13 August 2015 Final Extended Report Assessment of the normative and policy framework governing the Chinese economy and its impact on international competition For: AEGIS EUROPE Cross-sector Alliance Representing European Manufacturing Brussels Belgium THINK!DESK China Research & Consulting Prof. Dr. Markus Taube & Dr. Christian Schmidkonz GbR Merzstrasse 18 81679 München Tel.: +49 - (0)89 - 26 21 27 82 [email protected] www.thinkdesk.de This report has been prepared by: Prof. Dr. Markus Taube Peter Thomas in der Heiden © THINK!DESK China Research & Consulting 2015 Seite 2 Contents Executive Summary ························································································· 12 1. Introduction ······························································································ 28 Part I: The Management of the Chinese Economy: Institutional Set-up and Policy Instruments 2. Centralised Planning and Market Forces in the Chinese Economy ··················· 33 2.1 The Role of Planning in the Chinese Economy ············································ 33 2.1.1 Types of Plans ··············································································· 33 2.1.2 Plans and Complementary Documents················································ 42 2.2 Dedicated Government Programmes for Industry Guidance ··························· 46 2.2.1 Subsidies – An Overview ································································· 46 2.2.1.1 Examples for Preferential Policies and Grant Giving Operations by Local Governments ································································ 52 2.2.1.2 Recent Initiatives by the Central Government Aimed at Restricting Local Government Activities ························································· 55 2.2.1.3 Subsidy Disbursements to Chinese Listed Companies ······················· 58 2.2.2 Promotion of Domestic Technology Upgrading and High-tech Sectors ········ 73 2.2.2.1 Policies Targeting Technology Upgrading ········································ 74 2.2.2.2 The High and New Technology Enterprise Programme ······················· 93 2.2.2.3 Preferential lending scheme ························································· 95 2.2.2.4 Local Government Funds Promoting New Technology Related Research ················································································· 97 2.2.2.5 Forced Localisation of Intellectual Property Rights in the HNTE-Programme ··································································· 101 2.2.3 Promotion of Strategic Emerging Industries ········································ 102 2.2.3.1 General Concept for the Promotion of Strategic Emerging Industries · 103 2.2.3.2 Implementation of SEI Policies ···················································· 107 2.2.3.3 General Support Measures for SEI Enterprises ······························· 111 2.2.3.4 Internationalisation of SEI ·························································· 122 2.2.3.5 Integration of Foreign Invested Enterprises in the SEI Initiative ··········· 123 2.2.3.6 SEI Initiative – Market-driven or State-directed? ······························ 125 2.2.4 Special Funds for the Revitalisation and Technology Renovation in Key Industries ············································································· 127 2.2.5 Policies Targeting Green Development ············································· 132 2.2.6 Subsidies from Special Funds for Infrastructure Construction ················· 141 2.3 Industry Associations as Hybrid Institutions Straddling Government Bodies and the Corporate Sector ····································································· 142 2.4 The Role of Markets in the Chinese Economy ··········································· 148 2.4.1 Markets for Factors of Production ···················································· 148 2.4.1.1 Capital Markets ······································································· 150 © THINK!DESK China Research & Consulting 2015 Seite 3 2.4.1.2 Labour Markets ······································································· 181 2.4.1.3 Land Markets ·········································································· 186 2.4.2 Markets for Goods and Services ······················································ 201 2.4.2.1 Price Controls and Market Distortions in the Field of Utilities ·············· 201 2.4.2.2 Price Controls Targeting Goods and Services ································ 210 2.4.3 Complementary Ordering Mechanisms for Effective Market Coordination ·· 217 2.4.3.1 Anti-Monopoly Regulation ·························································· 218 2.4.3.2 Bankruptcy Regime and Market Exit Mechanisms ··························· 236 2.5 Conclusion: Markets are Sub-ordinated to State Interests ···························· 241 3 The Role of the Chinese Communist Party in Economy and Business ··········· 244 3.1 Embeddedness of CPC Organisations in the Corporate Sector ····················· 244 3.2 Dual Party/Management Careers ··························································· 246 3.3 Government Institutions as Meeting-Points and “Market-Places” for China’s Elites ····················································································· 257 3.4 Conclusion: China’s State-Business Nexus··············································· 258 Part II The Chinese Economic System at the Interface with the Global Markets 4. International Trade ·················································································· 261 4.1 Organisational Structures of China’s Foreign Trade Administration ················ 261 4.2 Import-Targeting Policy Measures ·························································· 262 4.2.1 Import substitution ········································································ 262 4.2.2 Government Procurement ······························································ 268 4.2.3 Import Cartels ·············································································· 272 4.2.4 State trading ··············································································· 273 4.2.5 Product Testing and the CCC Mark ·················································· 275 4.3 Export-Targeting Policy Measures ·························································· 278 4.3.1 Export Constraints ········································································ 278 4.3.1.1 Value Added Tax Rebates on Exported Goods ······························· 279 4.3.1.2 Export Duties ·········································································· 280 4.3.1.3 State Trading ·········································································· 281 4.3.2 Export Promotion ········································································· 285 4.3.2.1 Export Subsidies Provided by the Chinese Government ························ 285 4.3.2.1 Prizes for Export Performance ···················································· 286 4.3.2.2 Upgrading of companies’ export product portfolios ··························· 287 4.3.2.3 Matching Export Revenues with Subsidies ····································· 288 4.3.2.4 Subsidies for Offsetting Domestic Transportation Costs for Export Goods ·········································································· 288 4.3.2.5 Subsidies for the Steady Increase of Export Trade ·························· 289 4.3.2.6 Famous Export Brand Programme ··············································· 290 4.3.2.7 Provision of Export Insurance by the State-owned China Export & Credit Insurance Corporation ········································· 293 4.3.2.8 Export Credit Insurance Assistance and Development Fund ·············· 293 4.3.2.9 Provincial Export Support Funds ················································· 295 © THINK!DESK China Research & Consulting 2015 Seite 4 4.3.2.10 Foreign Trade Transformation and Upgrading Demonstration Bases ··· 298 4.3.2.11 Foreign Trade Common Service Platforms ···································· 303 5. Institutional Set-up and Policy Guidance of Cross- Border Capital Flows ········ 309 5.1 Inward Foreign Direct Investment ··························································· 309 5.1.1 Governmental Steering of FDI Inflows ··············································· 310 5.1.2 Foreign Investor’s Perception of Chinese FDI Regulation ······················ 315 5.2 Outward Foreign Direct Investment ························································· 317 6. Linking-up with the Global Currency System ··············································· 321 Part III The Chinese Economy’s Impact on the Global Economic System 7. Does China Meet the MES-Criteria Criteria Set Out by the EU and Authorised by the WTO? ·········································································· 326 7.1 MES-Criterion 1 ·················································································· 327 7.2 MES-Criterion 2 ·················································································· 328 7.3 MES-Criterion 3 ·················································································· 328 7.4 MES-Criterion 4 ·················································································· 329 7.5 MES-Criterion 5 ·················································································· 330 7.6 MES – Summary assessment ································································ 331 8. Impact