www.followcn.com China: 2020-2050

Foreword

We are now at the start of 2017. As the world is celebrating the coming of 2017 among many possibilities, I am keeping an eye on an emerging superpower who is claiming to be in a dream of peace, development, cooperation and mutual benefit for all. China's GDP growth rate for 2016 as a whole will come in very close to 6.7%. The forecast for 2017 is clouded by the uncertainty in the United States over the economic and other policies to be adopted by Donald Trump when he assumes the office of President in January, according to a recent report by China Daily. China is still leading the world economy after thirty years of continuous development. Despite the many problems and concerns in the environment, corruption, government debt, soaring property markets, and others, there are positive signs as a source for domestic growth by private entrepreneurship, enhanced social well-being and family life under a more responsible government administration. This trend should continue in 2017, as governments at all levels are pushed hard to realize the national vision of creating an ecological civilization for many if not all. China is moving closer to its goal of building an all-round moderately prosperous society by 2020, inspired by the Chinese dream of the great rejuvenation of the Chinese nation, according to Xinhua News Agency. June 25th 2016, the Economist Intelligence Unit (EIU) in London released its long-term macroeconomic forecasts with key trends to 2050, stating that China will surpass the USA in gross domestic product (GDP) in 2026, and top ten economies in 2050 at the EIU’s projected market exchange rates, in descending order, will be China, USA, India, Indonesia, Japan, Germany, Brazil, Mexico, UK, and France. Its report, Long-term macroeconomic forecasts: Key Trends to 2050, finds that: 1) China is expected to narrowly edge ahead of the US for the first time in 2026, with a nominal GDP of US$28.6trn versus the US's US$28.3trn. 2) By 2050, China will boast a GDP of US$105.9trn, compared with the US's US$70.9trn. 3) The UK will fall out of the world's top 5 economies by 2026. 4) Indonesia and Mexico will rank among the top ten economies at market exchange rates by 2050, overtaking economies such as Italy and Russia.5) Asia will continue its rise and by 2050 will represent 53% of global GDP, compared with from 32% in 2014. According to Reuters, although the United States will be number two in 2050, its economy will be much smaller than China's. Goldman Sachs projects that China's GDP should match America's by 2027, and then steadily pull ahead. The collective GDP of the four leading developing countries (the Brics--Brazil, Russia, India, and China) is likely to

1 www.followcn.com match that of today's leading Western nations by 2032. The World Bank predicts that the U.S. dollar will lose its global dominance by 2025 as the dollar, euro, and China's RMB become co-equals in a "multi-currency" monetary system. According to PwC, China is already the world’s biggest economy in PPP terms and will become the biggest at the more commonly accepted figures of market exchange rates by 2028, despite its projected reversion to the global growth average. China’s share of world GDP in PPP terms is forecast to increase from 16.5 percent in 2014 to a peak of around 20 percent in 2030, before easing slightly to 19.5 percent in 2050. Agriculture has always been the top priority as the country still has a huge population of poverty in the rural areas. The State Council of China issued an opinion on August 7, 2016, asking its ministries and departments as well as provincial authorities to continue the development of modern agriculture. The opinion sets a goal of significantly changing the way the country’s agriculture is running by 2030. “Made in China 2025” released about the same time is the country’s first ten-year action plan focusing on promoting manufacturing. The plan proposed a “three step” strategy of transforming China into a leading manufacturing power. It pledges that China will be an "innovative nation" by 2020, and an international leader in innovation by 2030. The third step of the strategy will be establishing China as a world powerhouse of scientific and technological innovation by 2050. A similar blueprint “Innovation 2050" also predicts that China's economy will reach the world's highest in 2050, when China's political, material, social, spiritual and ecological civilizations will be highly developed and China will be highly open. Apart from its domestic reforms, China is exercising its muscle towards the outside world by starting the “Go Out” policy and “Belt and Road” Initiative.Its president has pledged to further open the country’s economy and make sure “the fruits of development are shared.” But not everyone is so optimistic. China’s Go-Out policy is driven and shaped by complex domestic and international factors. In the past four years, proactive reforms and the anti-corruption campaign have brought about anxiety and resentment among many in addition to applause. Over a longer period of time, China under CPC has not proved to be a game player that follows the rules. And there are other problems and negative concerns. Opponents say the policies of China has created a demographic “timebomb”, with the country’s 1.3 billion-strong population aging rapidly, and the country’s labor pool shrinking. The UN estimates that by 2050 China will have about 440 million people over 60. “The gender imbalance is going to be a very major problem,” warned Steve Tsang, a professor of contemporary Chinese studies at the University of Nottingham. “We are talking about between 20 million and 30 million young men who are not going to be able to find a wife. That creates social problems and that creates a huge number of people who are frustrated.” “The most important development in China's future will be the movement toward the rule of law. Whether the future Chinese legal system will accommodate such concepts as freedom of speech, expression and assembly is an issue that remains unanswered.” stated a CNN report. Analysts believe the next 50 years will bring another series of radical

2 www.followcn.com shifts in China, affecting its people, its government and the world. “Serious concerns about China's debt burden relate only to the combination of state-owned enterprises (SOEs) and their local government supporters. The proper way to de-leverage is to pursue more energetically President Xi Jinping's goal of moving toward a market-dominated economy in which private-sector firms rather than SOEs dominate and in which local governments more reliably implement the policy directions from the center in this regard. ” A western scholar said in an interview with China Daily without citing his name. A survey by Pew Research Center in October 2016 shows that China has benefited greatly from economic globalization, and most Chinese (60%) believe their country’s involvement in the global economy is a good thing; only 23% think this is bad for China.Such self-confidence about China’s international stature coexists with some degree of anxiety and a general tendency to look inward more than outward. A majority of Chinese (56%) want Beijing to focus on China’s problems. Just 22% voice the view that their government should help other nations. And there is widespread unease about the impact on China from the world around them. Roughly three-quarters (77%) of the public believes that their way of life needs to be protected against foreign influence, and such sentiment is up 13 percentage points since 2002. Moreover, about six-in-ten Chinese (59%) are concerned that territorial conflicts between China and neighboring countries could lead to military conflict. There is another voice by the pro-democratic circles of Chinese scholars in the western world that China’s economy will likely collapse into a recession in the coming decade because of a political turmoil. “If, as seems likely, Xi’s effort to combine restoration of Leninist discipline with market liberalization proves unworkable, the regime will confront a deeper crisis. That might not come soon, but it seems sure to come in the end. Xi has embarked on his present course for good reasons. Whether he has good solutions is quite another matter.”The British journalist Martin Wolf with the Financial Times said in one report. The United States has been the most cautious as China remains the largest trade partner for the US, the third-largest export market and the No. 1 source for imports. Acting against the TPP (Trans-pacific Partnership Agreement), China is a vehement supporter and advocate of liberalized trade and it has been actively pushing for the establishment of the Free Trade Area of the Asia-Pacific (FTAAP). The Guardian says in an article that it is far from certain China’s ambitious goals will be achieved, besides that a ream of statistics about the rapid and prolonged expansion of China's economy and scientific prowess is causing concern in Washington. And the Pentagon also singled out China as the only country with the capability to emerge as a military rival. According to a World Finance (Magazine) report, the US and other powers should accommodate the rise of China, not resist it. China will not become over-dominant in any likely scenario and is likely to end up with a smaller share of global GDP than many predict. But it is still self-consciously a rising superpower. It will be more likely to integrate cooperatively into the global system and adopt international norms of governance and human rights if it is accorded respect and influence proportionate to its size.

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President Xi’s Chinese Dream is described as achieving the "Two 100s": the material goal of China becoming a "moderately well-off society" by 2021, the 100th anniversary of the Chinese Communist Party, and the modernization goal of China becoming a fully developed nation by 2049, the 100th anniversary of the founding of the People's Republic. To lead China’s dominance, China’s constitution sets term limits for presidents and ministers, but there is no such rule for the party secretary. Whether the Communist Party leadership under President Xi would continue to rule after 2030 is a topic for hot debates. Some analysts say that President Xi will outstay his term to more than 10 years or even 20 years. “A lot of analysts now see it as a given” that Xi will seek to stay party general secretary, the country’s most powerful post, said Christopher K. Johnson, a former CIA analyst and now China specialist at the Washington-based Center for Strategic and International Studies. July 2016, the Serie A team owner Former Italian Prime Minister Silvio Berlusconi sold his AC Milan to a Chinese consortium, as the club was not able to compete against other well-funded rivals. Football is a popular sport in China but it has never won any big games on the international football field. President Xi is a football enthusiast and said he wants China to win the World Cup in 15 years. To this end, the Chinese government has pledged to revolutionize the game all over. By the end of 2016, China has unveiled a strategy to become a "world football superpower" by 2050, with plans to get 50 million children and adults playing the game by 2020. When we look at the developments of China, we would better look at them from a historical view span of two thousand years or more. The country has been accustomed to working for general stability along a middle way. The radical communist regime against its traditions is no more than a freak in its historical cause. The nation shall have a revival in the near future with the collapse of the communist party and justice and morality shall prevail. With lack of concrete evidence, I am not in a position to make more profound predictions. What I would like to say is that, to pursue its dream, the country must ensure it is on the right track.

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Chapter One

China’s Economic Development in General

China's socialist market economy is the world's second largest economy by nominal GDP, and the world's largest economy by purchasing power parity according to the IMF. Until 2015 China was the world's fastest-growing major economy, with growth rates averaging 10% over 30 years. Key economic indicators show that China is the largest trading nation in the world and plays the most important role in international trade despite a slowdown in 2016. New targets and policies continue to strengthen China’s efforts to shift to a more sustainable model of growth. China is not that happy as it has been criticized by Western media for unfair trade practices, including artificial currency devaluation, intellectual property theft, protectionism, and local favoritism due to one-party oligopoly by the CPC and its socialist market economy. Fifteen years after China joined the WTO, The US, Europe and Japan have refused to recognize China's market economy status. President-elect Donald Trump has repeatedly lashed out at China and threatened to declare Beijing a currency manipulator and impose punitive tariffs on its exports amounting to hundreds of billions of dollars. Chinese leaders are trying to work out Donald Trump’s policy on China as they are paying more attention to domestic issues. According to DRC (The Development Research Center of the State Council ), China is currently at an important stage with changes in the economic growth pattern and is trying hard to achieve sustainable development. The general development trend of China’s population spatial distribution between 2010 and 2015 indicates that migration movement has become more multi-dimensional, with more people moving to central and western regions with relatively fast economic development. As people intend to migrate to big cities, urban population density in many provinces has become tangible. As China's economic development has entered the new normal, the inside and outside environment has changed prominently. And divergence among regions has become much more prominent due to different development stages and capacities. With the transformation of China‘s economic development entering the state of new normal, people in various regions have taken "innovation" as the top issue in their daily work. Transformation to innovation-driven economy is an important way for China to address challenges. DRC study suggests that new strategic areas bear huge significance for adapting to and guiding the new normal and promoting steady and continued economic growth. To accelerate the building of new strategic zones is not only the urgent corresponding measure to be taken to adapt to the economic new normal, but also the inherent need to lead the economic new normal and improve China's international competitiveness. Among others, to divide functions and powers between central and local governments according to the range of administrative influence is the major approach

5 www.followcn.com applied in the on-going reform. China’s economy is like a fast train placed onto a high-speed track. There are two factors that might bring it to a full stop, a third world war and a collapse of communist regime, which is very unlikely in 30 years. A steady political reform seems inevitable to lead the economy towards a healthy development. The whole world has kept an eye on these developments.

A Summary of China’s Reform and Opening-up Experience Since 1978

China has become one of the world's major economic powers following the implementation of economic reform that started in the countryside in 1978. Today, China is the world's largest producer and consumer of agricultural products, and over 300 million farmers are in the industry, mostly laboring on small allocated pieces of land. Every year, from 100 million to 150 million surplus rural workers are adrift between the villages and the cities, many subsisting through part-time, low-paying jobs. Since the beginning of open market reforms, the growth of new businesses has outpaced the government's ability to regulate them. This has created a situation where businesses, faced with mounting competition and poor oversight, take drastic measures to increase profit margins, often at the expense of consumer safety and the environment. Export growth has been be a major component supporting China's rapid economic growth. As the majority of investment is carried out by entities at least partially state-owned or controlled by local governments, perceived corruption continued to grow worse in China even after the nationwide anti-corruption campaign. China’s stock market has been called by many “a gambling place”. There is a complex relationship between China's balance of economy, trade, inflation, measured by the consumer price index and the value of its currency. Environmental pollution and ecological damages have been a serious problem along with the country’s industrialization and urbanization. Since 2015, governments at all levels have been under pressure to take on more energy conservation measures, including development of renewable energy sources and increased attention to environmental protection. Science and technology in China has in recent decades developed rapidly. High-speed trains have moved tens of millions of travelers across the country every year. The Chinese has sent their people to the moon and have plans to fly to Mars. In spite of soaring prices, the Chinese have been building and buying more houses than they actually need. In 2010, China became the world's largest automotive vehicle manufacturer as well as the largest consumer ahead of the United States with an estimated 18 million new cars sold. The market for luxury is likely to continue to grow. In recent years, more and more Chinese travel to the world and their purchasing power is among the highest in the west. "Shadow banking" has risen in China, posing risks to the financial system. According to a Research Report Special Issue No.15, 2016 by DRC scholars Wei Jianing and Wang Yingying, since reform and opening-up, China’s comprehensive national power has increased sharply, attracting worldwide attention. Looking back on

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China’s reform practice of more than 30 years, the historical experience can be summarized into four aspects. First, ideological emancipation, the reform and opening-up and economic growth achieved positive interaction. The nationwide ideological emancipation led to an all-round upsurge of reform and opening-up as well as swift economic growth. Secondly, the reform was made at targeted beneficiaries who in turn supported the promotion of reform. For the educated youths, the resumption of university and college entrance examination provided an opportunity for their future development. For the farmers, the family contract responsibility system greatly raised their income level. For the state enterprise employees, the distribution according to labor performance enhanced their working enthusiasm. For the private business owners, the government favorable policy toward private economy allowed them to become richer. Third, there was not only top-level design, but also basic-level innovation. Basic-level innovation pushed forward system reform and academic progress promoted top-level design. And fourth, the promotion of reform with opening-up laid a solid foundation for further opening-up.

Coordinating Urban-Rural Development and Strengthening County-level Economy in the Year to Come

After ten years of steady growth since 2006, there is an urge in both the urban and rural areas to reduce costs for enterprises to ensure the stable growth of the real economy. More and more business owners complained in the past year that it is hard for them to make a profit in business. Recently the government has a pilot program to replace the business tax with a value-added tax that should be expanded to construction, real estate, finance, and services to ensure an actual reduction in the tax burden. According to a circular, more work should be done to implement preferential tax policies on research and energy-saving and environmental protection equipment, streamline administrative charges concerning enterprises, and cancel some governmental funds, with exemption of contribution extended to more SMEs. The circular said an appropriate monetary and financial environment is needed to keep reasonable liquidity. Meanwhile, efforts should be made to reduce intermediate fees, strengthen financing guarantees, optimize evaluation and supervision on commercial banks, encourage establishment of private banks and equity financing, and guide enterprises to use low-cost overseas capital. The document called for reduction of institutional transaction costs with efforts to break regional isolation and industry monopoly, deepen reform in streamlining administration, improving regulation and optimizing services, cut service fees, and solve any lingering problems at State-owned enterprises. The circular urged cutting labor costs, including measures to reduce contributions to the social security and housing fund, and optimize the mechanism on minimum wages. Meanwhile, reform should be carried out to reduce enterprises’ costs in energy consumption and land use.

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As another area to cut costs, logistics should be improved to encourage resource sharing, with measures to standardize transportation fees for roads, flights, and railways, and eliminate any improper charges. For sustainable development and improvement of people’s livelihood, the central government has attached great emphasis on a new urbanization drive. A major aspect of this initiative is to increase both rural and urban consumption. The government has labeled the improvement in domestic service consumption in tourism, culture, sports, health, elderly care, and educational training as to please consumers. According to the initiative, by the end of 2016, 100 region-based tourism demonstration zones will be established, and supporting policies for facility construction of leisure agriculture and rural tourism will be carried out. Tourism companies will be encouraged to expand domestic and international cruise routes, and the 15-day visa-free policy in Shanghai will be introduced to other parts of the nation. Efforts will be made to integrate brick-and-mortar bookstores with industries of cultural tourism, innovation and design, trade and logistics, creating complex cultural sites that have multiple functions of reading, exhibition, communication, and leisure activities. Efforts will be made to provide access to students and the public to use school gymnasiums and stadiums. Development plans will be made to promote winter sports, mountain and outdoor sports, aquatic sports, and air sports. Pilot pre-tax deduction policy for individual income tax of commercial health insurance has been implemented in 31 cities and will be introduced across the nation. Policies to open up the elderly service market and improve elderly care services will be implemented, and thresholds for elderly care institutions will be lowered to increase high-quality products and services for elders. Idle social resources such as unused factories and office buildings will be turned into elderly care service facilities. According to an investigation report by scholars Su Hongwen, Liu Jun, Xu Peng & Jiao Xudong, DRC No.144, 2016 , coordinating economic and social development of urban and rural areas is a highly innovative and targeted project bearing strong features of the times as well as great strategic significance. After economic development entered a state of new normal, Yinglai county of Huichuan district in Zunyi Municipality is witnessing new opportunities for economic development, mainly including a positive long-term trend for macro-economic performance, the implementation of overall major strategies, the adoption of innovation-driven development model, the shift of economic space layout, and the transformation and upgrading of the economic development areas. Huichuan district in Zunyi has put in place the concept of innovative, coordinated, green, open and shared development, given priority to quality and benefits of development, switched the growth driver from factor-driven to innovation-driven mode, expanded and strengthened the county-level economy, and made new breakthroughs in coordinated urban-rural development. The ways for implementing these tasks include advancing the new-type urbanization, building national demonstration areas for integration of industrial parks with urban development, conducting infrastructure construction to reinforce the support for economic

8 www.followcn.com and social development, promoting ecological integration and accelerating the construction of pilot demonstration areas for ecological advancement, initiating a new phase in inland areas of the western region through reform and opening-up, and building a harmonious society for all people to share in development fruits.

Economic Growth Combined with Challenges in the Industry Sectors

In spite of the fact that the demand for automobiles in China has kept an annual growth of around 20% featuring a “golden growth period”, in the context of overcapacity, China’s steel industry faces two major problems: poor performance of steel companies, and intensified export trade frictions. Besides steel, China’s coal industry faces overcapacity, prominent structural problems and a large number of enterprises with low-efficiency capacity including low-end, backward and “zombie” capacities. According to DRC, the focus on addressing coal and steel industry overcapacity lies in structure optimization. China's railway has made initial separation of government administration from the management of enterprises and achieved some progress in railway reform, but the tasks of reform have not been accomplished as some long-standing and deep-seated problems have not been completely solved.Railway enterprises have not become the main entities of market, the monopolization of railway transportation market is still quite serious, railway pricing mechanism has not turned into market-oriented,the financial risks triggered by railway debts have become greater and the industrial management, supervision system and relevant laws and regulations remain to be perfected. As the world’s largest producer, exporter and consumer of textiles and garments, China boasts a complete upstream and downstream industrial chain with a certain number of superior enterprises as well as technological, capital, personnel and other core resources. In recent years, to reverse the unfavorable situation where the export quota for textiles and garments in main export markets is decreasing and overseas orders keep recalling, domestic textile businesses have stepped up efforts to enable newly-added capacity to “go global” on a large scale.

Demand-orientation in Basic Research Focuses on Solving Problems Instead of Exploring New Knowledge

Demand-oriented research includes two types: "demand-oriented basic research" and "applied research". Since organization and polices for demand-oriented research differ from those of pure basic research, science foundation and other basic research funding agencies should accordingly adjust the funding recipients, standards, approaches, procedures to raise projects for discussion, and composition of expert committee for assessment of relevant projects when considering tasks and policies. In recent years, Chinese people’s total demand for health has increased substantially and has taken on a multilevel and diversified trend. Basic medical insurance has played an important role to meet the basic health needs of the people. However, the overall level of protection is still inadequate with limited coverage and growing pressure from the

9 www.followcn.com balance of payments. DRC holds that China’s economy is experiencing the later period of industrialization, which makes narrowing income gap and enlarging the mid-income group a necessary option for steady economic growth in the future. China is undergoing a taxation system reform for a fairer wealth distribution. Given the too-high percentage of indirect taxes, unreasonable configuration of tax types such as individual income tax, consumption tax and property tax, weak capability of tax collection and administration and relevant problems, China’s taxation system has a relatively weak function in promoting fair income distribution.

Improving Supply and Demand Structure in Market Economy

China’s home-made new car sales in 2016 is predicted to be around 25.6 million to 25.8 million units，with its real growth standing at 4.1%-5.0%, close to or slightly lower than the potential growth rate. With the termination of strong domestic demand for cars, China’s car market has gone through the transition from a high-speed growth to a moderate-speed growth. During the 13th Five-Year Plan period, China’s car market will keep its average annual potential growth rate of 5% as a whole. China's civil aviation has developed rapidly, ranking among the world's large civil aviation countries with its strategic importance becoming increasingly prominent. Evaluation analysis shows that China's regional aviation remains undeveloped and huge disparities exist between small and medium-sized cities in terms of accessibility, and that inadequate supply capability is the main factor restraining regional aviation development. In recent years, a new generation of information technology has, through an innovation-oriented approach, overcome obstacles relating to the utilization of networking, digitalization and smart technologies for the development of industrial manufacturing industry, and ushered in the platform of industrial Internet. Despite a macroeconomic slowdown, online consumer spending is growing fast in the country and rural e-commerce has also witnessed a swift development in recent years. The financial regulatory obligation and organizational framework of various provinces in China show great differences. There has been a call within the governance for the reform of local financial regulatory system to follow the market-orientated principle. China’s multinational corporations play a dominant role in large state-owned enterprises and the growth of national economy, and efforts have been taken on the complete marketization of commercial state-owned enterprises, making them become the principal players in global markets with commercialized targets, diversified equity and legalized governance. China’s high-speed railway construction has made remarkable achievements.The pattern of four vertical and four horizontal high-speed railroads has basically taken shape, covering 90 per cent of China’s population. China now possesses a high-speed rail system with the most complete technology, the longest operation mileage and the highest speed, taking a leading position in the world high-speed rail development. High-speed railway is becoming a key booster to shore up China’s national economic and social development. Its rapid development has also brought profound economic and

10 www.followcn.com social changes such as lowering the time costs for transportation, making high-speed railway become the major means for green commuting,reducing logistical costs, accelerating the regional economic integration progress and transforming China’s economic development model. But it must be pointed out that the huge construction cost and safety risks related to high-speed railway should not be neglected. Chinese President Xi Jinping has urged his government to push ahead its supply-side reforms, adding that China's economy is basically stable and operations are in line with expectations. But analysts say that there are challenges to the supply-side reform, three of which are low consumption, capital mismanagement and rising costs.

Progress in Strengthening Foreign Economic Relations

There is no doubt that Chinese workers, entrepreneurs, diplomats and technicians are ubiquitously present in every corner of the globe promoting China Inc.. China has made positive progress in participating in regional economic cooperation and global governance in the past fifteen years since joining WTO. In the wake of the integration of China’s economy with the world economy, China’s economic development has entered a state of “new normal”. China has absorbed the largest amount of FDI for over 20 consecutive years. In the future, China’s FDI will take on new patterns and characteristics in terms of size, industrial structure, and investment patterns and entities. The scale of FDI will grow rapidly, the industrial structure will be adjusted significantly and overseas mergers and acquisitions will maintain a swift growth. The One Belt and One Road Initiative launched by China has received high concern from the international community and it has gradually become a common consensus among countries along the region and they have accordingly put in a lot of work to realize the initiative. Its core objective is, as the Chinese government proclaims, through trade and investment cooperation with countries along the One Belt and One Road routes, to create and share development opportunities and facilitate economic prosperity of the region and the whole world. Since the launch of the Belt and Road Initiative, China’s investment in countries and regions along the Belt and Road routes has been growing rapidly, with a large room for improvement. The implementation of the Belt and Road Initiative should meet enterprises’ demand in line with investment promotion policies, enhance scientific planning and guidance, press ahead with the reform of investment management system through adequate policy and service support, and strengthen international coordination and communication. Export-oriented businesses have long been the driving force of China’s national economy. Rapid growth in the past thirty years of industrialization has achieved results that the west has worked hard to achieve in nearly a hundred years. By copying the west, the contribution rate of technology to economic growth in China increased from 20.9 percent in 2010 to 55.3 percent in 2015. Deepening reforms and opening-up bring about both challenges and opportunities. China and the rest of the world has never been linked so close and relied on each other in trade and economic cooperation. The participation of other countries is very important in China’s development.

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Setting the Blueprints in the Chinese Dream

In November of 2012, soon after the conclusion of the 18th National Congress of the Communist Party of China (CPC), President Xi Jinping put forward, for the first time, the idea of the Chinese Dream on a visit to "The Road towards Renewal" exhibition at the National Museum of China. The great rejuvenation of the Chinese nation "is a dream of the whole nation, as well as of every individual", he said. Xi proposed taxonomy of five dimensions from which to analyze the concept - national, personal, historical, global and antithetical. The "national Chinese Dream", as Xi described, is a big dream for the Chinese nation: "History tells us that everybody has one's future and destiny closely connected to those of the country and nation." The "personal Chinese Dream", for instance, focuses on the well-being of individual citizens and thus modifies traditional notions of the primacy of the collective over the individual. In the global prospect, the Chinese Dream will change the global landscape, which was shaped by Western countries over the past two centuries during industrialization. The new global landscape will be established through international rules and experiences of both developed and emerging countries, he said. Toward the end of 2016, the Chinese government issued a white paper on the right to development, expounding on its philosophy, practice and contribution. According to the white paper, China has lifted 700 million people out of poverty through more than 30 years of reform and opening-up, accounting for more than 70 percent of the global reduction in poverty. Early in November 2012, President Xi articulated a vision for the nation's future that he called the Chinese Dream. The Chinese Dream integrates national and personal aspirations, with the twin goals of reclaiming national pride and achieving personal well-being. It requires sustained economic growth, expanded equality and an infusion of cultural values to balance materialism. Vision of the Chinese Dream has become a grand driver of China’s continuous reform and development. The 2016 G20 Summit in Hangzhou stressed breaking a new path for growth, stating “Our growth, to be dynamic and create more jobs, must be powered by new driving forces. While reaffirming the importance of addressing shortfalls in global demand to support short-term growth, we believe it is also imperative to address supply side constraints so as to raise productivity sustainably, expand the frontier of production and unleash mid- to long-term growth potential.” At his speech at the G20 Summit, the president has conveyed a message for the international community that he works for the benefits of the whole world. “First, we need to build an innovative world economy to generate new drivers of growth. Second, we need to build an open world economy to expand the scope of development. Third, we need to build an interconnected world economy to forge interactive synergy.Fourth, we need to build an inclusive world economy to strengthen the foundation for win-win outcomes.”

A Village Teacher and his six Wishes

This is a report abstract by Chen Weisong & Li Jingrong in late 2016.

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Wang Muliang, 33, is the principal of a village school in a remote area in southwest China's Sichuan Province. Dazu Primary School is located in Mukua Village, Lugu Lake Town, Liangshan Yi Autonomous Prefecture. Wang spent his childhood in the school. However, it was forced to close down for various reasons in 2000. It was rebuilt five years later with financial aid from two enthusiastic people hailing from Taiwan. Wang participated in the rebuilding process and was appointed principal in 2011. During the past six years, it has received financial support from personalities from various circles through a public service platform. He recalled: "When the school was restored, I was only thinking about solving the problem of the children's schooling. Since then, the situation has changed. We cannot just rely on support and donations from the public. We cannot just be content with things as they are." Wang has six wishes for the future development of his school, involving basic education, poverty alleviation, medical assistance, environmental protection, cultural protection and ecological tourism. He has his own understanding of basic education, explaining that a school should be a place children yearn for, and they should feel they want to participate in school life of their own accord. Currently, there are 71 students in six grades, each of which has only one class. There are 12 teachers, 10 of whom work full-time. They work together in all the courses, including mathematics, Chinese, English, art, computers, physical education (PE) and all extracurricular activities. Wang stresses that Dazu Primary School particularly encourages students to read and that the school library is open not only to the present student body, but also to past graduates and all the local villagers. "A total of 17,000 volumes of books were donated by various people," he explained. With the joint efforts of teachers and students, Dazu Primary School has made large achievements in recent years. "The average middle school enrollment in the county was 17.9 percent this year, and our school's figure was 40 percent, ranking among the best on the county list," Wang said proudly. Poverty-alleviation funds from society in the past 12 years have helped more than 2,000 poverty-stricken students distributed in counties across Sichuan and Yunnan. "Medical assistance projects provide medical treatment for the children who live in mountainous areas and suffer from serious diseases. We established a special fund for children from poor families. In 2014, a local Dazu public service website was established and since then every income and expense have been made public," Wang said. In one of the extracurricular activities, teachers and students travel to farmland to collect crop stalks for producing organic fertilizer. "The activity aims at raising the environmental awareness of teachers and students and respect for labor," Wang said. The school also pays attention to local cultural protection. Located in a village mainly inhabited by the Naxi ethnic group, the school offers a special course in Dongba culture to help the children learn about its language, traditional arts, crafts, songs and dances. Due to his outstanding performance, Wang has won many awards. The volunteer

13 www.followcn.com teachers working in Dazu Primary School won a team award for "Most Beautiful Village Teachers," jointly organized by Guangming Daily and CCTV in 2012. Until now, the Dazu public service fund has received donations valued at 9 million yuan (US$130,800) which have provided financial aid for more than 6,000 students. About 600 people have worked in the village school as volunteer teachers.

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Chapter Two

Made in China 2025

China’s State Council announced ‘Made in China 2025’ in May 2015 as a national initiative to improve the manufacturing industry – initially up to 2025 and then on to 2035 and 2049. The strategy is a 10-year national plan designed to transform China from a manufacturing giant into a global high-tech manufacturing power. China is striving to move up the value chain, to avoid being pinched at one end by lower cost countries and at the other end by higher quality manufacturers around the world. Since the beginning of the new century, the process of industrialization has been quickened, the quality of the whole industry has been improved remarkably, the industrial system is complete, independent, and the international status has been greatly improved. It has become a real industrial country. Among the more than 500 kinds of major industrial products, there are 220 kinds of products whose output ranks first in the world. However, China's industrial development is still not out of the extensive mode of high input, high consumption, and high emission. The industry is still the main areas of consumption of resources, energy and emissions. The energy bottleneck constraints become increasingly prominent. According to preliminary accounts, in 2014 China's total energy consumption reached 4.26 billion tons of standard coal, about half of global coal consumption. Crude oil imports numbered 310 million tons, accounting for 59% of domestic consumption; iron ore imports 933 million tons, accounting for 69% of international trade; imports of natural rubber, copper, nickel, bauxite, lead and zinc more than 50%, some as high as 85%. Per capita water resources is only 2100 cubic meters, only about a quarter of the world average. The main pollutants of 90% sulfur dioxide and 70% nitrogen oxides are emissions; 85% of soot and dust are emissions. In particular, non-conventional pollutants such as persistent organic pollutants and heavy metals, which are extremely harmful to the masses, originate in the industrial sector. At the same time, China's industrial energy efficiency, water efficiency are still behind developed countries. As of its domestic iron and steel industry, the average energy efficiency level is still 6-7% behind the international advanced level, building materials 10% behind, Petrochemical industry 10-20% behind. China's industrial added value of water used to produce ten thousand US dollars is 569 cubic meters, much higher than Japan's 88 cubic meters, Korea’s 55 cubic meters, and the United Kingdom’s 89 cubic meters. The Made in China 2025 report focuses on 10 priority sectors including: 1) advanced rail and equipment, 2) aviation and aerospace equipment, 3) agricultural machinery and technology, 4) power equipment and technology, 5) low and new-energy vehicles,

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6) new materials, 7) high-end manufacturing control equipment and robotics, 8) Bio-pharmaceuticals and high-end medical equipment, 9) advanced marine equipment and high-tech vessels, 10) integrated circuits and new generation information technology. Shanghai Zhenhua Heavy Industrial Company Limited is a typical company in machinery production, a multinational engineering company and one of the world’s largest manufacturers of cranes and large steel structures. Its container cranes, rubber-typed gantry cranes, bulk-material ship loaders and unloaders, bucket-wheel stackers and reclaimers, portal cranes, floating cranes engineering vessels and large steel bridge structures dominates a great part of the international market. The company is the fabricator of the new Bay Bridge located in the San Francisco Bay Area in the US. Although the company has no previous bridge experience in bridge construction, California officials selected it based on the advantages of “huge steel fabrication facilities, its large low-cost work force and its solid finance.” Huawei Technologies Company Limited is another example, a multinational networking and telecommunications equipment and services company that has over 20 R&D institutes in the United States, Canada, the United Kingdom, Pakistan, France, Belgium, Germany, Colombia, Sweden, Ireland, India, Russia, Israel, Turkey and Australia. In 2014, the company invested over $6.4 billion US in R&D, and more is planned for coming years. Its products and services have been deployed in more than 140 countries and 80% of the world’s top telecoms companies have worked with Huawei. In 2014, Huawei became the world’s No.1 applicant for international patents with 3,442 patents. There are more and more companies like Zhenhua and Huawei in China that have and will be taken the international stage in terms of technology and mechanical production. They form the backbone of China’s industrial advancement in “Made in China” initiatives. Following the pace of industrialization in the West, China has gathered together the power of the whole nation for an innovation initiative of the new century. Deng Xiaoping pointed out: "Of the four areas of modernization, the key is science and technology." Lu Yongxiang, head of the Chinese Academy of Sciences, said: "China's scientific and technological development today must not simply copy the technology development model of other countries, and must not follow in the footsteps of other countries.This is a national strategy, we must use a concentrated force to do great things.” High-end heavy equipment manufacture is at the core of the competition between big countries. In CNC machine tools, port equipment, shipbuilding, and many other industries, China-made has gone to the forefront. With strong manufacturing capacity, the installed capacity of China's wind power rose rapidly to the world's first place. Now, China has more than 50 companies such as Zhenhua Heavy Industries, relying on the upgrading of equipment and manufacturing capacity, have entered the world's largest 225 international contractors. Chinese enterprises, driven by innovation, have played an important part in the world's high-end manufacturing industry chain. China 's high-speed railway came out of a unique innovation path, to promote China in this area to occupy the world' s leading position. From line engineering to traction power supply, from the train control system to the high-speed train, the Chinese people keep

16 www.followcn.com forging ahead to build their own complete set of high-speed railway technology system and technical standards. When China enters the era of intercontinental trains, high-speed railway not only lays the foundation for people to build a new lifestyle, but also helps to deliver high-quality public goods and services to the community, thus becomes the driving force of economic and social development. With miraculous projects one after another, the Chinese people, with the most daring imagination, the most perfect design and cutting-edge technology, have built a complete and mature technical system, which is both complicated and magnificent.

China to Boost Consumer Goods Quality

China will make more efforts to elevate the quality of consumer goods and promote the “Made in China” brand to meet growing demand. The government will introduce compulsory standards on quality, intensify supervision and spur businesses to improve products, according to a statement released on Aug 25, 2016, after a State Council conference chaired by the Premier. Sectors including food, home appliances, electronics, clothing, cosmetics, daily chemical products and sports goods were highlighted at the meeting. China is seeking an upgrade of its manufacturing sector to meet increasing demand from domestic consumers. An array of measures, such as the supply-side structural reform, have been carried out. Domestic standards will be raised to catch up with global levels, and a series of standards on core manufacturing technology will be established, said the statement, noting industry leaders will be supported to exceed compulsory levels. China will promote the “spirit of the craftsman” and large companies will be encouraged to appoint chief quality officers. Vocational education and skill training should be improved, said the statement. A product quality traceability system and a defective product recall mechanism will be established. Market watchdogs will crack down on counterfeits in online shopping and cross-border trading. An accountability system will be established to hold quality inspection and certification agencies responsible for product quality and safety. “After 30 years of reform and opening-up focusing on economic development, people no longer just want food and accommodation but thirst for goods that can make their lives easier, more comfortable and inspiring,” said Xia Xueluan, a professor of sociology at Peking University. “As the number of middle-class families increases, the high-end market is expanding fast, which drives the government to focus on basic demands and high-end ones too,” said Feng Liguo, a researcher at the China Enterprise Confederation. A new guideline on improving consumer goods standards and quality (2016-2020), initiated by the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), was approved by the government. According to the new guideline, more than 95 percent of consumer goods in major sectors will meet international standards by 2020. “By improving consumer goods sector, we will force the upgrading of equipment manufacturing,” Premier Li Keqiang said. “The manufacturing industry is the cornerstone for the country’s entire industry.”

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Innovation as Key to Boost Manufacturing Sector

“Made in China 2025” emerged as Chinese factories still struggle with decreasing demand, increasing competition from international competitors and slower economic growth. Known as the world’s factory, China used to be a major original equipment manufacturer, but the country now needs to reduce its OEM dependency and become self-sustaining. With full efforts, China is stepping forward to medium and high manufacturing. The plan will span the whole manufacturing industry, applying advanced ideas not only form Germany and Japan, but also from the United States and Britain, among others. "China is in a golden era of mass innovation and entrepreneurship,"Lin Nianxiu, deputy director of the National Development and Reform Commission, said at a press conference. China's innovation and entrepreneurship strategy has resulted in more companies, more jobs and a shift toward industrial restructuring, the official added. China will set up around 40 national manufacturing innovation centers by 2025, the Ministry of Industry and Information Technology (MIIT) said in August, 2016. The centers will be devoted to information technology, intelligent manufacturing, new materials and biomedicine. Around 15 will be established by 2020. The MIIT has promised to improve the intellectual property management system to promote cooperation and profit sharing between centers. At present, in China's major industries of both large and medium-sized enterprises, the digital designed tool penetration rate is more than 72.3%, the numerical control rate in key process flows is 59.6%, the informational ERP (enterprise resource planning) penetration rate is 62.7%. New technologies such as Internet of Things, Cloud Computing and Big Data are continuously integrated into industrial R & D, production, service and management, and the integration application is accelerated. E-commerce, Internet finance, service-oriented manufacturing and other productive services are developed fast. Smart robots and high-end equipment manufacturing industry has an explosive growth. The rapid development of new technologies such as 3G, 4G networks and RFID (Radio Frequency Identification), M2M (Machine 2 Machine) business is accelerating. The popularity of industrial Internet has been kicked off. As a key area in “Made in China 2025”, Agricultural machinery and equipment is an indispensable tool to improve the efficiency of agricultural production, realize the effective utilization of resources and promote the sustainable development of agriculture. The country will strengthen related industrial base through the implementation of innovation-driven policies. The country will develop agricultural machinery and equipment as integrated solutions and in complete sets for production of grains, meat and eggs, fruit and vegetable production and cotton, oil, sugar, rubber and other key produce, and upgrade the level of agricultural modernization. According to the Ministry of Industry and Information Technology, China has nearly 17.94 million people working in equipment manufacturing enterprises. Among them, 7.36 million are technical personnel, 29% with undergraduate degrees and 2% with graduate degrees. The main task in its personnel training system is to strengthen the

18 www.followcn.com overall planning and classification of manufacturing talents, organize the implementation of training programs for manufacturing talents, increase the management of professionals, technical personnel and highly skilled personnel, improve the process of training from manufacturing R&D, transformation, and management. The aim is to foster a team of professionalism, with strong market awareness, and familiar with the rules of international operations, to foster a team of professionals that have mastered the international advanced and complex manufacturing technology. The country already have plans at different levels to select from the manufacturing sector talents to be sent overseas for training in the manufacturing industry in developed countries.

Made in China 2025 VS Germany’s Industry 4.0

In 2013, Germany released its “Industry 4.0 Strategy”－a blueprint which combines information and communications technology to boost manufacturing. To some extent, “Made in China 2025” has something in common with Germany’s model, as both countries are pushing digitalization and modernization of the manufacturing industry. Amid concerns that the two strategies may lead to intensified competition between Chinese and German industries, China and Germany have agreed to step up cooperation in the development of smart manufacturing technology in 2015. Essentially, Germany’s Industry 4.0 advocates the adoption of state-of-the-art information and communication technology in production methods as a means to further enhance industrial efficiency. Industry 4.0 considers that businesses will establish global networks that incorporate their machinery, warehousing systems and production facilities. With Cyber-Physical Systems, the embedded manufacturing systems are vertically networked with business processes within factories and enterprises, resulting in Smart Factories which allow decision-making to be optimized and individual customer requirements to be met profitably. “Made in China 2025 is primarily aimed at enhancing the competitiveness of Chinese industry. The focus is on innovation and quality, as well as guiding Chinese industries to move away from low value-added activities to medium- and high-end manufacturing operations, rather than pursuing expansion of production capacity. The strategy is also aimed at eliminating inefficient and outdated production capacity, and helping enterprises to conduct more own-design and own-brand business.” According to HKTDC Research. CNC machine tools and basic manufacturing equipment is key in the equipment manufacturing industry. The country will focus on the two major areas of aerospace and automotive industries, with an aim to create a complete machine tool supporting industrial chain. The emphasis lies in breakthrough in key & core technology, and the formation of a number of iconic products.

Electric power equipment manufacturing industry must change to be quality and efficiency-based

After 30 years of reform and opening up, especially in the past 10 years, China 's power equipment manufacturing industry has made earth - shaking changes, and has

19 www.followcn.com formed a wide range, large-scaled industrial system of high technical level. According to the Ministry of Industry and Information Technology , electric power equipment should establish a comprehensive system on research & development, design, manufacture, monitor and verification with ability to innovate and consummate supporting industries by 2025. Comprehensive sets of equipment for large-scale thermal power, hydropower, nuclear power and etc. should conform to the international standard. Furthermore, new energy, renewable energy equipment and energy storage devices should obtain more than 80% of the market share. Comprehensive sets of equipment for power transmission should also be intellectualized while core parts like sensor should be localized. All of the above standards enhance Chinese electric power equipment in the aspects of intellectualization and innovation. In thermal power equipment, the aim is to master the upgrading of coal-fired units of environmental protection technology to improve the unit energy conversion efficiency, to achieve ultra-clean emissions of coal-fired units. Along with the Belt and Road strategy, efforts shall be made to push Chinese thermal power equipment to go out for international market share. Domestically emphasis will be given to the development of 1,000 MW ultra-supercritical ultra-clean coal-fired generating units (including reheat), 600 MW and over supercritical boilers in Xinjiang, 600 MW supercritical circulating fluidized bed Boiler, high-moisture lignite coal-water power unit, 300-megawatt-class F-class heavy-duty gas turbine, 400-megawatt class G / H-class heavy-duty gas turbine, and large thermal power unit control system. In the area of nuclear power equipment, there will be the implementation of independent innovation and industrialization of nuclear power equipment as a special project, and the establishment of a sound system of independent nuclear power equipment industry. Nuclear power equipment safety shall meet the highest requirements of international standards. Through the general contracting of foreign projects, build up a bulk export capacity of nuclear power units with independent intellectual property rights. The key developments include: CAP1400 nuclear power equipment, Hualong No. 1 nuclear power equipment, high temperature gas-cooled reactor, sodium cooled fast reactor, and thorium-based molten salt reactor nuclear power unit. Renewable Energy Equipment. Implementation of smart grid complete sets of equipment innovation as a special project; upgrade large-capacity energy storage device autonomy, large-capacity energy storage technology and megawatt-class energy storage device to meet the peak load regulation needs and solve the renewable energy bottlenecks. The application of distributed renewable energy, such as wind power, photovoltaic power generation, small hydropower, biomass energy, ocean energy and geothermal energy are developed at a large scale to meet the needs of China's energy structure adjustment. Comprehensive grasp of 700 megawatts and above large-scaled hydropower unit design ability and manufacturing technology. Accelerate the pace of development in emerging markets such as South America and Africa, and accelerate the outflow of hydropower equipment. Emphasis will be given to the development of large-capacity hydroelectric generating units of 1000 MW class, super-high head impulse turbine units of 700 meters and above, 40 MW and 700 meters of pumped storage units and 15 MW or above variable speed pumped storage units, Efficient solar power

20 www.followcn.com generation equipment, 5 MW and above wind power equipment, and megawatt-class advanced large-capacity energy storage devices. Power transmission equipment. Comprehensively master the design and manufacturing technology of UHV AC / DC transmission in complete sets of equipment, upgrade the technological level of power transmission and transformation in complete sets of equipment, and realize the engineering application of new high temperature superconductor power transmission and transformation equipment. The implementation of energy efficiency plans in power transformers and other equipment to further enhance the energy efficiency of power equipment conversion. Focus on the development includes 1000 kV UHV AC transmission complete sets of equipment, ± 800 kV and above HVDC transmission equipment, ± 200 kV and above flexible DC transmission systems and complete sets of equipment, smart grid power transmission equipment and customer premises equipment , Green environment-friendly power transmission and transformation equipment, high-power power electronic devices, high-temperature superconducting materials and high-temperature superconducting power transmission equipment. Key parts, materials and supporting system. Breakthrough the bottleneck problems that hinder China's power equipment manufacturing industry from big to strong; carry out independent research and development of key components of electrical equipment, materials, and application of engineering to speed up the construction of power equipment test and verification platform, and effectively enhance continuous innovation of the power equipment manufacturing industry.The main development areas include: heavy gas turbine compressor, high temperature components and control devices; large nuclear power pressure vessels, steam generators, coolant main pump, control rod drive mechanism, reactor components, large nuclear steam turbine welding (whole forging) Level blades, large-scale semi-speed turbine generator rotor. High-temperature gas-cooled reactor, sodium-cooled fast reactor, thorium-based molten salt reactor nuclear island of the main equipment; 1000MW grade air-cooled unit advanced, high efficiency, low-cost air cooling system; ultra-supercritical coal motor with three types of valves; variable speed pumped storage Large-scale high-efficient heat-absorbing, storage heat exchanger main equipment and control system; large-scale solar energy efficient heat storage, heat storage and control of the main equipment and control of the main equipment and control of the main energy-saving; High voltage and high current vacuum interrupter; high voltage DC transmission casing; metal film DC capacitors; flexible (high-voltage and high-voltage); high-voltage high-voltage high-voltage vacuum interrupter; High voltage and high power IGBT module for DC transmission; transformer appearing device; insulating material and electrical alloy.

China's First Driverless Subway Line to Launch in 2017

China's first driverless subway line, the Yanfang line in southwest Beijing, is expected to start operations at the end of 2017, according to a People's Daily report. Operations on the line will be fully automatic, including train departures, door opening and closing, and cleaning, said the report. The trains will only use domestic technology. China started developing its own fully automatic subway system in 2010 and has

21 www.followcn.com mastered the core technologies, said the report. Beijing subway lines 3, 12, 17, 19 and the new airport line are all under planning and will also operate with completely automated, driverless trains. It is expected that the total length of fully-automated subway lines in Beijing will reach 300 km by 2020, said the report. The development and use of domestic operation systems is part of the "Made in China 2025" initiative, which aims to comprehensively upgrade Chinese industry. The move will also help strengthen China's presence in the global rail transport industry and ensure the security of the country's key infrastructure facilities. China has become a world leader in high-speed railway technology with its development of a cutting-edge permanent magnet synchronous traction system that will take bullet trains to an ultrafast 500 kilometers per hour. The advanced 690-kilowatt traction system was developed by CRRC Corp, the country's train-making behemoth, at its Zhuzhou Institute in Hunan province. It will soon enter mass production, said Ding Rongjun, a member of the Chinese Academy of Engineering who heads the institute. "Now we have our own permanent magnet synchronous traction system with full intellectual property rights, marking a new chapter in China's high-speed railways," he said, adding that only a handful of countries are capable of manufacturing the sophisticated apparatus, including Germany and Japan.

MIIT sets Targets on New Energy Vehicle Industry

China's Ministry of Industry and Information Technology (MIIT) has outlined four development targets for the energy-saving and new energy vehicle industry to implement the "Made in China 2025" strategy. As for pure electric cars and plug-in hybrid power cars, the ministry said the annual sales of home-brand products would exceed one million units by 2020, accounting for over 70 percent of total sales on the domestic market. There will be star models of home-brand products ranking among the top ten bestsellers on the global market, and the home-brand new energy buses will be exported to overseas market in batches by the year. Meanwhile, Chinese enterprises will have the key systems of power batteries and driving motors reach International advanced level, and these products will take 80 percent share on the domestic market. They will also achieve car-to-car and car-to-facility communication by the year. By 2025, the sales of home-brand pure electric cars and plug-in hybrid power cars, which have synchronous development with advanced overseas products, will reach three million units and account for 80 percent of the total on the domestic market. Meanwhile, two Chinese complete vehicle makers will rank among top ten in the world by sales volume. The overseas sales of domestic companies will account for ten percent of their total. Besides, Chinese enterprises will export key systems of power batteries and driving motors in batches, and China will test Internet of Vehicles in certain regions by 2025. As for fuel-cell cars, China will gradually substitute overseas key materials and parts with homemade products in the period. As for energy-saving cars, the MIIT set targets to lower

22 www.followcn.com fuel consumption of new passenger cars to five liters per 100 km by 2020 and four liters per 100 km by 2025; and to lower that for new commercial cars to approach International advanced level by 2020 and to reach the level by 2025. As for smart cars equipped with telematics system, China will master the overall technologies and key technologies of intellectual aided driving, and build an initial self-development-research system and a production and supporting system for smart cars with telematics system by 2020. By 2025, China will master the technologies of unmanned driving and build systems and industrial clusters for unmanned driving cars, to complete the basic transformation and upgrading of auto industry. China’s domestic market is also open for foreign investors. In one example, German automaker Volkswagen has planned to introduce 15 models of new energy vehicles in China that are locally produced. These models will be released in the next three to four years to address the environmental protection needs in Chinese market, Li Xiaoxin, a public relations manager with Volkswagen Groug China said in Tianjin, where a joint venture project of the company is under construction.

Finding a China Heart for Robots

China was late to embrace the robot revolution. There are still only 36 robots per 10,000 manufacturing workers in China, whereas in Japan there are 315 robots per 10,000 workers, and in South Korea, 478. But China has been moving boldly to close the gap. Beijing has set a goal of raising the robot-to-worker ratio to more than 100 by 2020. A China Daily report by tells about a robot-beauty Jia Jia (Simulation). "Please do not stand too close or my pretty face will be too big in your photos," Jia Jia told her "fans" at the 2016 World Robot Conference in Beijing. Jia Jia is a typical oriental beauty with shiny hair, bright skin, a slender figure and a tender voice. More importantly, as China's latest interactive robot, she is considerate and humorous. Aside from Jia Jia, many other robots have delighted the audience during the five-day robot conference that closed this week, such as humanoid robots that can read emotions or write traditional Chinese calligraphy, and robots that can perform medical operations, wait at tables or work in factories. "If asked to use one word to describe the development of China's robotics industry, I would choose 'explosion,'" said Zhao Jie, director of the Robotics Institute of Harbin Institute of Technology. Zhao said thousands of companies were established in dozens of robot industrial parks across China, with the number of employees growing rapidly. China's robot shipments topped 68,000 sets last year, accounting for 26.7 percent of the global market. Asia has become world's largest supplier of industrial robots, taking up 60 percent of the global market. According to the International Federation of Robotics, China was already the world’s biggest market for industrial robots in 2013, in spite of the fact that the core components are mostly produced overseas. In the coming years, China's robotics industry is transitioning from a follower to a front-runner. According to a report by the Economist, Ulrich Spiesshofer, chief executive of ABB, a Swiss engineering giant, reckons that

23 www.followcn.com the latest robots “elevate the nature of work” because they improve safety and eliminate the need for heavy lifting. ABB’s local engineers developed China Dragon, a robot made specifically for the computer industry, which sells well globally. In many industries China is still learning from the world, say the engineers, but its electronics manufacturing is so advanced that “the world is learning from China.” In mid 2016, Foxconn has reportedly replaced 60,000 factory workers with robots. The Apple and Samsung supplier claims that within five years the 30% of his labor force doing the most tedious work will be replaced by robots. Since September 2014, 505 factories across Dongguan, in the Guangdong province, have invested 4.2bn yuan in robots, aiming to replace thousands of workers. More Chinese provinces have announced ambitious initiatives to replace human workers with robots, as worsening labor shortages have dulled the cost advantage for made-in-China products. One example, Suzhou Victory Precision Manufacture Company is now relying on a new breed of workers to maintain its competitive advantage in assembling electronics devices: small robots designed in Germany. “China is aiming for a top-10 ranking in automation for its industries by 2020 by putting more robots in its factories”, the International Federation of Robotics (IFR) said. “We see little cause to expect manufacturing to shift back to developed markets. China will not only remain the world’s factory, but it could increase the size of its manufacturing sector by as much as 22% by 2025. ” Said Mr. Kevin Sneader, the chairman of McKinsey & Company Asia.

Quality and Brand are the Important Connotations of the New Competitive Advantages in China

Since the 12th Five-Year Plan, the quality level of China's manufacturing industry has been greatly improved. A number of well-known brands have come to the fore, and the quality and brand competitiveness have continued to increase. First, the steady improvement of product quality. Quality of raw materials and equipment has increased significantly. The technical standards and physical quality of major products such as iron and steel, nonferrous metals, petrochemicals and building materials have been brought into line with international standards, and the quality of major equipment such as aerospace, power generation and rail transportation has been at the forefront of the world. Engineering machinery, general equipment quality and reliability levels continue to improve, further narrowing the gap with the international advanced level. The quality and grade of consumer products have been improved obviously. The main function and performance of information technology products, such as mobile communication and basic software, have reached or approached the level of similar products in the world. Second, the quality management level has improved significantly. According to the survey conducted in 2013, 82.2% of the general equipment enterprises and 68% of the food enterprises have obtained international quality management system certification. The average loss rate of corporate quality reduced from 2.79% in 2009 to 2.43%. For engineering machinery products, the average time between failures (MTBF) generally

24 www.followcn.com increased 2-3 times, high-end CNC machine tools also increased by 1.6 times. Third, the brands continued to increase influence. In the domestic consumer goods market, independent brands occupy a larger market share; color TV, air conditioning, refrigerators, clothing, home textiles and other products have reached more than 80%. Silk, ceramics and other products of ethnic cultural characteristics have the absolute market advantage. In the industrial market, domestic self-sufficiency rate of the main products continues to increase. For machinery, fine chemicals and other products, the self-sufficiency rate is 80% or more, for ethylene more than 90%, for most of the varieties of steel products, the self-sufficiency rate 100%. China's manufacturing industry has 1.7 million independent brands, but many brands have very low market recognition. Compared with the international well-known brands, most of Chinese brands are of low value and weak competitiveness; their reputation and consumer loyalty needs to be improved. "Made in China 2025" has proposed to build key product standards compliance identification platforms to promote key products and technologies so that safety standards fully meet the international advanced level, promote the advanced production management modes and methods; and enhance the level of key process control. "Made in China 2025" has proposed to implement the industrial product quality improvement action plan. For the key industries such as automobile, high-grade CNC machine tools, rail transportation equipment, large-scale complete sets of technical equipment, engineering machinery, special equipment, key raw materials, basic parts, electronic components and other key industries, organize teams to overcome key problems in quality improvement and technology innovation. To strengthen the development and application of reliability design, testing and verification technology, promote the use of advanced molding and processing methods, on-line testing devices, intelligent production and logistics systems and testing equipment. Quality management, quality self-declaration and quality traceability systems covering the whole life cycle of products are to be implemented in the fields of food, medicine, baby products and home appliances. ”Made in China 2025” has proposed to improve the product quality standard system, policy planning system and quality management laws and regulations. Strengthen the relationship between people's livelihood and security and other key areas of industry access and market exit management; to establish compulsory reporting system for accidents in consumer goods production and management, improve the quality of credit information collection and dissemination system, strengthen the quality of corporate responsibility; to develop and implement manufacturing quality, safety, health, environmental protection and energy efficiency standards of international advanced level; to improve the inspection and testing system, to build a number of high-level laboratories for industrial product quality control and technical evaluation, and centers for product quality supervision and inspection. "Made in China 2025" has proposed that enterprises should be guided to develop brand management systems, to have R&D innovation, manufacturing, quality management and marketing services, to enhance their overall production quality, reinforce the brand development foundation. They are encouraged to create a number of

25 www.followcn.com distinctive and competitive industrial brands with regional reputation.

A Costly Scheme That will Use Mandates, Subsidies and Other Methods to Persuade

According to the Economists, Made in China 2025 is a costly scheme that will use mandates, subsidies and other methods to persuade manufacturers to upgrade their factories. It points out that “Amid all the excitement about high tech and the push into services, it is easy to forget that China’s modern economy was built on the strength of a solid and often low-tech manufacturing sector. Now manufacturing is widely thought to be in trouble. Factories are squeezed, labor costs are rising and jobs are being reshored to America. Competitors such as Germany are said to be leaving China behind by using robotics.” The government has promised to offer greater financial support to implement the plan. And efforts will be made to integrate vocational education with mass entrepreneurship and innovation and the practices of Made in China 2025, according to the Chinese Premier, who has called on the nation to embrace technology such as big data, cloud computing, the Internet of Things and 3D printing. He vowed to deepen reforms of state-owned enterprises and provide more assistance to small businesses. The US administration under President-elect Donald Trump has called for US companies to move their production back to the United States and this would surely have an impact on “reshoring”. Research by Morris Cohen of the Wharton Business School finds that the country leads in many industries and that “reshoring to the developed economies is not happening on a large scale.” Manufacturing is almost entirely controlled by private firms, both Chinese and foreign, which unlike SOEs will not be pushed by bureaucrats into making unprofitable investments. Marjorie Yang, Esquel’s boss, says that subsidies may feel good but distort investment decisions: “The government loves to fund flashy hardware and robotics, but there’s no money for the software and data analytics needed to make proper use of it.” And in any case most of these private firms are already innovating at a cracking pace without prompting from government. Although many weak and inefficient SOEs have been driven out of the competition, the government has hope in revitalizing the SOEs in its planning. In China, more and more enterprises like Shanghai Zhenhua Heavy Industries and Huawei have taken the lead in both technical renovation and international expansion. As China is surely catching up, it might succeed on its more modest goals, says Stephen Dyer of Bain, a consulting firm.

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Chapter Three

China's 13th Five-Year Plan (2016-2020)

China’s Five Year Plans are a series of social and economic development initiatives. China has always attached great importance on economic and social planning. Its economy experiences different phases of development cycles. It is now shifting its focus to consumption and service industries from heavy polluting industries and manufacturing via complex reforms. China's new 13th five-year plan is aimed at boosting sustainable development not only domestically but also internationally. China is set to build a law-based government by 2020. The government will fully perform its duties in accordance with laws, make administrative decisions in a scientific, democratic and legitimate way and enforce laws impartially, with a well-established law-based administration system. The government will operate administrative power in a transparent way, safeguard citizens’ rights and interests and have improved law-based administration capabilities. The focus of the 13th Five Year Plan is expressed in the following ideas: 1) Innovation: Move up in the value chain by abandoning old heavy industry and building up bases of modern information-intensive infrastructure 2) Balancing: Bridge the welfare gaps between countryside and cities by distributing and managing resources more efficiently 3) Greening: Develop environmental technology industry, as well as ecological living and ecological culture 4) Opening up: Deeper participation in supranational power structures, more international co-operation 5) Sharing: Encourage people of China to share the fruits of economic growth, so to bridge the existing welfare gaps.

Goals and mission of the new Five Year Plan

According to the outline of the 13th Five-Year Plan (2016-2020) on national economy and social development presented to the Fourth Session of the 12th National People's Congress, the goals and missions for the years between 2016 and 2020 are as follows:

GROWTH

1) Keep medium-high growth to double China's GDP and per capita income by 2020 from the 2010 level. 2) Promote innovative, coordinated, green, open, and shared development.

INNOVATION-DRIVEN DEVELOPMENT

1) Make breakthroughs in core technologies including information communication, new energy, new materials, aviation, biological medicine and intelligent manufacturing.

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2) Advance scientific research on universe evolution, material structure, origin of life, as well as brain and cognition. 3) Vigorously initiate international major science projects. 4) Ease the criteria for foreign talents' applying for permanent residence. 5) Improve the quality and efficiency of supply and stimulate real demand to strengthen new growth momentum. 6) Foster new competitive advantages of foreign trade by exporting more high-end equipment and cutting-edge products with high added value.

MODERN INDUSTRIES

1) Further implement "Made in China 2025" strategy and focus on manufacturing innovation and the integration of information and manufacturing technologies. 2) Support strategic emerging sector and improve its share in GDP to 15 percent. 3) Boost information technology, new energy vehicles, biological technology and low-carbon industries, as well as high-end equipment and materials. 4) Nurture the growth of high-tech sectors involving semiconductors, robots and intelligent systems.

INTERNET

1) Speed up building a new generation of information infrastructure. 2) Advance 5G telecom technology and comprehensively upgrade to IPv6. 3) Implement "Internet Plus" and promote Internet technologies to revolutionize production and organization modes. 4) Promote big data strategy to facilitate industrial upgrade and social governance innovation. 5) Push forward the establishment of a multilateral, democratic and transparent international Internet governance system.

ENERGY REVOLUTION

1) Deepen energy revolution by establishing a modern energy system that is clean, low-carbon and efficient. 2) Build a coordinated and integrated energy network.

URBANIZATION

1) Accelerate urbanizing rural migrants. 2) Build world-class city clusters in Beijing-Tianjin-Hebei region, Yangtze River Delta and Pearl River Delta.

MARITIME POWER

1) Strengthen maritime law enforcement, safeguard maritime interests and maintain free navigation and maritime passage safety at sea waters under China's jurisdiction.

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2) Improve sea-related dialogue and cooperation mechanisms with neighboring countries and boost pragmatic maritime cooperation.

ENVIRONMENT

1) Keep annual energy consumption within five billion tonnes of standard coal. 2) Implement the strictest environmental protection system by gathering efforts from government, enterprises and the public to realize environmental improvement. 3) Control carbon emissions, honor climate commitments and deeply participate into global climate governance.

OPENING UP

1) Expand international production capacity cooperation in sectors including steel, railway, telecommunications, machinery and aviation. 2) Increase service trade's share in total foreign trade to 16 percent. 3) Relax restrictions in service sector for foreign capital, widen market access in banking and securities, encourage foreign investment to flow into advanced manufacturing, high-tech industries and energy saving. 4) Improve business environment to facilitate win-win cooperation. 5) Realize the convertibility of Chinese currency the yuan and promote its global use. 6) Enhance two-way opening up of capital market, including securities and bond markets. 7) Strive to sign high-standard bilateral investment agreements with more countries.

BELT AND ROAD

1) Quicken Belt and Road construction and expand win-win cooperation to form a new comprehensive opening-up landscape. 2) Strengthen cooperation with international financial institutions, push forward the Asian Infrastructure Investment Bank and the BRICS New Development Bank, and properly operate the Silk Road Fund. 3) Build China-Mongolia-Russia, China-Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan and Bangladesh-China-India-Myanmar economic corridors, as well as the new Eurasian Land Bridge.

GLOBAL ECONOMIC GOVERNANCE

1) Safeguard the role of the World Trade Organization and push forward multilateral trade negotiations. 2) Vigorously set up free trade areas with countries along the routes of the Belt and Road. 3) Step up talks with the Regional Comprehensive Economic Partnership and Gulf Cooperation Council and on free trade area of China, Japan and the Republic of Korea. 4) Push forward the establishment of free trade agreements with Israel, Canada, the Eurasian Economic Union and the European Union, as well as an Asia-Pacific free trade area. 5) Continue to propel investment agreement talks with the United States and Europe.

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6) Actively participate in the making of international rules on the Internet, deep sea, polar region and space and of international standards.

INTERNATIONAL RESPONSIBILITY

1) Increase assistance to developing countries in education, medicine, disaster relief, animal protection and poverty alleviation. 2) Safeguard international public security and oppose any forms of terrorism.

PEOPLE'S WELL-BEING

1) Lift 50 million people out of poverty and build a moderately prosperous society in all aspects. 2) Fully implement two-child policy, with the total population reaching 1.42 billion.

STRATEGY AND SECURITY

1) Formulate and implement national security policies in politics, territory, economy, society, resources and the Internet. 2) Reinforce anti-terrorism forces and increase international cooperation. 3) Advance national defense and military modernization.

China Sets Five-year Average Annual Growth Above 6.5%

The new five year plan comes as China's economy has entered what policymakers believed as the "new normal," a phase of moderating growth based more on consumption than the previous mainstay of exports and investment. The 6.5-percent annual growth rate over a five-year period is the lowest for over three decades. It is, however, believed that this is the minimum growth required for the nation to realize the goal of doubling the 2010 GDP and per capita income by 2020. China's GDP is expected to exceed 92.7 trillion yuan (14.2 trillion U.S. dollars) in 2020, compared with 67.7 trillion yuan in 2015, according to the plan. According to World Bank standards, the term "middle income countries" refers to nations with a per capita GDP of US $10,000. In 2015, China's per capita GDP was US $7,924. If an annual growth of 6.5 percent is maintained, the figure in five years' time will exceed US $10,000, so attaining the level of a moderately developed country. “A comprehensive analysis of all factors shows that China will face more and tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle," Premier Li Keqiang said in a government work report to national legislators. The country will have 30,000 km of high-speed railways, linking 80 percent of big cities nationwide. As binding targets, by 2020, the water consumption per 10,000 yuan GDP will fall 23 percent, while the energy consumption per unit of GDP will be cut by 15 percent. Carbon dioxide emissions will also be cut by 18 percent. The discharge of four major pollutants, including sulphur dioxide and chemical oxygen demand, will be cut by 10 or 15 percent.

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The PM2.5 density of large cities that fail to meet national standards will drop 18 percent. The number of heavily polluted days in large cities will fall 25 percent. China will create more than 50 million new urban jobs in the next five years. Efforts will be made to lift all poverty-stricken rural residents out of poverty. The Plan lays down that by the year 2020, the urbanization rate will reach 60 percent in terms of regular residents and 45 percent in terms of registered residents. To achieve this, it is imperative to speed up new-type urbanization and the resettling of around 100 million rural workers and regular urban residents. Accelerating reconstruction of urban shantytowns, where 100 million people subsist, is also crucial. Around 100 million people in central and western China are encouraged to move to cities and towns close to their rural homes. China now has more than 200 million people aged over 60, accounting for 15 percent of its population. China's average life span in 2015 was 76 years old, the same as that of high- and middle-income countries. To increase it by one year China must invest more in medical treatment and senior care.

China is to Tackle the Pollution Problem and Return its People a Clear Sky

The 13th Five-Year Plan has provided a comprehensive roadmap and strategic direction to undo environmental damage. The Plan highlights environmental quality as a core issue, and vows to enhance protection of the ecological environment and improve the efficiency of resource exploitation. There have been great achievements in ecological protection over the past five years. But even though the goals of energy conservation and emissions reduction have been reached, even surpassed, the situation remains severe in light of the state of the environment and the people's expectations. Deputy Director of the Hunan Provincial Environmental Protection Bureau Pan Biling believes that the old path of post-pollution management must be abandoned, and that a beautiful China of blue skies, green lands and clean water instead be built. In the next five years, China is expected to launch 19 major projects in the sector of ecological environment. They include five in the fields of energy conservation and recycling, six concerning environmental rehabilitation and protection, and eight that will mend the -system of mountain, lake, river and forest. "The focus of these projects should be on urgent ecological and environmental issues. They should, therefore, be clearly aimed at concrete issues," Pan Biling said. Vice President of the China University of Mining and Technology in Beijing Jiang Yaodong believes that implementing these big projects can achieve the goal of green production over the next five years. The 13th Five-Year Plan proposes implementation of gasified engineering in pivotal areas to curb air pollution and to reduce China's water consumption per unit of GDP by 23 percent, of energy consumption per unit of GDP by 15 percent, and of carbon dioxide emissions per unit of GDP by 18 percent. This will enhance efficient utilization of energy resources and the quality of the ecological environment as a whole, and achieve atmospheric haze control by 2020. The ultimate goal is to achieve, at prefecture level and above, more than 292 days of good air quality throughout the year. The plan also

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sets out to reduce the concentration of PM2.5 in the coming five years. China's cumulative energy conservation over the past two decades has contributed 58 percent to the total global amount. Meanwhile the country's renewable energy installed capacity accounts for 24 percent to 25 percent of the global increment, and its increment in recent years for 37 percent to 42 percent. China was the first developing country to raise the concept of Intended Nationally Determined Contributions (INDC), and to commit to reaching peak emissions around the year 2030. Xia Yujie, director of Anhui Zhongding Holding (Group) Co., Ltd., observed that although the country has previously set emission reduction targets, it has now committed to the specific objective of improving the environment for the public good. Tianjin municipal government counselor Bao Jingling pointed out that the Five-Year Plan incorporates a stringent PM2.5 air quality index, so demonstrating government confidence in its ability to combat environmental pollution. He added that local governments should give priority to improving the environment. China's Special Envoy on Climate Change and former vice-chairman of the National Development and Reform Commission Xie Zhenhua commented that China's adoption of multiple energy-saving measures had reduced emissions, and that its achievements in energy conservation, improved energy efficiency, and development of renewable energy have brought it worldwide affirmation. It was thanks to China's significant contributions that there was no increase in global carbon emissions in the year 2015.

Five-year Plan on Informatization

A five-year plan on China’s national informatization (2016-2020) was issued by the State Council on Dec 27, 2016. According to the plan, China will put more resources into the development of cutting-edge information technology, including 5G wireless systems, IPv6, smart manufacturing, cloud computing and internet of things. The plan set a goal of authorizing 15.3 trillion patents in the information industry. The goal is by 2020, BeiDou Navigation System, involving 35 satellites, will be completed and provide services for international clients. More integrated national databases, covering information from government, academic institutions and other public sectors, will be set up and open to the public, so as to break information barriers. A unified online system will be established, integrating information and services from different departments, regions and levels to build a “smart government”. The government hopes to deal with 80 percent of paperwork online by 2020. More funds will be invested into information infrastructure, especially for rural and remote regions. By 2020, 40 percent rural families in central and western China will have access to cable internet. In addition, the speed of the internet will be accelerated and costs will be lowered. The government hopes to connect the internet industry with manufacturing and agriculture. E-commerce and other new business models will be promoted. By 2020, e-commerce trade volume is planned to reach at least 38 trillion yuan. The plan also focused on cyber security, promoting legislation of relative laws and

32 www.followcn.com regulations, setting up risk alerts and an emergency mechanism. It also vows to further crack down on telecom fraud. China has made significant achievements in informatization, according to the document. But it also mentioned some shortcomings, including lagging innovation capability, core technology’s dependency on foreign companies, lagging information infrastructure in rural and poor regions, and the risk of a widening digital gap.

Build a Multilateral, Democratic and Transparent Internet Governance System

The 13th Five-Year Plan set development goals that will accelerate the transformation of government functions, streamline administration, and delegate authority. The aim is to provide better public services and improve administrative efficiency, as well as stimulate market vitality and social creativity. The plan has formulated 25 indicators in four categories. They include economic development, innovation-driven development, people's livelihood and welfare, and resource utilization and environmental protection. Among them, 13 binding commitments aim to constrain government intervention. In 2015, China finally abolished non-administrative license examinations and approvals. The pre-approval registration procedure was reduced by 85 percent, which streamlined the process for both individuals and enterprises. Surging entrepreneurial enthusiasm at all social levels was moreover apparent in the daily average of 12,000 newly registered enterprises. National Development and Reform Commission Chairman Xu Shaoshi holds that the constraint targets are basically to ensure that the government abides by its responsibilities. The anticipated targets, meanwhile, are the market and competitive arena in general. They are expected to achieve balanced, inclusive, and sustainable development. Chairman of Hubei Huitian Adhesive Industry Corporation Zhang Feng welcomed the new policy and the eradication in Xiangyang, Hubei Province of administrative approval and enterprise registration service fees. This will promote private company development and bolster the local economy. The State Council forwarded a guideline issued by the Ministry of Human Resources and Social Security for training civil servants in administrative departments during the 13th Five-Year Plan period (2016-2020). The guideline requires every civil servant in administrative departments to attend training sessions of no less than 12 days or 90 class hours (separate provisions for civil servants taking on leading posts). By 2020, the attendance rate and quality of the training should be further enhanced, with online training becoming a major method, and classified trainings making breakthroughs. According to the guideline, the training should contain the education of beliefs and ideals including core socialist values and Party policy, and of professional ethics, which is part of the compulsory subject for taking office and on-the-job training of civil servants. Meanwhile, it includes leadership training through improving management and working methods, and training for promoting legal literacy to help them administrate by law. It also contains vocational training and training of science and humanities knowledge.

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It also encourages taking advantage of modern information technology and various resources to promote online training for civil servants at administrative departments, and establishing online training platforms for courseware development and sharing.

Five space exploration plans to be accomplished

The Chinese Academy of Sciences' National Space Science Center has officially unveiled five space exploration plans to be accomplished during the 13th Five Year Plan period (2016-20). These include an Einstein Probe satellite that will carry two X-ray telescopes of differing sensitivities to search for black holes, gravitational waves, gamma-ray bursts and other phenomena; an Advanced Space-based Solar Observatory to study the relationships between solar magnetic fields, solar flares, and coronal mass ejections; a Water Cycle Observation Mission to improve scientists' understanding of the spatial and temporal distribution of the water cycle and related physical processes, as well as how the water cycle responds to global changes; the Magnetosphere-Ionosphere-Thermosphere Coupling Small Satellite Constellation Exploration Plan, comprised of four small satellites in different orbits that will traverse the polar regions at the same time but at different altitudes, in order to study the outflow of ions from the ionosphere to the magnetosphere; and the Solar Wind Magnetosphere Ionosphere Link Explorer, a joint project between the Chinese Academy of Sciences and European Space Agency to study the interaction between Earth's magnetosphere and the solar wind, while simultaneously monitoring the magnetosphere's plasma environment. The National Space Science Center also began soliciting research ideas from all space science-related institutes across China on Thursday. Researchers have until the end of December to make a submission. After the first round of expert review, the ideas with the best prospects will receive grants from the center for up to six months of in-depth study to draw up detailed research plans. Some of these could then be chosen as candidates for the country's 14th Five Year Plan (2021-25) or 15 Five Year Plan (2026-30) on space exploration.

Measures to Revitalize China’s Northeast

During the 13th Five-Year Plan (2016-20) period, whether the region will gain from the new “technological revolution” and rising nationwide consumption will depend on whether it can transform the State-owned sector’s production-based economy to services-oriented manufacturing. Efforts will be made to transform government functions, further promote streamlining administration and delegating powers to lower-level governments, and optimize public service reform in Heilongjiang, Jilin, and Liaoning provinces. To optimize investment and business environment in the region, negative lists will be established regarding management of enterprise investment projects and market access. Reform will be carried out in the region’s State-owned enterprises, with pilot projects being implemented and cooperation with local governments strengthened. Each province of China’s Northeast region will select 10 to 20 local State-owned enterprises to carry out

34 www.followcn.com pilot reforms in mixed ownership. Private economy will also be promoted, and efforts will be made to create a favorable environment regarding policy measures, market, finance, innovation, and law, enhancing private enterprises’ confidence in development. By the end of June 2017, at least one private bank will be established in Northeast China. Traditional industries will be further upgraded, and efforts will be made to implement pilot projects for “Made in China 2025”, increasing high-level manufacturing and promoting international cooperation. Premier Li Keqiang has called on SOEs (State-owned enterprises) in the region to advance reform and speed up transformation and upgrades. The efforts include issuing specific work plans, supporting parts of central SOEs to test mixed ownership, promoting the private economy, and selecting a batch of good projects to implement the PPP (Public-Private Partnership) pattern. What are the measures? 1) Build reorganization platforms; 2) Build innovation platforms; 3) Build international operation platforms; 4) Build a strong partnership; 5) Promote specialized restructuring; 6) Speed up integration of internal resources; 7) Initiate acquisitions and mergers; 8) Cut overcapacity; 9) Reinforced efforts to eliminate enterprises with long-term losses or have no way of making a profit; 10) Sideline businesses with no advantage for development to be stripped; 11) Resolve historical issues and separate social function from daily business.

State Council Issues Development Plan for Tourism

China will further improve its tourism market during the period of the 13th Five-Year Plan as tourism becomes one of the pillars of China’s strategic industries, according to a plan issued by the State Council on Dec 26, 2016. In 2015, the tourism industry made a contribution of 10.8 percent of the nation’s economy and China became the number one country for outbound tourists and ranked fourth in terms of inbound tourists, according to the plan. In addition, the tourism industry contributed to 10.2 percent of the nation’s employment during the 12th Five-year Plan period. The plan laid out the development goal for the tourism industry during the period of the 13th Five-Year Plan, aimed at reaching annual increases in number of tourists, tourism revenue, and tourism investment of 10 percent, 11 percent, and 14 percent, respectively. Tourism investment will reach 2 trillion yuan ($280 billion) and total revenue in the industry will reach 7 trillion yuan by 2020.

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According to the plan, the tourism industry will contribute 12 percent of the nation’s economy and more than 85 percent to sectors such as catering, hospitality, civil aviation, and railway passenger transportation. Boosted by increasing consumption needs of diversified and high-quality tourism, the development of the tourism industry will have in-depth integration with industries such as agriculture, technology, culture, sports, and health. Innovation will be carried out in the tourism industry to provide people with more high-quality and specialized choices, including countryside tourism, red revolution tourism, automobile tourism, maritime tourism, ice-snow tourism, and low-altitude flight tourism. The development of the tourism industry should be coordinated with urbanization, industrialization, modernization of agriculture, and improvement of modern service industry, according to the plan. The circular also called for building new-type tourism function areas, such as regional tourism city clusters (like Beijing-Tianjin-Hebei, Yangtze Delta, and Pearl River Delta), cross-regional tourism function areas with local characteristics (like Shangri La ethnic culture tourism area and Changbaishan forest ecological area), national competitive tourism belts (like Silk Road tourism belt and Qinghai-Tibet railway tourism belt), and national scenic roads (like Sichuan-Tibet Highway and Grand Canal scenic roads), and featured tourism destinations (like sea islands and grassland). Related infrastructure construction is also expected to be improved and strengthened, including renovation of public facilities in rural areas, tourism transportation, and tourism-related public service system. Meanwhile, the quality of restaurants, new-type accommodations such as car camps and tent hotels, travel agencies, and tourism shopping should also be promoted and improved, according to the circular. Additionally, the document urged promoting openness and cooperation in the tourism industry by carrying out One Belt, One Road international tourism cooperation, boosting inbound tourism, increasing tourism with Hong Kong, Macao and Taiwan and orderly development of outbound tourism. In order for the industry’s development to benefit more people and encourage the public to participate in the industry construction, rural tourism anti-poverty projects and tourism entrepreneurship and employment actions should be implemented. A total of 22,600 impoverished villages will be lifted out of poverty, and service platforms for tourism innovation and entrepreneurship will be built thanks to such efforts, and various tourism industrial incubators are encouraged to start construction. Efforts should also be made to regulate the tourism market through innovating supervision mechanism, improving tourism credit system, promoting rational consumption and enhancing civilized tourism, said the circular.

Chinese Government Plans to Eradicate Poverty by 2020

Over the past three decades, more than 600 million Chinese people were lifted out of poverty, about 70 percent of the world’s total. China became the first developing country to meet the millennium development target. For coming years, the government has named poverty reduction as one of its top

36 www.followcn.com priorities, vowing to help the remaining 70 million poor people, who live below the poverty line of 2,300 yuan in annual income, shake off poverty and enjoy essential social services by 2020. 1.3 million of these came from Southwest China’s Guizhou province — which has a population of about 35 million. Twenty-one provinces in China have counties below the poverty line, which means the average annual salary of its population is below 2,300 yuan. The provinces of Yunnan, Shaanxi, Guizhou, and Gansu, as well as the Tibet autonomous region have the most pressing poverty concerns. However, the Chinese government is planning to spend up to 100 billion yuan to eradicate poverty across the country by 2020. By the end of 2015, there were still 14 contiguous poor areas with special difficulties, 832 impoverished counties, 128,000 registered poor villages, and 55.75 million people living in poverty — this is the equivalent of the entire population of a medium-sized country. Poverty is so widespread that it has seriously hindered the fulfillment and enjoyment of human rights; reducing and eliminating poverty is therefore a major element of human rights protection. In 2016 the Chinese government has initiated a new round of resettlement programs for its impoverished population. In 2015, the number of recipients of rural subsistence allowances was 49.04 million, with the standard raised from RMB143 per person per month in 2011 to RMB265. In 2016, the state has strengthened the initiative, planning to increase the average household income of two million households registered with incapacity (including disabled persons) to RMB3,000 and above by 2020. This will involve 35,000 registered villages in 471 counties of 16 provinces and autonomous regions. During the 12th Five-Year Plan period, the impoverished population of the five autonomous regions (Inner Mongolia, Guangxi, Tibet, Ningxia, and Xinjiang) and the three provinces with concentrated ethnic minority groups (Guizhou, Yunnan and Qinghai) had dropped from 39.17 million in 2011 to 18.13 million, a decrease of 21.04 million, down 53.7 percent. The poverty incidence declined from 27.2 percent to 12.4 percent, down by 14.8 percentage points. In impoverished areas, risks have been mitigated for more than 7,700 dangerous reservoirs and dangerous large and medium-sized sluices, more than 3,900 kilometers of river embankments have been built or reinforced, and 14,500 kilometers of new medium and small rivers have been improved. Over the recent decades, the Chinese government has persevered in its attempts to eliminate poverty, improve people’s well-being, and gradually realize common prosperity. It has made continuous development- oriented poverty-reduction efforts in rural areas to help those who are striving to escape from poverty and improve the quality of their lives. At the Fifth Plenary Session of the 18th CPC Central Committee held in October 2015, the CPC further specified the task of eliminating rural poverty and rehabilitating all impoverished counties by 2020. By 2020, the state is committed to ensuring that the impoverished rural population

37 www.followcn.com has stable access to adequate food and clothing, compulsory education, and basic medical services and housing. The central government initiated the “businesses-help-villages” program last year. So far, more than 22,000 companies have paired with around 21,000 villages, investing in projects and creating jobs. A total of 68 central government-owned enterprises have carried out a campaign in the 108 counties in the disadvantaged former revolutionary base areas with which they are paired, helping more than 10,000 poor villages address water, electricity, road and other infrastructure problems. The “10,000 enterprises assisting 10,000 villages” campaign was launched, in which private enterprises help targeted poor villages, with Wanda, Evergrande, and some other private enterprises taking the lead in pairing up with poor counties to engage in poverty alleviation actions, and Suning and Jingdong and other e-commerce enterprises becoming actively involved in poverty alleviation. The People’s Liberation Army and the Chinese People’s Armed Police Force have set up over 26,000 contact outposts in 401 townships of 35 counties with which they are paired, and helped 3,618 poor villages there.

Entrepreneurship Advocated in the Drive of Innovative Creativity of All

With the publication of the government’s 13th Five Year Plan, the Chinese Premier has called on the nation to embark on a drive of “With the spirit of innovative creativity, everyone can be an entrepreneur” in the coming years. When “make-more-money” becomes a national policy initiated by the central government, many problems will occur. Mobilizing the whole country for the cause of economic development might bring about fast results in material gains and in upgrading the livelihood of its people in financial terms. But we shall value a society of diversity. A good society shall not honor too much of materialization. We shall also have poets, artists, philosophers or even great thinkers, in addition to craftsmen, businessmen, merchants and traders. We have already seen public education in China changed into a business, and public hospitals too. This shall have serious social consequences. Profit-driven industrialization, urbanization and mercantilism has resulted in pollution, environmental destruction, as well as moral degradation all across China.Many people have warned about this mode of development. Some experts have warned of problems emerging along with changing life styles and expectations, particularly because social change lags behind economic modernization. China's Five Year Plans have undoubtedly mobilized vast resources, particularly to build new infrastructure. A 2016 study from University of Oxford's Saïd Business School, for example, found that thanks in large part to targets set in Five Year Plans, China is the world’s biggest spender on fixed assets in absolute terms. China spent US$4.6 trillion in 2014 accounting for 24.8 per cent of worldwide total investments and more than double the entire GDP of India. By way of comparison, China’s total domestic investment was merely 2.1 per cent of the world total in 1982. China has been in the grips of the biggest investment boom in history for over 15 years. However, the study also found that over half of the infrastructure investments in China have destroyed, not generated economic value.

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The study – authored by Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn – is based on an analysis of 95 large Chinese road and rail transport projects and 806 transport projects built in rich democracies, the largest dataset of its kind. ‘From our sample, the evidence suggests that for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate, which means the projects destroy economic value instead of generating it,’ comments Dr Atif Ansar, co-author of the study. The Chinese capital has for many years suffered from serious air pollution. Primary sources of pollutants include exhaust emission from Beijing's more than five million motor vehicles, coal burning in neighboring regions, dust storms from the north and local construction dust. Not only Beijing, for many days in 2016, all major cities across northern China choked under a blanket of smog so thick that industries were ordered shut down and air and ground traffic was disrupted. A Xinhua news reports stated: “As Beijing enters the fifth day since a red alert for air pollution was issued, severe smog lingers in the city and continues to plague people's lives. From the top of a hill in Jingshan Park, usually a perfect spot for views of the Forbidden City, flocks of tourists wearing masks try to make out the imperial palace, but it is hidden in dense smog. The smog has become such a common occurrence that many have given up hope that anything can be done about it.”

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Chapter Four

Science & Technology in China: A Roadmap to 2050

On June 10, 2009，the Chinese Academy of Sciences released a strategic research report entitled “Innovation 2050: Scientific Revolution and Future of China.” Over 300 experts from the Academy spent over one year to develop the report. The report produced a road map for China’s science and technology development till 2050. The report is composed of one general report and 17 sub reports that deal with 17 specific issues. The reports mainly covers 18 areas and 22 strategic key points in science and technology. These 18 areas include the space, human health, energy, minerals, water resources, the environment and ecosystem, agriculture, the oceans, advanced materials, regional development, information, high-end manufacture, public security and others. "China can not simply copy other countries' model of development of science and technology," Lu Yongxiang, president of the CAS, said, noting that the country must try to probe for a creative road in science and technology with China's own characteristics. He went on to outline eight social and economic systems that the country shall construct to realize its goals with this roadmap. These systems are: 1) sustainable energy and resources system; 2) new material and green manufacture system; 3) information networking system; 4) ecological higher value agriculture and bio-industry system; 5) health insurance system; 6) ecology and environment preservation and development system; 7) space and ocean system; 8) national and public security system.

China has witnessed major developments in technology improvements, such as manned space flights and lunar probes, manned deep-sea submersible, deep earth exploration, super computers and quantum communication. In 2015, nationwide expenditure on scientific research and experiments totaled 1.42 trillion yuan ($213.4 billion); it accounted for the world’s second largest number of published international science and technology papers; and the national comprehensive innovation capabilities ranked 18th in the world. In addition, the contribution rate of technology to economic growth increased from 20.9 percent in 2010 to 55.3 percent in 2015. The country has a plan to support Beijing and Shanghai to build scientific and technological innovation centers with international clout, set up a batch of innovative provinces and cities and regional innovation centers, promote the innovative development of national innovation demonstration zones as well as new and hi-tech development zones.

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China’s Space Program and its Technologies

China may be the only country to have space station in service in 2024, said Lei Fanpei, chairman of China Aerospace Science and Technology Corporation (CASC). Lei told that China plans to launch the experimental core module of its space station around 2018 with a Long March-5 heavyload carrier rocket, and the 20 ton combination space station will be sent into orbit around 2022. The 2050 Roadmap includes three strategic targets of Space Science and Technology: 1) Space Science targets major breakthrough in frontier scientific areas such as black holes; 2) Space Application targets earth observation infrastructure; 3) Space Technology targets bottleneck technologies such as high resolution and high precision time space datum, miniaturized and self-guided spacecrafts, and manned space missions. The China Manned Space Project announced that the manned space station project has officially started. A large scale, national level manned space laboratory is expected to be established around the year 2020. The project is divided into two phases. Phase one is to launch a space laboratory before 2016. Phase two is to launch the Core Cabinet and the Lab Cabinet to complete the space station by assembling the two together “in-orbit.” The Chinese Academy of Space Technology (CAST) has revealed China’s plan for exploring Mars. The plan is mainly based on the technologies used in the Chang-E Moon Satellite Platform. According to CAST experts, the Chinese plan reached a pretty high level compared to Mars exploration plans developed outside of China in recent years. Experts also indicated that the Chinese space activities targeting Mars will increase China’s power in the deep space technology race and shorten the distance from leading countries. This is considered the mission of the future Chinese space technology development. China's experiment in human living for space exploration is going smoothly. Four volunteers started a 180-day experiment in June 2016 in a sealed space capsule, testing technology that will be used in deep-space exploration. The experiment examines how oxygen, water and food can be used and reused in space. The ACC has used Mars time with 24 hours and 40 minutes in a day in the experiment since August 26. Scientists are also examining the physiological changes and emotional fluctuations brought by a hermetic environment. A total of 25 kinds of plants in the capsule as part of a larger ecological treatment system are also growing well.

China to Establish its Own GPS by 2020

China has launched its first centimeter-level positioning system, which can significantly improve the accuracy of its domestic navigation satellite system. Kuilong, the new positioning system, is a crucial part of the country's BeiDou Navigation Satellite System (BDS). By calculating and analyzing data received from over 300 satellite

41 www.followcn.com navigation stations worldwide, the system can precisely calibrate orbit and clock errors, which are the main factors disrupting positional accuracy, according to CASC in November 2016. According to Qi Faren, an expert in Chinese space technology, China will establish its own global navigation system, called Beidou-2, by 2020. It will be done in three steps. The first step is to build a regional navigation system. This has already been completed through the launch of the first Beidou system, officially called the BeiDou Satellite Navigation Experimental System, also known as Beidou-1. Beidou-2 will be completed in the second and third steps. The second step is to launch about 12 to 14 satellites in the early part of the twelfth five-year plan period (2011 to 2015) to form a regional and autonomous navigation positioning system. The third step is to have over 30 satellites covering the entire earth by 2020. Beidou-2 will provide navigation services to China and its neighboring countries, said Qi. “Beidou-2 will be the equivalent of the U.S. GPS. Wherever the U.S. GPS is used, one will be able to use Beidou-2.” Sun Jiadong, an Academician at the Chinese Academy of Engineering, gave a speech at the Shanghai Expo in May 2016. Sun is the Chief Architect and Designer of China’s self-developed GPS system – the Compass Navigation Satellite System (CNSS). Sun emphasized a unique feature that all other GPS systems do not have: CNSS allows ground devices to transmit short text messages to the satellites, thus establishing two-way communication. Sun also mentioned that although the CNSS is being built rapidly, the real world usage, or even preparation for usage, is minimal. Other than some central government branches, the entire domestic market is still asleep. The Chinese market is still dominated by foreign technologies and products. He believed that the general public needs to be educated about the Chinese space industry’s achievements. China is making a full out effort across China to provide a government-backed map service called “Map World” in order to compete with Google Earth. The Chinese mapping data was considered the confidential information of the military. "Map World" has a strong background. According to the State Bureau of Surveying and Mapping, the project is backed and supported by the Ministry of Land Resources, the Ministry of Public Security, the Ministry of State Security, the State Secrets Bureau, the PLA Secrets Office, the PLA’s General Staff Department, the Armed Police Headquarters, the Surveying and Mapping Bureau under the PLA’s General Staff Department, and other security and intelligence agencies. China aims to finish building satellite systems for remote sensing, communications and navigation before 2020, a national plan showed. The three satellite systems should be able to provide continuous and stable service, according to the plan for long-term development of civil space infrastructure posted on the website of the National Development and Reform Commission, the top economic planner.In the next decade, China will build civil space infrastructure featuring cutting-edge technology, independent development and control, and reasonable distribution and global coverage, the plan said. The three systems should meet demands for different industries and regions to support China's modernization drive, ensure national security and improve people's lives.Through the combined use of satellites from different systems or constellations, the

42 www.followcn.com country should be able to provide diversified, high-quality and reliable services to different industries. For remote-sensing satellite systems, the priority should be on development of land, ocean and atmospheric observation satellites with seven different satellite constellations.The system will meet the demands of various fields, including monitoring land and ocean resources, environmental protection, disaster relief, traffic, agriculture and weather forecasts.The communications satellite system will be used for broadband Internet, mobile telecommunications and live television broadcasts.

China's Secretive Space Program Threatens NASA's Dominance

The launch of the Shenzhou 11 spacecraft in western China in November 2016 marked another great leap forward for the nation’s space program and its ambition to send manned missions to the moon and, eventually, Mars. Yet more than national prestige is at stake: China is counting on its space program to pay huge economic dividends. China is NASA’s biggest rival in space exploration with plans to land “taikonauts” on the moon by 2036 and Mars thereafter. Along the way, President Xi Jinping hopes the space missions will spawn a wave of Chinese innovation in robotics, aviation and artificial intelligence, among other leading 21st-century technologies. China’s space program is generally shrouded in secrecy, yet Xi’s government is now reviewing a proposal by top researchers to triple investments into scientific missions, according to Wu Ji, director-general of the National Space Science Center. The hope is that advancements made while building new telescopes, monitoring Earth’s water cycles and improving satellite navigation will revive state-owned enterprises and inspire the startup of private ones. To get there, Wu and dozens of researchers asked the central government to boost investment into space science from the 4.7 billion yuan ($695 million) spent in 2011-2015 to at least 15.6 billion yuan in 2026-2030. That would trail NASA’s space science budget of about $5.6 billion, but a decade ago China spent zero on that effort, Wu said. The government instead poured money into projects with political significance or immediate practicality: rockets, military satellites and vessels for manned flights. "The development of space science is important for China," said Jean-Jacques Dordain, former director general of the European Space Agency. "Space is not only for governments and space fans anymore. It’s fully integrated in the economy." In 2020, China will launch a satellite to study the Earth’s water cycle by measuring soil moisture, ocean salinity and ocean surface evaporation. It’s one link in the Water Cycle Observation Mission, an effort with the U.S. and Europe to help forecast floods and droughts, and maintain food security, the academy said. "We are at the beginning," Wu said. "But this is a great cause, and nothing should stop China from becoming a power in the space industry." ( Bloomberg)

China Plans to Build New Comprehensive National Labs

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China is planning to build several comprehensive national laboratories. These facilities will further boost the country's scientific research prowess as well as support in carrying out large-scale projects. Work on the $1.5bn Beijing-based laboratory will start early 2017, while the Shanghai-based laboratory recently received approval from government funding agencies. Covering an area of 13 km2 on the outskirts of Beijing, the new national lab will comprise three major research facilities: the Synergetic Extreme Condition User Facility (SECUF), the Beijing Advanced Photon Source (BAPS) and the Earth System Simulator. It will also feature five “research platforms” that focus on accelerator technology, clean energy, materials genome, environment science and brain science. The SECUF, of which Ding is project manager, will include a dozen instruments – including transmission electron microscopes – that can operate at low temperatures, high pressures and high magnetic fields. BAPS, meanwhile, will be one of the most powerful X-ray synchrotron radiation sources in the world once complete in 2022. According to Ding, almost half of the ¥10bn will go towards building BAPS. Located on the outskirts of Shanghai, the Zhangjiang Comprehensive National Science Center will be designed within the national lab framework and received the green light in February from China’s National Development and Reform Commission and the Ministry of Science and Technology. Other national labs will be set up in other parts of China, too, including in Hefei – home to China’s first synchrotron radiation facility and the Experimental Advanced Superconducting Tokamak – as well as in Guangdong province, which harbours the Daya Bay Neutrino Experiment and the upcoming China Spallation Neutron Source.

China's Giant Telescope may Lead to Discoveries Beyond Wildest Imagination

The world's largest radio telescope was put into use on September 25 2016 in a mountainous region of southwest China's Guizhou Province. The 500-meter Aperture Spherical Radio Telescope (FAST) may help better understand the origin and structure of the universe and accelerate and even revolutionize the search for life beyond Earth, a renowned U.S. alien intelligence expert said. The telescope, nicknamed Tianyan, or the Eye of Heaven, can accurately image twice as much the sky as the Arecibo Observatory in Puerto Rico, which had previously been the world's largest single-dish radio telescope, with double sensitivity and five to 10 times the surveying speed. Work on the nearly 1.2-billion-yuan (180 million U.S. dollars) project started in 2011, 17 years after it was proposed by Chinese astronomers. As for FAST's scientific missions, Vakoch said it will be used to look for the signatures of complex organic molecules in interstellar space, which will show how widely the basic building blocks of life are distributed throughout the cosmos. FAST is believed to be the world's most sensitive radio telescope. Engineers have said it is so sensitive it could capture the signal of a cell phone being used on the moon.

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The telescope is expected to discover twice the number of pulsars as are currently known and its is highly likely to make breakthroughs in the study of gravitational waves and general relativity theory, said Sun Caihong, its deputy chief technologist. The telescope's chief technologist, Wang Qiming, said FAST, designed and built by Chinese scientists, will remain the global leader for the next 10 to 20 years. "FAST's innovative design and huge collecting area give it unsurpassed speed and sensitivity, making it vital to the search for extraterrestrial intelligence in the coming decades," said Vakoch. "We can expect China to become a world leader in the search for extraterrestrial intelligence because of its demonstrated commitment in building FAST." "With the opening of FAST, China continues to demonstrate that it is a world leader in space exploration, now from an Earth-based observatory as well as from space," he added. "Astronomers around the world can be grateful to China for creating an observatory that may lead to discoveries beyond our wildest imagination."

Mars Probe to be Launched in 2020 China on August 23 2016 released images of a Mars probe and rover which the country plans to send to the Red Planet within five years. China plans to send a spacecraft to orbit Mars, make a landing, and deploy a rover in July or August 2020. According to Ye Peijian, one of China's leading aerospace experts and a consultant to the program, the 2020 mission will be launched on a Long March-5 carrier rocket from the Wenchang space launch center in south China's Hainan province. The lander will separate from the orbiter at the end of a journey of around seven months and touch down in a low latitude area in the northern hemisphere of Mars where the rover will explore the surface. Images displayed at the press conference showed a device with six wheels, powered by four solar panels, two more than the rover sent to the moon. Weighing around 200 kilograms, it is designed to operate for three Martian months, according to Sun Zezhou, chief designer of the probe. The probe, for its part, will carry 13 payloads including a remote sensing camera and a ground penetrating radar which could be used to study the soil, environment, and atmosphere of Mars, as well as the planet's physical fields, the distribution of water and ice, and its inner structure. China is planning to launch a Mars probe in the year 2020 to carry out an independent exploration of the Red Planet . "Consensus has been reached among policymakers and leading scientists," said Ye Peijian.

Quantum Communication: a Step Closer to Studying Einstein's Confusion

The imminent launch of the world's first quantum communication satellite is widely believed to herald a breakthrough in China's development of quantum technology. Mysterious and confusing, the study of minute particles smaller than atoms has been applied in fields as diverse as computer processing, lasers and nuclear technology. Scientists say that a problem that takes Tianhe-2, one of the fastest super computers in China, 100 years to solve might take a quantum computer just one hundredth of a

45 www.followcn.com second. In July 2015, a quantum-computing lab jointly established by Chinese Academy of Science and Chinese Internet giant Alibaba opened in Shanghai. The lab is expected to produce a general-purpose quantum computer prototype with 50 to 100 quantum bits by 2030. Such powerful computing ability is also viewed as a threat in that it could make everything on a conventional computer hackable. However, like a coin with two sides, quantum mechanics also serves as protector of information. Quantum key technology boasts ultra-high security as a photon can be neither separated nor duplicated, so it is impossible to wiretap or intercept the information transmitting through it. The satellite is designed to establish "hack-proof" quantum communications by transmitting uncrackable keys from space to the ground, and provide insights into the strangest phenomenon in quantum physics -- quantum entanglement. If the satellite works well, it will pave the way to a hack-proof communication system. Meanwhile, China will complete and put into operation the world's first secure quantum communication backbone network, the Beijing-Shanghai backbone network, later this year, according to Pan Jianwei, academician of Chinese Academy of Science and chief scientist of quantum communication satellite project. The 2,000-kilometer backbone network will be used in the fields of finance, electronics and government affairs.

China's "Man-made Sun" Sees Groundbreaking Progress

A team of Chinese scientists in Hefei, capital city of east China’s Anhui Province, has made an unprecedented breakthrough on an energy generation device that will make it one step closer to transform energy into stable, sustainable and controllable resources. The Experimental Advanced Superconducting Tokamak (EAST) fusion device, nicknamed "artificial sun", made a 102-second long pulse plasma discharge at over the central electron temperature of 50 million degrees in Hefei at the end of January, 2016. This is the longest plasma discharge time recorded in all the Tokamak fusion devices in the world. The light and heat of the sun come from two of hydrogen's family members: deuterium and tritium. These release a huge amount of energy during the process of fusion into a helium atom. The artificial sun imitates this fusion process. Led by the Chinese scientists at the Institute of Plasma Physics under the Chinese Academy of Sciences in Heifei, the EAST fusion device has made it one step closer to the goal of 1000-second long pulse plasma discharge at over the central electron temperature of 100 million degrees. The name “artificial sun” was given because the aim of the device is to generate energy like the sun. Under high pressure and high temperature, fusion reactions will take place from inside to outside of the sun. Such fusion reactions will give rise to a great deal of energy to enable to sun to continuously emit light and heat. However, fusion reactions on the sun are uncontrollable and destructive, just like h-bomb explosion seen on the earth. EAST serves to transform such energy into a stable, sustainable and controllable

46 www.followcn.com resource. The hydrogen isotope extracted from one liter of seawater can produce energy equivalent to 300 liters of gasoline through complete fusion reactions.

Special Projects Initiated for Strategic Leading Technologies

According to CAS, special projects will be initiated in six to eight strategic leading technologies such as advanced nuclear fission, energy, and space science. These initiatives are aligned with the CAS Road-map to 2050 and are a part of the “Innovation 2020” plan. The goal of these initiatives is to make breakthroughs in each of these areas and to stimulate technological as well as industrial innovations. With a goal of completion in ten years, “Innovation 2020” is designed to enter the global cutting edge of strategic technology, build a high-end talent pool, and establish innovative platforms. It is planned that, by the end of 2020, China will be the world leader in all mainstream scientific fields, such as chemistry, physics, and mathematics. Xinhua recently reported that China is actively planning to build several national labs in some areas of key innovation. This is considered a major change in the Chinese national science research structure. The Chinese Academy of Science just hosted a forum with well-known national lab managers from the U.S., Germany, Britain, Switzerland, Italy, Japan, and Singapore. China’s plan is to concentrate the nation’s talent in the establishment of a series of cross-field and integrated research bases, which are aligned with China’s national goals and strategic needs. The large-scale and comprehensive national labs are first set to establish the Comprehensive Experimental Device in Extreme Conditions, Advanced Light Sources, and the Digital Earth Simulation System. The planned national labs will also cover the research areas of clean energy, materials genome, environmental science, brain science, accelerators and X-ray technologies. The mission of the labs is to address science and technology related needs that may impact national security or national economic and social development. The road map outlined six strategic paths to transform China from a bio-resource large country to a bio-resource and bio-economy super power. 1) Photosynthesis mechanism research and bio-plants’ light power utilization improvement, to achieve large scale application and commercialization of renewable bio-energy. 2) Bio-energy research and energy plant production base establishment, to achieve large scale commercial application of bio-energy, reducing oil imports by 30%. 3) Development and utilization of micro-organisms and related industry chains. 4) Sustainable development and usage of strategic bio-resources. 5) Gene sequence and gene resources research. 6) Bionic material and technology research. China to Build More Supercomputers

According to the International Supercomputing Conference, China has 167 of the world's top 500 supercomputers. China has unveiled its fastest supercomputer, known as a petaflop. At its peak speed, it can do more than one quadrillion calculations per second. The birth of the supercomputer, named "Tianhe," which means "Milky Way," makes China the second

47 www.followcn.com country, after the United States, to build a petaflop computer. This gigantic device can do as many calculations in one day as those done by an ordinary dual-core personal computer in 160 years, said Li Nan, director of the Tianhe Project Office under the National University of Defense Technology, developer of the supercomputer.The supercomputer has many practical applications, and will be used in seismic data processing, for oil exploration, bio-medical research, development of aerospace vehicles, long-term weather and climate forecasting, financial data analysis and pollution control in the Bohai Sea area. China has started to build a prototype supercomputer system with an estimated peak performance of over 1,000 quadrillion calculations per second, ten times that of the current fastest computer. The exascale supercomputer is being developed by the National Research Center of Parallel Computer Engineering & Technology (NRCPC) and will be installed at the National Supercomputing Center in Jinan. The project follows the announcement of China's independently developed Sunway Taihulight as the world's fastest supercomputer in June at the 2016 International Supercomputing Conference in Germany. China to Begin Building two Research Vessels

China will start building research vessel Dayang Erhao (Ocean No.2) and a mother ship for manned submersible Jiaolong, both expected to be put into service in March 2019. The China Ocean Mineral Resources R&D Association on Friday signed contracts with two ship manufacturers to begin construction on the research vessels with plans to finish the projects in about 28 months. According to the association, the Dayang Erhao will have a displacement of 4,000 tonnes and measure 98 meters long and 17 meters wide. It will contain more than 400 square meters of laboratory space be equipped with over 70 types of research devices. Dayang Erhao will be capable of conducting scientific missions, including seabed, water and atmospheric research, deep-sea extreme environment detection, as well as observations on marine geology and ecology. The new mother ship, with a displacement of around 4,000 tonnes, is designed to provide support and maintenance to Jiaolong's deep sea diving tasks. At 90.2 meters long and 16.8 meters wide, the mother ship will have different types of laboratories filling more than 300 square meters. The mother ship's research system will be able to complete exploration tasks for Jiaolong's diving activities as well as process and conduct on-site analysis of data and samples. China is playing a more important role in global research on ocean and climate change. The Chinese deep-sea research ship Zhang Jian finished a 74-day scientific research trip to the Southern Pacific in September 2016. The vessel is the mothership for the Rainbow Fish, a manned submersible capable of diving to 11,000 meters. During its 9,000 nautical-mile maiden voyage, the research vessel traveled across the South China Sea and the Pacific Ocean to reach the New Britain Trench, which is more than 8,000 meters-deep in the Solomon Sea near Papua New Guinea. Chinese scientists onboard the vessel carried out joint ocean environmental research with their counterparts in Papua New Guinea. Captain Zha Dawu said the vessel went through several typhoons, including

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Meranti and Malaka, and an earthquake, during the journey, which tested the ship's navigation performance and research facilities. China will launch key maritime, space and Internet projects for integration of the country's military and civilian resources in the next five years, a senior officer said. "China is on its way to building itself into a maritime, space and cyber power," said Xu Qiliang, vice chairman of the Central Military Commission (CMC), in a signed article in People's Daily. China plans to establish a remote-sensing satellite network with global coverage by setting up more ground stations overseas, a move that will facilitate public services in China and other nations. "China will next move to break the traditional dualistic structure that isolates the military from the civilian... while promoting joint construction and use of technology, talent and infrastructure," Xu said. The current Communist Party of China (CPC) leadership has promoted a national strategy of "deepening integration of military and civilian development" since it took the helm in late 2012. Goals for the strategy were outlined in a proposal adopted by the CPC late last month for China's next five-year development plan, saying a sound governing system, policies, rules, laws and plans should be put into place by 2020.

A Three-step Strategic Roadmap for Renewable Energy Resources.

As the world's largest developing country, coal consumer, and green house gas emitter, China is confronted with challenges that are more urgent and arduous as its transforms toward a clean and low-carbon energy system. The China 2050 High Renewable Energy Penetration Scenario and Roadmap Study set out to analyze the technical and economic feasibility of having high renewable energy penetration by 2050 based on economic, environment, and carbon emission constraints, and backcast the policies and programs needed at different points in time to make this a reality. The main goals of the study were to build a common vision among China’s key stakeholders for an energy system centered on renewables, and to design a strong model for a national energy strategy that could guide China’s future energy planning and policy development. The study results show that it is both technically and economically feasible for renewable energy to satisfy over 60 percent of China’s primary energy consumption and 85 percent of electricity consumption by 2050; and under the high renewable energy penetration scenario, China will be able to peak fossil energy consumption and carbon emission by 2025. Han Wenke, director-general of the Energy Research Institute under the National Development and Reform Commission, said: "By 2050, over one third of the country's total primary energy consumption should come from renewable energy. This is in line with the country's goal of fundamentally changing its energy consumption structure. This will contribute a great deal to environmental protection and help combat climate change." Han outlined three steps for achieving this 2050 target. By 2020, the country, through vigorously developing its renewable energy resources, should be able to supply the renewable energy equivalent of more than 600 million tons of standard coal to fuel its robust economic growth. This renewable energy should account

49 www.followcn.com for about 15 percent of the country's total primary energy consumption. By then, renewable energy will become an efficient supplementary energy source to the country's energy supply system. At the same time, the country will have developed mature renewable energy technologies and have created even greater scope for the further development of the sector. By 2030, renewable energy will hold an important position in the country's energy supply system and supply the equivalent to 1 billion tons of standard coal, accounting for about 20 percent of the country's primary energy consumption. By 2050, due to a dwindling supply of fossil energy resources, renewable energy will have further increased its share of the country's total primary energy consumption. Han foresees that, by this point, the country will be able to supply the renewable energy equivalent of over 2 billion tons of standard coal, accounting for more than one third of the country's total primary energy consumption. This will be a major boost for the country's bid to develop a sustainable energy supply system. Han is upbeat about the fulfillment of this strategic goal. On the one hand, China has a great potential for the large-scale development of renewable energy resources, he said. Of various renewable energy resources available, the country's estimated wind power resource could reach several hundred million kilowatts, whilst excellent solar power resource exists in almost every area of the country. Han said: "The solar energy absorbed by the land surfaces of the country is equal to about 1.7 trillion tons of standard coal each year." On the other hand, he said: "The country's continuous high economic growth and rise of the comprehensive power of the country, plus the opening up policy and substantial improvements to the manufacturing industry, have laid a solid foundation for us to catch up with the world renewable energy development trend. These factors have brought our development onto the fast track." Implementation of the country's renewable energy law has provided a legal guarantee for vigorous development of the industry. In the process of renewable energy development, wind power, solar power and bio-energy will play an important role, Han believes. According to another report by CAS, China will provide policy support to boost geothermal power exploitation and consumption during the 2016-2020 period. China is expected to more than triple its geothermal power consumption by 2020 to 72.1 million tonnes of coal equivalent from the current level. China consumed about 20 million tonnes of coal equivalent of geothermal resources for heating, power generation and other uses in 2015, official data showed. By 2020, geothermal power will likely account for about 1.5 percent of the country’s total energy consumption, helping to reduce carbon dioxide emissions by 177 million tonnes.

China to Build Antarctic Astronomical Observatory

China is near to building a South Pole Astronomical Observatory, according to four astronomers onboard the Chinese scientific icebreaker Xuelong (or Snow Dragon), which left the port of Shanghai for China's 33th Antarctic Expedition. China has sent astronomers to the region every year since 2007 to make

50 www.followcn.com preparations to build an astronomical observatory on Dome-A, the highest location in Antarctica, about 4,093 meters above sea level. China has built four research stations in Antarctica, such as Changcheng, Zhongshan and Taishan.The Chinese Antarctic Expedition first visited Dome-A in 2005, which is considered one of the best places on earth to set up an observatory as it stores climate information and atmospheric conditions for the entire globe. China built its first Antarctic expedition station -- Kunlun Station -- in 2009, about 7.3 km from Dome-A. It was in this station that preparations for building the Dome-A observatory were carried out. China has established an automated astronomical observation platform at Dome-A, and plans to build a high-elevation Antarctic Terahertz telescope, the world's newest far-infrared observatory. In their South Pole astronomical research, China's astronomers have cooperated with astronomers from the United States, Russia and Germany, such as in the observation of high-energy electrons based on data obtained from various Antarctic observatory facilities.

Tsinghua Biologists Solve Genetic Puzzle

A team of molecular biologists reported a milestone breakthrough in molecular biology and gene expression on August 23, 2015. Shi Yigong, dean of the School of Life Sciences at Tsinghua University, announced the findings following the publication of two papers in the U.S. journal Science. As DNA is no longer a mystery, many scientists have shifted their interest toward the manufacturing process － how the information stored in DNA is delivered to produce proteins with different functions, such as forming a person's skin, organs and hair. “The structure of the spliceosome represents a much greater challenge than the structure of the ribosome, for which three individuals in the past were awarded the Nobel Prize," Phillip Sharp, a 1993 Nobel Prize winner for physiology or medicine, said in an e-mail to Shi Yigong, which the university released to China Daily. "The structure of the spliceosome was solved completely by Chinese scientists using state-of-the-art technologies," he said. "It's a milestone achievement in Chinese life sciences, and it will encourage the next generation to enter the field and target the most challenging and highest-impact projects with the knowledge that Shi's laboratory took on an impossible challenge and succeeded on a world stage." Compared with his competitors in the international science community － seven world-class labs, including in the US, the UK and Germany－Shi was lucky to be the one who made the breakthrough. "I can't explain why we were the first team to find the structure of spliceosome," he said. "One possible factor is that my students, all young and outstanding, bravely changed some internationally used arithmetic, while another could be that we've been doing the research with cryoelectron microscopy －the right equipment capable of observing such complex structures."

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Chapter Five

Plans to Improve Environment and Climate Change

China will strengthen efforts to improve environment quality and enhance environment governance during the 13th Five-Year Plan period (2016-2020), according to a plan issued by the State Council on December 5, 2016. Improving the environment is one of the major issues for the world’s second-largest economy as the nation now focuses on the significance of both economic and environment improvement. Industrialization, urbanization, and agricultural modernization will expand further during the 13th Five-Year Plan period, which is also a crucial time to improve the environment. The major target of the plan is to actualize an overall improvement of the country’s environment with green practices in production and daily life, less pollution, and stable biological diversity. To enhance green development, efforts will be made to promote supply-side structural reform, reducing outdated overcapacity and improving energy efficiency. Technology innovation will play a leading role in green development and environment protection. Coordination of green development among different regions will be done across the nation, and international cooperation such as green construction of the Belt and Road initiative will also be carried out. Action plans will be made to deal with air, water and soil pollution. For example, air quality information from each province will be released regularly, and air pollution predictions will be shared across the country. A unified plan, standards, regulation, and management regarding air pollution control will be set among the regions of Beijing-Tianjin-Hebei, Yangtze River, and Pearl River Delta. A special campaign will be rolled out nationwide to monitor and curb emissions of industrial pollutants with technologies in place for enterprises to treat pollution, and failing to meet standards will result in fines and be made public. Meanwhile, efforts should be made to enhance infrastructure, with sewage treatment available in all counties and major towns by 2020. Goals for waste treatment are 95 percent for urban areas and 90 percent for rural areas. Clean energy projects will be made a priority, and the share of coal in total energy consumption will be reduced to 58 percent or lower by 2020, leading to a more clean approach. Rural environment will continue to improve, as more efforts will be concentrated on waste treatment, contamination prevention in poultry farming, control of agricultural waste, and better utilization of straw. Environment risks will be under routine management, with strict controls on hazards from heavy metals, dangerous chemicals, nuclear materials and radiation, safeguarding

52 www.followcn.com the ecosystem and society. During the 13th Five-Year Plan, more work will be done to protect ecological security. The nation will build several ecological shields to safeguard regional environment, including the Qinghai-Tibet Plateau ecological zone, the Loess Plateau-Sichuan-Yunnan ecological zone, and the northeast forest zone. Major ecological areas will be under better protection and management, and new national parks will be built. At the same time, the nation will step up efforts to protect forests, grassland, and wetlands. In the next five years, more grain plots and pastures will be returned to grassland, and 14 million hectares of forests will be planted, providing 95 million cubic meters of timber each year. While limiting and controlling soil erosion and desertification, the nation will continue to promote the green industry, restore urban ecosystems, and protect natural landscapes and biodiversity. Rule of law and the market will be improved and highlighted to fight illegal actions, and efficiency of environmental protection will be improved by leveraging all related parties. Local governments, enterprises and the general public will be mobilized into the environmental protection effort through various system arrangements, including lifetime accountability, emission permits, and promotion of green consumption.

China's Pledge to Tackle Climate Change Forcefully

China’s Minister of Environmental Protection Chen Jining has called for tough and targeted measure to ensure sound air quality in the first quarter of 2016, the remaining winter season. The minister listed several “feasible” measures for the goal, such as conducting regular inspections over companies and vehicles with excessive emissions, better monitoring major pollution sources and improving forecast. China's climate change targets for the next couple of decades will ensure its accumulative carbon dioxide emissions are less than the United States and Europe by 2030, according to Zou Ji, vice director of the National Center for Climate Change Strategy and International Cooperation (NCSC). He said the recently pledged targets were appropriate, and in line with the UN Framework Convention on Climate Change. These ambitious targets include an up to 65 percent reduction in carbon dioxide emissions per unit of gross domestic product (GDP) from the 2005 level by 2030, and achieving a peak in carbon dioxide emissions around 2030. "Developed countries' carbon dioxide emissions peaked when per capita GDP was between 20,000 and 25,000 U.S. dollars, while China will peak when its per capita GDP is between 14,000 and 15,000 U.S. dollars, around 2030," Zou said. He predicts China's annual per capita carbon dioxide emissions' peak will be no more than 10 tonnes, about half the level in the United States. "China is doing its utmost while playing to its own strengths in fighting climate change," he said. China aims to reduce carbon emissions by an average annual rate of 3.6 percent to 4.1 percent between 2005 and 2030, a faster rate than the United States and EU, NCSC

53 www.followcn.com director Li Junfeng said. According to a Xinhua report, soot aggregates are the most harmful matter in PM2.5, a group of Chinese scientists revealed.Of the four main categories of PM2.5, fluffy soot aggregates are highly adhesive and cause the most irritation, making them the most harmful to the human body, experts from the College of Engineering of Peking University (CEPKU), Soochow University and Chinese Center for Disease Control and Prevention found in a recent study. When soot aggregates come in contact with the human body, their high adhesiveness prolongs contact between skin and pollutants, said Duan Huiling, a dean from CEPKU. Based on this, scientists came to the conclusion that carbon-rich fluffy soot from incomplete combustion of hydrocarbons produce the most harm, Duan said. Particulate matter with an aerodynamic diameter of 2.5 micrometers or less, known as PM2.5, has long been a major concern for China in terms of air pollution, especially in metropolises such as Beijing and Shanghai. The China’s national Energy Research Institute, the China State Grid Energy Research Institute and partners released a study envisioning that renewable energy sources (RES) could represent 53% of China power mix in 2030 and 86% in 2050, under the high RES penetration scenario. Wind and solar would be the two major pillars of the RES power production surge, contributing to drastically reduce the coal consumption from 3,500 TWh in 2011 to 1,000 TWh in 2050. Meanwhile, wind energy generation would rise from 97 TWh in 2011 to 5,350 TWh in 2050 and solar from 5 TWh in 2011 to 4,310 TWh to 2050. As a consequence, the CO2 emissions would drop by 60% over the period. In 2050, the contribution of total added value of related renewable energy industries to GDP in 2050 is estimated to increase from a mere 0.9% in 2010 to 6.2% in 2050. China began operating its first commercial nuclear plant in 1994. Its nuclear power generating capacity accounts for just 1.8 percent of its electricity, lower than the average 14 percent for countries that have nuclear power, according to a government white paper on energy policies. China suspended the construction of new nuclear power stations after the Fukushima disaster in March 2011, and announced a resumption in October, 2012. Two programs — the national plan for nuclear power security (2011-20) and nuclear power development (2011-20) — have been approved.

Biological Indicators Used to Monitor Environmental Changes

The Ministry of Environmental Protection has started to use biological indicators, such as butterflies and birds, to monitor and predict nationwide environmental changes. The program will involve the participation of 53 colleges and institutes across the country, and the statistics collected will be used to analyze climate change and its impacts on vegetation. “The biological indicators, including certain kinds of insects and birds, feed on just one kind or a few kinds of plants,” said Li Zhaohui, director of Nanjing Xiaozhuang University’s Institute for Applied Ecology. “By monitoring their numbers and migrations, we can better understand changes in vegetation and the biological environment,” Li said.

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Zhu Shude, a professor of entomology at Yangzhou University, said butterflies were particularly sensitive to their environment, making them an ideal biological indicator. “Only flowers, grasses and trees can attract butterflies. They are a widely recognized biological indicator that don’t live in empty fields or on crops.” According to Li, Britain started programs using biological indicators as early as 1976. Similar programs have also been adopted elsewhere in Europe, North America, Hong Kong and Taiwan. “The Chinese mainland has piloted the program in some provinces, including Jiangsu and Guangdong, since 2009,” Li said. “The government is paying greater attention to biodiversity and environmental protection as it starts to adopt new methods to monitor the environment.” According to Li, who is also an expert in the China Butterfly Observation Program, there are more than 16,000 kinds of butterflies in the world, and about 10 percent of them are found in China. Dozens of observation centers have been established in Jiangsu province to monitor the insects, and elementary school pupils have been encouraged to get involved. Encouraging students to participate can also increase environmental awareness in society, Li said. Ma Fangzhou, an assistant researcher at the Nanjing Institute of Environmental Sciences, suggested that China learn from developed countries that use unified methods to make their observations more scientific.

China’s Natural Reserves Protection Plan

Ecological preservation has been pushed to the forefront of Chinese development as the country transitions to an ever greener development model. On May 22, 2016, the ministry and the Chinese Academy of Sciences released the latest annual checklist, the Catalog of Life in China, which shows the country had 86,575 species in 2016. China has 2,740 nature reserves, covering 1.47 million square kilometers, or 14.8 percent of the country’s land mass, with the rest taken up by marine reserves, according to the report delivered by of Ministry of Environmental Protection. This includes 446 national-level reserves. One instance, the country has more than 60 natural reserves for giant pandas and the number of wild giant pandas increased from about 1,100 in 2000 to 1,864 in 2013. But conservationists are calling for more efforts to be made to protect wildlife habitats. “Take the giant panda for example. Only 66.8 percent of its habitat is within the nature reserve network,” said Yi Lan, deputy head of the Forest and Ocean Unit at Greenpeace East Asia. And in the latest move, plans to upgrade China’s Sanjiangyuan Nature Reserve, located in the country’s western Qinghai province, to a national park has entered the implementation phase. It is the source of the Yellow and the Yangtze River. It is home to wild endangered species such as Tibetan antelopes and snow leopards. China will establish several national ecological experimental zones to explore reforms

55 www.followcn.com ranging from natural resource balance sheets to ecological performance evaluation of officials, according to an official guideline published on Aug 22, 2016. Fujian, Jiangxi and Guizhou provinces, which have “relatively optimal ecological foundation, and relatively strong environmental and resource capacity,” were selected as the first batch of experimental zones. Targets were set in the plan, including that water quality of over 90 percent of water systems in the province will reach optimal level, 23 cities will enjoy good air quality on over 90 percent of days, and forest coverage will pass 66 percent by 2020.

The Communist Party of China (CPC) Central Committee and the State Council, or China’s cabinet, on Sept 21, 2016 published a reform plan for promoting ecological progress in the country. Following is the full text:

Integrated Reform Plan for Promoting Ecological Progress

This plan has been formulated for putting systematic and complete systems for improving the ecosystem in place more quickly; achieving faster ecological progress; and making the reform for promoting ecological progress more systemic, more holistic, and better coordinated.

I. A General Description

1. The thinking behind the reform

It is crucial to fully implement the guiding principles from the 18th National Congress of the Communist Party of China (CPC) and the second, third, and fourth plenary sessions of the 18th CPC Central Committee; follow the guidance of Deng Xiaoping Theory, the Theory of the Three Represents, and the Scientific Outlook on Development; thoroughly put into practice the guiding principles from the major speeches of General Secretary Xi Jinping; act in accordance with the decisions and plans of the CPC Central Committee and the State Council; adhere to the fundamental state policy of conserving resources and protecting the environment; and give high priority to resource conservation, environmental protection, and the restoration of nature. Based on the fundamental context of China being in the primary stage of socialism and in the particular characteristics new to China in the present phase,and in order to build a beautiful China, handle correctly the relationship between humankind and nature, and solve serious ecological and environmental problems,it is essential to safeguard China’s ecological security, improve the environment, ensure that resources are used more efficiently, and step up efforts to promote the formation of a new pattern of modernization in which humankind develops in harmony with nature.

2. The ideas

The idea is to:

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Respect, protect, and stay in tune with nature.Ecological conservation is vital not only to sustained, healthy economic development, but also to political and social progress, and must therefore be given a position of prominence and incorporated into every aspect and the whole process of economic, political, cultural, and social development. Integrate development and conservation. It is necessary to remain committed to the strategy of treating development as being of the utmost importance to China. Development is good only when it is green, circular, and low-carbon. There should be the right balance between development and conservation.The intensity of development should be brought under control on the basis of functional zoning and spatial planning should be adjusted to ensure that development and conservation are coordinated and reinforce each other so we leave behind a comfortable place that future generations can call home with blue skies, green lands, and clear waters. Foster an understanding that lucid waters and lush mountains are invaluable assets. Fresh air, clean water sources, beautiful rivers and mountains, fertile land, and biological diversity form an ecological environment that is essential to human survival. As development is a top priority for China, it is imperative to protect forests, grasslands, rivers, lakes, wetlands, seas, and other natural ecosystems. Cultivate respect for the value of nature and natural capital. Natural ecosystems have value; the protection of nature is a process of increasing the value of nature and the value of natural capital, and means the protection and development of the productive forces. Protection efforts should, then, be adequately rewarded and come with economic returns. Seek equilibriums in China’s territorial space. To move forward with development, it is necessary to find the right balance between population, economy, resources, and the environment and ensure that the population, the industrial structure, and the economic growth of a region do not surpass its environmental capacity and the carrying capacity of its water and land resources. See that mountains, waters, forests, and farmlands are a community of life. Based on the integrity and systemic nature of ecosystems and the way they work, it is necessary to take into consideration all the elements of the natural ecosystem - both hills and their surrounding areas, both above and under the ground, both land and sea, both upper and lower river basins -and work to protect them in their entirety, restore them systematically, and take a comprehensive approach to their governance in order to preserve ecological balance by strengthening the ability of ecosystems to circulate.

3. The principles

Ensuring that the reform moves in the right direction. China’s market mechanisms need to be improved, and the government should make better use of its leadership and regulatory roles. Those in the business sector should bring their own initiative into play and exercise self-restraint. Social organizations and the general public should participate and play a supervising role in ecological conservation. Maintaining the public nature of natural resource assets. New property rights systems should be created for natural resources. Ownership rights should be clarified. There should be a distinction between ownership rights and the authority to manage. Powers

57 www.followcn.com and regulatory responsibilities of the central and local governments should be divided more appropriately. Everyone should be entitled to benefit from state-owned natural resource assets. Integrating environmental governance for rural and urban areas. Continued efforts should be made to strengthen urban environmental protection and industrial pollution prevention and control. The rural coverage of ecological and environmental protection efforts should be expanded. Effective systems and mechanisms for rural environmental governance should be established. The development of pollution prevention and control facilities should be stepped up in rural areas, and related funding should be increased. Attaching equal importance to incentives and restraints. It is imperative to develop interest-related mechanisms for promoting green, circular, and low-carbon development, and at the same time practice strict prevention at the source of pollution, strict regulation over operations, strict compensation for environmental damage, and accountability for those responsible in order to effectively restrain all types of market entities and, step by step, make ecological conservation efforts more market-, law-, and procedure-based. Combining China’s own independent efforts with international cooperation. Strengthening ecological conservation and environmental protection is something China is doing of its own accord, though at the same time it needs to deepen exchange and practical cooperation with other countries, borrow from their advanced technology and their valuable experience in institution building, take an active part in global environmental governance, and assume and perform its international responsibilities as a large developing country. Integrating piloting first with overall coordination. It is necessary, in accordance with the unified plans of the CPC Central Committee and the State Council, to deal with the easier parts first, move forward step by step, and launch each reform when conditions are ripe to do so. On the basis of the fundamental direction laid out in this plan, encouragement should be given to local governments to explore and experiment boldly in light of their own local conditions.

4. The objectives

This reform is designed to establish a systematic and complete institutional framework composed of eight systems for promoting ecological progress with clearly defined property rights, diversified participation, and equal focus on incentives and restraints by 2020. It is also designed to modernize China’s governance system and capacity for governance in the field of ecological progress and usher in a new era for socialist ecological progress. These eight systems include a system of property rights for natural resource assets, a system for the development and protection of territorial space, a spatial planning system, a system for regulating total consumption and comprehensive conservation of resources, a system for payment-based resource consumption and compensating conservation and protection efforts, the environmental governance system, the market system for environmental governance and ecological preservation, and the system for evaluating officials’ ecological conservation performance and for holding those responsible for ecological damage to account.

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A system of property rights for natural resource assets will be established, according to which ownership is clearly defined, powers and responsibilities are explicit, and regulation is effective, in order to ensure there are owners for natural resources and ownership is clear. A system will be built on the basis of spatial planning for the development and protection of territorial space, drawing on regulation of its uses as the main approach, with a view to stopping the over-use of quality cropland and ecological space, ecological damage, and environmental pollution caused by disorderly, excessive, and scattered development. A spatial planning system will be designed, with the main purpose of strengthening the spatial governance and improving its structure, which is nationally unified and better connected between different departments of government, and according to which management is divided between governments at multiple levels, in an effort to eliminate overlapping and conflicting spatial plans, the overlap and duplication of responsibilities between departments, and the issue of local authorities frequently changing their plans. An effective, standardized,and strictly managed system that achieves complete coverage will be established for regulating total consumption and comprehensive conservation of resources, in order to address inefficiency and serious waste in resource consumption. A system for payment-based resource consumption and compensating conservation and protection efforts will be established. The system will reflect market supply and demand, resource scarcity, the value of nature, and the need for intergenerational compensation, in order to address the problems of excessively low prices for natural resources and their products, the cost of production and development being lower than the social cost, and inadequate incentives for ecological conservation efforts. An environmental governance system which is oriented toward improving the environment, and which incorporates unified regulation, strict law enforcement, and multi-party participation will be developed in an effort to deal with weak capacity for pollution prevention and control, overlapping regulatory functions between government departments, powers not being in accord with responsibilities, and the cost of law violations being too low. A market system which allows economic levers to play a greater role in environmental governance and ecological conservation will be developed, with a view to addressing the slow development of market entities and market systems and low rates of public participation in ecological conservation. An evaluation and accountability system will be developed to assess the performance of officials in ecological conservation and hold to account those responsible for ecological damage. This system will be designed to be fully reflective of resource consumption, environmental damage, and ecological benefits, and is to be built so as to correct the shortcomings in performance evaluations, narrow the gaps in responsibility systems, and improve poor accountability for ecological damage.

II. Improving the System of Property Rights for Natural Resource Assets

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5. Establishing a unified system for determining and registering ownership

The owners of natural resource assets of all types throughout all Chinese territorial space will be determined in accordance with the principles that all natural resources in China are publicly owned and all property rights are legally prescribed. Ownership of all natural ecological spaces including water flows, forests, mountains, grasslands, uncultivated land, and tidal flats will, according to a unified system, be determined and registered. Clear lines will be gradually delineated to distinguish between assets owned by the whole people and assets collectively owned,ownership by the whole people and ownership operated by different levels of government, and between different collective owners. The rule of law will be strengthened in the determination and registration of ownership.

6. Establishing a system of property rights for natural resources within which rights and responsibilities are explicit

A list of rights will be developed to specify the rights of ownership for all types of natural resource assets. The relationship between ownership rights and use rights will be properly dealt with. New forms of collective ownership and ownership by the whole people will be created. With the exception of natural resources which are ecologically important, the ownership rights and use rights for all other natural resources can be separated. It will be made clear who has the right to possess, use, benefit from, or dispose of natural resources, and corresponding rights and responsibilities will be clarified. The right to sell, transfer, and rent out use rights, as well as the right to use them as collateral, as the basis of a loan guaranty, or to gain an equity stake, will all be suitably expanded. The roles of owners and users of land on which state-owned farms, forests, and pastures are located will be clearly defined. A complete system for sale will be established covering all types of natural resource assets owned by the whole people, while the uncompensated transfer of rights or their sale at excessively low a price are to be strictly forbidden. We will draw up an integrated plan for strengthening efforts to develop a natural resource asset exchange.

7. Improving the state system of management for natural resource assets

In accordance with the principles of separating owners from regulators and assigning the responsibility for one matter to one single department, the currently diffuse duties and responsibilities of ownership of natural resource assets owned by the whole people will be integrated, and one body will be established to carry out the unified exercise of ownership rights for all types of natural resources owned by the whole people, such as mineral deposits, water flows, forests, mountains, grasslands, uncultivated land, marine areas, and tidal flats, and take responsibility for the sale of these natural resources.

8. Exploring the establishment of a system for exercising ownership rights at different levels

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Research will be conducted to explore how a system can be put into practice in which, in accordance with the type of resource and its importance in relation to the ecological environment, the economy, and national defense, the central and local governments act as the agents of the owners of natural resource assets owned by the whole people, in order to achieve both efficiency and equity. Resources and territorial space for which the ownership rights are owned by the whole people and directly exercised by the Central Government will be distinguished from those for which the ownership rights are owned by the whole people and exercised by local governments. The Central Government will primarily exercise directly the ownership rights for petroleum and natural gas, valuable and rare mineral resources, key state-owned forests, major rivers and lakes, trans-boundary rivers, ecologically important wetlands and grasslands, marine areas, tidal flats, rare and endangered species of wild fauna and flora, and some national parks.

9. Launching trials for determining property rights for water flows and wetlands

Explorations will be made into establishing a water ownership system. Trials will be carried out in determining ownership of bodies of water, coast lines, and other aquatic ecospace. On the basis of respecting the systematic nature and integrity of water ecosystems, the ownership rights, use rights, and allowable volumes for water resource use will be delineated. Trials will be launched in Gansu, Ningxia, and other areas for determining the ownership of wetlands.

III. Establishing a System for the Development and Protection of Territorial Space

10. Improving the functional zoning system

National- and provincial-level planning of functional zones will be coordinated. Regional policies which are based on the functional zones will be improved. On the basis of the different functions- urban areas, primary production areas for agricultural products, or key ecosystem service areas - adjustments and improvements to policies regarding finance, industry, investment, population flow, land to be used for construction, resource development, and environmental protection will be stepped up.

11. Improving the regulatory system for the use of territorial space

The top-down land-use indices control system will be simplified and the method of allocating indices based on administrative district and baselines for land use will be adjusted. Development intensity indices will be broken down and assigned to the county-level administrative districts as binding quotas to control the total amount of land used for construction purposes. Land use regulation will be extended to all natural ecological spaces, ecological redlines will be defined and strictly observed, and arbitrary changes to land use will be strictly prohibited. Efforts will be made to protect against ecological redlines being crossed by unreasonable development and construction activities. The monitoring system for all territorial space will be improved and a longitudinal approach will be used to monitor changes within China’s territorial space.

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12. Establishing a national park system

The protection of important ecosystems will be strengthened to ensure their sustainable use. The system of departments independently setting up their own nature reserves, historical and scenic sites, cultural and natural heritage sites, geological parks, and forest parks will be reformed. These protected areas will be reorganized by function and the scope of national parks will be determined as appropriate. National parks will be under more stringent protection: with the exception of improvements to the facilities used by local people in their everyday lives and work and nature-based research, education, and tourism which do not harm ecosystems, other types of development and construction will be prohibited so as to protect the authenticity and integrity of the natural ecological environment and natural and cultural heritage. Guidance on national park trials will be strengthened, and on the basis of these trials, research will be carried out into designing an overall plan for establishing a national park system. A permanent mechanism will be created for the protection of rare and endangered species of wild plants and animals.

13. Improving the system for regulating natural resources

Duties and responsibilities related to regulation of use, which are currently spread among different departments, will be gradually concentrated within a single department. This department will then perform all use-related regulatory duties and responsibilities for all territorial spaces.

IV. Establishing a Planning System for Territorial Space

14. Formulating plans for territorial space

All types of current spatial plans formulated by different departments will be integrated into unified spatial plans, which will be all-encompassing. The new plans will be the guide for the development of the country’s territorial space, and the spatial blueprints for sustainable development; they will be the fundamental basis for all types of development and construction programs. Spatial plans will be divided into national, provincial, and municipal (or county) levels (spatial plans for cities which are divided into districts will be formulated for the district level). Research will be conducted into how to establish unified and standardized mechanisms for formulating spatial plans. An environmental impact assessment system will be set up to be used in spatial planning. Provincial-level spatial planning trials are encouraged. A spatial plan will be developed for the Beijing-Tianjin-Hebei region.

15. Integrating municipal-level (county-level) plans

Cities and counties will be supported in combining different types of plans into a single spatial plan, such that gradually, there will be one plan - one blueprint - per city or county. Municipal or county spatial plans should classify land using a unified standard, and, in accordance with the relevant functional zoningand the requirements of the

62 www.followcn.com provincial-level spatial plan, should delineate production space, living space, and ecological space, demarcate the development boundaries of urban construction areas, industrial areas, and rural living areas, as well as the boundaries of protected areas of arable land, woodlands, grasslands, rivers, lakes, and wetlands, and strengthen coordinated planning for urban subsurface space. More effective guidance will be given to cities and counties regarding their trials for plan integration. Research will be undertaken into developing guidelines and technical standards for the formulation of municipal-level (county-level) spatial plans, which will then serve as experience that can be applied elsewhere.

16. Developing new approaches for formulating municipal-level (county-level) spatial plans

We will explore how best to standardize procedures for formulating municipal-level (county-level)spatial plans, public participation will be expanded, and planning will be made more effective and transparent. Those areas piloting municipal-level (county-level) spatial plans are encouraged to integrate planning departments, making a single department responsible for formulating the spatial plan for that municipality or county; and they may form a planning appraisal committee of experts and representatives of the relevant fields. Prior to the formulation of a plan, a resource and environmental carrying capacity assessment must be carried out, and the results of the assessment should serve as the fundamental basis of planning. During the process of formulation, efforts should be made to solicit opinions of those from relevant sectors; the draft of the plan should be published in full so that the suggestions and comments of local residents can be extensively solicited. After evaluation and approval by the planning appraisal committee, the plan must be deliberated and passed by the local people’s congress, then reported to the relevant government department at the next level up to be placed on record. The finalized plan should include the text of the plan along with precise maps and images, and should be made available to the public through websites and other forms of local news media. Local residents are to be encouraged to oversee the implementation of the plan and report any development and construction activities that violate it. The local people’s congress and its standing committee will hear reports at regular intervals on the implementation of the plan, and will hold the local government accountable for violations of the plan.

V. Improving the Systems for Total Resource Management and Comprehensive Resource Conservation

17. Improving the systems for providing the strictest possible protection for farmland and securing the economical and intensive use of land

The system for the protection of basic cropland will be improved and a redline below which the area of China’ s permanent basic cropland must not fall will be established. To ensure that the area of basic cropland are not diminished, its quality does not deteriorate, and it is not converted to any other uses, the duty of basic cropland protection will be

63 www.followcn.com assigned to farming households and every piece of this cropland will be captured through photo-imaging and entered into the national cropland protection database, and its strict protection will be enforced. With the exception of unavoidable cases as specified by law in which basic cropland has to be used as the site of key national projects, no basic cropland may be used for construction purposes. Efforts will be redoubled to grade and monitor as well as maintain and improve the quality of cultivated land. The system for offsetting the occupation of cultivated land for purposes other than cultivation will be improved. A cap will be set on total cultivated land that can be used for new construction projects. It will be made sure that equivalent land is offset ahead of occupation and that the replacement land is of equal or higher grade than the cultivated land to be occupied. A cap will also be on total land that can be occupied for construction purposes, management will be instituted to reduce the amount of cultivatable land that is used as such, and incentive and constraint mechanisms will be established to encourage more economical and intensive use of land. Reasonable annual plans will be made for the use of land, adjusting the structure of land used for different purposes and making the best use of land that has already been made available.

18. Improving the system for the strictest possible management of water resources

To give priority to saving water, achieve harmony between development and water conservation, carry out systemic governance, and ensure that both government and market play their respective roles, the system for controlling total water usage will be improved to ensure water security. Efforts will be accelerated to formulate water allocation plans for major river basins, strengthen coordination between provincial-level governments, and improve the system of targets for control of total water usage at the provincial, municipal, and county levels. Effective mechanisms will be established to ensure economical and intensive water usage. More work will be done to adjust the way water resources are used and improve their allocation. The system for evaluating the impact of plans and construction projects on water resources will be improved. Efforts will be made to draw principally on pricing and taxation to gradually establish systems for controlling and instituting quota-based management of the volume of water used in irrigation, and for controlling and instituting quota-based management of the planned water usage of high-water-consuming industrial enterprises. In regions seriously affected by water scarcity, water quotas will be used as a threshold for market entry and the development of high-water-consuming projects will be strictly controlled. The protection and environmental restoration of areas producing aquatic products will be strengthened, their aqua culture will be controlled, and mechanisms will be established for the protection of aquatic plant and animal life. Regulation of water functional zones will be improved and systems for promoting the utilization of alternative water resources will be established.

19. Establishing a system for total energy consumption management and energy conservation

High priority will be given to energy conservation, the control of energy intensity will be strengthened, and the responsibility system and the system of incentives for meeting

64 www.followcn.com energy conservation targets will be improved. Improvements will be made to the energy statistics system. The management system for energy conservation by major energy-consuming organizations will be improved, and a mechanism for making voluntary pledges on energy conservation will be implemented on an explorative basis. The system of energy conservation standards will be improved to make timely updates to energy efficiency standards for energy-consuming products, limits on energy consumption for energy-intensive industries, and energy efficiency standards for buildings. A reasonable target will be established for total national energy consumption and broken down and assigned to the provincial-level and major energy-consuming organizations. The mechanism for promoting the use of energy-saving, low-carbon products, technologies, and equipment will be improved and lists of technologies will be issued at regular intervals. Supervision over energy conservation will be strengthened. Stronger support will be provided for the development of renewable energy sources, and subsidies for all fossil fuels will be phased out. A system for controlling total national carbon emissions and a mechanism for breaking down the responsibility for implementation will be gradually established. A mechanism for effectively increasing forest, grassland, wetland, and ocean carbon sinks will be set up. China’s involvement in international cooperation on responding to climate change will be strengthened. (more)

20. Establishing a system for protecting virgin forests

All virgin forests will be placed under protection. A national timber forest reserve system will be established. Government administration will be gradually separated from the management of state-owned forests, and the public benefit forest protection and management system will be improved for state-owned forestry farms drawing principally on service procurement. The collective forest tenure system will be improved. Tenure contracts for collective forests will be kept stable, the operations allowed under these contracts will be expanded, and the systems by which forest tenure rights are used as collateral for loans and tenure rights are transferred will be improved.

21. Establishing a system for protecting grassland

The system by which collective grassland is contracted out for operation to individual households will be kept stable and improved to ensure that the plot and area of every piece of grassland contracted out is measured accurately, contracts are signed, and contracting certificates are granted. Proper procedures will be introduced for the transfer of grassland under such contracts. A system for protecting basic grassland will be put into effect to ensure that the area of basic grassland does not diminish, its quality does not deteriorate, and it is not converted for any other use. The subsidy and award mechanisms for the ecological conservation of grassland will be improved. Grazing on certain areas of grassland will be banned or temporarily suspended, rotational paddock grazing will be introduced, and efforts will be made to strike a balance between grass and livestock. Oversight over there view and approval of grassland requisitions will be strengthened and the use of grassland for any purpose other than animal husbandry will be strictly controlled.

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22. Establishing a system for protecting wetlands

All wetlands will be placed under protection, and the unauthorized requisition or occupancy of wetlands of international importance, and those of national importance,and wetland reserves will be banned. The services of wetlands will be determined, their protection and utilization will be standardized, and a mechanism for the ecological restoration of wetlands will be established.

23. Establishing a system for closing off desertified land for protection

Contiguous areas of desertified land for which conditions are not currently in place to carry out anti-desertification programs will be designated as closed-off protection zones. Systems for strict protection will be established, construction of infrastructure needed to close off and protect and manage such zones will be stepped up, desertified land governance will be strengthened, and vegetation will be increased. The appropriate development of the sand industry will be encouraged. The mechanisms for protection and management drawing principally on service procurement will be improved. New approaches that combine development with governance will be explored.

24. Improving the system for developing and protecting marine resources

Marine functional zones will be established, the major functions of offshore waters and islands will be determined, and efforts will be made to guide, control, and standardize behavior related to the use of oceans and islands. A system will be introduced to control total sea reclamation, imposing binding limits on the total area of ocean over which reclamation can take place. A system will be established for maintaining natural coastlines. The system for managing total marine fishery resources will be improved. The systems for instituting fishing off-seasons and bans on fishing will be strictly enforced. Limits on offshore fishing will be imposed. The scale of offshore and mudflat aquaculture will be controlled.

25. Improving the system for managing the development and utilization of mineral resources

A system for the investigation and evaluation of the development and utilization of mineral resources will be established. The ascertainment and registration of mineral resources and registration management of their pay-per-time occupation will be strengthened. A mechanism for the intensive development of mineral resources will be established, the concentration of enterprises in mining areas will be increased, and large-scale development is encouraged. National standards including those regarding the mining recovery rate of major mineral resources, ore dressing recovery rate, and the comprehensive utilization rate of mineral resources will be improved. The economic policies for encouraging better utilization of mineral resources will be refined. A system will be established to make available to the public information on whether mining enterprises are utilizing mineral resources efficiently and comprehensively, and a system will be set

66 www.followcn.com up for blacklisting those breaking mining operation rules. The mechanism for introducing industry-based approaches will be improved to support the recycling of major mineral resources. The systems for protecting the geological environment in mining areas and reclaiming deserted areas will also be improved.

26. Improving the system of resource recycling

An effective system will be established to record resource-output ratio statistics. The extended producer responsibility (EPR) system will be put into effect, pushing producers to perform their responsibilities for take-back and disposal of their end-of-life products. A system will be established to utilize farming, livestock, and aquaculture waste and achieve the organic integration and circular development of farming, husbandry, and aquaculture. The establishment of a system for making the separation of waste compulsory will be accelerated. A list of renewable resources to be recycled will be worked out and the mandatory recycling of composite packaging, batteries, agricultural plastic sheeting, and other low-value waste will be required. Efforts will be accelerated to develop standards for the recycling and reuse of resources by type. A system for promoting the use of products and raw materials made of recycled resources will be established to require enterprises consuming related raw materials to use a certain proportion of recycled products. The system for restricting the use of single-use disposable products will be improved. Taxation policies will be implemented and improved to promote the comprehensive utilization of resources and the development of the circular economy. A list of circular economy technologies will be formulated and policies such as priority government procurement and discounted interest on loans will be implemented.

VI. Improving the System for Payment-Based Resource Consumption and Compensating Conservation and Protection Efforts

27. Accelerating price reform for natural resources and their products

In line with the principles of cost-benefit balancing and based on full consideration of society’ s ability to tolerate price increases, a cost assessment mechanism for natural resource exploitation and consumption will be established to incorporate the interests of resource owners and any ecological and environmental damage into the pricing mechanism for natural resources and their products. Price regulation over natural monopolies will be strengthened. A system will be created for overseeing and reviewing the pricing cost and a mechanism will be established for making pricing adjustments. Procedures for decision-making on pricing and the information disclosure system will be improved. The overall price reform of water for agricultural purposes will be moved forward. A system of progressive pricing for water will be put into full practice for non-household water consumption that exceeds plans or quotas for water consumption, and a system of tiered pricing for urban household water consumption will be fully implemented.

28. Improving the payment-based system for land use

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The scope of state-owned land that is operated on the basis of a payment-based use system will be expanded. The proportion of land for which use rights can be transferred through bidding, auction, or listing will be enlarged. Less land will be allocated for non-public use. Income and expenditures related to selling use rights for state-owned land will be incorporated into public budgeting. Industrial-land supply methods will be reformed and improved, with the implementation of flexible transfer periods, long-term leasing, lease-then-sell arrangements, and lease-and-sell arrangements being explored. The mechanisms for setting and appraising land prices will be improved. The system of grade-based pricing for land will be refined. The relationship of land-related transaction and lease expenses with taxes and fees will be straightened out. An effective regulatory mechanism will be put in place to achieve reasonable price parity between industrial-use and residential-use land. Prices of industrial-use land will be raised, and the proportion of industrial-use land will be reduced. Methods such as land contracting and leasing out will be explored to improve the payment-based use system for state-owned land for agricultural use.

29. Improving the payment-based system for mineral resource use

Improvements will be made to the system for the sale of mining rights, and means suited to a market economy and the nature of the mining industry will be established for the sale of prospecting and extraction rights. In principle, the sale of these rights will be market-oriented, and the income and expenditures related to the sale of state-owned mineral resources will be incorporated into public budgeting. The property rights of owners, investors, and operators during the processes of payment-based acquisition, possession, and exploitation will be clarified, and research will be conducted into the development of a system of national premiums for the use of mineral resources. Standard fees for the use of prospecting and extraction rights, and minimum investment in mineral prospecting will be adjusted. Progress will be made in building a nationally unified mining rights exchange, and efforts in information disclosure on the sale and transfer of such rights will be intensified.

30. Improving the payment-based system for use of sea areas and offshore islands

A mechanism will be created for adjusting use fees for sea areas and uninhabited islands. An effective system will be established for the sale of use rights for sea areas and uninhabited islands through bidding, auction, and listing.

31. Accelerating reform of resource and environmental taxes and fees

The taxes and fees for natural resources and their products will be straightened out, their respective purposes will be clarified, and the appropriate scope of taxation regulation will be defined. Faster progress will be made in introducing price-based on resources. The scope of resource taxes will be gradually expanded to cover the use of all kinds of ecological spaces. A trial reform will be carried out in parts of northern China to levy a

68 www.followcn.com resource tax on groundwater. The development of legislation on environmental protection tax will also be accelerated.

32. Improving the ecological compensation system

Explorations will be made into establishing a diversified compensation mechanism, transfer payments to major ecological functional zones will be increased step by step, and the incentive mechanism that links ecological protection performance with fund allocation will be improved. Measures will be drawn up for implementing a mechanism, principally for local compensation, and supported by additional funds from the central budget, by which local governments compensate each other for ecological or environmental damage and ecological conservation efforts. Local governments are encouraged to launch ecological compensation trials. Efforts will continue in carrying out the ecological compensation pilot initiative for the Xin’ an River ecosystem. Help will be given to carry out trans-regional ecological compensation pilot initiatives in the Beijing-Tianjin-Hebei water source conservation area, in areas along the Jiuzhou River in Guangxi and Guangdong, and in areas along the Ting and Han rivers in Fujian and Guangdong. Explorations will be made into carrying out pilot ecological compensation initiatives in the Yangtze River basin- an environmentally sensitive region.

33. Improving the mechanism for utilizing ecological protection and restoration funds

Given the need for systematic governance of mountains, forests, farmland, rivers, and lakes, the measures for utilizing and managing relevant funds will be improved and existing policies and channels will be integrated. At the same time as efforts are being made to comprehensively improve the conditions of rivers throughout their entire drainage basins,more funds will be spent on the protection and restoration of national ecological-security shields, such as the Qinghai-Tibet Plateau ecological shield, the Loess Plateau-Sichuan-Yunnan ecological shield, the northeast China forest belt, the northern China desertification-prevention belt, and the southern China mountainous belt.

34. Creating a recuperation system for farmland, grasslands, rivers, and lakes

A recuperation plan will be formulated for farmland, grassland, rivers, and lakes, adjusting the use of farmland in areas where there is heavy pollution or where groundwater has been over-extracted. Basic agricultural activity from land sloped greater than 25 degrees, which is not suitable for, and the ecosystem of which is harmed by, cultivation, will be gradually excluded from classification as basic cropland. A permanent mechanism will be formulated to consolidate progress in returning farmland to forest and grassland and converting grazing land back into grassland. Pilot projects will be launched to return cultivated land to lakes and wetlands. Efforts will be made to move forward with the pilot initiative for the restoration of heavy-metal contaminated soil in the Changsha-Zhuzhou-Xiangtan region, as well as the pilot project to comprehensively deal with the over-extraction of groundwater in northern China.

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VII. Establishing an Effective System for Environmental Governance

35. Improving the pollutant emissions permit system

A unified and fair business emissions permit system covering all fixed pollution sources will be established quickly nationwide. Emissions permits will be issued in accordance with the law. Emission of pollutants without a permit or in violation of a permit will be prohibited.

36. Establishing a mechanism for cooperation within a region in pollution prevention and control

Cooperative mechanisms for joint prevention and control of air pollution will be improved in major areas such as the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Pearl River Delta. Regional cooperation mechanisms will be established in other areas, taking into consideration their geographical features, levels of pollution, distribution of urban space, and patterns of pollutant transmission. Trials for creating new administrative systems for environmental protection will be held in some areas, using unified plans, standards, environmental evaluations, monitoring, and law enforcement. Trials will also be launched for the establishment of environmental regulators and administrative law enforcement agencies for river basins. A variety of cooperative mechanisms for protecting the water environments of river basins as well as early-warning systems for risk control will be put in place with the participation of the relevant provincial-level water-related departments within each river basin. An integrated mechanism for pollution prevention and control both on land and at sea and a control system governing the total quantity of pollutants discharged into key marine areas will be set up. The mechanism for responding to environmental emergencies will be improved and China’ s capacity for dealing with environmental emergencies of varying degrees of severity and involving different pollutants will be strengthened.

37. Establishing systems and mechanisms for rural environmental governance

An eco-oriented system of agricultural subsidies will be created. Efforts to formulate and improve relevant technical standards and specifications will be accelerated. Reductions to the use of chemical fertilizers, pesticides, and plastic sheeting and the recycling or safe disposal of animal husbandry waste will be carried out quickly. The production and use of biodegradable plastic sheeting is encouraged. The system for comprehensively utilizing crop straw will be improved. Networks for recycling, storing, transporting, and processing plastic sheeting and chemical fertilizer and pesticide packaging will be improved. Development of environmental protection facilities, such as those for handling rural wastewater and refuse, will be bolstered by subsidies from governments and village collectives, fee payments from residents, and the participation of non-government capital. A variety of assistive measures, including government procurement of services, will be adopted to foster and develop market entities for the control of all types of agricultural pollution from non-point sources and for the handling of

70 www.followcn.com rural wastewater and refuse. County- and township-level governments will carry greater responsibility for environmental protection, and efforts to build their capacity for environmental regulation will be boosted. In allocating government funds for supporting agriculture, full consideration should be given to improving overall agricultural production capacity and to preventing and controlling rural pollution.

38. Improving systems for public disclosure of environmental information

Extensive efforts will be made to ensure public availability of environmental information pertaining to the atmosphere, water, and so on, to businesses that emit pollution, and to regulatory bodies. The mechanism for the public release of environmental impact evaluations for development projects will be improved. The environmental spokesperson system will be refined. Efforts will be made to promote awareness for environmental protection among the general public, the system of public participation will be improved, and more work needs to be done to ensure that the people exercise oversight over the environment in a legal and orderly way. An online platform and system will be created for the reporting of offenses related to environmental protection, and systems for offense-reporting, hearings, and public opinion-based oversight will be improved.

39. Strictly implementing compensation systems for ecological and environmental damage

Manufacturers’ legal responsibilities for environmental protection will be tightened, and the cost of illegal activities will be significantly increased. Legal provisions concerning environmental damage compensation, methods for appraising damage, and mechanisms for enforcing compensation will be improved. In accordance with the law, penalties will be meted out to those who violate environmental laws and regulations, compensation for ecological and environmental damage will be determined by the extent of damage and other factors, and when violations result in serious adverse consequences, criminal liability will be pursued.

40. Improving the administrative system for environmental protection

An effective administrative system for environmental protection will be established to strictly regulate the emissions of all pollutants. Duties and responsibilities for environmental protection, which are currently spread across departments, will be assigned to one single department, progressively creating a system whereby one department is responsible for unified regulation and administrative law enforcement over urban and rural environmental protection work. Regulatory authority from different fields and departments and at different levels will be systemically organized to create a unified and authoritative system for environmental law enforcement, strengthen the ranks of law enforcement, and provide those tasked with environmental law enforcement the necessary conditions and means to enforce the law. The mechanisms linking administrative law enforcement and environmental judicial work will be improved.

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VIII. Improving the Market System for Environmental Governance and Ecological Conservation

41. Fostering market entities for environmental governance and ecological conservation

Systems, mechanisms, policies, and measures that encourage energy efficient and environmentally friendly industries will be adopted. Regulations and practices that hinder fair competition and the creation of a nationally unified market will be discontinued, and all types of investment will be encouraged to enter the environmental protection market. Non-government investors may participate in the development and operation of any environmental governance or ecological conservation program where cooperation between government and non-government investment is viable. By means of government procurement of services and other methods, more support will be provided for third-party governance of environmental pollution. The transformation of organizations in charge of the operation and management of wastewater and refuse treatment facilities into companies that exercise independent accounting and management will be accelerated. Companies that take investment from or are operated with state capital will be set up or created through reorganization in order to encourage greater investment of state capital into environmental governance and ecological conservation. Support will be given to state-owned firms in fields of ecological and environmental protection to reform toward a mixed-ownership system.

42. Promoting the trading of energy-use rights and carbon emissions rights

Combined with efforts to see that major energy-consuming organizations increase energy efficiency and to subject new projects to energy reviews, the trading of energy saved on projects will be allowed, and will progressively move toward the trading of energy-use rights based on the cap system for energy consumption. A trading system and a measurement and verification system for energy-use rights will be established. Energy performance contracting will be promoted. Trials of carbon emissions rights trading will be deepened, a national exchange for carbon emissions rights will be progressively created, and a national plan for setting the total trade and quota allocation of carbon emissions rights will be formulated. The carbon trading registration system will be improved and a regulatory system will be established for the carbon emissions rights exchange.

43. Promoting the trading of pollution rights

On the basis of the cap system for enterprise pollution emissions,improvements will be made as quickly as possible to the granting of initial pollution rights, and coverage will be expanded to include more pollutants. Working from the foundations provided by the current mechanism for granting pollution rights to administrative regions, and on the basis of the best industry-wide levels of pollution emissions, the mechanism will be gradually strengthened to ensure the cap system for enterprise pollution emissions is implemented and the trading of pollution rights creates incentives for emissions reductions at the level of the individual enterprise. In key river basins and key areas for air pollution,

72 www.followcn.com implementation of pollution rights trading across administrative regions will be carried out as appropriate. Trials for the payment-based use and trading of pollution rights will be expanded to include more areas where conditions are appropriate. Efforts will be stepped up to improve the pollution rights exchange. Regulations will be developed on granting pollution rights, collecting and using pollution rights use fees, and setting trading prices.

44. Promoting the trading of water rights

Combined with efforts to establish an effective mechanism for compensating the expenses of water ecosystem protection and conservation, water-related rights will be appropriately defined and allocated and ways of trading water rights between regions, between river basins, between the lower and upper reaches of rivers, between industries, and between water users will be explored. Research will be conducted into formulating regulations concerning the trading of water rights, to clearly define the scope and types of tradable water rights, the trading entities and time frames, the mechanisms for determining trading prices, and the rules for the operation of the exchange. An exchange for water rights will be developed.

45. Establishing a green finance system

Green credit will be promoted, with research being undertaken into adopting methods such as government interest subsidies to boost the level of support. All types of financial institutions are encouraged to step up grants of green loans. Requirements for the due diligence of borrowers as well as their legal responsibilities concerning environmental protection will be clarified. Efforts will be stepped up to further develop the systems related to capital markets. Research will be conducted to explore the establishment of a green stock index and the development of relevant investment products, and studies will be undertaken to explore the issuance of green bonds by banks and enterprises, encouraging the securitization of green credit assets. Support will be given for the launch of multiple types of green development funds, the operations of which will be market-based. A mechanism will be established for the mandatory release of environmental protection information by listed companies. Guaranty mechanisms for energy-efficient, low-carbon, and environmentally friendly projects will be improved, and the level of risk compensation increased. A compulsory liability insurance system for environmental pollution will be established in sectors involving high environmental risks. A green rating system as well as a non-profit system for calculating environmental costs and evaluating environmental impact will be established. Cooperation of all types with other countries will be promoted in green finance.

46. Establishing a unified system for green products

Products that are licensed as environmentally friendly, energy-efficient, water-saving, circular, low-carbon, recyclable, or organic will be uniformly classified as green products, and standardized green product standards, certifications, and logos will be established for them. Improvements will be made to policies on fiscal and tax support and government

73 www.followcn.com procurement for the research and development, production, transport, delivery, purchase, and use of green products.

IX. Improving Ecological Conservation Performance Evaluation and Accountability Systems

47. Establishing ecological conservation targets

Research will be conducted into developing practicable and visually representable indicators for assessing green development. Measures will be put in place to evaluate the attainment of ecological conservation targets, and indicators for resource consumption, environmental damage, and ecological benefit will be incorporated into a comprehensive evaluation system for economic and social development. Different performance evaluation criteria will be applied to different regions on the basis of their functional zoning.

48. Establishing monitoring and early-warning mechanisms for environmental and resource carrying capacity

Research will be undertaken into developing indicators and applying the right technology for monitoring and producing early warnings about resource and environmental carrying capacity. Monitoring and early-warning databases and IT platforms will be created for resources and the environment. Reports on monitoring and early-warning about resource and environmental carrying capacity will be prepared at regular intervals, and warnings will be issued and measures taken to place restrictions on regions which have exceeded or are approaching their carrying capacity in terms of resource consumption and environmental capacity.

49. Exploring the creation of balance sheets for natural resource assets

Guidelines will be formulated on preparing balance sheets for natural resource assets. Asset and liability accounting methods will be developed for use with water, land, forest, and other types of resources; accounts will be established for accounting natural resources in physical terms; classificatory criteria and statistical standards will be clearly laid out; and changes in natural resource assets will be regularly assessed. The preparation of balance sheets for natural resource assets will take place on a trial basis at the municipal (county) level, with physical accounts of major natural resource assets being assessed and results released.

50. Auditing outgoing officials’ management of natural resource assets

On the basis of the preparation of balance sheets for natural resource assets and making reasonable allowance for objective natural factors, active efforts will be made to explore the objectives, content, methods, and appraisal indicators for auditing outgoing officials’ management of natural resource assets. Based on the changes in natural

74 www.followcn.com resource assets within their area of jurisdiction during their term of office, through auditing, an objective evaluation will be carried out of the outgoing official’ s management of natural resource assets; an official’ s liability will be determined in accordance with the law, and auditing results will be put to better use. Trials for preparing balance sheets for natural resource assets and for audits of the management of natural resource assets by outgoing officials will be conducted in the cities of Hulun Buir in Inner Mongolia, Huzhou in Zhejiang, Loudi in Hunan, Chishui in Guizhou, and Yan’ an in Shaanxi.

51. Establishing a lifelong accountability system for ecological and environmental damage

Leaders of local CPC committees and governments will be responsible for both economic development and ecological progress. On the basis of the results of the natural resource asset audits of outgoing officials and ecological and environmental damage, the circumstances under which the principal leaders of local CPC committees and governments, related leaders, and departmental leaders will be held accountable and the procedures for confirming accountability will be made clear. Those responsible for ecological and environmental damage will, on the basis of the severity of misconduct, be reprimanded, required to make a public apology, or dealt with through organizational, Party, or disciplinary action. For circumstances which constitute a criminal act, criminal liability will be pursued in accordance with the law. A system of lifelong accountability will be put into effect for major ecological and environmental damage which becomes apparent after an official has left office and for which he or she is found liable. A national supervision and inspection system for environmental protection will be established.

X. Ensuring Successful Implementation of the Reform to Promote Ecological Progress

52. Strengthening leadership over the reform to promote ecological progress

All local governments and departments need to study the central leadership’ s guiding principles on making ecological progress and carrying out reform to this effect, develop a deep understanding of the tremendous significance of this reform, and strengthen their sense of responsibility, sense of purpose, and sense of urgency over its implementation. Local governments and departments need to do their utmost to put into effect the policy decisions and arrangements of the CPC Central Committee and the State Council and see to it that all objectives contained within this reform plan are carried out quickly. In accordance with the requirements set out in this plan, all government departments concerned should promptly draw up plans for implementing each item of the reform, delegate responsibility and set time frames, and through close cooperation and collaboration with others create a concerted reform effort.

53. Launching pilot initiatives and explorative projects

Both the central and local governments will play an active role. All local governments are encouraged, in line with the direction of reform set out in this plan, to proactively

75 www.followcn.com explore and move forward with the reform to promote ecological progress,treating their local conditions as their point of departure and the solving of serious ecological and environmental problems as their target. Reforms that require legal authorization should be handled in accordance with statutory procedures. Comprehensive pilot initiatives for achieving ecological progress being conducted independently by different government departments will be incorporated into national pilot initiatives and explorative projects and will receive guidance and encouragement from those authorities whose own functions put them in a position to provide such support.

54. Improving laws and regulations

Legislative support will be provided for the reform to promote ecological progress through the development of effective laws and regulations on property rights for natural resource assets, the development and protection of territorial space, national parks, spatial planning, seas, responses to climate change, protection of cropland quality, water conservation and groundwater management, grassland and wetland preservation, pollutant emission permits, and compensation for ecological and environmental damage.

55. Improving guidance on public communication

Publicity both in China and abroad on efforts to promote ecological progress and carry out the reform to this effect will be stepped up. This will require coordinated planning and accurate interpretations of each of the systems and the direction of reform-all designed to promote ecological progress. It should cultivate and popularize eco-culture, raise public awareness about ecological progress, and advocate a green life-style, thereby creating a positive social atmosphere in which efforts to promote eco-progress are viewed with respect, and which will help to promote ecological progress and the reform designed to bring about it.

56. Exercising stricter supervision over reform implementation

The office of the Central Leading Group for Comprehensively Deepening Reform and the leading group’ s Reform Taskforce for the Promotion of Economic Development and Ecological Progress should strengthen its overall coordination, carry out follow-up analyses and supervisory inspections over the implementation of this plan, accurately interpret and promptly resolve any problems arising during its implementation, and promptly report any major issues to the CPC Central Committee and the State Council.

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Chapter Six

Banking, Finance, Income and Money Matters

In recent years, China has made historical progress in reforming its financial system. Regular involvement of private capitals in the banking industry, deepening market-oriented reform in interest rates and exchange rates, and the ongoing construction of a multi-level capital market are forming a diversified, mature and complete financial system, injecting more vitality into the real economy with better and efficient financial services. China's growing debt and property risks have touched off an internal debate over whether China should tolerate growth as low as 6 percent in 2017 to allow more room for painful reforms aimed at reducing industrial overcapacity and indebtedness. The central government regards reform of investment and financing systems as one of the top priorities of supply-side structural reform in the near future, aiming to help resolve financing difficulties faced by the private sector, especially small and medium-sized enterprises. For the first time, Chinese companies have invested more abroad than foreign companies have invested in China, data for September 2015 showed. Overseas investment rose 18.3% to a record $145bn, compared to $135.6bn of foreign investment. Outbound direct investment by China's financial institutions rose by an even higher margin, up 26% to $24.4bn government data showed. Beijing is struggling to prop up the yuan as capital flows out of China's flagging economy in search of better investments in the United States, where the Federal Reserve is expected to hike interest rates next week and into 2017. A record-setting wave of Chinese investment abroad has fuelled concern in Beijing over capital flight, reckless spending overseas, and the yuan's fall against the US dollar.

Government Stresses Supply-side Structural Reform

China’s supply-side reform will unlock new sources of growth to help the economy fend off downward pressures amid a fading global economic recovery, Swiss bank UBS said. China’s economy expanded 6.7 percent year on year in the first quarter, slowing further from the previous quarter. Despite the downward trend, the government is eying an average annual growth rate of no less than 6.5 percent during 2016 to 2020 to build a “moderately prosperous society,” according to the country’s 13th Five-Year Plan. “Growth is still a top priority in the five-year plan,” the bank said in a research note. Given continued economic headwinds and ambitious growth targets, China has made supply-side reform a priority to release new sources of growth and increase economic efficiency. Proposed by China’s policymakers in November, the reform is considered a new economic strategy to facilitate restructuring and pep up growth.

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As part of the efforts to propel the reform, the government has planned to increase spending on R&D, encourage private investment, support emerging industries and upgrade traditional engines. Premier Li Keqiang said during the 2016 World Economic Forum that reform is the fundamental driver of China’s economic development. China has forcefully advanced structural reform, especially supply-side reform, said the Premier. Reform efforts to streamline administration, delegate power, strengthen regulation, improve government services and replace business tax with value-added tax and the implementation of an innovation-driven development strategy have given a strong boost to mass entrepreneurship and innovation and further unleashed the creativity of the people and potential of the market. Made-in-China 2025 and Internet Plus strategies aim to promote the smart upgrade of China’s manufacturing industry and better meet the always changing and diversified market needs, said the Premier. China’s latest easing of its rules for foreign investment, a move toward a more open market policy, will bring in heated competition, but will not put too much pressure on local manufacturers, industry insiders said. The State Council said on July 19 that it will temporarily allow foreign manufacturers to establish wholly owned companies in several key industries, including motorcycles, batteries, steel and high-speed train facilities and equipment in China’s free-trade zones in Shanghai, Tianjin, Guangdong and Fujian. “It will promote healthy competition, and benefit supply-side structural reform,” said Zhao Zhongxiu, vice-president of the University of International Business and Economics. As a critical step in the supply-side reform, Starting from May 1 of 2016, the replacement of business tax with value-added tax (VAT) will be extended to the fields of construction, real estate, finance and consumer services — the lion’s share of the source of business tax and the most difficult part of the VAT reform. An across-the-board replacement with the VAT will lower tax burdens on all industries, streamline taxpaying processes and benefit small businesses in particular, encouraging more investment, entrepreneurship and innovation in the economy.

China’s Financial Reforms Boost Real Economy

In March 2014, the State Council approved five pilot private banks. By the end of the first quarter this year, the total assets of these banks reached 95.94 billion yuan (around $14.44 billion), up 20.8 percent compared to the beginning of the year, with a loan balance of 35.65 billion yuan (around $5.4 billion), up 51 percent from Jan. China's 133 city commercial banks recorded 25.2 trillion yuan ($3.76 trillion) in total assets by the end of June 2016, according to the China Banking Regulatory Commission (CBRS). The figure represents annual growth of nearly 40 percent from a year earlier. The banks’ outstanding loans totaled 9.5 trillion yuan, while deposits amounting to 15.6 trillion yuan, the CBRC said at an annual conference in Nanchang city. China’s city commercial banks have developed quickly in recent decades. Their

78 www.followcn.com combined assets now account for 11.9 percent of the banking system’s total. In addition, China’s first five private banks, including the Tencent-backed Webank, saw their assets rise to 114.9 billion yuan as of the end of June 2016, with the bad lain ratio at 0.34 percent. In May 2016, the second group of private banks were approved. The approval of private banks has become a regular procedure, said Shang Fulin, head of the China Banking Regulatory Commission, implying more private banks would be in place. “Small and medium banks and SMEs are natural partners”, said Yan Bingzhu, chairman of the Bank of Beijing. Private capitals will unleash financial market vitality and increase efficiency to solve financial headaches for SMEs. In October 2015, the People’s Bank of China removed the cap on deposit rates, lifting controls on interest rates. “It is a milestone of market-oriented interest rate reform,” said Lu Lei, director of the central bank’s research bureau. Meanwhile, major progress has been made in exchange rate formation mechanisms. In March 2014, China allowed the yuan to fluctuate two percent from one percent against the US dollar in the inter-bank spot foreign exchange market, and optimized RMB central parity rates in 2015. According to the People’s Bank of China, more efforts are expected in the reform of interest rates and RMB central parity rates to increase the allocation efficiency of financial resources and optimize financial control mechanisms. Along with the deepening of financial reform, more financial channels are made available for enterprises. By Aug 5, 8,147 companies have been listed in National Equities Exchange and Quotations, raising a total of 76.382 billion yuan (around $11.49) by issuing shares. In the first quarter of this year, direct financing has reached 1.524 trillion yuan (around $229.3 billion), up 228% year on year, an increase of 12.3 percent in the share of incremental social financing. “The reform enables enterprises to choose the right market for financing according to their demands in growth, share transfer, and financing.” said Zhao Xijun, deputy head of the School of Finance, Renmin University.

State Council Issues Guideline on Division of Financial Powers

The State Council on Aug 24,2016 released a guideline on promoting the reform of dividing financial powers and expenditure responsibilities between central and local governments to improve their efficiency in providing public services. Financial power is the government’s responsibility to provide public services with funds. And a clear division of responsibilities between central and local governments ensures that they properly exercise their financial powers. Since the reform and opening-up, the fiscal relationship between central and local governments has changed a lot, from the earliest highly centralized fiscal management system to the reform of taxation system in 1994, forming a clear framework for power division, according to the guideline. It said the general principle is that financial powers should be decided by the central

79 www.followcn.com government. The reform is aimed at promoting and improving the division of powers between central and local governments, and speeding up the responsibility division of governments below provincial levels. The reform will reinforce the central government’s fiscal powers in guaranteeing national security, safeguarding a nationwide unified market, expressing social justice and promoting coordinated regional development. Funding for basic public services closely related to local residents’ standard of living should be allocated by local governments, the guideline said. It also urged reducing any overlapping administrative powers held by local and central governments to clarify responsibilities undertaken by governments at different levels. Meanwhile, basic public services with clear strategic intention and cross-regional administration advantages will be designated a shared financial responsibility of both central and local governments. The funds for financial powers that belong to the central government should be allocated by central finance. And in principle, local governments should use their own resources to exercise their financial powers. Expenditures for basic public services involving nationality, citizens’ rights, national unified market and free flow of elements will be undertaken by the central and local governments according to a formula. Provincial level governments should take the central government’s practices as reference, and determine the expenditure responsibilities of governments below the provincial level according to their financial systems and local financial situations, the guideline said. The responsibility division reform will be carried out in public services related to national defense and safety, foreign affairs and public security in 2016. And in 2017-18, the reform is expected to make big breakthroughs in public service sectors, including education, medical health, environmental protection and transportation. In 2019 to 2020, reform in major areas will be basically completed, and a clear financial responsibility division between central and local governments will be formed.

Reforms of Three Policy Banks

The State Council has approved plans to reform three Chinese policy banks, a statement on the government’s website said on April 12, 2015. The banks are the China Development Bank (CDB), the Export-Import Bank of China (also known as the China Exim Bank) and the Agricultural Development Bank of China (ADBC). The CDB must stick to its positioning as a “development financial institution,” while the China Exim Bank must build itself into a “policy bank with sustainable development capacities” and the ADBC must become an “agriculture policy bank with sustainable development capacities,” said three separate statements. The CDB must adapt to the market and internationalization to improve

80 www.followcn.com development-oriented financial operation models and play its key role in stabilizing economic growth and restructuring, a statement said. Set up in 1994, the CDB has been primarily responsible for raising funding for large infrastructure projects. The China Exim Bank must play its role in stabilizing growth, restructuring, boosting exports and implementing the “going-out” strategy, another statement said. Set up in 1994, the bank has been working to promote foreign trade and investment. The ADBC must keep policy-oriented businesses as priorities and distinguish between policy-oriented businesses and self-operated businesses in accounts, responsibilities and risk compensation systems, a third statement said. Set up in 1994, the bank has been serving agriculture and the rural economy.

Internet Finance Guidelines Pave Way for Healthy Sector

Online deposit products provided by Chinese technology firms have not only gotten on the nerves of big commercial banks, but drawn attention from the country's top legislators and political advisers. Allowing Alipay users to channel spare money to money market funds with high returns and almost zero threshold, Yu'E Bao became an instant hit. The service has so far attracted 81 million users, with aggregate deposits estimated at around 500 billion yuan (81 billion U.S. dollars). Many citizens and entrepreneurs have supported it, hailing it as a good innovation, a relief for individual savers and micro businesses and a whip on China's interest rate reform. Financial experts, on the other hand, have cautioned against risks. Financial authorities hope new guidelines for China’s burgeoning online finance market can end the sector’s wild growth and foster a healthy market through closer supervision and support for innovation. Issued by 10 central government ministries, including the central bank, the guidelines propose measures to cope with risks in the industry, such as a mechanism for improved transparency, and a public education campaign on online banking. The guidelines categorize online banking into different business sectors and place each sector under the supervision of a specific institution. The central bank will oversee online payments while the China Banking Regulatory Commission will supervise online lending and peer-to-peer platforms. The China Securities Regulatory Commission will be responsible for crowdfunding and the online sale of funds. “China has seen rapid development in Internet finance, but some problems and hidden risks have also cropped up. The release of the guidelines showed the government has been well aware of that and is determined to address the problems,” said Guo Tianyong, a professor at Beijing’s Central University of Finance and Economics. He said the guidelines are an important step in implementing China’s “Internet plus” strategy aimed at using cyberspace to foster new ideas and growth in the economy, plus regulating the exploding market. Internet finance has played a positive role in helping small enterprises grow and

81 www.followcn.com expanding employment, opening the doors for mass entrepreneurship and innovation. However, risks such as fraud, fund flight, illegal fundraising and an imperfect credit system have emerged. The turnover of Chinese peer-to-peer (P2P) lending platforms, loans made without going through traditional financial institutions such as banks, reached 321.19 billion yuan ($53.76 billion) in 2014, up 268.83 percent year on year, according to the Payment & Clearing Association of China. Its report also showed that 287 P2P platforms either went bankrupt or had difficulty in withdrawing funds as a result of fraud in 2014. This was an increase of 282.67 percent from the previous year. The guidelines should decrease the negative effects of illegal network transactions, protect the legitimate rights of investors and encourage fair competition, according to Guo. They specify that client funds must be parked at established banks, and require that online financing platforms provide better disclosure and warn customers more regularly about risk. In addition, the guidelines also outline measures to encourage innovation in Internet finance, including boosting cooperation between financial institutions and Internet companies, expanding access to capital, cutting red tape and introducing tax breaks. According to the guideline, the government will broaden channels for fundraising for Internet finance firms and will encourage those they deem qualified to list on domestic markets. Zhang Jun, CEO of Internet finance ppdai.com, said the guidelines provide a legal groundwork for the P2P lending sector and will benefit the industry as it develops. “It will also kick out unqualified P2P platforms and reshape the market,” said Zhang. In the long run, the guidelines will need to be adapted to the changing environment of Internet finance, with companies being the key player in Internet finance while government is the supervisor, said Guo.

Measures to Help Prevent Risks in Internet Finance

China introduced measures to address risks brought by irregular and illegal activities in the internet finance sector for the healthy development of the industry, according to a circular issued by the State Council on Oct 13, 2016. The circular made a distinction between legal and illegal activities in the sector, and submitted measures targeting specific areas of risk. According to the circular, P2P (Peer-to-Peer) lending platforms are banned from setting up capital pools, extending loans, and illegal fundraising. Offline marketing is not allowed, either, except for credit information collection and verification, posts of loan tracking, and pledge and mortgage management. Equity-based crowdfunding platforms should not fabricate targets and carry out self-financing, according to the circular. The two platforms are not allowed to engage in finance business such as asset management, creditors’ rights or equity transfers, or high-risk securities market funding, unless they are officially approved. In addition, no real estate development enterprises, real estate agents, or internet

82 www.followcn.com financial institutions without credentials can be engaged in real estate finance business through the two platforms. The circular also listed measures to address potential risks in online asset management and cross-sector financial business. Internet enterprises’ financial business and public sales of financial products generated from private offerings are banned without permit. Financial institutions should not conduct asset management business through asset management products nesting on the internet to evade supervision. Branches under the same business group that obtain various financial business qualifications should not violate connected transaction regulations, the circular said. As for third-party payment business, non-bank payment institutions are not allowed to seize customers’ prepayments, and the prepayment accounts should be opened at the People’s Bank of China or qualified commercial banks with no interest. Cross-bank settlement is forbidden for non-bank payment institutions by connecting several banks’ systems, according to the circular. Moreover, advertisements for internet financial products should be true and accurate, in accordance with related laws and regulations. Other measures such as conducting strict market access, enhancing capital monitoring, establishing reporting systems, and incentive and punishment mechanisms should also be introduced to enhance the overall regulation of risk areas.

China to Reform Income System for Medical Workers

Chinese authorities have pledged to reform the income system for medical and health workers as part of efforts to provide citizens with better public services. The adjustment, which will be conducted in line with the nature of the sector, aims to inspire medical workers to better perform their duties, according to a guideline forwarded by the general offices of the Communist Party of China (CPC) Central Committee and the State Council on promoting successful experiences gained in medical and health service reforms. A public-benefit-oriented evaluation system will be established for medical workers, and their income will see a proper rise, it said. Moreover, the current recruitment procedures for professional and technical personnel and high-level staff, who are often badly needed in hospitals, will be streamlined, and more high-level talent will be encouraged to work in local hospitals, the guideline said. Noting the achievements made in the reform of the medical and health sector in recent years, the guideline said that 80 percent of Chinese citizens are able to access medical services within 15 minutes of their homes and Chinese citizens’ average life expectancy has reached 76.34, up from 74.83 in 2010. According to the “Healthy China 2030” blueprint, China wants to increase its citizens’ average life expectancy to 77.3 by 2020 and 79 by 2030, up from 76.34 in 2015.

New Measures to Increase Rural Incomes

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The State Council has rolled out measures to increase rural residents’ income, with innovation to help them cultivate new business. The circular put forward a target of doubling farmers’ per capita income by 2020 from 2010. The government will invest more in agricultural infrastructure construction concerning agricultural technology and power grid upgrading in rural areas. Also, more private capital will be encouraged to flow into rural areas, according to the circular. Efforts will be made to improve subsidy policies for farmers, help maintain farmland capacity and moderate grain management to secure income. In addition, cultivating special agriculture and good brands will help set up incentives. To enhance financial services, the circular stressed development of inclusive financing, encouraging business banks and internet finance to support rural areas’ development in an orderly manner. Banks and financial institutions are encouraged to develop credit products and service modes that meet the demands of entrepreneurship and innovation in rural areas, to help solve the financing problem. Financial support policies aimed at university students, returning overseas students, science workers, youths and women starting their own businesses should help more people returning to their hometowns or going to rural areas. The government is ready to increase policies to help farmers get equal employment opportunities and start businesses. To this end, the circular urged enhancing training of new-type professional farmers, and helping rural migrant workers in cities enjoy equal pay for equal work. Efforts will also be made to develop agricultural products’ processing industry and agritourism, improve service platforms, and develop technology and e-commerce for returning migrant workers’ entrepreneurship.

China’s Progress Toward Fairer Income Distribution

The 12th Five-Year Plan (2011-15) period has seen great improvements being made in the income distribution system. In February 2013, the authorities decided to further improve the income distribution system, increase urban and rural residents’ incomes, narrow the income gap and manage income distribution according to the Guideline on Deepening Reform of Income Distribution System, which spelt out the overall demand and target of the income distribution system reform during the 12th Five-Year Plan period. The Amendment to the Criminal Law (VIII) in February 2011 made the refusal to pay workers’ dues a crime in order to deter intentional default on paying wages. To narrow the increasing income gap, the Amendment to the Individual Income Tax Law was approved in June 2011, which increased the threshold of individual income tax to 3,500 yuan ($550.1) and changed the 9-level excess progressive tax rate to 7 levels, reducing the tax burden of the middle- and low-income groups and increasing their disposable incomes. In August 2014, the authorities launched the salary system reform for senior central government enterprise officials by placing caps on their salaries and establishing a differentiated salary distribution system. The authorities have also promoted

84 www.followcn.com performance-based payments in many public organizations, including compulsory education schools and health centers such as hospitals. And in January 2015, the authorities decided to establish rank promotion besides administrative promotion channels for grassroots civil servants. The goal of income distribution reform during the 12th Five-Year Plan is to increase people’s incomes. To ensure that, the government should first improve farmers’ subsidy and improve the interest compensation mechanism in major grain-growing areas. Second, it should raise the minimum wage level in order to increase the low-income group’s incomes. Third, the government has to change the basic pension system. China has increased enterprise retirees’ basic pension for 11 consecutive years from 700 yuan a month in 2004 to 2,082 yuan in 2015. Fourth, the government should change the mechanism of social assistance and security standard to further increase the subsidy given to low-income and disadvantaged groups. And fifth, it has to change its yardstick to measure poverty. A positive move in this direction was the lifting of the benchmark for rural poverty to 2,300 yuan in 2011, up 92 percent over the 2009 level. The income distribution reform, too, has made good progress. For instance, Chinese people’s income levels have increased remarkably. In 2014, the per capita disposable income of urban residents in China was 28,843 yuan, 50.94 percent higher than in 2010. And the per capita income of rural residents was 10,488 yuan, up 77.21 percent over the 2010 level. More importantly, the income gap between urban and rural residents has reduced remarkably－from 3.23 times in 2010 to 2.75 times in 2014. Also, the income distribution pattern has improved. In 2010, residents’ incomes accounted for 46.91 percent of China’s GDP. In 2014, the percentage increased to 48. But there is still a lot of work to do to further deepen the income distribution reform, especially during the 13th Five-Year Plan (2016-20) period. The 13th Five-Year Plan period is the key stage in the building of an all-round moderately well-off society. And the key task of the income distribution reform in this stage is to increase people’s incomes to achieve the goal of doubling rural and urban residents’ real income by 2020, compared with that of 2010. It is therefore necessary to expedite the process for legislation on income distribution, for a law is needed to build a new and mature income distribution system that suits the need of a socialist market economy. The author of this article Liu Junsheng is a researcher at the Institute for Labor and Wage Studies, affiliated to the Ministry of Human Resources and Social Security.

Reforms Key for Internationalization of RMB

The historic inclusion of China's Renminbi into the Special Drawing Right (SDR) basket of the International Monetary Fund (IMF) has deeper significance for China and the global economy, said Zhang Tao, deputy managing director of the IMF, on 4th October

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2016. "The inclusion of the Renminbi thus recognizes a significant increase in the internationalization of the Chinese renminbi in recent years, underpinned by policy reforms to achieve China's transition to an increasingly open and market-based economy," said Zhang Tao at a forum held by the Peterson Institute for International Economics and China Finance 40 Forum in Washington. Last November, the IMF decided to include the RMB in the SDR basket as a fifth currency, effective Oct. 1, 2016. It's the first time for the IMF to include a currency from emerging market economy in its SDR basket. More reforms are expected to be unveiled to accelerate the internationalization of the yuan. “China has tasted the sweetness of reforms during the past year, when the RMB was admitted by the International Monetary Fund (IMF) into the currency basket of the Special Drawing Rights (SDR),” said Zhang Shuyu, a researcher with the University of International Business and Economics. The RMB’s inclusion into the SDR basket came after a flurry of reforms, including the exchange rate formation mechanism and cross-border interbank payment. “China did not stop its reform steps after the IMF’s SDR inclusion of the RMB and will not relax its efforts,” said Zhang, citing the central bank’s moves to pilot RMB convertibility on the capital account and publish the China Foreign Exchange Trade System (CFETS) exchange rate composite index on December 11. China’s central bank has been working hard to keep the yuan “basically stable at a reasonable equilibrium level”. It pointed to the fundamentals of China’s economy as a long-term factor that will prop up the Renminbi. The People’s Bank of China (PBOC) approved RMB convertibility on the capital account within a prescribed limit of $10 million for the Tianjin, Guangdong and Fujian free trade zones on Dec 11, 2015, a historic step by China to open up its capital accounts. The move came less than two weeks after the RMB was admitted by the IMF into its SDR basket alongside the dollar, euro, pound sterling and yen on Nov 30. China allowed RMB convertibility on the trade accounts nearly two decades ago, but almost all capital account transactions in the mainland remain under varying degrees of control. On Dec 11, 2015 the central bank released the yuan exchange rate composite index measuring the currency’s strength relative to a basket of other currencies to better reflect the market. Analysts believe it will help bring about a shift in how the public and the market observe RMB exchange rate movements, as the CFETS exchange rate composite index measures the yuan’s strength relative to a basket of 13 foreign currencies, including the US dollar, euro and Japanese yen, weighted according to their trade volume with China. “Compared with just one currency, a basket of currencies can better capture the competitiveness of a country’s goods and services and better enable the exchange rate to adjust imports, exports, and investment activities and the balance of payments position,” said the PBOC in a note. However, valuing against a basket of currencies does not mean a peg to the basket, said the PBOC, adding that market demand and supply will also play a key role in

86 www.followcn.com formulating the interest rate. The establishment of the China-initiated Asian Infrastructure Investment Bank on Dec 25 in Beijing will also help the internationalization of the RMB, as it creates more possibilities for the international use of the currency, according to a report by Stcn.com, a People’s Daily affiliate. “In the future, China will unswervingly push forward financial reforms. The pace of market-oriented interest and exchange rate reforms will pick up speed,” said Yang Ping, analyst with the People’s Bank of China, on Dec 30. China will seek to optimize the interest rate transmission mechanism and exchange rate formation mechanism as well as improve transparency of monetary policies, according to Yang.

Local Governments’ Debt Risks

While Chinese authorities have said the nation's debt risks are controllable, they still face challenges at the local level featuring illegal financing guarantees and fake public-private partnerships (PPPs). By the end of 2015, the provinces of Zhejiang, Sichuan, Shandong and Henan had registered a total of 15.35 billion yuan in outstanding debt involving irregularities, according to latest statistics with the National Audit Office. Local government debts soared during an investment and construction binge following the global financial crisis in 2008. China has put a ceiling on the amount of local government debt. The total outstanding debt of the nation's local governments must be kept under 17.2 trillion yuan at the end of 2016, according to the central budget for 2016. Data from the ministry showed total local government debt in China stood at 16 trillion yuan (about 2.35 trillion U.S. dollars) at the end of 2015 with a 38.9-percent debt-to-GDP ratio -- markedly lower than the 60-percent alert line of the European Union and other major economies. In 2015, Chinese local governments issued nearly 600 billion yuan ($91.43 billion) in new bonds and converted another 3.2 trillion yuan in outstanding debts to low-interest bonds under a bond-for-debt swap program. The central authorities have introduced the swap program and put a cap on new debts to defuse risks, and are trying to increase the incomes of local governments. The bond issuance and swaps are likely to range from five to six trillion yuan in total in 2016. Government debt risks will be defined by four levels . Situations in Level One include defaulting on the bond issued by provincial governments, and debt defaults of over 15 percent of municipal or county governments in a provincial region. At Level Two, 10 percent to 15 percent of municipal or county governments in a provincial region would fail to pay their debts. Although Premier Li Keqiang said that China’s government debt risks are “controllable,”local governments are urged to take different measures for risks of different levels.

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China's debt has soared to 250 percent of gross domestic product from 150 percent a decade ago, and the Bank for International Settlements (BIS) warned in September 2016 that a banking crisis was looming in the next three years. Former Finance Minister Lou Jiwei has expressed his concern about the increasing risk from too-big-to-fail financial corporations. Speaking at the G20 meeting of finance ministers and central bank governors in Chengdu, Sichuan province, Lou said China will be cautious in using public funds to intervene in the market unless there is a “systemic crisis”. According to a report on September 16, 2016 in the Telegraph Business, China has failed to curb excesses in its credit system and faces mounting risks of a full-blown banking crisis, according to early warning indicators released by the world’s top financial watchdog. A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late. The Bank for International Settlements warned in its quarterly report that China’s "credit to GDP gap" has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia's speculative boom on 1997 or in the US subprime bubble before the Lehman crisis. “But China needs this debt, because it is helping the economy to grow. China's economy has been slowing down, and one of the ways that growth has been propped up is through debt, which is now thought to be worth 225% of GDP, according to, amongst others, the International Monetary Fund. In the event that some Chinese banks face massive defaults, the Chinese government could and very likely would bail them out.” A BBC journalist Karishma Vaswani said in a report.

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Chapter Seven

Transport and infrastructure development

China spends more on economic infrastructure annually than North America and Western Europe combined, according to the report published by McKinsey Global Institute on 15 June 2016. Meanwhile, China is still going gangbusters on roads, bridges, sewers, and everything else that makes a country run. “Infrastructure investment has actually gone down in half the G20 economies,” says Jan Mischke, senior fellow at McKinsey Global Institute, who worked on the report. The culprit was the global recession in 2009. But it hasn’t stopped China. Between 1992 and 2013, China spent 8.6% of its GDP on building roads, railways, airports, seaports, and other development projects that are key to keep people and goods on the move, and keeping the economy strong. That same spending figure was just 2.5% for Western Europe, and 2.5% for the US and Canada put together. China has a long history in bridge construction. It has now some of the world’s longest bridges and many more are under construction. During the infrastructure boom of the past two decades, bridge-building has proceeded at a rapid pace on a vast scale. Prior to the completion of the Wuhan Yangtze River Bridge in 1957, there were no bridges across the Yangtze River, China's longest, from Yibin to Shanghai, and all overland roads and railways crossing this 2,884 km (1,792 mi.) stretch of the river had to be ferried. There were only seven such bridges in 1992, but that number reached 73 by the end of 2012, including eight new openings in that year alone. China's high-speed railways now exceed 20,000 km in length with the opening of a line linking Zhengzhou in central China's Henan Province with Xuzhou in eastern Jiangsu Province. China Railway Corp. said the first 10,000 km took 11 years and has since doubled in only three years, and is expected to nearly double again by 2025 and reach 45,000 km in 2030. Despite government encouragement, private-sector businesses are losing out in most infrastructure projects to state firms, which are favored by local authorities because they are seen as financially stronger and better able to raise capital. State companies are also more likely to bid for projects that private firms consider financially unfeasible. Foreign participation in China's rail market or infrastructure as a whole has for the last decade been limited to minority stakes in joint ventures or as sub-suppliers of domestic players, often with the condition that they transfer technology to local partners. The European Chamber of Commerce in China has raised concerns over tougher conditions for companies with foreign investment, saying recent statements from Beijing about opening the rail market up to private capital "indicates that the government treats domestic capital preferentially." The Chamber in June 2016 warned of an "increasingly hostile" overall business environment that was tilted in favor of domestic firms.

China Upgrades Plan to Boost Rail Network

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China's top economic planner announced 11 June 2016 it has approved feasibility reports for two railway projects with total investment of 79.47 billion yuan (11.84 billion U.S. dollars). The two projects would be located in the country's underdeveloped western regions, including Guizhou, Guangxi Zhuang Autonomous Region and Xinjiang Uygur Autonomous Region, according to statements on the website of the National Development and Reform Commission. China put forth a more comprehensive plan for further expanding the country's rail network at a State Council meeting on 30 June 2016, presided over by Premier Li Keqiang. The railway is China's key means of transportation and the lifeline of China's economy. The new plan aims for more balanced national railway construction, bringing greater accessibility to more parts of China. It also aims to build a comprehensive transportation network together with road, water and air transportation. Li stressed at the meeting that developing the rail sector remains of critical importance to China. "At present, it is still a pressing task for us to expand China's railway network. It is the lifeline of the economy," Li said. "When compared to developed countries similar in size, the length of China's operating railways is still not long enough, and railway construction is important for stabilizing economic growth and structural reform especially in central and western China," he said. In 2008, China's National Development and Reform Commission issued a national railway plan, targeting an operating rail network of more than 120,000 km by the year 2020. The new plan approved on Wednesday is an upgrade of the 2008 plan. According to the new plan, by the year 2020, China's railway network will reach a total of 150,000 km, of which about 30,000 km are high speed railway. Key measures include expanding the high-speed rail network to eight rail lines north to south, and eight lines east to west. Inter-city rails will also be gradually enhanced. Once achieved, rail travel between neighboring major and medium-sized cities will take no more than four hours. Statistics from China's National Development and Reform Commission show that by 2015, China had an operating rail length of 121,000 km, of which 19,000 km were high-speed rail. Over the past several years, high-speed railways have been developing rapidly, and have made transportation between big cities such as Beijing and Shanghai and lower-tier cities much more convenient. The new plan also envisages boosting rail construction in central and western areas to achieve a more balanced development among regions. During the meeting, Li said that more innovation is required in resolving problems encountered in rail development. "We should seek innovation in developing China's railway project with both social and economic implication in mind, and this new plan should be planned well in advance with consideration not only given to demand, but also financial feasibility," Li said.

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He also pointed out during the meeting that China Railway, China's national railway operator, needs to press ahead with self-reform and work hard to build a modern corporate system and finance through marketable ways so as to play a key role in the country's railway development.

China’s Plan for National Road Network

A plan to expand China's national road network to 401,000 km by 2030 was released on 18 June 2013. The plan, compiled by the National Development and Reform Commission and the Ministry of Transport, will require an investment of 4.7 trillion yuan ($761.8 billion), according to information provided at a joint press conference. The network expansion aims to bring the length of national non-toll roads to 265,000 km and that of low-toll expressways to 118,000 km by 2030. Despite booming construction in recent years, more than 900 counties in China have yet to be connected to the national road network and some expressways are overcrowded, according to Dai Dongchang, chief planner at the Ministry of Transport. As of the end of 2012, China had 173,000 km of national-level roads, including 105,000 km of common roads and 68,000 km of expressways. The national-level roads accounted for 4 percent of China's road network at all levels, including national-level, provincial and rural roads. The plan calls for the road network to reach a size of 5.8 million km by 2030.

The Most Costly South-to-North Water Diversion Project

About 1.6 billion cubic meters of water, about 70% of the city’s demand, has been transferred to Beijing since late 2014 when water diversion began via the middle route of the project, directly benefiting more than 11 million people in the capital, according to the project's construction commission office in Beijing. The middle route of China's south-to-north water diversion project carries a massive 9.5 billion cubic meters of water through canals and pipes annually from the Danjiangkou reservoir in central China's Hubei Province to the provinces of Henan and Hebei as well as Beijing. The South-to-North Water Diversion Project is an infrastructure mega-project in China. Ultimately it aims to channel 44.8 billion cubic meters of fresh water annually from the Yangtze River in southern China to the more arid and industrialized north through three canal systems. The complete project was expected to cost $62 billion. By 2014, more than $79 billion had been spent, making it one of the most expensive engineering projects in the world. To ensure water quality, Henan has made a 1,595 square km water protection zone near the reservoir and removed nearby factories and companies along the water diversion route to make room for forestry. The province has also put 181 water treatment and soil conservation projects in place to protect water sources. In exchange for clean water from the south, Beijing has funded water protection and

91 www.followcn.com related programs in Henan with 250 million yuan (37.69 million U.S. dollars) per year since 2014. Among other concerns, the State Administration of Cultural Heritage says that at least 788 cultural heritage sites will be affected by the project; and many experts are concerned about the inevitable damage during construction. China is plagued by uneven distribution of water resources, floods and droughts, and lags behind the global average for water resources per capita. China plans to build 20 new major water conservation projects in 2016 amid efforts to boost investment and stabilize growth.The total investment in major water projects under construction should be no less than 800 billion yuan (126.2 billion U.S. dollars), according to the Ministry of Water Resources (MWR).

Civil Aviation: China Fully Opens Civilian Airport Market to Private Capital

China will become the world’s first aviation market to exceed $1 trillion in value in 20 years, according to a forecast by the U.S. airplane giant Boeing. The country is predicted to demand 6,810 new airplanes over the next two decades, with the total value of new aircraft reaching $1.025 trillion. The country also fully opens the market of general aviation airport construction, launchpad for a fledgling industry with a market value projected to hit 150 billion yuan (about $22 billion) by 2020.

1) new civil airport in Xiangxi, Hunan province

The new airport will be a 4-C standard domestic feeder-line airport. A 2,600-meter-long runway and a 3,000-squaremeter large terminal will be built, together with four parking gates and some supporting facilities, according to the plan. By 2025, it is expected to facilitate 300,000 passengers and deliver 450 tons of cargo. The investment volume of the project will be around 1.686 billion yuan ($250.7 million), which will be paid by National Development and Reform Commission, Civil Aviation Administration of China and Hunan provincial government. Xiangxi is an autonomous prefecture by ethnic minor groups, including Tujia and Miao. Located in western Hunan province, it consists of one city, Jishou, and seven counties.

2) civil airport in Jingzhou, Hubei province

The new airport will be a 4-C standard domestic feeder-line airport, with a new runway of 2,600 meters. By 2025, passenger throughput should reach 700,000, while cargo throughput is expected to reach 2,450 tons. The new terminal will cover an area of 7,000 square meters, and total investment for the project will exceed 1.29 billion yuan.

3) civil airport in Wuhu, Anhui province.

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The new airport will be a 4-C standard domestic feeder-line airport, with a new runway of 2,800 meters. By 2025, passenger throughput should reach 1.2 million, while cargo throughput is expected to reach 5,000 tons. The new terminal will cover an area of 15,000 square meters, and total investment for the project will exceed 1.33 billion yuan.

4) civil airport in Anyang, in Central China’s Henan province.

The new airport will be a 4-C standard domestic feeder-line airport, with a new runway of 2,600 meters. By 2025, passenger throughput should reach 550,000, while cargo throughput is expected to reach 2,000 tons. The new terminal will cover an area of 6,000 square meters, and total investment for the project will exceed 1.17 billion yuan.

5) First domestic regional jet delivered

Commercial Aircraft Corporation of China delivered its first regional aircraft － designated the ARJ21-700 － to Chengdu Airlines on Nov 29, 2016, after the jet took 5,258-hour testing flights over the past seven years. The ARJ21 regional aircraft is the first step in China’s civil aircraft development strategy. It’s also an achievement for the Made in China 2025 strategy. The range of the aircraft is between 2,225 and 3,700 kilometers, which is appropriate for carrying passengers on routes between major cities to nearby smaller cities. It will be the only customer during the coming year, although COMAC has more than 300 orders from 20 clients, including some foreign carriers.

6) COMAC’s C919 large passenger aircraft

China’s ambitions extend beyond the manufacture of regional jets. Comac is also working on a full-size jetliner: the C919. Like the ARJ21, it also has been beset by a series of delays. It’s now expected to make its first flight by the end of this year and to enter commercial airline service in 2019 -- both years later than first thought. Comac's C919 jet would compete with similar-sized planes made by the world's two giant jetmakers: Boeing of the United States and Europe's Airbus. Boeing's 737 and Airbus' A320 series of jets are among the best-selling aircraft in the world. Boeing projects China will need more than 5,500 civilian jetliners to meet its growing demand during the next 20 years, placing the value of those planes at about $780 billion.

China Outlines Roadmap to Build Better Cities

Chinese central authorities on Feb 21 issued guidelines on urban development, two months after leaders met for the Central Urban Work Conference and promised to make China’s sprawling cities more livable, efficient and green. The document, from the Communist Party of China Central Committee and the State Council, set the basic principles, key tasks and targets for future urban development and management, aiming to ensure that cities are “orderly constructed, properly developed, and efficiently operated”.

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The last time China held a meeting like the Central Urban Work Conference was in 1978, when only 18 percent of the population lived in cities. That had increased to 56.1 percent by the end of 2015. Urbanization in the past few decades has brought about significant social and economic changes in China, spawning problems including traffic jams, pollution and compromised public safety. Such urban ills have provoked public ire, putting pressure on city planners to find solutions. Chen Zhenggao, minister of housing and urban-rural development, said the document was drafted based on careful research by its ministry and 29 other related departments. The guidelines said China will limit cities from growing beyond the means of their natural resources and environment. Currently, Beijing, Shanghai and Chongqing municipalities all have populations exceeding 20 million. Cities like Tianjin, Guangzhou and Shenzhen each have more than 10 million. Priority will be given to the protection of farmland, while land for construction use will be “properly allocated”. The country plans to take around five years to inspect and clear up illegal construction. It also called for city planners to differentiate cities with urban landscape based on local characteristics. Aside from the exterior of buildings, factors including resource and energy conservation as well as environmental protection should also be taken into account in the process of designing and constructing, the guidelines said. As part of efforts to provide low-income urban residents with affordable housing, China aims to complete renovation of rundown urban areas and dilapidated housing by 2020. China will also improve urban planning and construction of infrastructure, both underground and overground. Construction standards and project quality will be raised, the guidelines said. To ease traffic jams in the cities, China looks to expand public transport network such as buses and railways. By 2020, China aims to raise the penetration of public transport to 40 percent in megacities, 30 percent in big cities and 20 percent in medium- and small cities. Efforts will be intensified to cut pollutant emission in the cities with increasing supply of clean fuel to improve energy structure, the document said. It also called for developing smart cities through various Internet technologies, such as big data and cloud computing, aiming to upgrade urban management and services.

State Council Forwards Plans for Grid Upgrade

The State Council on Feb 22,2016 forwarded a document issued by the National Development and Reform Commission on a new round of upgrades for the rural power network during the 13th Five-Year Plan period (2016-20).

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The measure is expected to improve rural infrastructure, drive up consumption and spur the development of related industries. According to the plan, China will provide stable and reliable power supplies to rural areas in the entire country by 2020 with enhanced services. Reliability of power supplies is expected to reach 99.8 percent, while the qualified rate of integrated voltage will rise to 97.9 percent. A smart, effective and modern rural power network will be established with reasonable structure and advanced technology. In eastern regions, equal power supply services will be extended to both urban and rural areas, while in central and western regions, the urban-rural gap will be narrowed drastically. In particular, the National Development and Reform Commission called for the upgrade of power facilities in new towns, central villages and for agricultural production. Diversified investments in rural power networks are also encouraged. The new type of urbanization is an inevitable path to modernization, the greatest potential in domestic demand, an important driver for economic development and a major livelihood project, the guideline said. It calls for overall planning and coordinated development between towns and cities of all sizes, thus improving the quality of overall urbanization. Implementation of household registration system reform policies and improvement of basic public services covering all residents is another facet of the guideline. It urges speeding up the renovation of shantytowns, villages in cities and dilapidated houses, the construction of a comprehensive transportation network, underground pipeline network and sponge cities, as well as new types of cities.

State Council Promotes Urban Underground Utility Tunnels

China plans to build and put into operation several world-class underground utility tunnels - a network of pipes for power, water, heating, telecommunication, gas and other systems crucial to urban life - by 2020. The plan aims to guarantee pipeline safety and disaster-resisting capability. The project is expected to eliminate overhead lines and solve the problem of city streets being repeatedly dug up for construction purposes, and it is also set to substantially improve the urban landscape. A State Council document issued on August 10 requested that, starting from this year, the government should make sure that development of underground utility tunnels should be carried out at the same time as the construction of roads in new districts, industrial parks and development zones. Regarding old areas of a city, the authorities should also plan underground tunnels at the same time as projects such as road reconstruction and river regulation. The construction of utility tunnels is a special priority in urban areas - and concerns infrastructure related to roads, rail transit and underground complexes that involve high traffic volume and many pipelines. It is also a priority in intensive development zones, public spaces and major intersections of roads, railways and rivers, as well as in certain narrow road sections that cannot sustain multiple pipelines.

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The central government will arrange financial support through current channels, while local administrations should pump more funds into the construction of the utility tunnels. Enterprises are also encouraged to invest in the construction and operation of such tunnels through innovation of investment and funding modes and promoting cooperation between the government and social capital (the public-private partnership model). The government supports social capital to enable project companies to participate in the construction and operation through franchising, subsidies and discounted-interest loans, in a bid to optimize contract management and secure stable returns on the projects. Relevant financial institutions are also encouraged to provide further credit support to the construction of the tunnels through effective development financing - as the central government has identified the project as “key to people’s livelihood”.

Yangtze River Delta Region to be Pilot of Reforms

A cluster of 26 cities in Yangtze River Delta region, including Shanghai, Jiangsu, Zhejiang and Anhui, will become pilots in future reforms, according to the State Council. More than 30 years ago Guangdong province took the lead in reform and opening-up and now a new round of reforms need more “pilots”, Premier Li Keqiang said at the State Council executive meeting on May 11. An outline aimed at building the city cluster in Yangtze River Delta region into a world-class one by 2030 was adopted at the meeting. According to statistics, with only 211,700 square kilometers (2.2 percent of national territory area), the city cluster in the region has 150 million people (11 percent of national population) and generated 12.67 trillion yuan ($1.94 trillion) in 2014 (18.5 percent of national GDP). Development based on reform and innovation will promote coordinated development of city cluster in Yangtze River Delta region, advance industrial upgrades, boost people-oriented urbanization, accelerate agricultural modernization, drive develop in peripheral and central and western regions, and strengthen national competitiveness, Premier Li said.

New pilots in reform and opening-up

“There are no preferential tax policies and financial support for Shanghai Pilot Free Trade Zone. What we will do is to promote further reform through streamlining administration and delegating power to lower-level government as well as system and mechanism innovation,” the Premier said. “New highland” of reforms should be built to further develop the Yangtze River Delta region which, according to the Premier, can take a lead in initiatives such as business license reform and “smart city”. “In future development, we cannot rely too much on natural resources. Instead, we should depend more on human resources which is the most active element in development,” Premier Li added.

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The Premier added that efforts should be made to solicit foreign capital, attract international talents, open up service industries, and set up free trade ports.

New economies with mass entrepreneurship and innovation

City cluster of Yangtze River Delta region is one of the most dynamic, open, and innovative areas of the country. However, compared with other places, the region has no advantages in terms of natural resources. It will be impossible for traditional economies in the region to keep high-speed growth and new economies should be developed with new development mode, the Premier noted. “At Shanghai Pilot Free Trade Zone, I saw many enterprises featuring new industries and technologies. And e-commerce industry in Zhejiang province also has great influence across the nation.” The Premier also stressed environment protection of Yangtze River Delta region, saying that taking a lead in environment protection will help promote development of city cluster, attract more intellectuals, forge stronger support for productivity development.

New highland of innovation

At the meeting Premier Li also said that a big view should be taken and development should be coordinated among cities of the Yangtze River Delta region. Efforts should be made to break market barriers and build a big unified market in Yangtze River Delta region, the Premier added. The development of city cluster of the region not only needs supports from central government but also needs mutual supports of other provinces and cities. And in this endeavor, Shanghai should play its role as the center city of the region and efforts should be made to promote integrated development in city cluster that includes Nanjing, Hangzhou, Hefei, Suzhou, Wuxi, Changzhou, and Ningbo. “With dense population and local features, coordinated development in Yangtze River Delta region will have a demonstrative role across the nation. The region will be built into a new highland defined by innovation instead of preferential taxation,” the Premier said.

What is it like to ride high-speed rail in China?

Andy Beales, China Digital Media/Photographer from Australia:

I use the route from Guilin to Shenzhen. I was surprised I was offered freshly ground coffee and Haagen-Dazs. OK, it was western prices, but nice if your in need of a coffee fix. I have used 2nd class, and 1st class. On this route the price difference is about 60 RMB, so always go 1st. I normally think 1st class is a waste of money, in the UK it costs so much more for such little gain, in China you get a lot more for a small price increase. To me after living in China 6 years, extra space and quiet is worth 60 RMB. 1st class gives you more leg room, and the carriage is configured 2 seats each side, so less people in a car. This means it is quieter and less stressful getting on, also more

97 www.followcn.com space of luggage. However, no first class waiting room or priority boarding, as with soft sleepers and 1st class on regular trains. There is power sockets, Hong Kong & British style built in, and airplane style tables, so I enjoyed catching up on photo editing on this route 3.5 hours. Compaired to the flying 1 hour to reach the same destiation. If you take into account if I fly I need to get their early, and many Chinese airlines are late, then the train is a great option. I book my tickets with an app called China Train Booking (red logo), you can find it in the app store or play store. Then I opt to collect my tickets at the station.

Chasen Richter, Senior student at Boston College

"Excuse me. May I take a photo?" a man asked me in Guangzhou. As a 6'2", blond American, I got that a lot during my 10-day trip in August to study China's high-speed rail system (HSR). I started in Hong Kong and ended in Beijing, covering more than 2,400 miles over 30 hours on the train. So what did I learn? First, China's HSR is incredibly sophisticated in terms of its engineering and efficiency. As a frequent traveler on America's Amtrak system, I can say that China's HSR is light-years ahead. My longest delay was two minutes. Second, people were kind and went out of their way to help me. The woman sitting next to me on the train to Jinjiang, for example, ended up driving me to the Anta factor in Jinjiang when I realized it was far from the station. And when I accidentally took a train to Fuzhou in Jiangxi province rather than to Fuzhou in Fujian province (a classic Western mistake, I'm told), the train personnel helped me sort it out and assisted in getting me to the right place. Of course it helped that I am conversant in Mandarin. Outside of Shanghai, little English is spoken so I wouldn't advise travelling alone without some language skills. Third, the scale of China is mind-boggling. When I stumbled upon Fuzhou (Jiangxi), I came across a greater city area larger than Chicago, America's third-largest city, yet by Chinese standards, it's a third-tier city in terms of population. Finally, I observed first-hand that the speed and convenience of the HSR is altering consumption and business patterns for Chinese living outside the bigger cities. Passengers carried bags of toys, clothing and infant formula procured now by a short train ride to Xiamen or Fuzhou rather than a four-hour drive just a few years ago. In business, people can now get to Xiamen, a rising investment center, for meetings in just 18 minutes on the train versus an hour and a half in the car. And it's now just 45-minutes from Hangzhou to Shanghai (previously, it took four hours), greatly increasing connectivity and investment between the two cities. As China's economy shifts to media and technology enterprises, its network of safe, reliable high-speed trains is a boon for its people and for foreigners wanting to travel the country.

Gerald Ollivier, a World Bank Senior Transport Specialist

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Survey findings indicate that a large proportion of high-speed train passengers are between the ages of 25 and 55, with many using the HSR for business travel. A broad range of travelers of different income levels choose HSR for its comfort, convenience, safety and punctuality over existing alternatives. The survey found that the average income of high-speed train passengers was 35-50 percent higher than that of conventional train passengers. The majority of surveyed passengers (50 to 70 percent of users in the two case studies) reported income of less than RMB5,000 per month. Users perceive HSR as facilitating reunions with family and friends, tourism, and access to job opportunities. High-speed rail also has had a marked impact on local businesses and personal mobility of their employees. Understanding and addressing passenger needs are critical to achieving the full impact of the high-speed rail network. While initial results are encouraging, high-speed rail remains a major investment that requires high traffic density to be justified economically and financially. This can be achieved by working closely with cities to develop areas around stations in a way that leverages the gain in accessibility that high speed rail provides. It also important to optimize train frequencies and city pairing, introduce flexible ticket prices reflecting peak and off-peak periods, and introduce convenient e-ticketing services. By focusing on these aspects, and on the efficient and effective operation of the network, high-speed rail in China can continue to experience substantial growth for many years to come.

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Chapter Eight

Healthy China 2030

The “Healthy China 2030” blueprint, released on Oct 25, 2016 by the Communist Party of China (CPC) Central Committee and the State Council, includes 29 chapters that cover areas such as public health services, environment management, the medical industry, and food and drug safety. According to WHO, the development of a ‘Healthy China’ is central to the Chinese Government’s agenda for health and development – and has the potential to reap huge benefits for the rest of the world. President Xi Jinping has put health at the centre of the country’s entire policy-making machinery, making the need to include health in all policies an official government policy. The Healthy China 2030 is the first medium to long term strategic plan in the health sector developed at the national level since the founding of China in 1949. Furthermore it also indicates the political commitment of China to participate in Global Health Governance, and fulfill the UN SDG agenda. Multisectoral collaboration and innovation play a key role in Healthy China. With over 20 departments drafting the 2030 plan, a vision has been set for a significantly expanded health industry, which would become a mainstay of the national economy. This would draw on the strength of China’s health science and technology innovation, which ranks amongst the world best, and would help to considerably improve the quality and level of health service delivered across the country. Through greater technological advances and improvements to the health insurance system, China also hopes to ensure health equity can be basically achieved by 2030. Huge steps have already been taken here. Over the last decade, China embarked on the biggest health system reform the world has seen, aiming to extend health services beyond the country’s prosperous urban centres. At the start of the century, less than one-third of China’s population had access to health insurance. Now nearly 100% do. In essence, China has given its huge population a safety net that protects people from being impoverished by the costs of health care. This makes a tremendous contribution to a fair and prosperous society. As we look to the future, China faces many health challenges. These include increasing rates of cancer and cardiovascular disease linked to lifestyle factors like smoking, an ageing population. It is simply not sustainable to meet these challenges in a health system that relies on hospitals. Therefore, a key component of Healthy China is the promotion of healthy lifestyles and physical fitness, including through the development of Healthy Cities, to ensure a greater focus on prevention rather than treatment. One of the most important steps towards a Healthy China is a national smoke-free law, which would have a significant impact on preventing many non-communicable diseases.

Health Blueprint Told in Numbers

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China wants to increase its citizens’ average life expectancy to 77.3 by 2020 and 79 by 2030, up from 76.34 in 2015, according to a plan on health development spanning the next 15 years. According to the plan, the number of people “frequently participating in physical exercise” should increase to 530 million by 2030 from 360 million in 2014, and the smoking rate of those aged 15 or above should be lowered to 20 percent. The infant mortality rate should be lowered to five out of every 1,000 live births by 2030, down from the current eight. Mortality rates for children under the age of five and pregnant women should also decrease notably. China aims to have three certified or assistant doctors, and 4.7 registered nurses, for every 1,000 residents by 2030. In 2020, cities at the prefecture level and above will enjoy good air quality during more than 80 percent of the year, with further progress expected by 2030, the blueprint said.

China Promises Better Health for All

A key success factor for the initiatives will be mobilizing the public to participate in the plan. Emphasis will be laid on the health of key groups such as women, children, seniors, migrants and low-income groups. Future efforts should focus on promoting healthy lifestyles; optimizing health services; improving health security; building a healthy environment and developing health industries. In order to reach the goal, the document said that health education will be incorporated into the entire education system, and a national nutrition plan should be established and implemented, with efforts to research food nutrition and monitor residents’ nutrition status. “Health is not just about curing illness. Prevention is the key,” said Liu Yuanli, head of the public health school under the Chinese Academy of Medical Sciences. “With a focus on healthy life styles, the document places emphasis on health knowledge and skills, and encouraging good habits. This is the best approach,” Liu said. The document suggested that to cut the number of smokers, measures such as higher taxes on cigarettes and stricter legislative should be rolled out. Moreover, it offered proposals for mental health intervention, safe sex and drug-addict rehabilitation. China also wants to continue to improve the environment, evident by increases in days of fine air quality and high-quality surface water. In rural areas, in particular, greater efforts will be made to improve garbage disposal and treatment of sewage, as well as expanding the use of clean energy and access to safe drinking water. By 2030, China will also have a nationwide network for monitoring food safety and recording food-borne diseases, according to the blueprint. The blueprint suggests that more must be done to modernize techniques, equipment and products that are highly polluting or pose risks to the environment, and transforming industries like iron and steel, cement, petrochemicals so they work within emission standards.

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In recent years, the central government has invested heavily in improving medical services at the local level, it has financed the building of community health service centers, township health centers and village clinics, said Li Bin, head of the National Health and Family Planning Commission. The greatest challenge lies in a shortage of health personnel at the local level, Li said, adding that every locality was different and should be treated as such when problems are addressed. The plan also called for more to be done to improve the handling of the standardization of agricultural production, evaluation of agro-products quality, proper handling of pesticides and veterinary drugs, as well as heavy metal pollution.

Guideline for Boosting Medical Industry

The State Council issued a guideline on March 11,2016 to give the medical industry a healthy boost. It said that by 2020, innovation capacity of the medical industry should be greatly increased, supply of urgently-needed clinical drugs will be increased, and the scale of the industry will expand, with annual growth rate of the main business revenue higher than 10 percent. The guideline states that in order to achieve these goals, innovation and entrepreneurship should be encouraged, more innovation-driven middle and small-sized enterprises with technologies and high-end talents should be set up, and the research ability of new medical products should be increased. It also required efforts to upgrade the medical equipment, mainly developing the key devices such as digital detectors, superconducting magnets and X-ray tubes with high heat capacity, and technologies such as 3-D printing and data collecting and analysis. The new rule Good Manufacturing Practices on Medicines will be strictly implemented to perfect the product tracking systems. It also encourages using modern bio-technology to improve the traditional drug production methods, build environmentally-friendly industrial parks and recycle the byproduct materials to reduce pollution. To better integrate this industry, the government will promote pharmaceutical enterprises to implement cross-sector mergers and acquisitions while optimizing the industrial structures. Development of the pharmaceutical industry also needs the coordination of different regions, according to the guideline. It suggested building international-level research centers in eastern areas with abundant capital and high technologies, and production and export bases of the traditional Chinese medicine (TCM) in the western and the northeastern areas that have large amounts of TCM resources. The guideline also states to better develop this industry, the country should also perfect the medical service systems, relieve patients’ burden by controlling irrationally high expenses and reduce repetitive and unnecessary medical examinations in different hospitals while encouraging doctors to work in several medical institutions. In addition, the pharmaceutical industry should also take the advantage of the Belt and Road Initiative to go global, promoting big medical enterprises to invest overseas,

102 www.followcn.com build research centers, production bases, and sales and services networks. Efforts should also be made to develop internationally influential brands. The government should also step up efforts to improve legislation on supervision of drugs and medical equipment, punish illegal enterprises, protect intellectual property rights, and crack down on fake and shoddy products. To boost the development of the pharmaceutical industry, the guideline has proposed the following: First, enhance the research and development of drugs in urgent need and speed up the industrialization of drugs for frequently-occurring and rare diseases. Second, improve safety evaluation and product traceability systems and strengthen supervision to guarantee quality. Third, integrate the reforms on health care, medical insurance and the pharmaceutical industry, speed up approval procedures for urgently-needed clinical drugs and medical equipment, and support medicine industrialization through ways such as industry funds. Fourth, establish a modern circulation network for medicine that covers both urban and rural areas and set up national public service platforms for medicine information. In another development before issuance of the guideline, the State Council executive meeting on Feb 14 decided to innovate and upgrade the pharmaceutical industry, an industry not only crucial to public health, but also to the development of an innovative economy. The State Council called for enhancing research and development for drugs in urgent need and speeding up the industrialization of drugs for frequently occurring and rare diseases. It also urged improving safety evaluation and product tracking systems, and strengthening supervision to ensure quality. Moreover, the government will integrate the reforms on health care, medical insurance and the pharmaceutical industry, speed up approval procedures for urgently needed clinical drugs and medical equipment, and support medicine industrialization through ways such as industry funding. Also, the government will seek to establish a modern circulation network for medicine that covers both urban and rural areas and set up national public service platforms for medicine information. Some innovative medicines such as cancer-fighting drugs are not accessible in China, and patients have to resort to searching for overseas agents for cheap purchases in order to cut expenses. The insufficiency can be an opportunity for domestic pharmaceutical enterprises to develop and industrialize high-end medicine. Pharmaceutical industry requires tremendous investment in early stages, but pays off in the long run. In the economic “new normal”, pharmaceutical enterprises should not only stick to research and development, but also focus on talent training as well as the transformation of research results into industrial products. The State Council on March 5 decided to launch a consistency evaluation for the quality and curative effect of generic drugs, which is expected to stimulate the upgrade and structural adjustment of the pharmaceutical industry. The policy applies to all generic drugs that have not been approved according to

103 www.followcn.com consistency evaluation for the quality and curative effect of the brand-name drugs before the implementation of the new registry classification of chemical drugs. All oral solid preparations of generic drugs on the National Essential Drugs List (2012) approved before Oct 1 2007 should be evaluated by the end of 2018. Under special circumstances such as necessary clinical trials, the deadline can be postponed to the end of 2021.

China’s Plan for Sports

China has unveiled a strategy to become a "world football superpower" by 2050, with plans to get 50 million children and adults playing the game by 2020. Other targets include having at least 20,000 football training centres and 70,000 pitches in place by 2020. While China excels at the Olympics and Paralympics, it has only ever qualified for one football World Cup, in 2002. President Xi Jinping is a football enthusiast and previously said he wants China to win the World Cup in 15 years. It sets out short, medium and long-term targets, including ensuring there is one football pitch for every 10,000 people by 2030. The men's football team should become one of the best in Asia, while the female football team should be ranked as a world-class team, by 2030, the plan said. By 2050, the report added, China should be "a first-class football superpower" that "contributes to the international football world". China's men's team currently sits 81st in the Fifa world rankings, out of 204 nations, below far smaller nations such as Haiti, Panama and Benin. The football league has been hit by corruption in recent years, with 33 players and officials banned in 2013 for match-fixing, although efforts have been made to clean up the sport. President Xi's 10-year plan - running from 2015-2025 - is to create a Chinese sports economy worth $850bn. Optimistic estimates value the entire global sports economy at about $400bn . He wants to build 20,000 football schools by 2017, producing 100,000 players, and increase schools to 50,000 by 2025. President Xi wants China to host and win the World Cup in the next 15 years. China's General Administration of Sport mapped out the 13th Five-Year Plan for the industry in July 2016, aiming to spend the next five years in boosting it so that it would be worth 3 trillion yuan ($460 billion) by the end of 2020 and would account for 1 percent of domestic GDP. Prior to the latest plan, the State Council released a guideline for the sports industry in 2014, which suggests that the total value of China's sports industry should exceed 5 trillion yuan by 2025. In 2014, the value of the sector was 1.36 trillion yuan. Under the latest sports plan, the total soccer pitches in the country will expand to over 70,000, averaging at least half a pitch for each 10,000 people and by 2020 China will have 20,000 soccer academies.

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The plan also issued a blueprint for nationwide fitness programs, setting goals of building 500 public fitness centers in counties and 15,000 fitness facilities in villages and towns, with 10,000 more multifunctional playing grounds to be constructed in cities. Analysts say the industry is flourishing with opportunities in many areas including sports media, sports facilities, merchandising, sports marketing and sponsorship. China's winter sports industry is expected to reach one trillion yuan, or $144.5 billion, in total value by 2025. The National Development and Reform Commission (NDRC) made the statement while issuing plans related to the development of winter sports in China. The 2022 Winter Olympics will be co-hosted by Beijing and neighboring Zhangjiakou. The announcement by the IOC last year has brought renewed domestic interest in China for winter sports. By 2025, 50 million people in China are expected to directly participate in winter sports, according to the plans by the NDRC. The industry's total value will reach 600 billion yuan by 2020 and one trillion yuan by 2025, added the plans. An official from the NDRC said the plans will help promote tourism, construction and other byproducts related to winter sports. According to a Xinhua report, "Sports activities among ordinary people, compared with sports professionals, are seen creating huge demand," said Li Ning, chairman of the Beijing-based sportswear maker Li Ning Co Ltd. Li made a name for himself in sports, by winning three Olympic gymnastics gold medals. Li Ning said the affluence stemming from increasing urbanization of China's population, and increases in family income would spur the sector. According to independent research conducted by 36kr, a Chinese media site specializing in reporting technology-related news stories, the sports market is set to increase 25 percent in the next ten years. Analysts say companies and investors have been seeking business opportunities in the industry in the past three years. For example, Wanda Group bought Switzerland-based world top sports marketing company Infront Sports & Media at $1.2 billion, just three weeks after its purchase of a stake in Spanish La Liga champions Atletico Madrid. It also bought Florida-based World Triathlon Corporation－the world's biggest operator of Ironman events, accounting for 91 percent of the global market share of long-distance triathlon events－for $650 million. China's e-commerce giant Alibaba Group Holding Ltd established Ali Sports Group, while Tencent, the top internet service portal, bought online broadcasting rights for a large number of sports events.

China to Promote Fitness & Leisure Industry

Gyms, health clubs, group workouts and keep-fit video apps transform lifestyles. Philipp Mills, Ceo of Les Mills, said it is not surprising Chinese people are passionate about group workouts, given the proliferating gyms and fitness programs. Les Mill’s programs are provided to 8 million people by 90,000 teachers in more than 17,000 clubs around the world every week. The firm is eyeing fast growth in China. “Workouts have become a lifestyle. People

105 www.followcn.com believe they are good for work-life balance. As far as I know, China has more than 18,000 brands of gyms and workout programs. Les Mills has been popular around the world. Now, it’s getting increasingly welcomed across the nation,” said Philip Mills. “China’s fitness market, including gyms and program developers, needs consolidation after the fast growth. In the long run, we’re confident the market size is really going to expand to a significant size.” According to a research note from Euromonitor International, demand for fitness in China has become one of the top ten drivers of the consumer market. Other drivers include clothing, leisure, entertainment, food and beverages. The State Council has issued a plan to develop fitness and leisure industry, setting up a goal to increase the output of the sector to more than 3 trillion yuan ($442.5 billion) by 2025. By then, a healthy ecosystem will be created, with reasonable industry structure, richer supply of fitness products and facilities, higher demand of consumption and higher qualified service, according to the official document released on Oct 28. It called to improve the fitness and leisure service system in the country by developing daily bodybuilding activities, outdoor sports, and sports with cultural characteristics, promoting sports tourism, and integrating Internet Plus with the industry’s development. Daily fitness sports, such as soccer, basketball, volleyball, ping-pong, tennis and running, should be further promoted and popularized, said the document. Some other outdoor and fashion sports development should also be sped up, including winter, mountaineering, water sports, motor sports, equestrian and golf. The sports with cultural characteristics, like kung-fu, dragon boat and lion dancing, are also included in the plan. The plan also urged to develop sports tourism and support the industry development with technologies, such as internet, Big Data and cloud computing. As far as cultivating market players in the industry is concerned, the plan said fitness and leisure corporations and social organizations should be encouraged to expand businesses, and some quality Chinese brands are encouraged to seek more support from capital market — such as making IPO and issuing bonds — in order to improve their international competitiveness and become world-class corporations. It calls on local authorities to set up incubator platforms to support startups focused on fitness and leisure, especially those launched by retired athletes. In addition, non-government sports organizations are also encouraged to expand their services and replace, to some extent, the public sports services provided by the government. Apart from supporting single sports and company, the document also calls for an optimized industry structure. Proportion of service sector in the industry is urged to be raised. Leading fitness clubs, activities, industrial bases and projects should be built to set examples for the industry development. Regions with unique natural resources, including forest, waters, wetland, mountains and deserts, are encouraged to develop specific sports that fit with the local condition, in order to create their own brand. The document called for construction of fitness and leisure facilities by making use of urban areas including parklands, vacant spaces, building rooftops and basements —

106 www.followcn.com creating fitness spaces within 15 minutes’ distance. In addition, it urged utilizing existing stadium resources, accelerating enterprises and institutions to open their sports facilities to the public, and encouraging schools’ facilities to stay open after class and in holidays. A number of special fitness and recreational facilities such as mountain and outdoor camps, recreational vehicle camps, and hiking and riding service stations should also be constructed, the document said. “Fitness has become popular due to many factors. There is government policy to develop the sports sector. Lifestyles are changing with more focus on health. There is a cultural trend towards sexy six-pack figures. There is middle-class anxiety about the costs of ill health and peer pressure to look better. You want to prove you can afford to hit a gym to stay active”, said Julian Chow, an analyst with Shanghai-based Tang Yue Culture and Communication. Wu Qiang, general manager of CSSC, said: “ Currently, Chinese take about one million individual luxury cruise trips every year. Ten years from now, the number is expected to grow to 8 to 10 million. There is a significant growth potential of the cruise market in China.” “With a huge emerging middle-class and their rising income in the next few years, about 200 to 300 million Chinese will have the spending ability to take cruise trips - a number exceeding that of the United States. Chinese are increasingly concerned about healthy and diverse means of entertainment and travel. Ocean travel will be a critical element of that trend.”

Elders’ Care and Retirement

Helping explain how all this is being paid for, elderly care researchers in Beijing found that almost all local seniors have pensions. Among couples, 23 percent receive more than 8,000 yuan or more a month, while 65 percent of single seniors collect 3,000 to 5,999 a month. Also, in a city known for soaring housing prices, 81.8 percent of local seniors own their own homes, with 7.7 percent having more than one, which can also help support them in their later years if they sell or rent out their property, the researchers said in their recently published Blue Book of Elderly Care as an Industry in Beijing. By the end of last year, Beijing had 2.2 million residents aged 65 or above, about 10.3 percent of the population. They are expected to double in 2020, official estimates said. Beijing has anticipated 4 percent of all local seniors, or 160,000, will spend their twilight years in nursing homes by 2020. The majority will be taken care of by their families or community eldercare services. But the lack of adequate caregiver support and medical services have encouraged many seniors with sufficient economic means to find alternatives to ward-like settings in traditional institutions. Respect and love for the elderly is considered a key virtue in China. Children are expected to take care of their parents in old age and grandparents tend to be the primary caretakers of their grandchildren. It is common in China for three generations to live under

107 www.followcn.com the same roof, allowing young couples to have a career and children at the same time. This valuable tradition is now under threat. The number of elderly is growing at a breakneck pace and their average age is rising. The 65+ population is forecast to grow to 167 million by 2020, accounting for 11.5% of the population or nearly double what it was in 1995. This rise is set to peak around 2030, but already the pressure is being felt by China’s adults, for whom it is virtually impossible to financially and practically take care of their parents. Retirement and nursing homes are still relatively uncommon and especially in rural areas the healthcare infrastructure is unable to provide optimal care for the elderly. In addition, the elderly are more likely to suffer from chronic non-communicable diseases such as cancer and cardiovascular disease, which have become more prevalent due to China’s rapid industrialization and urbanization. These chronic illnesses account for 85% of all deaths in China and require some 70% of medical resources, putting great stress on the health system as a whole. It is clear the healthcare system needs to adapt. China’s government is already taking positive steps. It is increasing access to healthcare by broadening the reach of its health insurance schemes and increasing spending on training nurses. It is also involving the private sector, for example by inviting them to build private hospitals or collaborating on innovation. Philips, for example, is working with the Chinese Society of Cardiology to build the China National Cardiovascular Data Repository, which will help doctors conduct more clinical research, work more productively and provide better healthcare to China’s 270 million heart patients. Around 10 million people die in China each year nowadays, as compared with 8 million in 2003. The number is expected to surge in coming years as the country enters an aging society. There were more than 220 million senior people, aged at 60 or above, in the country by the end of 2015, or 16.1 percent of the total population, according to the National Bureau of Statistics. The number of senior people is predicted to double by 2035, which means the market potential is immense for companies that provide such services as funerals, cremation, burial and memorials. With about 5,000 undertakers and 1,500 cemeteries across the country in operation, the whole industry is now estimated to value 90 billion yuan, with an annual compound growth rate of around 15 percent.

Stricter Measures for Food Safety

Chinese people have been shocked by many food safety scandals in recent years, including injecting clenbuterol into pork, recycled cooking oil, selling pork from sick pigs and medicines made with toxic gelatin. A milk scandal in 2008 prompted Chinese parents to loose faith in local formula brands and hoard foreign ones. Sanlu Group, a manufacturer based in north China’s Shijiazhuang, was found to have sold milk powder contaminated with melamine, an industrial compound used to create plastic which makes the milk appear protein rich. Six infants died from consuming the

108 www.followcn.com tainted powder, resulting in a scandal that led to jail terms for local officials, as well as raised food safety concerns. In July 2014, Shanghai Husi Food Co Ltd, a supplier to leading fast food brands, were discovered to have used expired meat in their products. The State Council on May 11,2016 approved a plan to further tighten supervision on food safety, and deployed work of food safety in 2016. The plan called for improving laws and regulations on food safety, including the Quality and Safety Law of Agricultural Products. Those who make fake products or add illegal additives will face heavier criminal sanctions. It also prompted establishing catalogues for national and local standards for food safety, including 1,000 items of standards for pesticide residue and 300 for the agricultural industry. The plan then urged regulating the origin of agricultural products by establishing a tracing system to root out illegal actions. Meanwhile, it called for tightened supervision on overseas sources of food and agricultural products. Construction and operation standards for cold chain logistics will be improved for food safety. In addition, the plan called for beefing up risk prevention measures. Random inspections for residue of pesticide and veterinary drugs, additives and heavy metal pollution left on food and agricultural products will be conducted. Responsibility for the supervision of the inspections will be made clear. Moreover, the plan asked for tougher supervision on key products concerning infant and baby formula and food supplements, dairy and meat products. It then called for reinforcing the sense of responsibility for food production and management, urging enterprises to establish management systems such as training and assessment, risk examination and emergency procedures. The plan also requires enhancing food safety supervision, promoting specified port construction for importing food to inland areas and establishing big data platforms for food safety supervision of imported and exported food. Local governments are urged to establish a mechanism to connect the exit of agricultural products from place of production to their market entry, and roll out measures to regulate street vendors, small-scale restaurants and small food producers. The plan called for opening channels for tip-offs, and encouraging media outlets to set up columns on food safety, as well as reinforcing efforts to publicize knowledge on food safety via new media channels including WeChat, micro-blogging and mobile platforms.

Big Data in Health and Medical Sectors

These days, when people over 80 in Beijing take a bus, see a doctor or spend money, their activities are digitally tracked by the government, as part of an effort to improve services for the country’s rapidly growing elderly population. All of the data we are collecting now, including visits to parks, the use of public transport and numbers of shopping trips. The Guangdong plan also called for the collection of population data on the elderly

109 www.followcn.com and a “comprehensive analysis” of their service needs, similar to what Beijing is now offering. Rogier Creemers, who researches China’s governance of technology at the University of Oxford, said China is a world leader in the degree to which it is integrating such functions. “What allows China to do something like this is the fact that behind everything you have a single unified network of power, which is the Chinese Communist Party,” Creemers said. National and provincial population health information platforms will be built. 100 regional clinical medicine data demonstration centers will be built across the country. Construction of big data guarantee system for healthy medical care will be strengthened. A nationwide information system with standardized digital medical identifications will be set up. Electronic signatures will be promoted, where all services can be traced. Since December 2015, Inspur, the country’s largest server manufacturer, has been working on a big-data platform, designed to regularly pool and update information about locals living below the poverty line, and help Guizhou officials aid poverty-stricken families in innovative ways. “Currently, the platform is keeping track of 6.23 million low-income people’s personal information, such as educational background, occupation, and income,” said Wang, who is in charge of Inspur’s big-data poverty alleviation department. By 2020, a big data system should be created, highlighting a unified and interconnected public health information platform, said the guidelines issued by government agencies, including the National Health and Family Planning Commission. “The government controls roughly 80 percent of data and information generated in China. If enterprises can access this data which, of course, first needs to be scrubbed to remove personal references, it will spark a new round of innovation and create a level playing field for all companies,” said Zhang Xu, a researcher at Beijing-based internet consultancy Analysys International. At China Big Data Industry Summit & China E-commerce Innovation and Development Summit, May 25, 2016, Premier Li Keqiang said, “The new generation of Internet technology such as big data has profoundly changed the world. Every country is now at the same start line in science and technology reform. China missed many global science and technology reforms and now must grab the opportunity.” Local governments should step up efforts to help transform public elderly service institutions into private enterprises. By 2020, nursing home beds in government-owned institutions should take up less than half of the total, according to A State Council circular. To improve elderly people’s living conditions, the circular urged offering comprehensive services ranging from food supply to at-home medical services, along with infrastructure construction, such as barrier-free reconstruction in communities and rural areas. It emphasized building a credit system in the sector to share credit information and carry out supervision of personnel and clients.Psychological services are highlighted for the group in rural areas. Through promoting the application of internet and big data, and wide use of smart appliances, “Internet Plus” will be a major measure to help innovate the sector.

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Chapter Nine

Education and Cultural Development

A surge in cultural facilities and activities is expected across the country following a State Council document on Oct 20, 2016 that encouraged increasing comprehensive cultural service centers at the grassroots level. The policy is aimed at tackling the dire lack and uneven distribution of public cultural facilities, especially in rural areas of west China, and providing quality cultural products in various forms to citizens. According to the document, the government plans to establish comprehensive cultural service centers nationwide that include the functions of cultural publicity, law popularization and physical exercise by 2020, with a focus on remote and poor areas in central and west China. Sixty years of communist rule has led to morality degradation in China due to destruction of China’s traditional values and materialized education reforms. Faced with numerous challenges, the Ministry of Education said it will make efforts in the next five years to eliminate corruption cases in higher education institutions, some of which have extremely adverse impacts on the society. College and university faculty will be strictly forbidden from taking advantage of school or public resources to run companies, according to a notice released by the Ministry of Education recently. To regain cultural self-confidence, China wants to reduce “cultural poverty” with work focused on radio & TV, digital services. A “modern public cultural service system” will accentuate basic cultural services and equal access by 2020. In its latest rulings on video websites, China’s top media regulator has made it clear that overseas television programs will be restricted in both content and number. China’s Ministry of Education has announced a major reform of the National College Entrance Examination, known as Gaokao. Under the proposed changes, the entry of new students to higher education will no longer be based purely on performance in three major subjects: mathematics, Chinese and English. It will now also take into account other subjects, as well as students’ personal and social character. Ten years ago, about one-fifth of China's vast population was studying English. According to the Economist, in 2006 China was already the world's largest market for English language study, with English language books accounting for over a fifth of all book sales nationwide. The value of the English-training market in China is now about $4.5 billion USD and some analysts predict that this market will continue to grow at a rate of 12-15% over the course of the next few years. Chinese students aren't just heading to the UK. There are now more than 250,000 Chinese college students in the USA, accounting for over 30% off all international students. Thought by many as China’s soft power invasion, Confucius Institutes promote and

111 www.followcn.com teach Chinese culture and language around the world. As of 2014, there were over 480 Confucius Institutes in dozens of countries in six continents. Despite many concerns and some closures in the west, Confucius institutes across the globe continue their efforts to teach Chinese language proficiency, train Chinese language instructors and provide language resources and conduct language and cultural exchange activities between China and other countries.

China Delivers Five-year Plan on Education

China has released its 13th five-year plan on education this year to deepen reform and promote the modernization of education. Non-governmental sectors will be encouraged to invest in education and efforts will be made to promote the integrated development of education in urban and rural areas in the next five years, said the National Development and Reform Commission (NDRC). The development of education in China’s central and western regions will be accelerated during the 2016-2020 period and teaching facilities will be improved in schools for compulsory education in poor areas, said the NDRC. The five-year plan on education will also focus on bilingual education in minority areas, education of left-behind children (those under the age of 16 whose parents work away from home) in rural areas and children of migrant workers in cities, according to the NDRC. The plan also stressed the importance of expanding high school enrollment in China’s central and western areas and minority areas. China’s current Gaokao system, which can be compared to A Level exams in the UK, was established in 1977 and has been widely criticised. Chinese universities and colleges focus solely on scores from the test, taken each June, when considering applicants, with obvious consequences for students’ future life-chances. Intensive competition in college enrollment has had a very negative impact on students, on schools and on social equality. For instance, the Gaokao means there is an unequal weighting of educational resources at secondary level in favour of urban and professional families. The proposed reform in the Gaokao system which is likely to take effect in 2017 shall have a great impact on the society far beyond educational significance.

Government Guarantees Funds for Compulsory Education

The State Council issued a guideline on Nov 28 to further ensure funds are available for compulsory education in both urban and rural areas. A unified fund will be set up to guarantee compulsory education in both urban and rural areas, and the government will increase investment in compulsory education in rural areas, old revolutionary base areas, areas with ethnic minorities, border areas and poor areas, according to the guideline. It said that efforts will be made to achieve these goals within two years. Starting from the spring term of 2016, China will unify the basic funds per student for public use, and

112 www.followcn.com grant subsidies to urban and rural compulsory education schools (including private schools) no less than the stipulated amount. Subsidies will be raised for boarding schools, schools with access to a heating system in northern China, and small schools. Starting from the spring term of 2017, students receiving compulsory education in both urban and rural areas will be exempt from tuition and incidentals, while provided with free textbooks. In addition, boarding students from poor families will receive subsidies to cover their living expenses. To provide a safer environment for students, the authorities also support public schools in rural areas to rebuild and expand buildings. For those in central and western areas, the cost will be equally divided between the central government and local authorities. In addition, the guideline stipulates that teachers at compulsory education schools in central and western areas and in parts of eastern areas will be financially guaranteed, with governments at provincial and county level making sure teachers are paid in full and on time. Educational departments will give strong support to those working in poor and remote areas and low-performing schools. The Chinese government has allocated 134.5 billion yuan ($20.5 billion) to subsidize compulsory education 2015, according to the Ministry of Finance. The funds, taken from the central coffer, increased by 3 percent from spending in 2015, the ministry said in a statement. China requires children to receive nine years of compulsory education, normally from the ages of 6 to 15. The subsidy should be used to balance education resources between urban and rural areas, according to the statement. More funds should go to boarding schools, small schools or those with inadequate resources, and those with a large number of students from rural migrant families, the ministry said. Part of the subsidy will also be spent on improving rural students’ nutrition and the livelihood of rural teachers in poverty-stricken areas.

More Funds for equal education (an editorial from China Daily on Nov 23, 2015)

Although slowing growth in fiscal revenues as a result of the country’s economic slowdown has made it difficult to significantly increase public expenditure on education, the importance of equal opportunities in basic education justifies such a move. Therefore, the State Council’s announcement last week that China will set a unified benchmark for public funds per student in rural and urban areas, starting next year, is to be welcomed. With all students also having their compulsory education tuition and textbook fees exempted from 2017, it is estimated that the move will cost central and local governments more than 15 billion yuan ($2.35 billion) over the next two years. This increase does not amount to a big share of the country’s fiscal expenditure which jumped 18.1 percent year-on-year to exceed 13.4 trillion yuan in the first 10 months this year. But it will add to the increasing pressures on government revenue, which

113 www.followcn.com climbed by only 7.7 percent to 12.9 trillion yuan over that period. However, it is necessary that Chinese policymakers put the long-term benefits of equal education before short-term fiscal stress. Currently, rural schools in general receive lower levels of public funds for basic education than urban ones, while children who have migrated with their parents to cities from rural areas are mostly excluded from public schools and can only go to private schools with little or no public funding. The new policy will ensure that these schools will receive the same level of per-student government funding. Equal opportunities for basic education will not only considerably ease the cost for many new families living and working in cities in coming years but, more importantly, help prepare a better-educated labor force to fulfill the country’s pursuit of inclusive and innovative growth in the long run.

A Welcome Move to Bridge Urban-rural Education Gap

China plans to establish a balanced compulsory education system in county seats and villages by 2020, especially by raising rural teachers’ salaries and reducing the size of classes, says a notification issued by the State Council on July 11. The nine-year compulsory education starts from primary school and ends with middle school. By 2020, the gap between the quality of education in rural and urban areas will be drastically narrowed and teachers in rural schools will get the same salaries as their counterparts in county-level schools, says the notification. Among the notification’s 10 measures, the most important ones are those to raise rural teachers’ salaries to the level of their counterparts in urban areas and reduce the number of students in each class to fewer than 66. Within four years, no school class will have more than 56 students. In many rural schools in western China, classes have more than 66 students, Vice-Minister of Education Liu Limin told a news conference last week. And in more than 2,000 counties, the salaries of teachers in county seat schools are much higher than those of their counterparts in villages and townships. As a result, their students get better quality education. Still, thousands of rural teachers remain committed to their jobs despite getting relatively low salaries and working in harsh conditions, and students in these schools do not get the same quality of education as their urban peers because of lack of funds. For many rural schools, even a library or a soccer field is a luxury. About 11,100 schools for compulsory education were closed down nationwide last year, reducing the total number of schools to 242,900, according to the 2015 Statistical Bulletin of National Education issued by the Ministry of Education two weeks ago. The remaining schools employ 9.16 million teachers to teach 140 million students. Over the past two decades, the Ministry of Education has closed down thousands of rural schools and filled the remaining schools with students from the closed ones as well as fresh school-age children. Liu said the students in crowded urban schools would return to the rural schools if

114 www.followcn.com they have better teachers or can go to schools near their homes. “So the key is to establish and run small schools with better quality education. If achieved, parents are willing to get their kids from crowded classes in urban schools back to small rural schools.” Xiang Zhiqiang, 57, a rural teacher in Huangwei township in Anhui province, said: “Rural teachers often get less convenient transportation and lower-quality public services, which create problems for them as well as the students. So, many young teachers in rural schools have shifted to institutions in county seats and cities.” It is common to see gray-haired teachers and difficult to see younger teachers joining in rural schools. Rural teachers deserve higher salaries, higher than those in county seats, said Xiong Bingqi, vice-president of the 21st Century Education Research Institute. “If they are not paid good salaries, who will stay to teach students in villages?” Xiang corroborated Xiong and suggested that the government steadily raise the salaries of rural teachers. “I will retire in three years, but I’m worried about who will take over from me to teach these kids,” Xiang said. Vice-Minister Liu said the country has trained 6 million young talents to serve as teachers in rural schools. “So far, 600,000 college graduates are teaching in rural schools and 87 percent of them will stay,” he added. Xiong said a major part of the education funds is used to pay teachers’ salaries. In fact, local governments are now paying the salaries of teachers with funds transferred from the central government, reflecting the disparity in the distribution of education resources.

Free Flow of Teachers Advised to Solve Shortage in Rural China

China should train a batch of freely flowing education workers in order to solve teaching staff shortage for left-behind children in rural areas, a political advisor said on March 9. The country should establish an education talent market with a batch of free education workers for a balanced education development, said Liu Changming, member of the Chinese People’s Political Consultative Conference National Committee which is convening its annual session in Beijing. Rural children, including left-behind ones whose parents migrate to cities for jobs, are a “rich ore” with enormous potential for human resources development, said Liu, headmaster of Beijing No. 4 Middle School, an elite school. The government can solve the shortage of rural teachers by purchasing education services from the market, he said. According to the country’s 13th Five-Year Plan, a state-level quality education resource platform will be set up with government investment. China has about 60 million left-behind children in rural areas. Despite improvement in recent years, the rural-urban gap remains rather wide in education.

China to Boost Free Education for Future Teachers

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The State Council on Aug 24 approved recommendations on how to improve and promote free education for students at normal universities directly under the Ministry of Education, in a bid to cultivate a large number of good teachers for primary and secondary schools. The Ministry of Education should come up with an overall plan for six affiliated normal universities to enroll students free of charge, and increase the quota for some universities to recruit students independently — but no more than 10 percent of the total enrollment in one year, according to the document. Students who receive free education are obligated to engage in primary and secondary school education for at least 10 years after graduation. Those who are willing to work in urban schools should first put in at least two years in rural compulsory education schools. Tuition and accommodations will be offered, with living subsidies as well. Additional scholarships are provided for students who excel at universities. Besides, governments at all levels and society at large are encouraged to set up special scholarships for the students, according to the document. Pilot projects should be carried out in selected counties to develop new cultivation models for the future teachers. Students are urged to take one-term internships at pilot local schools ahead of graduation, where they can get more access to courses from experienced teachers. According to the circular, students who received the free college education can choose their own employers upon graduation via open recruitment. Meanwhile, eligible graduates are able to pursue on-the-job master’s degrees in teaching without taking an entrance exam. The free education program will be gradually promoted around the country, according to the document, aimed at nurturing a large number of qualified teachers for kindergartens and schools in rural areas. Local authorities are also encouraged to explore various approaches to implement free education.

China to Train 3.3 Million Rural Teachers Over the Next Five Years

The State Council plans to provide 360 hours of training to 3.3 million rural teachers over the next five years. “The government will offer training to meet the varying needs of rural teachers,” said Xu Tao, director of the teacher’s work bureau under the Ministry of Education, at a press conference on Dec 7 of 2016. “We will provide distance learning or send professionals to rural areas, while also establishing development centers,” Xu said. China has more than 15 million teachers. There has, historically, been a disparity in teaching quality between urban and rural areas because of imbalanced economic and social development. Despite government funding, the gap between urban and rural areas has not be bridged. Xu said the ministry would encourage local governments to employ and train more

116 www.followcn.com native-rural teachers, provide living allowances for all rural teachers in impoverished areas, and encourage local governments to offer life insurance and medical insurance to boost recruitment.

China to Boost Physical Education in Schools

The State Council on May 6 issued a document to further promote physical education in schools and improve students’ physical health. The document urged schools to ensure sports classes, improve the effect of sports classes and enhance after-class exercises and scientific exercise instruction. The document asked for joint efforts from schools, families, communities and society to guarantee at least one hour of exercise every day for every student. By 2020, schools’ physical education conditions should reach national levels, and students’ sports lessons and exercise time can be fully guaranteed, it said. The document urged schools to improve their sports lessons by cultivating students’ interest in exercise and helping them develop the habit. To improve the national sports and health curriculum, the document asked schools to build a sports curriculum system that could link physical education at various grade levels. And it also urged middle and primary schools to offer sports courses according to the national curriculum. It asked universities to arrange compulsory and elective sports lessons for students and encouraged them to open soccer, basketball and volleyball courses. Besides that, schools should also involve students’ after-class activities in their teaching plan and allow students to exercise at least one hour a day at school, said the document. Schools for the physically challenged should vary their physical education lessons to fit the needs of different kinds of disabilities and guarantee every student could enjoy their right to exercise, said the document. The document urged all regions to utilize local resources to allocate quality physical education staff to schools according to the standards, support schools to improve their sports facilities and make the facilities an important part of the standardized construction of compulsory education. In addition, they should also help schools build sports fields, provide sports equipment and enough teaching equipment for the teachers, said the document. Governments at all levels should provide financial support for physical education, perfect the policy support by purchasing sports services, and gradually build social forces to support schools’ physical education development, said the document. The document urged schools to guarantee the funds for physical education, encouraged private capital to support physical education and also called for increased investment in physical education through multiple channels.

State Council Promotes Creative Cultural Products

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The State Council general office issued a guideline on May 16 to promote the development of creative cultural products by related organizations. Related organizations include museums, art galleries, libraries, cultural pavilions, public art museums, memorial halls, intangible cultural heritage protection centers and other groups with cultural resources. Major tasks listed in the guideline are as follows: Stimulate the enthusiasm of related organizations. Encourage them to expand cooperation with private organizations and to establish a complementary cooperation mechanism. Promote sharing resources, ideas and market. Provide convenience for individuals to participate in research and development, production and businesses. Encourage private capital to be invested in the development of creative cultural products. Reorganize the resources systematically and by category. Establish a digitalized resource database and a sharing platform. Promote the cooperation of related organizations with creative design institutions, colleges and universities, and vocational schools to develop more new products with innovation. Improve the sales system. Encourage cross-border e-commerce. Support integration with other related industries such as creative design and tourism. The guideline also lists some supporting measures and policies. The development of creative cultural products will be gradually included in the evaluation of cultural relic organizations. Pilot programs will be carried out to set up business enterprises at some national-level, provincial-level and sub-provincial level museums, art galleries and libraries. Investment in the development made by various levels of financial departments should be improved. Demonstration organizations will be developed. Supervision will be enhanced and infringement will be severely punished. Select and develop entrepreneurship and innovation spaces to promote digital products of cultural relics. Regulate and encourage activities such as product selection and design competition to promote the demonstration and trading of related products. Overseas cultural centers and international exhibitions are also platforms that can help products go abroad.

State Council Promotes Cultural Relics Protection

The State Council issued a guideline on March 8 to further enhance work involving cultural relics. The government plays a leading role in cultural relics protection and museums — whether State-owned or private — should be treated equally. By 2020, historical and cultural sites at national and provincial level should have good conservation condition and those at municipal and county level should have an obviously improved conservation condition. Local governments should list works involving cultural relics and make it an important

118 www.followcn.com reference for comprehensive evaluation. A related duty evaluation mechanism should be set up and one inspection on the preservation of cultural relics should be carried out annually. A related coordination mechanism should be set up among different places. In related administrative approval items, different ministries should strengthen coordination and cooperation. To establish a linkage mechanism of administrative law enforcement and make full use of the joint conference of national cultural relics safety works. Illegal activities such as stealing, illegal excavation and smuggling should be strictly prevented, controlled and punished. A general catalogue and data resource of national cultural relics should be established to promote information sharing. Endangered historical and cultural sites at any level should have emergent protection — they will be granted green channel when going through approval procedures and also have funds guarantee. The protection of cultural relics should be highlighted, especially during the reconstruction of cities and the construction of rural areas. Historical features should be enhanced and destructive behavior such as pulling down the real and erecting a fake should be avoided. Donation of cultural relics and funds to help the protection is encouraged. Private organizations aiming to protect cultural relics are welcome to play the role of volunteers. Legal collection is encouraged, and the development of private museums supported. Ideas from various groups should be heard regarding public policies to improve the participation of the masses. Public-private partnership will be promoted to explore the development of protection products, and expand the channel for private capital entering into the protection.

China Promotes Broadcasting and Television Coverage

The State Council General Office issued a document on April 21 to promote the coverage of broadcasting and television in every household. The document made clear the goal of coordinating the three technological patterns of coverage - wireless, wired, and satellite. By 2020, digital broadcast and television should enter every household; a new type of broadcast and television coverage system should be set up; direct broadcasting satellite service can generally cover rural areas with no wired network. According to the document, provincial governments should make the coverage plan. The integration of a nationwide wired television network should be accelerated and supported. According to the instruction standard of basic public culture services (2015-2020), at least 15 digital TV programs and 15 digital radio programs should be provided; no less than five TV programs and six radio programs should be provided by analog signals, and at least 25 TV programs and 17 radio programs should be provided by direct broadcasting satellite. Broadcasting organizations should enhance cooperation with related departments of the government to make more service programs that meet the needs of the masses.

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The document also mentioned accelerating building platforms to produce, broadcast and control emergency broadcasting at every level. These platforms should be connected with the national emergency information publishing system. A national emergency broadcasting system should be established to broadcast disaster warnings, emergencies, governmental information and policies. The infrastructure construction of radio transmitting stations should be accelerated to meet the needs of broadcasting and monitoring. The construction of infrastructure and services at grass-roots level broadcasting organizations should be enhanced. Charity programs, paid programs and other value added services are encouraged to be added to basic public service programs. Private organizations are encouraged to participate in broadcasting services through government purchase, project subsidy, and targeted sponsor. Governments at every level should be responsible for their broadcasting facilities, organization construction, and maintenance fees. On the premise that national broadcasting and television organizations have at least 51 percent of holdings, other State-owned or private investments are also encouraged to participate in the construction and digitalize reconstruction under county level.

China Issues Internet Plus Circulation Action Plan

The State Council on April 15 issued a guideline for implementation of the Internet Plus Circulation action plan, which urges promoting the transformation and innovative development of circulation, along with measures to advance e-commerce development in rural areas. The guideline called on promoting the transformation and upgrading of circulation by utilizing information technology relating to the Internet, Internet of Things and Big Data to achieve online-offline interactions in marketing, payments and after-sales services. In addition, it urged strengthening supply-chain management, developing chain operations and related purchasing to achieve cost saving and productivity improvement, and enhancing the ability to reach circulation upgrades with the aid of information, networking and intellectual technology. The guideline also called for making use of the Internet to innovate production techniques and business mode, to spread Chinese brands and carry forward Chinese traditional culture. Related departments are urged to make efforts to promote an innovation-driven business mode via the Internet, in order to optimize market structure, improve productivity and stimulate consumption. The guideline then encourages developing a new mode of the sharing economy by drawing on the successes of other countries, encouraging enterprises to optimize distribution of social resources via the Internet, and exploring new space and fields for products and service consumption. Meanwhile, it stressed strengthening supportive policies for the construction of logistics bases and cold chain system, accelerating the construction of cold chain transportation and cold storage in key agriculture regions, expanding investments in the

120 www.followcn.com construction of rural broadband to eliminate the urban-rural digital gap, promoting the construction of a smart logistics distribution system, and advancing the coordinated development between e-commerce and logistics. Moreover, related departments are urged to expand intellectual consumption fields, actively developing new technologies on artificial intelligence such as virtual and augmented reality, greatly promoting intellectual products such as wearable devices and service robots, with matching services. The guideline also called on promoting green products, and controlling heavy energy-consuming, heavy-polluting, excessively packaged products from entering the circulation and consumption circles. It then urged guiding e-commerce enterprises to establish multiple types of coordinated operation modes with management bodies for new-type agriculture, wholesale market for agricultural products, and chain supermarkets, expanding the channels for agricultural products to enter cities and encouraging e-commerce enterprises to expand into the rural consumption market. The guideline required developing e-commerce in communities, encouraged developing software for shopping services within communities, and strengthening the integration of e-commerce enterprises with commercial sites at communities, carrying out services such as picking up packages and logistics distribution. It also encouraged setting up a development fund for Internet Plus Circulation, guiding social and overseas capital to expand investment in the application of information technology in circulation and the Internet. In addition, the guideline called on beefing up public services to bolster an orderly operation of the e-commerce market, and improving the standards system for rules of circulation, to create an environment with credit operation and fair competition.

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Chapter Ten

Belt & Road Initiative and “Go Out” Policy

At 8:50 pm of September the second 2016, a cargo train left Xi'an, capital of northwest China's Shaanxi Province, for Hamburg in Germany. The train will pass through Kazakhstan, Russia, Belarus and Poland before reaching Hamburg, Xi'an international port authority said in a press release. The journey will last 13 days. The train carries machinery, home appliances, garments and electronic equipment, which will be forwarded from Hamburg to other European cities. The train will promote the further opening of Shaanxi Province, and help shape a new international trade route within the framework of China's Belt and Road Initiative, said Han Song, a senior official with Xi'an municipal committee of the Communist Party of China. Go Out policy is China's strategy to expand its influence internationally, an effort initiated in 1999 by the Chinese government to promote Chinese investments abroad. The Government, together with the China Council for the Promotion of International Trade (CCPIT), has introduced several schemes to assist domestic companies in developing a global strategy to exploit opportunities in the expanding local and international markets. The programs launched so far by the Chinese Government have these goals in mind: 1) increase Chinese Direct Foreign Investment (FDI); 2) pursue product diversification; 3) improve the level and quality of the projects; 4) expand financial channels with respect to the national market; 5) promote brand recognition of Chinese companies in EU and US markets. Since the launching of the Going out Strategy, interest in overseas investing by Chinese companies has increased significantly especially among State Owned Enterprises. Statistics indicate that Chinese direct foreign investments rose from US$3 billion in 1991 to US$35 billion in 2003. This trend was underscored in 2007, when Chinese FDI reached US$92 billion, and US$145.7 billion in 2015. This boost in foreign investment can also be attributed to the Chinese Government's ability and commitment to create the right environment for foreign investment; and China's huge production capacity, coupled with low labor costs. With a dynamic economy, and a strong business-friendly culture, the outlook for Chinese companies will continue to be positive. Despite moderate limitation on money flowing out in the last quarter of 2016, the State Administration of Foreign Exchange has reiterated its support for legitimate and compliant overseas direct investment. Working with relevant departments, the foreign exchange regulator will crack down on false overseas investment activities and ensure the legitimacy and authenticity of overseas direct investment, the administration said, “The country will stick to its opening up policy and Go Out strategy, facilitating investment abroad while guarding against risks”. The Belt and Road initiative, proposed by Xi in 2013, refers to building a trade and infrastructure network connecting Asia with Europe and Africa along ancient trade routes.

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Xi said more than 100 countries and international organizations have participated in the Belt and Road Initiative. China has signed agreements with more than 30 countries along the routes to jointly build the Belt and Road, and more than 20 countries have teamed up with China in industrial cooperation. The progress and results of the Belt and Road Initiative have been greater than expected. Against the backdrop of a sluggish global economy, the initiative will help stabilize the world economy through industrial capacity cooperation between China and countries along the routes, to advance their industrialization and modernization, as well as improve their infrastructure. According to the State Council of China, more specific Belt and Road policies should be worked out and major support should be focused on strategic projects including facilities cooperation, energy resource use and core technology research and development. The establishment of Free Trade Zones across the country is another measure in the government’s efforts to deepening its reform and opening up policies. The nation established its first pilot FTZ in Shanghai in August 2013, to test a broad range of economic reforms, including more openness to foreign investment and fewer restrictions on capital flows. In late 2014, Tianjin, Fujian and Guangdong were approved to set up the second group of FTZs. The country added 7 new free trade zones in 2016, across the country, bringing the total number to 11 . The policy has led to a surge in business registrations. In the first half of 2016, a total of 4,923 foreign-funded firms were established in the four FTZs, with investments amounting to 359 billion yuan. Encouraged by the results, China is considering expanding the approach nationwide. At the moment, FTZs make up only a tiny part of China’s economy. But they represent a future scenario for success. In the long run, economists expect the entire country’s economy and economic regime to become more like today’s FTZs. China's investment in Belt and Road Initiative countries soared 38.6 percent year on year as the country's outbound direct investment (ODI) reached a record high in 2015, official data showed. Investment in Belt and Road countries stood at 18.93 billion U.S. dollars and represented 13 percent of the country's ODI last year, according to Zhang Xiangchen, deputy international trade representative with China's Ministry of Commerce (MOC). Zhang told reporters at a news conference that Belt and Road investment is essential to the fast development of China's ODI. China's ODI hit an all-time high of 145.67 billion U.S. dollars in 2015, exceeding the 135.6 billion in foreign direct investment it received, making it a net capital exporter for the first time, Zhang said. The dominating countries are USA, Australia, Canada, Brazil, United Kingdom, Russia, Italy, Indonesia, Kazakhstan, and Singapore. According to the American Enterprise Institute, by the end of 2016, China’s combined investment and construction overseas is worth over $1.3 trillion. Chinese investment around the world set a record pace, almost $90 billion of investment in the first six months of 2016, more than any full year prior to 2013 and a 39 percent rise over a then-record pace in the first half of 2015. The dominant country is the US, which (provisionally) saw its

123 www.followcn.com full-year record for Chinese investment nearly doubled in just the first half of 2016 to about $35 billion. The pace, however, cannot be sustained, and spending will ease by early 2017.

Belt & Road to Bring New Opportunities to Silk Road Countries

China's "One Belt One Road" initiative will bring new opportunities to silk road countries and those countries should catch the opportunity to strengthen cooperation and realize common development, officials from Kazakhstan, Singapore, Estonia, Latvia and Tajikistan said during their speeches at Astana Economic Forum on May 18 2015. Kazakhstan's Vice Economic Minister Timur Zhaksylykov said, "One Belt One Road" has many meeting points with EEU. He hopes that by working together, different countries will realize economic development and promote trade among Eurasian countries. He said "One Belt One Road" initiative and EEU could cooperate in trade, elimination of tax barriers, transportation and infrastructure. Kazakhstan expressed hope to connect the high-speed railway in China and Europe, because it will greatly increase the transport efficiency between China and Europe. Kazakhstan's Vice Energy Minister Aset Magauov said, Kazakhstan's energy industry benefits mostly from China's economic growth. Being an important energy export market, China's significance to Kazakhstan will continue to grow. China's economic growth and its cooperation with Kazakhstan are important. Tajikistan's Economic Development Minister Nematullo Hikmatullozoda said, "One Belt One Road" initiative brought great opportunities and new concepts. Central Asian countries should catch this opportunity and take up more responsibilities, strengthening cooperation and exploring business opportunities together. He said Central Asian countries play an irreplaceable role in building Silk Road Economic Belt and they support the spirit and proposal of Silk Road Economic Belt. Cooperation between China and Central Asian countries will inject more momentum to Silk Road Economic Belt. He made suggests that more countries join the "One Belt One Road" initiative. Latvia's Minister of Social Welfare Uldis Augulis said, "One Belt One Road" initiative can promote the building of Eurasian Land Bridge, which will bring great benefits to Eurasian countries. "One Belt One Road" countries must eliminate the bottleneck of Silk Road's development on the basis of common interest. He said Silk Road countries should create a coordination mechanism to push forward multilateral cooperation. The "16+1" multilateral dialogue platform created by China and East Europe can play an important role in the development of Silk Road Economic Belt. Singapore's Minister of State, Minister of Trade & Industry, Ministry of National Development Koh Poh Koon said, Silk Road Economic Belt will bring great opportunities to Silk Road countries, Association of Southeast Asian Nations (ASEAN) countries can play an important role in promoting "One Belt One Road" initiative. He made suggestions that Silk Road countries eliminate trade barriers and find each one's own development strategy. He said China is an important guarantee whether "One Belt One Road" initiative will succeed, while Kazakhstan is the "button" of Silk Road

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Economic Belt. As the largest landlocked country, Kazakhstan is the key player that connects China, Russia and Europe. Financial Minister of Estonia Sven Sester said building Silk Road Economic Belt will bring new business opportunity and make silk road countries become not only communication centers, but also bring them new business prospects that can stimulate economic growth. As an EU country, Estonia can play an important role in pushing forward "One Belt One Road" initiative and trade between Europe and Asia. Estonia is dedicated to constructing railway networks, so as to smooth commodity transportation among China, Russia and north European countries. Speaking at a seminar on May 22 entitled "Community of Common Destiny under Belt and Road Initiative in South Asia" organized by Xinhua News Agency Kathmandu Bureau and Asia Pacific Daily, Nepal's Former Ambassador to Japan, Bishnu Hari Nepal, said that the unprecedented One Belt and One Road Initiative will greatly benefit neighboring countries like India and Nepal of South Asia region if they join hands with this initiative. "This is a mega vision introduced by Chinese President Xi Jinping in 2013 which promotes economic cooperation among different countries of the world spanning from Asia, Europe to Africa. For countries like Nepal and India, this initiative is highly important as its primary objective is to create win-win situation to achieve economic prosperity through enhancing road and rail connectivity," the former diplomat said. He was of the view that as an emerging economy of the world, India should participate in the Belt and Road Initiative, saying that India's role is crucial and important in enhancing regional economic integration in South Asia. "India should work closely with China to collaborate and push forward the One Belt and One Road Initiative instead of being skeptical. This initiative should be taken as a new opportunity for the South Asia region," he said. Highlighting the importance of Belt and Road Initiative, Editor-in-Chief of the Rising Nepal Yubanath Lamshal, who is also an expert on China-Nepal relations, said that the initiative promotes regional connectivity and peace among the various regions of the world. "Belt and Road Initiative is an innovative marshal plan introduced by China to promote economic cooperation, sustainable peace and modernization of the entire world," he said.

China's Trade with Belt and Road Countries Surpasses 1 Trillion USD in 2015

According to Xinhua, China's trade with countries participating in the Belt and Road Initiative surpassed 1 trillion U.S. dollars in 2015, accounting for a quarter of its total foreign trade. Over 70 countries and international organizations have taken part in the Belt and Road Initiative and some 30 countries have signed cooperation deals with China to jointly push forward the initiative over the past three years, President Xi said in an address to the Uzbek Parliament.

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Summing up the early harvests of the Belt and Road Initiative, Xi said Chinese enterprises' direct investment in 49 countries along the economic corridor reached nearly 15 billion dollars in 2015, up 18 percent year on year, while those countries' investment in China exceeded 8.2 billion dollars, up 25 percent. China has inked production capacity cooperation deals with 20 countries and jointly set up 46 overseas economic cooperation zones in 17 Belt and Road countries, with accumulated Chinese investment topping 14 billion dollars and creating 60,000 local jobs. Meanwhile, the Asian Infrastructure Investment Bank entered into operation with 57 active participant countries, and the Silk Road Fund and the China-Eurasia Economic Cooperation Fund were also established. The Belt and Road Initiative's primary planning and deployment has completed and is now stepping into the stage of taking roots and intensive cultivation for sustained development. China’s Outward investment hit the new record high with a hard-earned growth for 13 consecutive years. In 2015, China’s nonfinancial outward direct investment reached US$ 118.02 billion, hitting a new record high, up 14.7% year on year, realizing a growth of 13 consecutive years with an annual growth rate of 33.6%. During the 12th Five Year Plan, China’s outward direct investment was 2.3 times that of the 11th Five Year. According to the Ministry of Commerce, foreign contract projects stepped into a new stage, and franchising projects witnessed prominent highlights. In 2015, the newly signed contract volume of China’s foreign contract projects exceeded US$ 200 billion, reaching US$ 210.07 billion, up 9.5% year on year. In development phases of the foreign contract projects, the annual contract volume took about 30 years to reach US$ 100 billion (reaching US$ 104.56 billion in 2008), but it only took just 7 years to reach US$200 billion. With the increasing in scale of the business constantly and the pattern innovation becoming more vital, the Ministry of Commerce encouraged enterprises to undertake franchising engineering projects (including BOT, BOO and PPP) in recent years,. According to primary statistics, in 2015, 30 franchising projects were newly signed by Chinese enterprises or under construction (operation), covering US$ 10 billion. The investment and Cooperation with the countries along the “Belt and Road” went smoothly, and the international capacity cooperation led a rapid growth of business. In 2015, Chinese enterprises conducted direct investment in 49 countries related to “Belt and Road”, with the investment totalling US$ 14.82 billion, up 18.2% year on year. Chinese enterprises undertook 3,987 foreign contract projects in 60 countries related to “Belt and Road”, and the newly signed contract volume reached US$ 92.46 billion, accounting for 44% of the total newly signed contracts of foreign contract projects in the same period. In the same period, Chinese enterprises invested US$ 11.66 billion directly to competitive industries like transportation, electric power and communication, up 80.2% year on year. The outward direct investment of the equipment manufacturing industry was US$ 7.04 billion, up 154.2% year on year. Up to the end of December, 75 cooperation zones were being promoted by Chinese enterprises, half of which were the processing and manufacturing zones closely related to capacity cooperation. The enterprises invested a total amount of US$ 7.05 billion and 1,209 enterprises entered the zones. The total value of output of the cooperation zones were US$ 42.09 billion with the tax of

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US$ 1.42 billion paid to the host countries, driving part of the capacity of traditional competitive industries like textile, clothing, light industry and household appliances to transfer to the abroad.

Xinhua Insight: Belt and Road Initiative Needs to be Green

Countries involved in the Belt and Road Initiative must put green development high on their regional cooperation agendas to ensure pollution is managed before, rather than after, think tanks suggested at the Eco Forum Global Annual Conference Guiyang 2016 on 11th July . Environmental protection is a good place to begin exploring policy coordination as all cooperation would have an environmental impact, said Li Lailai, China country director for the World Resources Institute (WRI), at the forum which has just concluded in Guiyang City, southwest China. The primary goal to enhance facility connectivity along the land-based Silk Road Economic Belt and the 21st Century Maritime Silk Road, known as the Belt and Road Initiative, for instance, will result in more infrastructure projects. Mutual authentication of green produce could also support the realization of unimpeded trade, while knowledge-sharing on green credit could facilitate financial integration across the region. Citing WRI water resources data and satellite images, Li said quite a number of Belt and Road countries face a potential water shortage and have sparse forest coverage, therefore, the environment deserves more attention now than ever. Another report from the Chinese Academy of Sciences estimates that the countries under the initiative account for more than 70 percent of the world's population, 40 percent of the world's land, and they discharge more than 55 percent of the world's greenhouse gas emissions. "As a lot more countries have begun to value green growth, collaboration on outdated technology just for the pursuit of profits will not work. Environmental knowledge will be the yardstick by which we measure the competence of enterprises engaged in cooperation projects," said Liu Shijin, vice president of China Development Research Foundation, suggesting the central government tighten supervision of those companies planning to invest abroad.

GREEN TREND

"Many years ago, when we first talked about green growth, we simply factored environmental issues into the cost, and our basic idea for the calculation of green GDP was to take out expenses on environmental protection from the overall GDP. Now many realize it is a good engine for innovative growth and represents a new way of life," said Liu. The Belt and Road must follow the green development trend and spread knowledge and advanced systems through cooperation, he said. Despite the existence of development disparities, a large number of countries under the initiative have established strategies and policies to boost green development,

127 www.followcn.com including Nepal, India, Mongolia and Central Asian countries. "When China reaches out to countries under the initiative, it offers smart power grids, high-speed rail and intelligent robots, the leading systems offered by Chinese firms," said Wei Jianguo, vice president of China Center for International Economic Exchanges. In January, China Nuclear Engineering Group Corp signed a memorandum of understanding with Saudi Arabia's King Abdullah City for Atomic and Renewable Energy. Shu Weiguo, chief economist of China Nuclear Engineering Group Corp., said the cooperation was a major Belt and Road project. Invented by Chinese researchers, the high temperature gas cooled reactors (HTR) addresses the risk of radiation leaks as the reactor cores will never melt due to the use of a special spherical fuel element. Shu disclosed that his company has been in talks with Indonesia, the United Arab Emirates, South Africa and the ASEAN Center for Energy on potential HTR cooperation. Gao Hongbin, deputy director of the Systems Engineering Bureau of China Atomic Energy Authority (CAEA), said the CAEA will improve its nuclear security capacity building from a global perspective, conduct more clean energy technical exchanges and join the international community to build a fair, cooperative and win-win nuclear security system for the world. Chinese companies invested 14.8 billion U.S. Dollars in the Eurasia region under the initiative in 2015, up 18.2 percent from a year earlier. Peter Medgyessy, former prime minister of Hungary, commended China for its participation in the construction of the high-speed railway linking Serbia and Hungary when attending the forum. It was the first European railway project China has participated in and has been hailed as a flagship Belt and Road project. Upon completion of the renovation, travel will be cut from eight hours to less than three and the rail line originally built in 1882 will be powered by electricity. Medgyessy said he hoped the initiative could introduce more environmentally-friendly processes and systems to Europe.

GREEN PUSH

Since the initiative was launched in 2013, China has been pushing to facilitate its implementation. The Silk Road Fund, established in late 2014, with first-phase capital of 10 billion U.S. dollars, for instance, gives priority to green projects. In June, China signed a memorandum of cooperation with the government of the Republic of Serbia on new energy projects including, but not limited to, hydro, wind, solar and biomass. Another memorandum of cooperation was signed the same month for an equity investment in a German company specializing in power and heat generation from waste. In October 2015, China promised a 20-billion-yuan South-South cooperation fund to help other developing countries cope with the effects of climate change. As South-South cooperation crosses with the Belt and Road Initiative, experts say the fund might help green transformation projects among developing countries under the

128 www.followcn.com initiative. A pressing issue facing Belt and Road countries, however, relates to the lack of unified green standards and an incentive mechanism, said Li Lailai. Since all projects have environmental impacts and influence the sustainability of the relevant parties, there must be effective ways to implement the political view of pursuing green development. Having an incentive mechanism encouraging enterprises to shoulder their responsibilities would be a good choice as more social forces need to be mobilized, Li said. Given environmental policies vary with countries, experts say having a unified environmental standard would be tough.

Three Years on, China's Belt and Road Initiative to Embrace Greater Achievements

The following report is from a Xinhua Writer Liu Chang in September 2016. Three years ago, Beijing unveiled its Belt and Road Initiative to deepen China's own reforms and opening-up, and better connect itself with the rest of the world in terms of policy coordination, trade, transportation, energy and information facilities. Beijing wants to see that the bounty of development arising from the landmark initiative can be shared among all who are part of the program. Over the past three years, significant and broad achievement has been made, which proved the initiative's effectiveness and demonstrated its nature that favors common development.

Rich Results

According to a report issued by China's Renmin University at a two-day international seminar that opened on Monday in the northwestern Chinese city of Xi'an, more than 100 countries and international bodies are currently involved in the initiative, while over 30 countries along the new Silk Road have signed cooperation agreements with Beijing. China is also working with more than 20 nations on industrial capacity projects. Among all other things, the most strategic accomplishments have been the successful development policy coordination between China and the countries along the belt and road. The report said China has already begun the coordination of its signature initiative with the development strategies of many countries involved in the program, including Kazakhstan's the Bright Road and Russia's Eurasian Economic Union. In boosting facility connectivity, China is working with countries and regions in coordinating infrastructure standards, connecting transportation and energy infrastructure, and boosting information connectivity, said the report. In trade, the past three years have seen China's consistent efforts to join belt and road countries to promote trade and investment activities by negotiating bilateral agreements to remove trade and investment barriers and create a healthy business environment. By the end of June, China has signed bilateral investment treaties with 104 countries

129 www.followcn.com along the belt and road, while its investment in these countries have totaled 51.1 billion U.S. dollars, said the report. To ensure adequate financial support for the initiative, China, said the report, has been vigorously pushing forward financial cooperation with countries joining the initiative, as well as RMB trade settlement, currency swap, and other financial services. The Beijing-based Asian Infrastructure Investment Bank (AIIB), founded at the end of 2015, considers projects related to the initiative as one of its top priorities. The bank's 509-million-dollar investment in its first four projects, which was approved in late June, and focuses on power, transportation, urban development and other areas, has all gone to countries along the belt and road. Meanwhile, Beijing has also attached great importance to enhancing cooperation in education, health care, as well as people-to-people and cultural exchanges, an effort to win public support for the implementation of the initiative.

Well Received Around the World

Ever since China launched the initiative, it has received positive responses worldwide as Beijing has vowed to promote the program based on mutual benefit and the spirit of inclusiveness as well as sustainable development. Engstrom Anna, analyst for economics, policy and governance at the European Bank for Reconstruction and Development, told Xinhua that the initiative certainly is getting a lot of attraction worldwide, adding that everyone is "quite excited" about China's idea. "We are seeing a lot of cooperation from China in Thailand, Serbia, and Hungry," she said, adding that the most substantial achievement for the initiative is that China has actually bolstered its mutual trust with other countries, which she believes is the foundation for their future cooperation. Jonathan E. Hillman, fellow and director of the Reconnecting Asia Project, Center for Strategic and International Studies, believes the initiative is "hugely ambitious." He said many in the West are encouraged by the economic potential, because if it works well, it does benefit all the participants, including the West. Charles Dkechukwu Onunaiju, director of the center for China studies in Nigeria, said the initiative one of China's most important contribution to human kind in the 21st century, and it presents great opportunity to connect the entire African continent, and the Africans take it very seriously.

Challenge and Bright Future

Still, giant as the Belt and Road Initiative is, there is no doubt that it will have to face and fend off risks and difficult challenges along the way forward. Engstrom Anna believes political risk has to be considered. As many of China's overseas projects under the initiative need many years to finish, they could run into troubles under such a scenario as the change of government in the countries Chinese investors work with. In Hillman's view, if the initiative to achieve greater success in the future, it needs to set clear priorities, like what kind of projects would be chosen.

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"It's like that if you have so many goals, it's hard to implement that. You need to focus on what matters most," he said. Despite the potential challenges, the initiative is going to have a bright future, for the potential demand is enormous and the benefits are also great for all sides. According to the AIIB, the belt and road region has about 750 billion dollars for infrastructure a year through 2020. A recent Bloomberg report said that if these infrastructure investments were to be fully realized, then that would mean 580 million tons in annual cement demands. The report also said that meeting all of Asia's demand for railways, pipelines and power stations and other projects may generate 272 million tons of demands for steel. The huge demand in cement and steel bears tremendous opportunities for China to advance industrial capacity cooperation. Those who choose to work with China, especially countries and regions in the less developed world, can use this chance to close up their infrastructure gap to prepare for future economic takeoff. Moreover, the program could also boost shipping and cargo demands as planned infrastructure investments improve ports that dot the silk route.

Ausgrid: China’s Xinhua lashes Aussie’s ‘confusing’ investment policy

The Australian reported on 15 Aug. 2016. One of the most senior officials in the Hong Kong government says Scott Morrison’s shock decision to prevent a Hong Kong conglomerate from investing in the NSW electricity network should not be allowed to weaken Australia’s commercial relationships with the powerhouse Asian city. Hong Kong’s Secretary for Justice, Rimsky Yuen, said it was important to ensure that the “mutual commercial relationship’’ between Hong Kong and Australia was developed “in such an appropriate way as possible.’’ “I am sure that people on both sides would not be focusing on one or two incidents. I am sure we would be wise enough to be focusing on the bigger picture and to look at the long term. But of course, on the other hand, if at all possible, we should avoid things that might have an impact,’’ he told The Australian during a brief visit here. His comments came as Xinhua, the official Chinese state media organ, published an editorial criticising the decision and said the Coalition government risked potential investment from its largest trading partner. It said Australia was currently setting a “confusing” view on foreign investment and must implement a clear framework. “It’s high time for Australia to put all parties on the same page and implement its strategy in a unified and co-ordinated fashion, before its deeply confused investors lose interests,” Xinhua said. “Policymakers in Canberra still seem to hold on to Cold War mentality and viewing Chinese buyers via tainted glasses”. “If Australia keeps sending mixed signals to Chinese bidders, it would eventually cast the impression as an unpredictable investment environment to Chinese buyers as well as other potential investors,” it said.

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Rejected Hong Kong bidder Cheung Kong Infrastructure last week questioned the federal government’s motives after the Treasurer stopped it and the Chinese government-owned State Grid from leasing NSW power asset Ausgrid on the basis of national security concerns. CKI, which is part owned by billionaire Li Ka-shing, has already invested heavily in Australian infrastructure — as has State Grid. It is understood both companies are seeking talks with the Treasurer to see if their bids for the NSW poles and wires network can be salvaged. State Grid, the $257bn giant that supplies the bulk of China’s network, could be prepared to drop its interest to stay in the race. Industry superannuation leader Garry Weaven has called on the Coalition to implement a more transparent bidding process for national asset sales following the Ausgrid decision. Mr Weaven, who chairs the $70 billion IFM Investors, and its holding company Industry Super Holdings declined to confirm whether the super fund manager would relodge its bid for Ausgrid which was pulled after it conceded to the Chinese conglomerate. “We don’t talk about specific bids,” Mr Weaven said yesterday. “There needs to be some clarity about what’s acceptable from a public and government point of view, then everyone can consider what’s next,” he added. The former chairman of Infrastructure Australia, Rod Eddington, hit out at the government’s move to bar Hong Kong based Cheung Kong from bidding for Ausgrid as “hard to understand.” He told The Australian that Cheung Kong founder, Mr Li, was “a sensible, global player.” Hong Kong companies have more than $77bn worth of investments in Australia and in 2015 Hong Kong was the seventh largest market for Australian services exports worth more than $2.1bn, 10 per cent above the previous year. Mr Yuen said: “I certainly respect the will of the Australian government and certainly respect the views of the Australian community, but I think bilateral trade and commercial relationships would in the long run be of mutual interest.’’ Asked if the Treasurer’s decision could have implications for Hong Kong companies investing in Australia in the future, Mr Yuen replied: “As much as Hong Kong welcomes our friends from Australia to invest in Hong Kong and to use Hong Kong as a base or a springboard to go into the China market, I’m sure Australia would welcome companies from Hong Kong to invest in Australia.’’ CKI owns SA Power Networks, a primary state electricity distribution business; CitiPower, which supplies electricity to Melbourne’s CBD and inner suburbs; Powercor, Victoria’s largest electricity distributor; Transmission General Holdings, a Victorian renewable energy power transmission business; and Australian Gas Networks, one of Australia’s largest natural gas distribution firms.

China will Stick to Go Out Strategy Amid Outflow Concerns

According to Reuters on 28 Nov. 2016, China said on Monday it will stick to its opening up policy and “going out” strategy on investment even while a slide in the yuan to

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8-1/2-year lows revives worries about capital fleeing the country. Officials from the National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China and the State Administration of Foreign Exchange said the country will continue to encourage healthy development of outbound investment, the official Xinhua news agency reported. The Wall Street Journal reported on Friday that China plans to tighten controls on companies looking to invest abroad in an effort to slow surging outflows. While Beijing has been busily damming up official channels for money to leave China, more funds than ever are leaking out through shady means as investors flee the country’s slowing economy and weakening currency, financial industry executives say. The onshore yuan strengthened to 6.9024 per dollar by midday from Friday’s closing price of 6.9170, with traders saying state-owned banks were seen selling dollars. The yuan has fallen more than 6 percent versus the dollar this year, but has been relatively stable against a basket of currencies. The surge in overseas investment heightens foreign exchange risks but also poses potential threats to China’s financial system if these deals start to go bad, analysts at China International Capital Corporation said in a note on Monday. “Emerging markets’ experience has repeatedly shown that one-way currency bets, on appreciation or depreciation, tend to be followed by substantial losses to local financial institutions,” CICC analysts wrote. “In other words, reckless overseas investment could threaten financial stability.” Though still the world’s largest, China’s foreign currency reserves have fallen to their lowest since March 2011, with the PBOC widely believed to have sold dollars to cushion the yuan’s decline. Pressure on the yuan and other emerging market currencies has intensified in recent weeks as the dollar surged on expectations that U.S. President-elect Donald Trump will ramp up fiscal spending to boost the economy. China’s central bank has urged commercial banks in Shanghai to guard against money outflows via the Shanghai Free Trade Zone (FTZ) disguised as foreign investment, two sources with knowledge of the instructions said on Friday. The central bank said it was unable to comment on reports of tighter controls on overseas investments. Financial news outlet Caixin reported on Saturday the PBOC is also considering including cross-border yuan business into risk assessments for banks, quoting an unidentified banker as saying the move would force banks to “do more incoming yuan business, and less yuan outflow activities”. In comments on Sunday, PBOC Vice Governor Yi Gang predicted that capital outflows seen after August 2015’s surprise devaluation of the currency would start to reverse. “As China’s economy recovers and institutional reform improves the business environment, the money that has left will come back,” Yi said.

(Reporting by Engen Tham and Elias Glenn; Editing by Kim Coghill and Jacqueline Wong)

AIIB: Asian Infrastructure Investment Bank

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The Asian Infrastructure Investment Bank (AIIB) is a China-led international financial institution created to offer finance to infrastructure projects as part of China's Silk Road initiative, with a focus on bolstering links across Asia, the Middle East, Africa and Europe. Some government officials and analysts have said growing dissatisfaction among emerging economies at the failure to reform the International Monetary Fund's decision-making system encouraged China to set up the new international lender, with 57 participating countries. At AIIB’s First Annual Meeting of its Board of Governors held in Beijing, President Jin Liqun reported on the Bank’s progress during its first six months of operation. He noted the June 24, 2016 approval of the Bank’s first 4 loans for power, transport and urban investments in Bangladesh, Indonesia, Pakistan and Tajikistan totaling $509 million. The Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD) and the World Bank are co-financing partners on 3 of the 4 new loans. The Bank has developed a strong cooperative relationship with the multilateral development banks (MDBs) and is developing a pipeline of operations for future co-financing, in consultation with its clients. The President also highlighted the recent approval of a Special Fund to support members in the preparation of bankable project proposals. The Government of China has made the first commitment to the Fund with a contribution of $50 million, which will allow the Fund to begin operations in the fall of 2016. The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank (MDB) conceived for the 21st century. Chinese President Xi Jinping and Premier Li Keqiang announced the AIIB initiative during their respective visits to Southeast Asian countries in October 2013. The AIIB was envisaged "to promote interconnectivity and economic integration in the region" and "cooperate with existing multilateral development banks". Following this announcement, bilateral and multilateral discussions and consultations commenced on core principles and key elements for establishing the Bank. Representatives from 57 Prospective Founding Members (PFMs) of the Asian Infrastructure Investment Bank (AIIB) gathered on June 29, 2015 in Beijing at a Signing Ceremony of the Bank's Articles of Agreement at the Great Hall of the People. The United Nations has addressed the launch of AIIB as having potential for "scaling up financing for sustainable development" for the concern of global economic governance.The Economists said that the AIIB reflects China’s new eagerness to institutionalize its official lending abroad, which has been generous but contentious. James Woolsey, a top adviser of U.S. President-elect Donald Trump has lashed out at the Obama administration for failing to embrace the China-led Asian Infrastructure Investment Bank, suggesting a possible policy shift when Trump takes office in January.

China's Belt and Road Initiative -- From Vision to Reality

The Belt and Road Initiative, a daring proposal of reviving the ancient trade routes across Eurasia and beyond through open and inclusive cooperation, has now turned from vision to reality nearly three years after it was put forward by Chinese President Xi Jinping,

134 www.followcn.com according to a Xinhua News Agency report. On June 10, the Asian Infrastructure Investment Bank (AIIB), a major financing agency for the initiative, joined hands with the Asian Development Bank (ADB) on financing a highway project in Pakistan, marking the first cooperation between the two regional lenders. If one wonders in what ways the China-proposed initiative is open and inclusive, the 100-million-U.S. dollar project, which also involves Britain's Department for International Development (DFID), is a good example. China seeks cooperation and mutual benefits instead of control -- the project in Pakistan was administered by the ADB -- and it welcomes the participation of a third party -- in this case, Britain's DFID. Needless to say, there are other ways of cooperation under the umbrella of the initiative, but the same principle runs through all the projects: open and inclusive cooperation on equal footing. And the principle works. The ambitious initiative, comprised of the Silk Road Economic Belt and the 21st Century Maritime Silk Road that stretch from China's eastern coast to the Middle East, Africa, Western Europe and even beyond, has already achieved substantial achievements. And its vision of open, inclusive and win-win cooperation bringing prosperity to the world's foremost inner lands has gradually been translated into an inspiring reality. In addition to the recent example of cooperation between the AIIB and the ADB, China has also signed agreements on production capacity cooperation with 20 countries, committing funds of 100 billion dollars. In the year of 2015, Chinese companies made 15-billion-dollar worth of direct investment in the countries along the land and sea routes. Along the far-reaching routes, many infrastructure projects under the framework of the initiative are either under way or to be commenced soon, such as the Hungary-Serbia Railway and the Jakarta-Bandung High-Speed Rail. The Jakarta-Bandung high-speed railway is one of the latest projects funded by AIIB. The 142.3 km-long project with an investment of 5.1 billion U.S. dollars will connect Jakarta and West Java's capital Bandung in the southeast. With a maximum speed of 250 kmph, the travel time between the two cities will be cut from three hours to less than one hour. Chinese and Indonesian state-owned enterprises (SOEs), namely China Railway and PT Pilar Sinergi BUMN Indonesia, officially signed the deal to build the mega project in October 2015. According to the deal, Indonesian SOEs will be holding 60 percent of KCIC.

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Chapter Eleven

Military reform and preparation for war

China aims to complete military reform and have armed forces capable of informationized warfare by 2020, according to a five-year military development plan published in May 2016. In the next five years, China's armed forces will realize "a significant increase of key combat capabilities," said the 13th five-year military development plan (2016-2020), issued by the Central Military Commission (CMC). By 2020, the People's Liberation Army (PLA) will have finished mechanization of all forces and made important progress in incorporating information and computer technology, the document said. The next five years will lay a solid foundation for the PLA to become a world-class military force, it said. Priorities include the strategic restructuring of different services, the development of weaponry and logistics, IT facilities, combat training and international military cooperation. More resources will be directed to projects that enhance combat readiness, facilitate major reforms and improve benefits for servicemen and women. Lately the PLA has undergone significant restructuring, with the CMC taking charge of overall administration, and theater commands focusing on combat. Different military branches will pursue their own development. Measures began in December with the inauguration of the general command for the PLA, the PLA Rocket Force and the PLA Strategic Support Force. Former military headquarters -- staff, politics, logistics and armaments -- were reorganized into 15 new agencies under the CMC. In February 2016, China's military was regrouped into five theater commands, including the Eastern Theater Command, Southern Theater Command, Western Theater Command, Northern Theater Command and Central Theater Command. President Xi JInping, also general secretary of the Communist Party of China (CPC) Central Committee and CMC chairman, has asked officers to change their ideas, innovate and tackle difficulties, in a bid to build a joint battle command system that was "absolutely loyal, resourceful in fighting, efficient in commanding and courageous and capable of winning wars." Xi also called for research on how to win informationized wars and the mechanism of modern battle command so as to build an advanced theoretic system for battle that cater to Chinese military's characteristics and is compatible with the nature of modern warfare. China announced its lowest defense budget increase in six years in the wake of rising economic headwinds. According to a budget report given to the national legislature annual session, the government plans to raise the 2016 defense budget by 7.6 percent to 954 billion yuan (about 146 billion U.S. dollars). The increase last year was 10.1 percent. In September, the country announced a military cut of 300,000 standing troops to be finished by the end of 2017, in an effort to build a leaner armed forces.

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US: Annual Report to Congress on Military and Security Developments involving China

In May 2016, the United States Department of Defense released its annual report to Congress on “Military and Security Developments Involving the People’s Republic of China 2016.” The following are abstracts from that report. China demonstrated a willingness to tolerate higher levels of tensions in the pursuit of its interests, especially in pursuit of its territorial claims in the East and South China Sea; however, China still seeks to avoid direct and explicit conflict with the United States. China’s leaders understand that instability or conflict would jeopardize the peaceful external environment that has enabled China’s economic development, which is central to the perpetuation of the CPC’s domestic legitimacy. In the ear-term, China is using coercive tactics short of armed conflict, such as the use of law enforcement vessels to enforce maritime claims, to advance their interests in ways that are calculated to fall below that threshold of provoking conflict. In the long term, Chinese leaders are focused on developing the capabilities they deem necessary to deter or defeat adversary power projection and counter third-party-including US-intervention during a crisis or conflict. China’s military modernization is producing capabilities that have the potential to reduce core US military technological advantages. China’s officially-disclosed military budget grew at an average of 9.8 percent per year in inflation-adjusted terms from 2006 through 2015, and Chinese leaders seem committed to sustaining defense spending growth for the foreseeable future, even as China’s economic growth decelerates. Anti-corruption Campaign. The CCP’s anti-corruption efforts in the military targeted more than 40 senior officers in 2015, including former Central Committee Politburo member and CMC Vice Chairman Guo Boxiong, who served as the PLA’s top general before he retired in 2012. Anti-corruption investigations in the PLA parallel a larger Party-wide effort that President Xi initiated shortly after taking office to safeguard the legitimacy of the CCP, root out corruption and powerful rival networks, improve governance, and strengthen central control. Military discipline inspectors have targeted individual power networks and sectors historically prone to corruption, and the PLA is also revising its regulations to prevent abuse more effectively. South China Sea. China depicts its South China Sea claims by using a “nine-dash line” that encompasses most of the area. China remains ambiguous about the precise Coordinates, meaning, or legal basis of the nine-dash line. Brunei, Malaysia, the Philippines, Taiwan, Indonesia, and Vietnam all contest portions of China’s territorial and maritime claims in the South China Sea. In 2015, China accelerated land reclamation and infrastructure construction at its outposts in the Spratly Islands. When complete, these outposts will include harbors, communications and surveillance systems, logistics facilities, and three airfields. Although artificial islands do not provide China with any additional territorial or maritime rights within the South China Sea, China will be able to use its reclaimed features as persistent civil-military bases to enhance its presence in the South China Sea significantly and enhance China’s ability to control the features and nearby maritime space.

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China’s Arms Sales. From 2010 to 2014, China’s arms sales totaled approximately $15 billion. China primarily conducts arms sales in conjunction with economic aid and development assistance to support broader foreign policy goals such as securing access to natural resources and export markets, promoting its political influence among host-country elites, and building support in international forums. To a lesser extent, arms sales also reflect the profit-seeking activities of individual arms trading companies in China and efforts to offset China’s defense-related research and development costs. From the perspective of China’s arms customers, most of which are developing countries, Chinese arms are less expensive than those offered by the top international arms suppliers, although they are also generally considered to be of lower quality and reliability. Chinese arms also come with fewer political strings attached, which is attractive to those customers who may not have access to other sources of arms for political or economic reasons. Active Defense. China characterizes its military strategy as one of “active defense,” a concept it describes as strategically defensive but operationally proactive in orientation. It is rooted in a commitment not to attack, but to respond aggressively once an adversary decides to attack-a defense that counterattacks in order to disrupt an adversary’s preparations or offensive rather than a defense that reacts passively. The PLA interprets active defense to include mandates for both de-escalation and seizing the initiative. Active defense is set in China’s National Security Law (2015) and is included in the PLA’s major strategy documents. Nuclear Weapons. China has long maintained a “no first use” (NFU) policy, stating it would use nuclear forces only in response to a nuclear strike against China. China’s NFU pledge consists of two stated commitments: China will never use nuclear weapons first and China will never use or threaten to use nuclear weapons against any non-nuclear-weapon state or in nuclear-weapon-free zones. There is some ambiguity over the conditions under which China’s NFU policy would apply. Some PLA officers have written publicly of the need to spell out conditions under which China might need to use nuclear weapons first; for example, if an enemy’s conventional attack threatened the survival of China’s nuclear force or of the regime itself. However, there has been no indication that national leaders are willing to attach such nuances and caveats to China’s NFU doctrine. China will probably continue to invest considerable resources to maintain a limited, but survivable, nuclear force to ensure that the PLA can deliver a damaging responsive nuclear strike. Recent press accounts suggest China may be enhancing peacetime readiness levels for these nuclear forces to ensure responsiveness. Estimating China’s Actual Military Expenditures. Using 2015 prices and exchange rates, the DoD estimates that China’s total military-related spending for 2015 exceeded $180 billion US dollars. However, it is difficult to estimate actual military expenses due to China’s poor accounting transparency and incomplete transition to a market economy. China’s published military budget omits several major categories of expenditure, such as R&D and the procurement of foreign weapons and equipment. Espionage Activities Supporting China’s Military Activities. China uses a variety of methods to acquire foreign military and dual-use technologies, including cyber activity

138 www.followcn.com and exploitation of the access of Chinese nationals-such as students or researchers-acting as procurement agents or intermediaries. China very likely uses its intelligence services and employs other illicit approaches that violates US laws and export controls to obtain key national security and export-restricted technologies, controlled equipment, and other materials unobtainable through other means. The following is the first public Chinese Military Strategy white paper outlining a new policy of “active defense,” released by the Chinese Ministry of National Defense on May 26, 2015.

Preface

The world today is undergoing unprecedented changes, and China is at a critical stage of reform and development. In their endeavor to realize the Chinese Dream of great national rejuvenation, the Chinese people aspire to join hands with the rest of the world to maintain peace, pursue development and share prosperity. China’s destiny is vitally interrelated with that of the world as a whole. A prosperous and stable world would provide China with opportunities, while China’s peaceful development also offers an opportunity for the whole world. China will unswervingly follow the path of peaceful development, pursue an independent foreign policy of peace and a national defense policy that is defensive in nature, oppose hegemonism and power politics in all forms, and will never seek hegemony or expansion. China’s armed forces will remain a staunch force in maintaining world peace. Building a strong national defense and powerful armed forces is a strategic task of China’s modernization drive and a security guarantee for China’s peaceful development. Subordinate to and serving the national strategic goal, China’s military strategy is an overarching guidance for blueprinting and directing the building and employment of the country’s armed forces. At this new historical starting point, China’s armed forces will adapt themselves to new changes in the national security environment, firmly follow the goal of the Communist Party of China (CPC) to build a strong military for the new situation, implement the military strategic guideline of active defense in the new situation, accelerate the modernization of national defense and armed forces, resolutely safeguard China’s sovereignty, security and development interests, and provide a strong guarantee for achieving the national strategic goal of the “two centenaries” and for realizing the Chinese Dream of achieving the great rejuvenation of the Chinese nation.

I. National Security Situation

In today’s world, the global trends toward multi-polarity and economic globalization are intensifying, and an information society is rapidly coming into being. Countries are increasingly bound together in a community of shared destiny. Peace, development, cooperation and mutual benefit have become an irresistible tide of the times. Profound changes are taking place in the international situation, as manifested in the historic changes in the balance of power, global governance structure, Asia-Pacific geostrategic landscape, and international competition in the economic, scientific and technological, and military fields. The forces for world peace are on the rise, so are the

139 www.followcn.com factors against war. In the foreseeable future, a world war is unlikely, and the international situation is expected to remain generally peaceful. There are, however, new threats from hegemonism, power politics and neo-interventionism. International competition for the redistribution of power, rights and interests is tending to intensify. Terrorist activities are growing increasingly worrisome. Hotspot issues, such as ethnic, religious, border and territorial disputes, are complex and volatile. Small-scale wars, conflicts and crises are recurrent in some regions. Therefore, the world still faces both immediate and potential threats of local wars. With a generally favorable external environment, China will remain in an important period of strategic opportunities for its development, a period in which much can be achieved. China’s comprehensive national strength, core competitiveness and risk-resistance capacity are notably increasing, and China enjoys growing international standing and influence. Domestically, the Chinese people’s standard of living has remarkably improved, and Chinese society remains stable. China, as a large developing country, still faces multiple and complex security threats, as well as increasing external impediments and challenges. Subsistence and development security concerns, as well as traditional and non-traditional security threats are interwoven. Therefore, China has an arduous task to safeguard its national unification, territorial integrity and development interests. As the world economic and strategic center of gravity is shifting ever more rapidly to the Asia-Pacific region, the US carries on its “rebalancing” strategy and enhances its military presence and its military alliances in this region. Japan is sparing no effort to dodge the post-war mechanism, overhauling its military and security policies. Such development has caused grave concerns among other countries in the region. On the issues concerning China’s territorial sovereignty and maritime rights and interests, some of its offshore neighbors take provocative actions and reinforce their military presence on China’s reefs and islands that they have illegally occupied. Some external countries are also busy meddling in South China Sea affairs; a tiny few maintain constant close-in air and sea surveillance and reconnaissance against China. It is thus a long-standing task for China to safeguard its maritime rights and interests. Certain disputes over land territory are still smoldering. The Korean Peninsula and Northeast Asia are shrouded in instability and uncertainty. Regional terrorism, separatism and extremism are rampant. All these have a negative impact on the security and stability along China’s periphery. The Taiwan issue bears on China’s reunification and long-term development, and reunification is an inevitable trend in the course of national rejuvenation. In recent years, cross-Taiwan Straits relations have sustained a sound momentum of peaceful development, but the root cause of instability has not yet been removed, and the “Taiwan independence” separatist forces and their activities are still the biggest threat to the peaceful development of cross-Straits relations. Further, China faces a formidable task to maintain political security and social stability. Separatist forces for “East Turkistan independence” and “Tibet independence” have inflicted serious damage, particularly with escalating violent terrorist activities by “East Turkistan independence” forces. Besides, anti-China forces have never given up their attempt to instigate a “color revolution” in this country. Consequently, China faces more challenges in terms of national security and

140 www.followcn.com social stability. With the growth of China’s national interests, its national security is more vulnerable to international and regional turmoil, terrorism, piracy, serious natural disasters and epidemics, and the security of overseas interests concerning energy and resources, strategic sea lines of communication (SLOCs), as well as institutions, personnel and assets abroad, has become an imminent issue. The world revolution in military affairs (RMA) is proceeding to a new stage. Long-range, precise, smart, stealthy and unmanned weapons and equipment are becoming increasingly sophisticated. Outer space and cyber space have become new commanding heights in strategic competition among all parties. The form of war is accelerating its evolution to informationization. World major powers are actively adjusting their national security strategies and defense policies, and speeding up their military transformation and force restructuring. The aforementioned revolutionary changes in military technologies and the form of war have not only had a significant impact on the international political and military landscapes, but also posed new and severe challenges to China’s military security.

II. Missions and Strategic Tasks of China’s Armed Forces

China’s national strategic goal is to complete the building of a moderately prosperous society in all respects by 2021 when the CPC celebrates its centenary; and the building of a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious by 2049 when the People’s Republic of China (PRC) marks its centenary. It is a Chinese Dream of achieving the great rejuvenation of the Chinese nation. The Chinese Dream is to make the country strong. China’s armed forces take their dream of making the military strong as part of the Chinese Dream. Without a strong military, a country can be neither safe nor strong. In the new historical period, aiming at the CPC’s goal of building a strong military in the new situation, China’s armed forces will unswervingly adhere to the principle of the CPC’s absolute leadership, uphold combat effectiveness as the sole and fundamental standard, carry on their glorious traditions, and work to build themselves into a people’s military that follows the CPC’s commands, can fight and win, and boasts a fine style of work. In the new circumstances, the national security issues facing China encompass far more subjects, extend over a greater range, and cover a longer time span than at any time in the country’s history. Internally and externally, the factors at play are more complex than ever before. Therefore, it is necessary to uphold a holistic view of national security, balance internal and external security, homeland and citizen security, traditional and non-traditional security, subsistence and development security, and China’s own security and the common security of the world. To realize China’s national strategic goal and implement the holistic view of national security, new requirements have been raised for innovative development of China’s military strategy and the accomplishment of military missions and tasks. In response to the new requirement of safeguarding national security and development interests, China’s armed forces will work harder to create a favorable strategic posture with more emphasis on the employment of military forces and means, and provide a solid security guarantee for the country’s peaceful development. In response to the new requirement arising from

141 www.followcn.com the changing security situation, the armed forces will constantly innovate strategic guidance and operational thoughts so as to ensure the capabilities of fighting and winning. In response to the new requirement arising from the worldwide RMA, the armed forces will pay close attention to the challenges in new security domains, and work hard to seize the strategic initiative in military competition. In response to the new requirement coming from the country’s growing strategic interests, the armed forces will actively participate in both regional and international security cooperation and effectively secure China’s overseas interests. And in response to the new requirement arising from China’s all-round and deepening reform, the armed forces will continue to follow the path of civil-military integration (CMI), actively participate in the country’s economic and social construction, and firmly maintain social stability, so as to remain a staunch force for upholding the CPC’s ruling position and a reliable force for developing socialism with Chinese characteristics. China’s armed forces will effectively perform their missions in the new historical period, resolutely uphold the leadership of the CPC and the socialist system with Chinese characteristics, safeguard China’s sovereignty, security and development interests, safeguard the important period of strategic opportunities for China’s development, maintain regional and world peace, and strive to provide a strong guarantee for completing the building of a moderately prosperous society in all respects and achieving the great rejuvenation of the Chinese nation. China’s armed forces mainly shoulder the following strategic tasks: — To deal with a wide range of emergencies and military threats, and effectively safeguard the sovereignty and security of China’s territorial land, air and sea; — To resolutely safeguard the unification of the motherland; — To safeguard China’s security and interests in new domains; — To safeguard the security of China’s overseas interests; — To maintain strategic deterrence and carry out nuclear counterattack; — To participate in regional and international security cooperation and maintain regional and world peace; — To strengthen efforts in operations against infiltration, separatism and terrorism so as to maintain China’s political security and social stability; and — To perform such tasks as emergency rescue and disaster relief, rights and interests protection, guard duties, and support for national economic and social development.

III. Strategic Guideline of Active Defense

The strategic concept of active defense is the essence of the CPC’s military strategic thought. From the long-term practice of revolutionary wars, the people’s armed forces have developed a complete set of strategic concepts of active defense, which boils down to: adherence to the unity of strategic defense and operational and tactical offense; adherence to the principles of defense, self-defense and post-emptive strike; and adherence to the stance that “We will not attack unless we are attacked, but we will surely counterattack if attacked.” Shortly after the founding of the PRC in 1949, the Central Military Commission (CMC)

142 www.followcn.com established the military strategic guideline of active defense, and later, in line with the developments and changes in the national security situation, had made a number of major revisions of it. In 1993 the military strategic guideline of the new era was formulated, which took winning local wars in conditions of modern technology, particularly high technology, as the basic point in making preparation for military struggle (PMS). In 2004, the guideline was further substantiated, and the basic point for PMS was modified to winning local wars under conditions of informationization. China’s socialist nature, fundamental national interests and the objective requirement of taking the path of peaceful development all demand that China unswervingly adhere to and enrich the strategic concept of active defense. Guided by national security and development strategies, and required by the situation and their tasks in the new historical period, China’s armed forces will continue to implement the military strategic guideline of active defense and enhance military strategic guidance as the times so require. They will further broaden strategic vision, update strategic thinking and make strategic guidance more forward-looking. A holistic approach will be taken to balance war preparation and war prevention, rights protection and stability maintenance, deterrence and warfighting, and operations in wartime and employment of military forces in peacetime. They will lay stress on farsighted planning and management to create a favorable posture, comprehensively manage crises, and resolutely deter and win wars. To implement the military strategic guideline of active defense in the new situation, China’s armed forces will adjust the basic point for PMS. In line with the evolving form of war and national security situation, the basic point for PMS will be placed on winning informationized local wars, highlighting maritime military struggle and maritime PMS. The armed forces will work to effectively control major crises, properly handle possible chain reactions, and firmly safeguard the country’s territorial sovereignty, integrity and security. To implement the military strategic guideline of active defense in the new situation, China’s armed forces will innovate basic operational doctrines. In response to security threats from different directions and in line with their current capabilities, the armed forces will adhere to the principles of flexibility, mobility and self-dependence so that “you fight your way and I fight my way.” Integrated combat forces will be employed to prevail in system-vs-system operations featuring information dominance, precision strikes and joint operations. To implement the military strategic guideline of active defense in the new situation, China’s armed forces will optimize the military strategic layout. In view of China’s geostrategic environment, the security threats it faces and the strategic tasks they shoulder, the armed forces will make overall planning for strategic deployment and military disposition, in order to clearly divide areas of responsibility for their troops, and enable them to support each other and act as an organic whole. Threats from such new security domains as outer space and cyber space will be dealt with to maintain the common security of the world community. China’s armed forces will strengthen international security cooperation in areas crucially related to China’s overseas interests, to ensure the security of such interests. To implement the military strategic guideline of active defense in the new situation, China’s armed forces will uphold the following principles:

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— To be subordinate to and in the service of the national strategic goal, implement the holistic view of national security, strengthen PMS, prevent crises, deter and win wars; — To foster a strategic posture favorable to China’s peaceful development, adhere to the national defense policy that is defensive in nature, persevere in close coordination of political, military, economic and diplomatic work, and positively cope with comprehensive security threats the country possibly encounters; — To strike a balance between rights protection and stability maintenance, and make overall planning for both, safeguard national territorial sovereignty and maritime rights and interests, and maintain security and stability along China’s periphery; — To endeavor to seize the strategic initiative in military struggle, proactively plan for military struggle in all directions and domains, and grasp the opportunities to accelerate military building, reform and development; — To employ strategies and tactics featuring flexibility and mobility, give full play to the overall effectiveness of joint operations, concentrate superior forces, and make integrated use of all operational means and methods; — To make serious preparations to cope with the most complex and difficult scenarios, uphold bottom-line thinking, and do a solid job in all aspects so as to ensure proper responses to such scenarios with ease at any time and in any circumstances; — To bring into full play the unique political advantages of the people’s armed forces, uphold the CPC’s absolute leadership over the military, accentuate the cultivation of fighting spirit, enforce strict discipline, improve the professionalism and strength of the troops, build closer relations between the government and the military as well as between the people and the military, and boost the morale of officers and men; — To give full play to the overall power of the concept of people’s war, persist in employing it as an ace weapon to triumph over the enemy, enrich the contents, ways and means of the concept of people’s war, and press forward with the shift of the focus of war mobilization from human resources to science and technology; and — To actively expand military and security cooperation, deepen military relations with major powers, neighboring countries and other developing countries, and promote the establishment of a regional framework for security and cooperation.

IV. Building and Development of China’s Armed Forces

In the implementation of the military strategic guideline in the new situation, China’s armed forces must closely center around the CPC’s goal of building a strong military, respond to the state’s core security needs, aim at building an informationized military and winning informationized wars, deepen the reform of national defense and the armed forces in an all-round way, build a modern system of military forces with Chinese characteristics, and constantly enhance their capabilities for addressing various security threats and accomplishing diversified military tasks.

Development of the Services and Arms of the People’s Liberation Army (PLA) and the People’s Armed Police Force (PAPF)

In line with the strategic requirement of mobile operations and multi-dimensional

144 www.followcn.com offense and defense, the PLA Army (PLAA) will continue to reorient from theater defense to trans-theater mobility. In the process of building small, multi-functional and modular units, the PLAA will adapt itself to tasks in different regions, develop the capacity of its combat forces for different purposes, and construct a combat force structure for joint operations. The PLAA will elevate its capabilities for precise, multi-dimensional, trans-theater, multi-functional and sustainable operations. In line with the strategic requirement of offshore waters defense and open seas protection, the PLA Navy (PLAN) will gradually shift its focus from “offshore waters defense” to the combination of “offshore waters defense” with “open seas protection,” and build a combined, multi-functional and efficient marine combat force structure. The PLAN will enhance its capabilities for strategic deterrence and counterattack, maritime maneuvers, joint operations at sea, comprehensive defense and comprehensive support. In line with the strategic requirement of building air-space capabilities and conducting offensive and defensive operations, the PLA Air Force (PLAAF) will endeavor to shift its focus from territorial air defense to both defense and offense, and build an air-space defense force structure that can meet the requirements of informationized operations. The PLAAF will boost its capabilities for strategic early warning, air strike, air and missile defense, information countermeasures, airborne operations, strategic projection and comprehensive support. In line with the strategic requirement of being lean and effective and possessing both nuclear and conventional missiles, the PLA Second Artillery Force (PLASAF) will strive to transform itself in the direction of informationization, press forward with independent innovations in weaponry and equipment by reliance on science and technology, enhance the safety, reliability and effectiveness of missile systems, and improve the force structure featuring a combination of both nuclear and conventional capabilities. The PLASAF will strengthen its capabilities for strategic deterrence and nuclear counterattack, and medium- and long-range precision strikes. In line with the strategic requirement of performing multiple functions and effectively maintaining social stability, the PAPF will continue to develop its forces for guard and security, contingency response, stability maintenance, counter-terrorism operations, emergency rescue and disaster relief, emergency support and air support, and work to improve a force structure which highlights guard duty, contingency response, counter-terrorism and stability maintenance. The PAPF will enhance its capabilities for performing diversified tasks centering on guard duty and contingency response in informationized conditions.

Force Development in Critical Security Domains

The seas and oceans bear on the enduring peace, lasting stability and sustainable development of China. The traditional mentality that land outweighs sea must be abandoned, and great importance has to be attached to managing the seas and oceans and protecting maritime rights and interests. It is necessary for China to develop a modern maritime military force structure commensurate with its national security and development interests, safeguard its national sovereignty and maritime rights and interests, protect the security of strategic SLOCs and overseas interests, and participate in international

145 www.followcn.com maritime cooperation, so as to provide strategic support for building itself into a maritime power. Outer space has become a commanding height in international strategic competition. Countries concerned are developing their space forces and instruments, and the first signs of weaponization of outer space have appeared. China has all along advocated the peaceful use of outer space, opposed the weaponization of and arms race in outer space, and taken an active part in international space cooperation. China will keep abreast of the dynamics of outer space, deal with security threats and challenges in that domain, and secure its space assets to serve its national economic and social development, and maintain outer space security. Cyberspace has become a new pillar of economic and social development, and a new domain of national security. As international strategic competition in cyberspace has been turning increasingly fiercer, quite a few countries are developing their cyber military forces. Being one of the major victims of hacker attacks, China is confronted with grave security threats to its cyber infrastructure. As cyberspace weighs more in military security, China will expedite the development of a cyber force, and enhance its capabilities of cyberspace situation awareness, cyber defense, support for the country’s endeavors in cyberspace and participation in international cyber cooperation, so as to stem major cyber crises, ensure national network and information security, and maintain national security and social stability. The nuclear force is a strategic cornerstone for safeguarding national sovereignty and security. China has always pursued the policy of no first use of nuclear weapons and adhered to a self-defensive nuclear strategy that is defensive in nature. China will unconditionally not use or threaten to use nuclear weapons against non-nuclear-weapon states or in nuclear-weapon-free zones, and will never enter into a nuclear arms race with any other country. China has always kept its nuclear capabilities at the minimum level required for maintaining its national security. China will optimize its nuclear force structure, improve strategic early warning, command and control, missile penetration, rapid reaction, and survivability and protection, and deter other countries from using or threatening to use nuclear weapons against China.

Military Force Building Measures

Strengthening ideological and political work. China’s armed forces always treat ideological and political building as the first priority, and have endeavored to reinforce and improve their political work in the new situation. They will continue to practice and carry forward the Core Socialist Values, cultivate the Core Values of Contemporary Revolutionary Service Personnel, and carry forward their glorious traditions and fine styles. Moreover, the armed forces will uphold a series of fundamental principles for and institutions of the CPC’s absolute leadership over the military, enhance the creativity, cohesion and combat effectiveness of their CPC organizations at all levels, make great efforts to cultivate a new generation of revolutionary service personnel of noble soul, competence, courage, uprightness and virtue, and ensure that the armed forces will resolutely follow the commands of the CPC Central Committee and the CMC at all times and under all conditions, and consistently retain the nature and purpose of the people’s

146 www.followcn.com armed forces. Pushing ahead with logistics modernization. China’s armed forces will deepen logistics reform in relevant policies, institutions and support forces, and optimize strategic logistics deployment. They will innovate the modes of support, develop new support means, augment war reserves, integrate logistics information systems, improve rules and standards, and meticulously organize supply and support, so as to build a logistics system that can provide support for fighting and winning modern wars, serve the modernization of the armed forces, and transform towards informationization. Developing advanced weaponry and equipment. Persevering in information dominance, systems building, independent innovation, sustainable development, overall planning, and emphasis on priorities, China’s armed forces will speed up to upgrade weaponry and equipment, and work to develop a weaponry and equipment system which can effectively respond to informationized warfare and help fulfill the missions and tasks. Cultivating new-type military personnel. China’s armed forces will continue with the strategic project for personnel training and perfect the system for military human resources. They will deepen the reform of military educational institutions and improve the triad training system for new-type military personnel – institutional education, unit training and military professional education, so as to pool more talented people and cultivate more personnel who can meet the demands of informationized warfare. Intensifying efforts in running the armed forces with strict discipline and in accordance with the law. Aiming at strengthening the revolutionization, modernization and regularization of the armed forces in all respects, China will innovate and develop theories and practice in relation to running the armed forces in accordance with the law, establish a well-knit military law system with Chinese characteristics, so as to elevate the level of rule by law of national defense and armed forces building. Innovating military theories. Under the guidance of the CPC’s innovative theories, China’s armed forces will intensify their studies of military operations, probe into the mechanisms of winning modern wars, innovate strategies and tactics featuring mobility and flexibility, and develop theories on military building in the new situation, so as to bring into place a system of advanced military theories commensurate with the requirement of winning future wars. Improving strategic management. It is necessary to optimize the functions and institutions of the CMC and the general headquarters/departments, improve the leadership and management system of the services and arms, and adhere to demand-based planning and plan-based resource allocation. China’s armed forces will set up a system and a working mechanism for overall and coordinated programming and planning. They will also intensify overall supervision and management of strategic resources, strengthen the in-process supervision and risk control of major projects, improve mechanisms for strategic assessment, and set up and improve relevant assessment systems and complementary standards and codes.

In-depth Development of Civil-Military Integration (CMI)

Following the guiding principle of integrating military with civilian purposes and combining military efforts with civilian support, China will forge further ahead with CMI by

147 www.followcn.com constantly bettering the mechanisms, diversifying the forms, expanding the scope and elevating the level of the integration, so as to endeavor to bring into place an all-element, multi-domain and cost-efficient pattern of CMI. Accelerating CMI in key sectors. With stronger policy support, China will work to establish uniform military and civilian standards for infrastructure, key technological areas and major industries, explore the ways and means for training military personnel in civilian educational institutions, developing weaponry and equipment by national defense industries, and outsourcing logistics support to civilian support systems. China encourages joint building and utilization of military and civilian infrastructure, joint exploration of the sea, outer space and air, and shared use of such resources as surveying and mapping, navigation, meteorology and frequency spectra. Accordingly, military and civilian resources can be more compatible, complementary and mutually accessible. Building a mechanism for operating CMI. At the state level, it is necessary to establish a mechanism for CMI development, featuring unified leadership, military-civilian coordination, abutment of military and civilian needs, and resource sharing. Furthermore, it is necessary to improve the management responsibilities of relevant military and civilian institutions, improve the general standards for both the military and the civilian sectors, make studies on the establishment of a policy system in which the government makes the investment, offers tax incentives and financial support, and expedites legislation promoting military-civilian coordinated development, so as to form a pattern featuring overall military-civilian planning and coordinated development. It is also necessary to push forward with the shared utilization of military capabilities and those of other sectors, and establish a mechanism for joint civil-military response to major crises and emergencies. Improving the systems and mechanisms of national defense mobilization. China will enhance education in national defense and boost the awareness of the general public in relation to national defense. It will continue to strengthen the building of the reserve force, optimize its structure, and increase its proportion in the PLAN, PLAAF and PLASAF as well as in combat support forces. The ways to organize and employ reserve forces will be more diversified. China will devote more efforts to science and technology in national defense mobilization, be more readily prepared for the requisition of information resources, and build specialized support forces. China aims to build a national defense mobilization system that can meet the requirements of winning informationized wars and responding to both emergencies and wars.

V. Preparation for Military Struggle

Preparation for military struggle (PMS) is a basic military practice and an important guarantee for safeguarding peace, containing crises and winning wars. To expand and intensify PMS, China’s armed forces must meet the requirement of being capable of fighting and winning, focus on solving major problems and difficulties, and do solid work and make relentless efforts in practical preparations, in order to enhance their overall capabilities for deterrence and warfighting. Enhancing capabilities for system-vs-system operations based on information systems. China’s armed forces will quicken their steps to transform the generating mode

148 www.followcn.com of combat effectiveness, work to use information systems to integrate a wide range of operational forces, modules and elements into overall operational capacity, and gradually establish an integrated joint operational system in which all elements are seamlessly linked and various operational platforms perform independently and in coordination. China’s armed forces will endeavor to address the pressing problems constraining the capabilities for system-vs-system operations. They will make further exploration and more efficient utilization of information resources, strengthen the building of the systems of reconnaissance, early-warning and command and control, develop medium- and long-range precision strike capabilities, and improve the comprehensive support systems. In accordance with the requirement of being authoritative, streamlined, agile and efficient, they will strive to establish and improve the CMC command organ and theater-level command systems for joint operations. Pushing ahead with PMS in all directions and domains. Due to its complex geostrategic environment, China faces various threats and challenges in all its strategic directions and security domains. Therefore, PMS must be carried out in a well-planned, prioritized, comprehensive and coordinated way, so as to maintain the balance and stability of the overall strategic situation. China’s armed forces will make overall planning for PMS in both traditional and new security domains, and get ready to safeguard national sovereignty and security, protect the country’s maritime rights and interests, and deal with armed conflicts and emergencies. To adapt to the upgrading of weaponry and equipment as well as changes of operational patterns, China’s armed forces will further optimize battlefield disposition and strengthen strategic prepositioning. Maintaining constant combat readiness. China’s armed forces will continue to improve its routine combat readiness, maintain a posture of high alertness, and conscientiously organize border, coastal and air defense patrols and guard duties. The PLAA will improve its combat readiness system with inter-connected strategic directions, combined arms and systematized operational support, so as to ensure agile maneuvers and effective response. The PLAN will continue to organize and perform regular combat readiness patrols and maintain a military presence in relevant sea areas. The PLAAF will continue to observe the principles of applicability in peacetime and wartime, all-dimensional response and full territorial reach, and maintain vigilant and efficient combat readiness. The PLASAF will continue to keep an appropriate level of vigilance in peacetime. By observing the principles of combining peacetime and wartime demands, maintaining all time vigilance and being action-ready, it will prefect the integrated, functional, agile and efficient operational duty system. Enhancing realistic military training. The PLA will continue to attach strategic importance to combat training in realistic conditions, and strictly temper the troops according to the Outline of Military Training and Evaluation (OMTE). It will constantly innovate operational and training methods, improve military training criteria and regulations, and work to build large-scale comprehensive training bases in an effort to provide real-combat environments for training. The PLA will continue to conduct live-setting training, IT-based simulated training, and face-on-face confrontation training in line with real-combat criteria, and strengthen command post training and joint and combined training. It will intensify training in complex electro-magnetic environments,

149 www.followcn.com complex and unfamiliar terrains, and complex weather conditions. It will also set up a training supervision and inspection system, so as to incorporate real-combat requirements into training. Preparing for military operations other than war (MOOTWs). As a necessary requirement for China’s armed forces to fulfill their responsibilities and missions in the new period as well as an important approach to enhancing their operational capabilities, the armed forces will continue to conduct such MOOTWs as emergency rescue and disaster relief, counter-terrorism and stability maintenance, rights and interests protection, guard duty, international peacekeeping, and international humanitarian assistance and disaster relief (HADR). They will work to incorporate MOOTW capacity building into military modernization and PMS, and pay special attention to establishing emergency command mechanisms, building emergency forces, training professionals, supporting task-specific equipment, and formulating relevant policies and regulations. Military emergency-response command systems will be tuned into state emergency management mechanisms. China’s armed forces will persist in unified organization and command, scientific employment of forces, rapid and efficient actions, and strict observation of related policies and regulations.

VI. Military and Security Cooperation

Pursuing a security concept featuring common, comprehensive, cooperative and sustainable security, China’s armed forces will continue to develop military-to-military relations that are non-aligned, non-confrontational and not directed against any third party. They will strive to establish fair and effective collective security mechanisms and military confidence-building measures (CBMs), expand military and security cooperation, and create a security environment favorable to China’s peaceful development. Developing all-round military-to-military relations. China’s armed forces will further their exchanges and cooperation with the Russian military within the framework of the comprehensive strategic partnership of coordination between China and Russia, and foster a comprehensive, diverse and sustainable framework to promote military relations in more fields and at more levels. China’s armed forces will continue to foster a new model of military relationship with the US armed forces that conforms to the new model of major-country relations between the two countries, strengthen defense dialogues, exchanges and cooperation, and improve the CBM mechanism for the notification of major military activities as well as the rules of behavior for safety of air and maritime encounters, so as to strengthen mutual trust, prevent risks and manage crises. In the spirit of neighborhood diplomacy of friendship, sincerity, reciprocity and inclusiveness, China’s armed forces will further develop relations with their counterparts in neighboring countries. Also, they will work to raise the level of military relations with European counterparts, continue the traditional friendly military ties with their African, Latin American and Southern Pacific counterparts. China’s armed forces will work to further defense and security cooperation in the Shanghai Cooperation Organization (SCO), and continue to participate in multilateral dialogues and cooperation mechanisms such as the ASEAN Defense Ministers’ Meeting Plus (ADMM+), ASEAN Regional Forum (ARF), Shangri-La Dialogue (SLD), Jakarta International Defence Dialogue (JIDD) and Western Pacific

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Naval Symposium (WPNS). The Chinese military will continue to host multilateral events like the Xiangshan Forum, striving to establish a new framework for security and cooperation conducive to peace, stability and prosperity in the Asia-Pacific region. Pushing ahead with pragmatic military cooperation. On the basis of mutual respect, equality, mutual benefit and all-win cooperation, China’s armed forces will continue to carry out pragmatic cooperation with their counterparts in various countries of the world. In response to the changing situation, China’s armed forces will constantly explore new fields, new contents and new models of cooperation with other militaries, so as to jointly deal with a diverse range of security threats and challenges. Extensive dialogues and exchanges will be conducted with foreign militaries on defense policy, services and arms building, institutional education, logistics and other subjects to promote mutual understanding, mutual trust and mutual learning. The Chinese military will also strengthen cooperation with related countries in personnel training, material assistance, equipment and technology, so as to strengthen mutual support and enhance respective defensive capabilities. Bilateral and multilateral joint exercises and training, involving various services and arms, will be conducted at multiple levels and in various domains to enhance joint operational capabilities. The Chinese military will work to extend the subjects of such training and exercises from non-traditional to traditional security areas. It will actively participate in international maritime security dialogues and cooperation, and jointly deal with traditional and non-traditional maritime security threats. Fulfilling international responsibilities and obligations. China’s armed forces will continue to participate in UN peacekeeping missions, strictly observe the mandates of the UN Security Council, maintain its commitment to the peaceful settlement of conflicts, promote development and reconstruction, and safeguard regional peace and security. China’s armed forces will continue to take an active part in international disaster rescue and humanitarian assistance, dispatch professional rescue teams to disaster-stricken areas for relief and disaster reduction, provide relief materials and medical aid, and strengthen international exchanges in the fields of rescue and disaster reduction. Through the aforementioned operations, the armed forces can also enhance their own capabilities and expertise. Faithfully fulfilling China’s international obligations, the country’s armed forces will continue to carry out escort missions in the Gulf of Aden and other sea areas as required, enhance exchanges and cooperation with naval task forces of other countries, and jointly secure international SLOCs. China’s armed forces will engage in extensive regional and international security affairs, and promote the establishment of the mechanisms of emergency notification, military risk precaution, crisis management and conflict control. With the growth of national strength, China’s armed forces will gradually intensify their participation in such operations as international peacekeeping and humanitarian assistance, and do their utmost to shoulder more international responsibilities and obligations, provide more public security goods, and contribute more to world peace and common development.

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Chapter Twelve

China’s Foreign Relations

China has entered a crucial stage in achieving the great rejuvenation of the Chinese nation. In order to fulfill the "two centenary goals" of building a moderately prosperous society in all respects by 2020 and turning the nation into a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious by the mid-21st century, China has been actively promoting the construction of a socialist market economy, socialist democracy, advanced culture, a harmonious society, as well as ecological civilization. China adheres to the independent foreign policy of peace and is unswerving in its implementation of the opening-up policy. China stands ready to expand common interests with other countries, promote the construction of a new type of international relations with win-win cooperation at the core, and forge a community of shared future. According to the Ministry of Foreign Affairs, China supports the UN in keeping abreast of the times through reform, and further strengthening its capacity for coordinating international efforts to tackle global challenges so as to better respond to the expectations of the international community, and increasing the voice of developing countries in international affairs. The 2030 Agenda for Sustainable Development has charted the course for the development of all countries and international development cooperation in the next 15 years. China has launched all-round implementation of the 2030 Agenda for Sustainable Development and will promulgate its Country Program on the Implementation of the 2030 Agenda for Sustainable Development to share its development vision and experience with other countries. As the current president of the G20, China is pushing for the formulation of the G20 Action Plan on the 2030 Agenda for Sustainable Development to inject strong impetus to the global implementation process. US president-elect Donald Trump is not happy with the role that the United Nations has played against Israel. He tweeted on December 26 of 2016 “The United Nations has such a great potential but right now it is just a club for people to get together, talk and have a good time.” Trump is telling the truth: the role of the organization is weakening in the new century and will be weaker further again. Popular western media holds that China would work its way hard on the international arena against the new Trump administration as he is believed to be tough on the communist adversary. China has claimed that, as permanent members of the United Nations Security Council and countries with important global influence, China and the United States should remain committed to maintaining a strong China-U.S. relationship to contribute to the peace, stability and prosperity of the world and the region. The United States welcomes a strong, prosperous and stable China that plays a greater role in international and regional affairs. The United States supports China's stability and reform. China respects the traditional influence and practical interests of the United States in the Asia-Pacific and welcomes the United States to continue to play a positive and constructive role in regional affairs. The joint efforts by China and the United States on climate change will serve as an

152 www.followcn.com enduring legacy of the partnership between the two countries. The Taiwan Issue has been the focus of China-US relations and the key of China’s international relations as well. In a historical point of view, no leader of the Chinese government would take the responsibility of losing Taiwan and become a sinner of the nation during his administration. Although upholding the principle of peace and stability is fundamental, Chinese leaders deeply understand that weak states have no diplomacy and Taiwan separatists would only see the result of warfare destruction if they dare to take one step further towards independence. In another important relation, China and the EU reaffirmed their commitment to deepening their partnership for peace, growth, reform and civilisation, based on the principles of equality, respect and trust, by comprehensively implementing the China-EU 2020 Strategic Agenda for Cooperation. China values highly the support of third world countries in Africa, Latin America and South East Asia. China repeatedly proclaims that it is working in joint efforts to maintain the lawful rights of developing countries and push forward the creation of a new, fair and just political and economic order in the world.

US-China Joint Statement on Nuclear Security Cooperation

The United States and China have announced the successful completion of the inaugural round of bilateral discussions on nuclear security that took place on February 20, 2016, in Stockholm, Sweden. On conversion of Miniature Neutron Source Reactors (MNSR) from highly enriched uranium (HEU) fuel to low-enriched uranium (LEU) fuel, the United States and China express satisfaction on the recent LEU start-up of the prototype MNSR reactor near Beijing, China. Building on this successful collaboration, China commits to work with the United States to convert its remaining MNSR reactors at Shenzhen University. Further, the United States and China together commit to work through the International Atomic Energy Agency (IAEA) to support the conversion of MNSR reactors in Ghana and Nigeria as soon as possible. China reaffirms its readiness, upon the request of respective countries, to convert all remaining Chinese-origin MNSRs worldwide. On nuclear security training and best practices, the United States and China express satisfaction on the successful completion and official opening of the nuclear security Center of Excellence (COE) in Beijing, China on 18 March, 2016. The COE is a world-class venue to meet China's domestic nuclear security training requirements, as well as a forum for bilateral and regional best practice exchanges, and a venue for demonstrating advanced technologies related to nuclear security. The United States and China commit to continued engagement on nuclear security training and best practices to maximize the use and effectiveness of the COE. China further commits to sponsor training programs at the COE for regional partners and other international participants to further global nuclear security awareness and engagement. On counter nuclear smuggling, the United States and China state our enduring commitment to prevent terrorists, criminals, or other unauthorized actors from acquiring nuclear or other radioactive materials. Recognizing the need for strengthened

153 www.followcn.com international cooperation to counter nuclear smuggling, we will continue to seek opportunities to deepen our joint efforts to investigate nuclear and radioactive material smuggling networks; detect, recover and secure material out of regulatory control; and successfully arrest and prosecute the criminals involved. The United States and China will continue to coordinate efforts to strengthen counter nuclear smuggling capabilities and share best practices with the international community, taking full advantage of the training programs sponsored by the China Customs Training Center for Radiation Detection. We further commit to continuing a discussion in 2016 on counter nuclear smuggling where our two countries can exchange views on the nuclear smuggling threat, effective tools to counter this threat, and how our governments could strengthen collaboration in this area. On the security of radioactive sources, the United States and China express satisfaction on the fruitful cooperation between the two sides in enhancing the security of radioactive sources, in particular regarding recovery of disused sources and transport security of radioactive sources. We commit to further strengthen cooperation in this regard, and facilitate the sharing of experiences and best practices with other countries.

Abstract of Joint Statement of ASEAN members and China on South China Sea

Western strategists universally agree that the recent maneuver of the Chinese military on the South China seas is but a bluff to shrift the attention of the Chinese people as well as the world media while the Chinese bureaucratic groups are wrestling hard with each other in Beijing. Beijing knows what his ASEAN neighbors want most. China now has the money to spend and please them. Neither side wants to make things worse and complicated and difficult for themselves by inviting the United States into the conflict. Foreign Ministers of ASEAN Member States and the People's Republic of China met in Vientiane, Lao People's Democratic Republic, on 25 July 2016 to discuss this and more of economic issues. The following are abstracts of their joint statements: 1. The Parties reaffirm their respect for and commitment to the freedom of navigation in and overflight above the South China Sea as provided for by the universally recognised principles of international law, including the 1982 UNCLOS. 2. The Parties concerned undertake to resolve their territorial and jurisdictional disputes by peaceful means, without resorting to the threat or use of force, through friendly consultations and negotiations by sovereign states directly concerned, in accordance with universally recognised principles of international law, including the 1982 UNCLOS; 3. The Parties undertake to exercise self-restraint in the conduct of activities that would complicate or escalate disputes and affect peace and stability including, among others, refraining from action of inhabiting on the presently uninhabited islands, reefs, shoals, cays, and other features and to handle their differences in a constructive manner. 4. The Parties may explore or undertake cooperative activities, in fields such as navigation safety, search and rescue, marine scientific research, environmental protection, and combating transnational crimes at sea.

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5. The Parties encourage other countries to respect the principles contained in the DOC. 6. The Parties concerned reaffirm that the adoption of a code of conduct in the South China Sea would further promote peace and stability in the region and agree to work, on the basis of consensus, towards the eventual attainment of this objective.

Highlights of China-Africa Cooperation: Johannesburg Action Plan

Thomas Laryea, a partner at the global law firm Dentons whose clients include African governments as well as private investors, agreed with the statement that the Chinese are actively scouting infrastructure projects in Africa. Laryea said he disagrees with the notion that “China is bad for Africa and we should all be worried about it.” He asserted that the relationship has been generally beneficial for African countries as well as the global economy. “I take a very hard line with my clients in the U.S. if they’re really worried about how much of the pie China is taking. They need to get into the game and find a way through.” The Johannesburg Summit and the 6th Ministerial Conference of the Forum on China-Africa Cooperation (FOCAC) were held in Johannesburg from 3 to 5 December 2015. Heads of State and Government, Heads of Delegation, the Chairperson of the African Union (AU) Commission and Ministers of Foreign Affairs and Ministers in charge of economic cooperation from China and 50 African countries (hereafter referred to as "the two sides") attended the Summit and Ministerial Conference respectively. The two sides share the view that, as China works for the Two Centenary Goals and as Africa implements Agenda 2063 and its First 10-Year Implementation Plan, the current development strategies of China and Africa are highly compatible. The two sides shall make full use of their comparative advantages to transform and upgrade mutually beneficial cooperation focusing on better quality and higher efficiency to ensure the common prosperity of our peoples. The two sides will continue to encourage high-level mutual visits and dialogue in order to consolidate traditional friendship, enhance political mutual trust and deepen strategic consensus and coordination. The Chinese side will carry out agricultural demonstration projects in Africa, build or upgrade agricultural technology demonstration centres, make effective use of such centres focusing on agricultural research, demonstration and training, expanding training, transferring breeding and plantation technologies and cooperate with African countries to increase agricultural unit productivity. The Chinese side will continue to send 30 teams of senior agriculture experts and teachers to provide vocational education to African countries, as well as to increase the number of African personnel trained in agro-technology and administration in China, in order to improve overall agricultural technology and management. The Chinese side will help African countries develop water conservancy and irrigation projects, implement the project of "Agriculture Leads to Prosperity" in 100 African villages, provide African countries with emergency food assistance. The two sides will actively cooperate in agricultural project designing, financing and management under the framework of the CAADP, as implemented through the AU and

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NEPAD, and offer support to feasibility studies on agricultural infrastructure construction. The Chinese side will continue to work with African countries to jointly implement high quality and high yield agricultural demonstration projects, encourage and guide China's agro-science research organizations and enterprises to work with their African counterparts to carry out experimental demonstrations for high-quality and high-yield agriculture, establish "10+10" cooperative mechanism among China-Africa agro-science research institutions, focus on facilitating joint research on breeding and the production of seeds as well as plant protection, specifically focusing on increasing outputs of grain, cotton and other key crops in African countries. The Chinese side will encourage and support Chinese enterprises to invest in agriculture in Africa; implement cooperation projects focusing on technical support in grain planting, storage, sanitary and phytosanitary requirements, animal husbandry, agro-processing capacity, forestry, and fisheries to create a favourable environment for African countries to realize long-term food security supported by national agricultural production and processing. The Chinese side will set up a China-Africa production capacity cooperation fund, with an initial pledge of US$10 billion, to support China-Africa industry partnering and industrial capacity cooperation. The Chinese side will send senior government experts and consultants to Africa countries to offer advice and assistance on industrialization layout, policy planning, operation and management. The two sides will jointly formulate the China-Africa Railway Cooperation Action Plan (2016-2020), promoting the construction of railway networks in Africa. The two sides will implement the China-Africa regional aviation cooperation programme, actively supporting the establishment of transnational regional aviation networks linking African countries, and enhancing coordination and cooperation in standards, planning consultation, special training, improving aviation infrastructure, operating joint venture airlines, and offering regional civil airlines, taking into consideration local employment, sourcing, human capacity building and the transfer of technology. The two sides encourage Chinese enterprises to assist African countries' efforts to put in place digital radio and TV broadcasting systems, to promote digitalization of radio and TV services, and to benefit more people in the rural areas in Africa. The two sides encourage and support the participation of competitive Chinese enterprises of information, communication, radio and TV in building information infrastructure in Africa, such as cable networks and interconnection networks, and their involvement in mutually beneficial construction, operation and offering of services with African businesses in order to assist Africa to build information networks covering the whole continent. The two sides will actively explore and push forward cooperation in information and communication technology, help African countries to build "Smart Cities", and enhance the roles of information and communication technology in safeguarding social security, and fighting against terrorism and crime. The two sides will scale up trade and try to elevate the China-Africa trade volume to US$400 billion in 2020 from US$220 billion in 2014 ensuring that the rate of growth is

156 www.followcn.com maintained in overall trade figures and that balance in trade is the desired outcome. The Chinese side will offer African countries US$35 billion of loans of concessional nature on more favorable terms and export credit line, create new financing models, optimize favorable credit terms and conditions, expand credit scales, and support China-Africa industrial capacity cooperation, infrastructure building, and development of energy resources, agriculture, and manufacturing in Africa. The Chinese side will gradually expand the China-Africa Development Fund from US$5 billion to US$10 billion. The Chinese side will support the building of an African Union Disease Control Centre and regional medical research centres, reinforce laboratory and diagnostic capacities and encourage the African Union Commission to play a leading role as the custodian of Africa's continental initiatives in the health sector. The two sides will continue to build brand activities such as "Happy Spring Festival", "Chinese and African Cultures in Focus", "Experience China" and hold large-scale cultural exchange activities such as "Africa Arts Festival" at an appropriate time. The two sides are committed to supporting each other in international fora and further strengthen cooperation in areas of trade, finance, environmental protection, peace and security, cultural exchanges, economic and social development and the advancement of human rights, while maintaining the sovereignty to choose their developmental paths.

Deepening China-Pakistan Strategic and Economic Cooperation

The Pakistani side described its friendship with China as the cornerstone of its foreign policy. The President of Pakistan said that support for this unique relationship resonated across Pakistan at the official, political parties as well as popular levels. The Joint Cooperation Committee on the Long-Term Plan for the China-Pakistan Economic Corridor had been activated while the Working Groups on Planning, Transport Infrastructure and Energy had held successful inaugural sessions. China and Pakistan agreed to step up cooperation in areas, such as agriculture, health, education and public transport, which have a direct bearing on people's lives. Accelerating the implementation of the agreement on setting up China-Pakistan Agriculture Demonstration Zones would be an important step forward in this regard. The two sides reiterated their resolve to implement the Agreement on Maritime Cooperation. They underscored the importance of implementing the 2012-2020 Space Cooperation Outline between China National Space Administration and Pakistan Space and Upper Atmosphere Research Commission to enhancing bilateral cooperation in the sphere of space research and technology. China and Pakistan agreed to work in close harmony on major regional and international matters as well as global issues, and continue to work with mutual coordination and cooperation on important regional forums like the Shanghai Cooperation Organization, the Asia-Europe Meeting and the ASEAN Regional Forum. They reaffirmed their commitment to multilateral arms control and non-proliferation endeavors.

Abstracts of G20 Leaders' Communique Hangzhou Summit

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The Leaders of the G20, met in Hangzhou, China on 4-5 September 2016. We, the G20, as the premier forum for international economic cooperation, forge a comprehensive and integrated narrative for strong, sustainable, balanced and inclusive growth, and thereby adopt the attached package of policies and actions - the Hangzhou Consensus - based on the following: ----Vision. We will strengthen the G20 growth agenda to catalyze new drivers of growth, open up new horizons for development, lead the way in transforming our economies in a more innovative and sustainable manner and better reflect shared interests of both present and coming generations. ----Integration. We will pursue innovative growth concepts and policies by forging synergy among fiscal, monetary and structural policies, enhancing coherence between economic, labor, employment and social policies as well as combining demand management with supply side reforms, short-term with mid- to long-term policies, economic growth with social development and environmental protection. ----Openness. We will work harder to build an open world economy, reject protectionism, promote global trade and investment, including through further strengthening the multilateral trading system, and ensure broad-based opportunities through and public support for expanded growth in a globalized economy. ----Inclusiveness. We will work to ensure that our economic growth serves the needs of everyone and benefits all countries and all people including in particular women, youth and disadvantaged groups, generating more quality jobs, addressing inequalities and eradicating poverty so that no one is left behind. Our growth, to be dynamic and create more jobs, must be powered by new driving forces. While reaffirming the importance of addressing shortfalls in global demand to support short-term growth, we believe it is also imperative to address supply side constraints so as to raise productivity sustainably, expand the frontier of production and unleash mid- to long-term growth potential. The outcome of the referendum on the UK's membership of the EU adds to the uncertainty in the global economy. Members of the G20 are well positioned to proactively address the potential economic and financial consequences stemming from the referendum. In the future, we hope to see the UK as a close partner of the EU. We reaffirm that the G20's founding spirit is to bring together the major economies on an equal footing to catalyze action. Once we agree, we will deliver. We thank China for hosting a successful Hangzhou Summit and its contribution to the G20 process, and look forward to meeting again in Germany in 2017 and in Argentina in 2018.

China's Arab Policy

The Chinese government has issued the first China's Arab Policy Paper on the basis

158 www.followcn.com of reviewing and summarizing the experience in the development of China-Arab relations. It stipulates the guiding principle for developing China-Arab relations, offers the blueprint for China-Arab mutually beneficial cooperation, and reiterates the political will of commitment to peace and stability in the Middle East, in order to promote China-Arab relations to a new and higher level. Arab countries as a whole have become China's biggest supplier of crude oil and the 7th biggest trading partner. China has always approached the China-Arab relations from a strategic height. China respects choices made by the Arab people, and supports Arab states in exploring their own development paths suited to their national conditions. The China-Arab States Cooperation Forum was established 11 years ago with dialogue, cooperation, peace and development as its purposes. China calls for a concept of common, comprehensive, cooperative and sustainable security in the Middle East, and supports Arab and regional countries in their efforts to build an inclusive and shared regional collective cooperation security mechanism, so as to realize long-term peace, prosperity and development in the Middle East.

China and UK Issue a Statement on Syrian Issue

On January 5, 2016, when meeting the press with Secretary of State for Foreign and Commonwealth Affairs Philip Hammond of the UK after their talks in Beijing, Foreign Minister Wang Yi announced that the two countries jointly issued the "Statement of China and the UK on the Syrian Issue". The full text is as follows: China and the UK remain deeply concerned by the suffering of the Syrian people, the dire and deteriorating humanitarian situation, the on-going conflict and its persistent and brutal violence, the negative impact of terrorism and violent extremist ideology in support of terrorism, as well as the destabilizing effect of the crisis on the region. The conflict has already claimed hundreds of thousands of lives and displaced millions of people. As permanent members of the Security Council, we voted in favor of the recent Resolution 2254 of the United Nations (UN) Security Council. We will continue to engage actively in the International Syria Support Group and work with countries from around the region to ensure a "Syrian-led and Syrian-owned" political transition based on the 2012 Geneva Communiqué in its entirety which will help bring an end to the war including through the establishment of an inclusive transitional governing body with full executive powers, which shall be formed on the basis of mutual consent while ensuring the continuity of the governmental institutions. We both commit ourselves to promoting the political settlement of the Syrian issue. We stress that the Syrian people will decide the future of Syria, with the UN playing the role as the main mediator. We acknowledge the close linkage between a ceasefire and a parallel political process and reconfirm our support for a national ceasefire as set out in the Resolution 2254 of the Security Council. The humanitarian situation in Syria is extremely serious and requires urgent support. There are 13.5 million Syrians in need of humanitarian assistance. We call on the

159 www.followcn.com international community to do more and we, alongside over sixty other countries, will come together at the London Conference in February to agree how to provide immediate assistance, including responding to the UN's urgent request for further funding, and also provide support over the longer term. We agree to advance counter-terrorism and a political settlement in parallel. Both our countries face threats from terrorism, and have a shared interest in defeating all terrorist groups in Syria and Iraq as designated by the UN Security Council. We emphasize that terrorism in all forms and manifestations constitutes one of the most serious threats to international peace and security and that any acts of terrorism are criminal and unjustifiable regardless of their motivations, whenever and by whoever committed. We will continue to support efforts to tackle terrorism and its root causes in the Middle East, North Africa and elsewhere, including the on-going conflict in Syria.

Abstract from VII BRICS Summit Ufa Declaration

The leaders of the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People's Republic of China and the Republic of South Africa, met on 9 July 2015, in Ufa, Russia, at the Seventh BRICS Summit, which was held under the theme "BRICS Partnership – a Powerful Factor of Global Development". We reaffirm our commitment to rigorous compliance with the principles enshrined in the Charter of the United Nations and the Declaration on Principles of International Law concerning Friendly Relations and Cooperation among States in accordance with the Charter of the United Nations of 1970. The Strategy for the BRICS Economic Partnership that we adopted today would be the key guideline for expanding trade and investment, manufacturing and minerals processing, energy, agricultural cooperation, science, technology and innovation, financial cooperation, connectivity and ICT cooperation between our countries. We direct the relevant Ministries and concerned agencies of our States to take practical steps for efficient implementation of this Strategy. We emphasize the important role of the New Development Bank, the BRICS Interbank Cooperation Mechanism, the BRICS Business Council, the BRICS Business Forum, and the BRICS Think Tanks Council in the implementation of this Strategy. We also direct our Ministers/Sherpas to look into the feasibility of developing a BRICS trade, economic and investment cooperation roadmap for the period until 2020. We recognize our countries can benefit from opportunities for outer space cooperation in order to promote the application of relevant technologies for peaceful purposes. We will intensify our cooperation in the areas of joint application of space technologies, satellite navigation, including GLONASS and Beidou, and space sciences. We urge the international community to assist Iraq in its efforts to provide

160 www.followcn.com humanitarian assistance to internally displaced persons and refugees in the affected areas of that country. We remain strongly committed to support the Republic of Iraq in achieving stability, peace, democracy, national reconciliation and unity, which is in the interest of regional and global peace and security. 41. We look forward to an early conclusion of the Joint Comprehensive Plan of Action (JCPA) to be agreed upon between China, Germany, France, the Russian Federation, the United Kingdom, the United States and Iran with the participation of EU. This plan of action is supposed to restore full confidence in the exclusively peaceful nature of Iran’s nuclear programme and provide for the comprehensive lifting of sanctions imposed on Iran. We welcome the signing of the Agreement between the Governments of the BRICS Member States on Cooperation in the Field of Culture. This Agreement will play an important role in expanding and deepening cooperation in the fields of culture and art, in promoting dialogue between cultures, which will help bring closer the cultures and peoples of our countries. We reaffirm our commitment to the ambitious post-2015 development agenda, which is to be approved by the UN Summit. We reiterate that the post-2015 development agenda should be built on the foundation laid by the Millennium Development Goals, ensure completion of unfinished commitments and respond to new challenges. A post-2015 development agenda should furthermore reinforce the international community’s commitment to eradicate poverty achieve sustained, equitable and inclusive economic growth and sustainable development, fully comply with all principles of the UN Conference on Environment and Development held in Rio in 1992, including, in particular, the principle of Common But Differentiated Responsibilities (CBDR). We stress the importance of an integrated approach to the means of implementation of the post-2015 development agenda. 73. We welcome activities of BRICS Think Tanks Council (BTTC) and the Long-Term Strategy for BRICS Report as well as the 7th Academic Forum in Moscow for expanding BRICS cooperation. We value this permanent platform for in-depth expert opinion and look forward to further consolidated high quality research, analysis, as well as effective think-tank discussions on issues of mutual interest.

China's Policy Highlights on Latin America and the Caribbean

China is committed to building a new relationship with Latin America and the Caribbean with five salient features, namely, sincerity and mutual trust in the political field, win-win cooperation on the economic front, mutual learning in culture, close coordination in international affairs, as well as mutual reinforcement between China's cooperation with

161 www.followcn.com the region as a whole and its bilateral relations with individual countries in the region. China is ready to work with Latin American and Caribbean countries to promote global, win-win cooperation in the implementation of the 2030 Agenda for Sustainable Development adopted by the United Nations Sustainable Development Summit. China will support the international community to improve global partnerships, strengthen the main channel status of North-South cooperation, and urge developed countries to fulfill their commitments on official development assistance, while placing importance on the role of South-South cooperation and trilateral cooperation. China stands ready to provide support and assistance within its capacity to Latin American and Caribbean countries in their efforts to implement the 2030 Agenda for Sustainable Development. China will promote dialogue and exchanges in fields such as poverty reduction, hunger elimination, and narrowing the gap between the rich and the poor, by sharing information on poverty identification as well as experience concerning targeted poverty alleviation. China will engage in technical cooperation to enhance capacity building for poverty reduction, and promote the formulation of economic and social policies in favor of the poor and disadvantaged on both sides. Efforts will also be made to encourage and support high-level exchanges between relevant departments of the two sides, and hold the China-Latin America Poverty Reduction and Development Forum in a timely manner. Based on the spirit and main objectives of the Beijing Declaration of the First Ministerial Meeting of China-CELAC Forum, the China-Latin American and Caribbean Countries Cooperation Plan (2015-2019), and the Institutional Arrangements and Operating Rules of China-CELAC Forum, China is ready to work with Latin American and Caribbean countries to uphold the principles of respect, equality, diversity, mutual benefit, cooperation, openness, inclusiveness and unconditionality, and actively promote cooperation in various fields under the framework of the Forum. Efforts will be made to give full play to the role of such mechanisms as the ministerial meeting, the dialogue of foreign ministers of China and the "Quartet" of CELAC, and the meeting of national coordinators, hold successfully the sub-forums on political parties, law, youth, think tanks, infrastructure, innovation in science and technology, entrepreneurs, agriculture, non-governmental and local friendship, as well as China-Caribbean Economic and Trade Cooperation Forum, continuously improve the institution building of the China-CELAC Forum, and hold summits to be attended by state leaders of China and CELAC member states when conditions are ripe.

The Vision of APEC Connectivity in 2025

The most recent APEC meeting in Tianjin 2016 ended with a blueprint for strengthening cooperation amongst its members. Main ideas of this blueprint are quoted as follows: Through the Blueprint, we APEC members commit to strengthen physical, institutional, and people-to-people connectivity by taking agreed actions and meeting agreed targets by 2025, with the objective of achieving a seamless and comprehensively connected and integrated Asia Pacific. In order to attain this overarching goal, APEC member economies will undertake

162 www.followcn.com specific tangible actions at the physical, institutional, and people-to-people pillar levels. This Blueprint contains existing connectivity-related initiatives; encourages reviving those initiatives that require further progress; and, proposes future initiatives for more efficient flows of goods, services, capital and people to drive APEC progress. It is also broad in scope and adaptable to the ever-changing conditions in the Asia-Pacific. We envision this Blueprint accelerating and encouraging balanced, secure, sustainable and inclusive growth, as well as connecting growth poles in the region and bringing APEC closer together as a community.

Compiled by followcn.com in January 2017

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