Hair is not only closely related to power in religious representations; secular rulers such as kings have also worn beards and flowing hair throughout history to show their social position. The fact that the hairstyle is not just an accumulation of head hair, but also a status symbol, is also evident in the Chinese Communist Party: Leading politicians used to dye their hair black. Only after leaving politics having grey hair was okay. The current president Xi Jinping was the first active politician who dared to show grey highlights in public. So you can say: He is so powerful that he even dares to do that.
Which six men besides Xi belong to China’s most powerful body, the Politburo Standing Committee, is presented to you today by China.Table in a series of short portraits.
We also take a look at Brussels. After much wrangling, the German government recently agreed on a supply chain law, and this week the EU Parliament is voting on an EU-wide service charge. China.Table not only points out the differences to the German draft but also examines possible problems with implementation in China.
Today, we go underground with Frank Sieren. Unfortunately, serious mining accidents are not uncommon in China, often resulting in dozens of miners’ deaths. With the help of digitalization, the People’s Republic wants to make its mines safer – and increase productivity at the same time.
We also continue with the National People’s Congress (NPC) in Beijing. Finn Mayer-Kuckuck explains what plans are on the table for the country’s financial architecture.
There’s no way around him: Xi Jinping. Like no other since Mao Zedong, Xi has concentrated power in the state on himself. Since taking office as CCP secretary-general in 2012, he has purposefully cold-cocked potential rivals within the party and surrounded himself with loyal followers. Unlike his predecessor Hu Jintao, Xi holds the title of “core of the party”; in 2018, he also abolished the term limits for presidents that had been customary until then. At the same time, “Xi Jinping’s ideas of Chinese-style socialism in the new era” were enshrined in the Chinese constitution. Xi is a so-called princeling – his father Xi Zhongxun was part of the party’s first generation of leaders. The year 2021 is of special significance for Xi: The first five-year plan under his aegis has been completed – an occasion for taking stock. In addition, this year marks the 100th founding anniversary of the Chinese Communist Party.
Li Keqiang is the number two man in the state. As premier, Li is officially China’s second head of government. When he took office, he was seen as a bridge to the camp of former Communist Party General Secretary Hu Jintao and a competent economist with the goal of steering economic growth in more equitable and sustainable directions. But as Xi’s grip on power grew, Li’s importance dwindled. In 2018, the role of economic leader was transferred to Vice Premier Liu He, and Li has recently been absent from crucial summits. His term, unlike Xi’s, is limited to 2022. Li comes from a humble background: His parents were farmers in Anhui province.
At seventy, Li Zhanshu is the oldest on the Standing Committee and number three behind General Secretary Xi and Premier Li. He is a close confidant of Xi and has been his Chief of Staff and director of the Central Committee General Office since 2012. He also chairs the Standing Committee of the People’s Congress, a kind of parliamentary working body, making him the most important party representative in China’s sham legislature. His career began as the son of party veterans in his home province of Hebei. He met the young Xi Jinping there as early as the early 1980s; both were local party secretaries in neighboring counties.
In China, the hopes of many reformers rest on Wang Yang, the most liberal figure in the current party leadership. As former party secretary of the economically strong province of Guangdong and Chongqing, the up-and-coming southwestern metropolis with provincial status, he successfully pushed through liberal economic reforms. But as a member of the Standing Committee, Wang has so far provided little impetus to confirm the hopes: Most recently, he has been more conspicuous for paying lip service to the Chinese way and making threatening gestures toward Taiwan. With his undyed gray hair and his – by party leadership standards – striking sense of humor, he nevertheless remains a splash of color in China’s highest party body.
Wang Huning plays a central role in the first party ranks as an ideological architect. Unlike his six colleagues, he has not been through a history in a political party. He became a professor of international politics at Shanghai’s Fudan University at the age of thirty, made his first contacts in political leadership circles, and his neo-authoritarian ideas have been heard by every Chinese head of state since Jiang Zemin: Whether “scientific development”, “Chinese dream” or even “Xi Jinping’s ideas of Chinese-style socialism in the new age” – for decades Wang has played a decisive role in the ideological calibration of the party program and the implicit shift away from Marxist ideas towards more nationalism and authoritarianism.
For Xi Jinping, the fight against corruption is both a political mission and a tool for eliminating potential rivals. Since 2017, Zhao Leji has been entrusted with this fight as Head of the Communist Party’s Central Commission for Discipline Inspection. Previously, he headed the Organization Department for five years, which has authority over all internal party personnel decisions and plays a central role in the party structure. Thus, he is not only well-connected himself, but he also knows the networks within the party and its sore points like no other. Zhao comes from the western province of Qinghai, where he also spent a large part of his political career.
In seventh place is former Shanghai mayor Han Zheng, now vice-premier behind Li Keqiang in China’s State Council. Like Wang Yang, Han is an economist known for his liberal economic reforms. During his tenure, Shanghai not only experienced a real boom but also organized a successful World Expo in 2010. Han also worked closely with Xi Jinping in 2007, when the latter came to Shanghai for a year as party secretary. In the party’s internal power structure, Han Zheng stands for the connection to the so-called Shanghai clique of former party secretary Jiang Zemin, whose influence, however, has declined considerably in recent years. Jonas Borchers
From the statements made by the responsible party cadres at the National People’s Congress (NPC), it is beginning to be clear what ideas they have for the country’s financial architecture. Finances are to be made more stable in the coming five-year period. Those responsible want to avoid overspending wherever possible. In addition, there is once again a commitment to transparent markets.
As it has been for decades, the main focus here is on financing cities, municipalities, counties, and provinces, in other words, local authorities. While China’s central government hardly takes on any debt, the party secretaries on the ground have continuously borrowed a great deal of money to finance their ambitious projects and to advance the regional economy. However, they are not actually allowed to do this, at least not bypassing the mechanisms for borrowing money that is imposed on them by the central government in Beijing. Nevertheless, the regions are now saddled with a huge mountain of debt.
They, therefore, feature prominently again in the draft budget – this time with even more serious wording than before. The Ministry of Finance’s draft budget states that controlling regional budgets will become a “matter of national security”. This suggests a clear crackdown by Xi Jinping’s core team at the provincial level.
However, it is questionable whether this will really change anything. The local authorities have a considerable degree of autonomy because otherwise, it would not be possible to govern such a large country flexibly. Since the 1990s, there has been talk of how necessary – indeed, overdue – debt reduction (deleveraging) is. The admonishers always sound as if the collapse would really come if the dependence on borrowed money did not decrease. But life went on just as reliably, even without the debt level ever really falling.
China’s economic miracle is also based to a large extent on having enough money available for projects and ideas at the right time. The local party secretaries, on the other hand, know quite well what makes sense on the ground. The fact that sometimes too much is built, too much is invested, and too much is spent, is considered a side effect of growth that pulls everyone up with it.
But debts are debts – and someone has to pay them back in the end. If the money doesn’t come back, an investor is at best disappointed, at worst broke. That’s why the central government is constantly putting pressure on them to finally do more solid business. For some years now, China’s municipalities have, therefore, only been supposed to finance themselves through cleanly and officially issued bonds. That would have created transparency. The fact that unofficial debt is now becoming a matter of national security shows that the purely market-based approach has probably not quite worked yet. One reason for this is that the bond markets do not function as market-economy-like as the planners in Beijing would like. In the end, it is mostly the big state-owned banks that take up the municipal bonds on their patient balance sheets.
The current draft budget now proposes to set the margin for local government bond issuance at 3.65 trillion yuan (470 billion euros). While this is less than the 3.75 trillion yuan of the previous year, this figure had been deliberately set high in response to the Corona crisis. Observers had expected a drop to 3.5 trillion yuan. “The government wants to keep the front door wide open to better block the back door,” comments HSBC bank. So the hope is that local governments will borrow more money legally.
The development of future industries is also not supposed to be quite as wild as it used to be. In the past decades, when a topic was in demand, the companies concerned were literally showered with money – from the central government, from local authorities, from investors. This is what gave rise to the solar boom, for example, which incidentally flattened the German photovoltaic industry (which was not very competitive anyway). In the end, however, overcapacities always remain. In the future, China wants to follow the laws of the market when it comes to developing new industries, said the Minister of Industry and Information Technology, Xiao Yaqing, at his press conference at the NPC. He also meant this with regard to the semiconductor industry, which China wants to develop in a big hurry in order to become independent of foreign countries for chips. Here, too, however, it can be assumed that market forces will receive significant flanking state subsidies.
Another thick plank is the regulation of the markets. This plan is seen as one reason why the Shanghai stock market has fluctuated wildly in the first two days of the NPC. The benchmark Shanghai Composite index fell 2.3 percent on Monday. From the leaked information and the already released figures, it became clear to investors that the leadership is not planning any new stimulus fireworks, but on the contrary, is planning to be a bit more cautious. Shortly before the start of the NPC, the head of the market regulator, Guo Shuqing, had warned of bubbles: “From the financial regulator’s point of view, a reduction in debt financing is necessary.” He said this was especially true for the property market in cities.
Alongside local authorities, the real estate market is the second perennial worry of regulators. On the one hand, it is a growth driver: house construction creates living space and jobs. On the other hand, the Chinese simply put an insane amount of money into real estate investments because they consider it to be as safe as it is promising. “Real estate speculation is very dangerous,” Guo now lectured the Chinese public. Once again, the budget for the current fiscal year and the Five-Year Plan will demonstrate a time-tested feat of Chinese fiscal policy: The state will press on the gas and the brake at the same time – and in the end, end up with a frighteningly high, but still controllable speed.
The planned EU supply chain law takes an important hurdle this week: The European Parliament will vote on its position on Wednesday. The European Parliament’s approach clearly goes beyond the supply chain law of the Federal Republic of Germany. The corresponding report has already received the necessary majorities in the relevant committees – it is now considered certain that the EU Parliament will also approve it.
“Due diligence can bring legal certainty and a level playing field to avoid undercutting each other,” EU law commissioner Didier Reynders said yesterday in the European Parliament in Brussels during the debate on the supply chain bill. The Commission is currently carrying out a cost assessment. For the Brussels-based authority’s proposal, Reynders announced “concrete commitments” and a “whole range of solutions” that would take into account the burden on businesses. “We are also looking at how targeted support can be provided,” Reynders said.
The EU Commission’s proposal, which will then begin the actual legislative process, is expected in June. It must clarify open questions and formulate concrete approaches for dealing with difficult regions, such as how to deal with goods from the Chinese province of Xinjiang. Xinjiang should be dealt with. In any case, the details have not yet been fully worked out.
However, there are major differences between the German and the European draft: For example, the EU parliamentarians demand that the due diligence obligations for companies should cover the “entire supply chain and follow a risk-based approach”. In so-called risk sectors, indirect suppliers and subcontractors of EU companies should also be subject to their responsibilities. The scope of the German draft law, on the other hand, is much more limited.
Unlike the German government, MEPs are also in favor of strict liability rules. A company that has caused or contributed to negative impacts on human rights or the environment should be obliged to pay “financial or non-financial” compensation. MEPs call for European companies to be able to be sued for damages for human rights and environmental abuses. The focus on environmental protection is also stronger in the European draft than in the German paper.
In addition to large companies, the due diligence obligation should, according to the European Parliament’s report, also apply to small and medium-sized enterprises (SMEs) that are listed on the stock exchange or are high-risk. In addition, not only companies based in the EU should be obliged to do due diligence, but all those operating in the EU’s internal market. Whether and how the EU requirements will be based on the size of companies is still open, said EU parliamentarian and shadow rapporteur for the supply chain report in the Legal Affairs Committee Axel Voss (CDU). There are still differences of opinion on this in the EU Parliament, Voss said. Conservative and right-wing groups, for example, are pushing for more far-reaching exemptions for SMEs. “Even a small company can cause damage,” stressed Lara Wolters, who is responsible for the report for the EU Parliament, during the debate in plenary. However, the obligations should be proportionate, Wolters said.
If the proposal of the Brussels authority corresponds to the ideas of the European Parliament, Voss assumes that the legislation will be passed quickly. If that is the case, the EU-wide supply chain law could possibly come into force at the beginning of 2024, the CDU politician estimates. The German law will probably come into force before then. The German government would then have to adopt national rules to EU law if necessary.
The EU supply chain law is a good start – but not enough, says Green MEP Anna Cavazzini. She calls for additional means to ban the import of products from forced labor and to be able to intercept them at the border. Slavery warrants a “sharp sword” approach, the chair of the EU Parliament’s Internal Market and Consumer Protection Committee tells China.Table.
According to Cavazzini, the model for such an import ban could be the forced labor legislation of the US Tariff Act. It allows US customs to check imports for goods from forced labor. This is to be done in a targeted manner, Cavazzini says: “Not all products are automatically affected, but it is about certain companies and certain products,” the Green politician explains. The intention is not to completely exclude a particular region, such as Xinjiang, but to carry out targeted checks.
If goods were intercepted at the border, it would then be up to the respective companies to prove that no forced labor was involved in their production. “The aim is to change the behavior of companies,” says Cavazzini. The import ban is primarily intended to act as a deterrent. But several details are still open: How are companies supposed to provide evidence for products from regions that are difficult to access, such as the western Chinese province? And in return, will cleanly manufactured goods that come from a suspicious region receive a kind of permanent import permit?
On-site inspections are difficult to implement, explains EU Chamber of Commerce head Jörg Wuttke China.Table. “At the moment, this is largely only possible with internal specialists, and there is, of course, a lack of credibility for the public. Some companies had still managed to get external consultants to Xinjiang until the beginning of 2020, unfortunately, that’s over now.” The supply chain push from Europe is perceived as a “protectionist element” in China, Wuttke said. Wuttke does not rule out that China will draw up consequences for its part if the new legislation creates trade disadvantages: “China has a reputation for reacting.”
That Xinjiang could become a particular challenge for supply chain legislation is something that EU parliamentarians are also aware of: “If a country refuses, it will, of course, be difficult,” says MEP Voss to China.Table. But companies are expected to look more closely at their supply chains, says Voss. Whether there will then be certificates or other proof for problem regions such as Xinjiang is still open.
A certain degree of transparency is of course necessary, Bernd Lange, chairman of the European Parliament’s trade committee, told China.Table. He does not see the danger of companies withdrawing from the region because the verification of supply chains is too difficult to implement – the so-called “cut & go”. However, the monitoring of the EU supply chain law needs to be looked at closely, he said. New technologies such as blockchain could also play a role, Lange said.
On Sep. 25, 2015, the world’s heads of state and government unanimously adopted the 2030 Agenda for Sustainable Development – a sweeping global blueprint for building a more equitable and sustainable world. But, more than five years later, progress toward the agenda’s 17 Sustainable Development Goals leaves much to be desired.
Among the biggest constraints for countries striving to achieve the SDGs is the lack of financial resources. Even before the COVID-19 pandemic, many low- and middle-income countries were showing signs of debt distress. As they struggle to cope with simultaneous public-health and economic crises, mobilizing financial resources for sustainable development is an even more difficult proposition.
Of course, there are ways to raise funds. Countries can increase domestic savings, court foreign investment, and seek development assistance from rich countries, international organizations, and multilateral development banks. But doing so is never easy – especially in a world where illicit financial flows flourish.
In 2015, Gabriel Zucman estimated that at least $7.6 trillion of the world’s private wealth was held in tax havens, equivalent to 8 percent of global household financial assets. That figure had grown by a staggering 25% in the previous five years, which suggests that it is likely to be significantly higher today. In 2017, the National Bureau of Economic Research reported that about 10 percent of the world’s GDP was held in offshore tax havens.
Illicit financial outflows not only drain low-income countries’ financial resources for development, but may also undermine the willingness of donor countries to provide more development assistance. Governments have three main lines of defense against illicit financial flows:
The first is to reduce how much illicit money there is, by clamping down on corruption. Beyond blatant crime – for example, tax evasion, bribery, and embezzlement of public assets – such an effort would have to address more subtle maneuvers, such as multinational companies’ exploitation of loopholes in the tax code. Tax avoidance by multinationals undermines countries’ ability to finance development at least as much – if not more – than outright corruption.
The second line of defense is careful management of cross-border capital flows. Keeping illicit money in its country of origin makes corruption less rewarding – and thus less appealing. But, again, blatantly illegal activities are only part of the problem. Legal or not, capital flight drains government coffers and can even trigger financial or currency crises.
Finally, governments must aggressively track, seize, and repatriate illicit funds that have evaded capital controls. The problem is that recovering such funds is very complicated, costly, and, at times, contentious, owing to mistrust among countries. Given this, very little stolen money has been returned to its rightful owners. More broadly, while a number of international initiatives, programs, agreements, conventions, and treaties have been created in recent years to reduce illicit financial flows, they have proved far from adequate.
But there is reason to hope this will soon change. Last year, Volkan Bozkir, President of the United Nations General Assembly, and Munir Akram, President of the UN’s Economic and Social Council, convened a High-Level Panel on International Financial Accountability, Transparency, and Integrity for Achieving the 2030 Agenda.
Now, the FACTI Panel has released a comprehensive report, which includes 14 evidence-based recommendations for strengthening the global financial architecture to support sustainable development. For example, the panel urges all countries to enact legislation providing for the widest possible range of legal tools to be used to hold perpetrators accountable for cross-border financial crimes. They also argue that governments should create robust and coordinated governance mechanisms to reinforce financial integrity.
The FACTI Panel also advocates far greater international cooperation, such as the establishment of global tax norms, particularly transparency standards, through an “open and inclusive” legal instrument. And it recommends creating an impartial mechanism to resolve international tax disputes, under the UN Tax Convention, and an inclusive global coordination mechanism at the UN Economic and Social Council to address financial integrity on a systemic level.
Implementing the FACTI Panel’s recommendations will not be easy. But the UN’s effort to find solutions is undoubtedly a step in the right direction. If it can get the international community on board, we may yet have a chance of securing the resources needed to achieve the SDGs.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2021.
www.project-syndicate.org
The end of the holiday season for millions of people in China. This year, the Chinese New Year holiday and travel season lasted from January 28th to March 8th. Officials estimate that about 870 million trips were made in this pandemic year. That would be about 41 percent of last year’s trips and 70 percent less than before the pandemic. Pictured is the last day of travel at the Nanjing train station in eastern China.
Hair is not only closely related to power in religious representations; secular rulers such as kings have also worn beards and flowing hair throughout history to show their social position. The fact that the hairstyle is not just an accumulation of head hair, but also a status symbol, is also evident in the Chinese Communist Party: Leading politicians used to dye their hair black. Only after leaving politics having grey hair was okay. The current president Xi Jinping was the first active politician who dared to show grey highlights in public. So you can say: He is so powerful that he even dares to do that.
Which six men besides Xi belong to China’s most powerful body, the Politburo Standing Committee, is presented to you today by China.Table in a series of short portraits.
We also take a look at Brussels. After much wrangling, the German government recently agreed on a supply chain law, and this week the EU Parliament is voting on an EU-wide service charge. China.Table not only points out the differences to the German draft but also examines possible problems with implementation in China.
Today, we go underground with Frank Sieren. Unfortunately, serious mining accidents are not uncommon in China, often resulting in dozens of miners’ deaths. With the help of digitalization, the People’s Republic wants to make its mines safer – and increase productivity at the same time.
We also continue with the National People’s Congress (NPC) in Beijing. Finn Mayer-Kuckuck explains what plans are on the table for the country’s financial architecture.
There’s no way around him: Xi Jinping. Like no other since Mao Zedong, Xi has concentrated power in the state on himself. Since taking office as CCP secretary-general in 2012, he has purposefully cold-cocked potential rivals within the party and surrounded himself with loyal followers. Unlike his predecessor Hu Jintao, Xi holds the title of “core of the party”; in 2018, he also abolished the term limits for presidents that had been customary until then. At the same time, “Xi Jinping’s ideas of Chinese-style socialism in the new era” were enshrined in the Chinese constitution. Xi is a so-called princeling – his father Xi Zhongxun was part of the party’s first generation of leaders. The year 2021 is of special significance for Xi: The first five-year plan under his aegis has been completed – an occasion for taking stock. In addition, this year marks the 100th founding anniversary of the Chinese Communist Party.
Li Keqiang is the number two man in the state. As premier, Li is officially China’s second head of government. When he took office, he was seen as a bridge to the camp of former Communist Party General Secretary Hu Jintao and a competent economist with the goal of steering economic growth in more equitable and sustainable directions. But as Xi’s grip on power grew, Li’s importance dwindled. In 2018, the role of economic leader was transferred to Vice Premier Liu He, and Li has recently been absent from crucial summits. His term, unlike Xi’s, is limited to 2022. Li comes from a humble background: His parents were farmers in Anhui province.
At seventy, Li Zhanshu is the oldest on the Standing Committee and number three behind General Secretary Xi and Premier Li. He is a close confidant of Xi and has been his Chief of Staff and director of the Central Committee General Office since 2012. He also chairs the Standing Committee of the People’s Congress, a kind of parliamentary working body, making him the most important party representative in China’s sham legislature. His career began as the son of party veterans in his home province of Hebei. He met the young Xi Jinping there as early as the early 1980s; both were local party secretaries in neighboring counties.
In China, the hopes of many reformers rest on Wang Yang, the most liberal figure in the current party leadership. As former party secretary of the economically strong province of Guangdong and Chongqing, the up-and-coming southwestern metropolis with provincial status, he successfully pushed through liberal economic reforms. But as a member of the Standing Committee, Wang has so far provided little impetus to confirm the hopes: Most recently, he has been more conspicuous for paying lip service to the Chinese way and making threatening gestures toward Taiwan. With his undyed gray hair and his – by party leadership standards – striking sense of humor, he nevertheless remains a splash of color in China’s highest party body.
Wang Huning plays a central role in the first party ranks as an ideological architect. Unlike his six colleagues, he has not been through a history in a political party. He became a professor of international politics at Shanghai’s Fudan University at the age of thirty, made his first contacts in political leadership circles, and his neo-authoritarian ideas have been heard by every Chinese head of state since Jiang Zemin: Whether “scientific development”, “Chinese dream” or even “Xi Jinping’s ideas of Chinese-style socialism in the new age” – for decades Wang has played a decisive role in the ideological calibration of the party program and the implicit shift away from Marxist ideas towards more nationalism and authoritarianism.
For Xi Jinping, the fight against corruption is both a political mission and a tool for eliminating potential rivals. Since 2017, Zhao Leji has been entrusted with this fight as Head of the Communist Party’s Central Commission for Discipline Inspection. Previously, he headed the Organization Department for five years, which has authority over all internal party personnel decisions and plays a central role in the party structure. Thus, he is not only well-connected himself, but he also knows the networks within the party and its sore points like no other. Zhao comes from the western province of Qinghai, where he also spent a large part of his political career.
In seventh place is former Shanghai mayor Han Zheng, now vice-premier behind Li Keqiang in China’s State Council. Like Wang Yang, Han is an economist known for his liberal economic reforms. During his tenure, Shanghai not only experienced a real boom but also organized a successful World Expo in 2010. Han also worked closely with Xi Jinping in 2007, when the latter came to Shanghai for a year as party secretary. In the party’s internal power structure, Han Zheng stands for the connection to the so-called Shanghai clique of former party secretary Jiang Zemin, whose influence, however, has declined considerably in recent years. Jonas Borchers
From the statements made by the responsible party cadres at the National People’s Congress (NPC), it is beginning to be clear what ideas they have for the country’s financial architecture. Finances are to be made more stable in the coming five-year period. Those responsible want to avoid overspending wherever possible. In addition, there is once again a commitment to transparent markets.
As it has been for decades, the main focus here is on financing cities, municipalities, counties, and provinces, in other words, local authorities. While China’s central government hardly takes on any debt, the party secretaries on the ground have continuously borrowed a great deal of money to finance their ambitious projects and to advance the regional economy. However, they are not actually allowed to do this, at least not bypassing the mechanisms for borrowing money that is imposed on them by the central government in Beijing. Nevertheless, the regions are now saddled with a huge mountain of debt.
They, therefore, feature prominently again in the draft budget – this time with even more serious wording than before. The Ministry of Finance’s draft budget states that controlling regional budgets will become a “matter of national security”. This suggests a clear crackdown by Xi Jinping’s core team at the provincial level.
However, it is questionable whether this will really change anything. The local authorities have a considerable degree of autonomy because otherwise, it would not be possible to govern such a large country flexibly. Since the 1990s, there has been talk of how necessary – indeed, overdue – debt reduction (deleveraging) is. The admonishers always sound as if the collapse would really come if the dependence on borrowed money did not decrease. But life went on just as reliably, even without the debt level ever really falling.
China’s economic miracle is also based to a large extent on having enough money available for projects and ideas at the right time. The local party secretaries, on the other hand, know quite well what makes sense on the ground. The fact that sometimes too much is built, too much is invested, and too much is spent, is considered a side effect of growth that pulls everyone up with it.
But debts are debts – and someone has to pay them back in the end. If the money doesn’t come back, an investor is at best disappointed, at worst broke. That’s why the central government is constantly putting pressure on them to finally do more solid business. For some years now, China’s municipalities have, therefore, only been supposed to finance themselves through cleanly and officially issued bonds. That would have created transparency. The fact that unofficial debt is now becoming a matter of national security shows that the purely market-based approach has probably not quite worked yet. One reason for this is that the bond markets do not function as market-economy-like as the planners in Beijing would like. In the end, it is mostly the big state-owned banks that take up the municipal bonds on their patient balance sheets.
The current draft budget now proposes to set the margin for local government bond issuance at 3.65 trillion yuan (470 billion euros). While this is less than the 3.75 trillion yuan of the previous year, this figure had been deliberately set high in response to the Corona crisis. Observers had expected a drop to 3.5 trillion yuan. “The government wants to keep the front door wide open to better block the back door,” comments HSBC bank. So the hope is that local governments will borrow more money legally.
The development of future industries is also not supposed to be quite as wild as it used to be. In the past decades, when a topic was in demand, the companies concerned were literally showered with money – from the central government, from local authorities, from investors. This is what gave rise to the solar boom, for example, which incidentally flattened the German photovoltaic industry (which was not very competitive anyway). In the end, however, overcapacities always remain. In the future, China wants to follow the laws of the market when it comes to developing new industries, said the Minister of Industry and Information Technology, Xiao Yaqing, at his press conference at the NPC. He also meant this with regard to the semiconductor industry, which China wants to develop in a big hurry in order to become independent of foreign countries for chips. Here, too, however, it can be assumed that market forces will receive significant flanking state subsidies.
Another thick plank is the regulation of the markets. This plan is seen as one reason why the Shanghai stock market has fluctuated wildly in the first two days of the NPC. The benchmark Shanghai Composite index fell 2.3 percent on Monday. From the leaked information and the already released figures, it became clear to investors that the leadership is not planning any new stimulus fireworks, but on the contrary, is planning to be a bit more cautious. Shortly before the start of the NPC, the head of the market regulator, Guo Shuqing, had warned of bubbles: “From the financial regulator’s point of view, a reduction in debt financing is necessary.” He said this was especially true for the property market in cities.
Alongside local authorities, the real estate market is the second perennial worry of regulators. On the one hand, it is a growth driver: house construction creates living space and jobs. On the other hand, the Chinese simply put an insane amount of money into real estate investments because they consider it to be as safe as it is promising. “Real estate speculation is very dangerous,” Guo now lectured the Chinese public. Once again, the budget for the current fiscal year and the Five-Year Plan will demonstrate a time-tested feat of Chinese fiscal policy: The state will press on the gas and the brake at the same time – and in the end, end up with a frighteningly high, but still controllable speed.
The planned EU supply chain law takes an important hurdle this week: The European Parliament will vote on its position on Wednesday. The European Parliament’s approach clearly goes beyond the supply chain law of the Federal Republic of Germany. The corresponding report has already received the necessary majorities in the relevant committees – it is now considered certain that the EU Parliament will also approve it.
“Due diligence can bring legal certainty and a level playing field to avoid undercutting each other,” EU law commissioner Didier Reynders said yesterday in the European Parliament in Brussels during the debate on the supply chain bill. The Commission is currently carrying out a cost assessment. For the Brussels-based authority’s proposal, Reynders announced “concrete commitments” and a “whole range of solutions” that would take into account the burden on businesses. “We are also looking at how targeted support can be provided,” Reynders said.
The EU Commission’s proposal, which will then begin the actual legislative process, is expected in June. It must clarify open questions and formulate concrete approaches for dealing with difficult regions, such as how to deal with goods from the Chinese province of Xinjiang. Xinjiang should be dealt with. In any case, the details have not yet been fully worked out.
However, there are major differences between the German and the European draft: For example, the EU parliamentarians demand that the due diligence obligations for companies should cover the “entire supply chain and follow a risk-based approach”. In so-called risk sectors, indirect suppliers and subcontractors of EU companies should also be subject to their responsibilities. The scope of the German draft law, on the other hand, is much more limited.
Unlike the German government, MEPs are also in favor of strict liability rules. A company that has caused or contributed to negative impacts on human rights or the environment should be obliged to pay “financial or non-financial” compensation. MEPs call for European companies to be able to be sued for damages for human rights and environmental abuses. The focus on environmental protection is also stronger in the European draft than in the German paper.
In addition to large companies, the due diligence obligation should, according to the European Parliament’s report, also apply to small and medium-sized enterprises (SMEs) that are listed on the stock exchange or are high-risk. In addition, not only companies based in the EU should be obliged to do due diligence, but all those operating in the EU’s internal market. Whether and how the EU requirements will be based on the size of companies is still open, said EU parliamentarian and shadow rapporteur for the supply chain report in the Legal Affairs Committee Axel Voss (CDU). There are still differences of opinion on this in the EU Parliament, Voss said. Conservative and right-wing groups, for example, are pushing for more far-reaching exemptions for SMEs. “Even a small company can cause damage,” stressed Lara Wolters, who is responsible for the report for the EU Parliament, during the debate in plenary. However, the obligations should be proportionate, Wolters said.
If the proposal of the Brussels authority corresponds to the ideas of the European Parliament, Voss assumes that the legislation will be passed quickly. If that is the case, the EU-wide supply chain law could possibly come into force at the beginning of 2024, the CDU politician estimates. The German law will probably come into force before then. The German government would then have to adopt national rules to EU law if necessary.
The EU supply chain law is a good start – but not enough, says Green MEP Anna Cavazzini. She calls for additional means to ban the import of products from forced labor and to be able to intercept them at the border. Slavery warrants a “sharp sword” approach, the chair of the EU Parliament’s Internal Market and Consumer Protection Committee tells China.Table.
According to Cavazzini, the model for such an import ban could be the forced labor legislation of the US Tariff Act. It allows US customs to check imports for goods from forced labor. This is to be done in a targeted manner, Cavazzini says: “Not all products are automatically affected, but it is about certain companies and certain products,” the Green politician explains. The intention is not to completely exclude a particular region, such as Xinjiang, but to carry out targeted checks.
If goods were intercepted at the border, it would then be up to the respective companies to prove that no forced labor was involved in their production. “The aim is to change the behavior of companies,” says Cavazzini. The import ban is primarily intended to act as a deterrent. But several details are still open: How are companies supposed to provide evidence for products from regions that are difficult to access, such as the western Chinese province? And in return, will cleanly manufactured goods that come from a suspicious region receive a kind of permanent import permit?
On-site inspections are difficult to implement, explains EU Chamber of Commerce head Jörg Wuttke China.Table. “At the moment, this is largely only possible with internal specialists, and there is, of course, a lack of credibility for the public. Some companies had still managed to get external consultants to Xinjiang until the beginning of 2020, unfortunately, that’s over now.” The supply chain push from Europe is perceived as a “protectionist element” in China, Wuttke said. Wuttke does not rule out that China will draw up consequences for its part if the new legislation creates trade disadvantages: “China has a reputation for reacting.”
That Xinjiang could become a particular challenge for supply chain legislation is something that EU parliamentarians are also aware of: “If a country refuses, it will, of course, be difficult,” says MEP Voss to China.Table. But companies are expected to look more closely at their supply chains, says Voss. Whether there will then be certificates or other proof for problem regions such as Xinjiang is still open.
A certain degree of transparency is of course necessary, Bernd Lange, chairman of the European Parliament’s trade committee, told China.Table. He does not see the danger of companies withdrawing from the region because the verification of supply chains is too difficult to implement – the so-called “cut & go”. However, the monitoring of the EU supply chain law needs to be looked at closely, he said. New technologies such as blockchain could also play a role, Lange said.
On Sep. 25, 2015, the world’s heads of state and government unanimously adopted the 2030 Agenda for Sustainable Development – a sweeping global blueprint for building a more equitable and sustainable world. But, more than five years later, progress toward the agenda’s 17 Sustainable Development Goals leaves much to be desired.
Among the biggest constraints for countries striving to achieve the SDGs is the lack of financial resources. Even before the COVID-19 pandemic, many low- and middle-income countries were showing signs of debt distress. As they struggle to cope with simultaneous public-health and economic crises, mobilizing financial resources for sustainable development is an even more difficult proposition.
Of course, there are ways to raise funds. Countries can increase domestic savings, court foreign investment, and seek development assistance from rich countries, international organizations, and multilateral development banks. But doing so is never easy – especially in a world where illicit financial flows flourish.
In 2015, Gabriel Zucman estimated that at least $7.6 trillion of the world’s private wealth was held in tax havens, equivalent to 8 percent of global household financial assets. That figure had grown by a staggering 25% in the previous five years, which suggests that it is likely to be significantly higher today. In 2017, the National Bureau of Economic Research reported that about 10 percent of the world’s GDP was held in offshore tax havens.
Illicit financial outflows not only drain low-income countries’ financial resources for development, but may also undermine the willingness of donor countries to provide more development assistance. Governments have three main lines of defense against illicit financial flows:
The first is to reduce how much illicit money there is, by clamping down on corruption. Beyond blatant crime – for example, tax evasion, bribery, and embezzlement of public assets – such an effort would have to address more subtle maneuvers, such as multinational companies’ exploitation of loopholes in the tax code. Tax avoidance by multinationals undermines countries’ ability to finance development at least as much – if not more – than outright corruption.
The second line of defense is careful management of cross-border capital flows. Keeping illicit money in its country of origin makes corruption less rewarding – and thus less appealing. But, again, blatantly illegal activities are only part of the problem. Legal or not, capital flight drains government coffers and can even trigger financial or currency crises.
Finally, governments must aggressively track, seize, and repatriate illicit funds that have evaded capital controls. The problem is that recovering such funds is very complicated, costly, and, at times, contentious, owing to mistrust among countries. Given this, very little stolen money has been returned to its rightful owners. More broadly, while a number of international initiatives, programs, agreements, conventions, and treaties have been created in recent years to reduce illicit financial flows, they have proved far from adequate.
But there is reason to hope this will soon change. Last year, Volkan Bozkir, President of the United Nations General Assembly, and Munir Akram, President of the UN’s Economic and Social Council, convened a High-Level Panel on International Financial Accountability, Transparency, and Integrity for Achieving the 2030 Agenda.
Now, the FACTI Panel has released a comprehensive report, which includes 14 evidence-based recommendations for strengthening the global financial architecture to support sustainable development. For example, the panel urges all countries to enact legislation providing for the widest possible range of legal tools to be used to hold perpetrators accountable for cross-border financial crimes. They also argue that governments should create robust and coordinated governance mechanisms to reinforce financial integrity.
The FACTI Panel also advocates far greater international cooperation, such as the establishment of global tax norms, particularly transparency standards, through an “open and inclusive” legal instrument. And it recommends creating an impartial mechanism to resolve international tax disputes, under the UN Tax Convention, and an inclusive global coordination mechanism at the UN Economic and Social Council to address financial integrity on a systemic level.
Implementing the FACTI Panel’s recommendations will not be easy. But the UN’s effort to find solutions is undoubtedly a step in the right direction. If it can get the international community on board, we may yet have a chance of securing the resources needed to achieve the SDGs.
Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.
Copyright: Project Syndicate, 2021.
www.project-syndicate.org
The end of the holiday season for millions of people in China. This year, the Chinese New Year holiday and travel season lasted from January 28th to March 8th. Officials estimate that about 870 million trips were made in this pandemic year. That would be about 41 percent of last year’s trips and 70 percent less than before the pandemic. Pictured is the last day of travel at the Nanjing train station in eastern China.
