technologies.” (source)
The proposed law would add to the uncertainty that global chip companies such as TSMC face. Amid a deepening US-China rivalry, with both sides rushing to hoard chips and onshore semiconductor supply chains, TSMC has begun hiring intelligence analysts to help the company navigate geopolitical tensions. (source)
Chinese Foreign Minister Wang Yi Stresses Diplomatic Channels To Ukraine Crisis
Speaking out against the narrative of “war hype,” Chinese Foreign Minister Wang Yi appealed to the global community to resolve the Ukraine crisis through de-escalation.
“We hope that a solution can be found through dialogue and consultation that will really guarantee security and stability in Europe,” Wang Yi said at the virtual Munich Security Conference on Saturday (19th February). (source 1) (source 2)
Wang and Blinken discussed Ukraine.
In keeping with this, the top U.S. diplomat and his Chinese counterpart also exchanged views on the nuclear issues in both Ukraine and the Korean peninsula on Feb 22 Beijing time. (read the official statement in Chinese)
“The legitimate security concerns of any country should be respected, and the purposes and principles of the UN Charter should be upheld,” Chinese State Councilor and Foreign Minister Wang Yi told US Secretary of State Antony Blinken in a phone call upon request on Tuesday. (source)
Putin's Latest Declaration of independence of two separatist Ukrainian regions
Over President Vladimir Putin's move to recognize the independence of Ukraine's two separatist regions (the Lugansk People's Republic, LPR, and the Donetsk People's Republic, DPR, as independent and sovereign states), Beijing urged all parties to exercise constraint. (read more)
The Kremlin put forth a list of security demands to the west, calling for a rollback of military troops away from some ex-Soviet states. Per recent reports, the list also sought guarantees “that some of those states would not join NATO.” (source)
Return to Minsk II agreement
Wang also pointed out the urgent need to return to the Minsk II agreement, “it is the only way out for the Ukrainian issue. As far as I understand, the Russian side supports the new Minsk agreement”.
In terms of considering the Russian concerns and sovereignty of Ukraine, several Chinese analysts supported Beijing’s view of resorting to dialogue, negotiation, and applying restraint, alleviating some notions of critique to China’s stance and alleged silence over the developing situation.
Wang said, “if anyone questions China’s attitude on this matter, it is an ill-intended sensationalism, and a distortion of China’s position.” (read more)