AHK Policy Deep Dive

The Policy Deep Dive provides insights into latest important policy developments from various fields and explains their implications and opportunities for German businesses. The full version of the AHK Policy Deep Dive is exclusively available to members of the German Chamber and is delivered directly via email.

CEWC: Laying the groundwork to enhance domestic demand

The Central Economic Work Conference (CEWC) is an annual meeting of China’s top government officials and senior economic policymakers to set out the economic agenda for the year ahead. The conference was held from December 11 to 12 in Beijing. During the event, next year’s GDP growth targets are set, although it will not be announced until the Two Sessions in March.

While internal and external challenges have been admitted, the readout indicates that the Chinese government became intensely aware of current economic difficulties and aims to proactively tackle the challenges for next year. This could already be an early indication of more stimulus packages in 2025. Additionally, the economic stimulus from September 2024 is clearly highlighted-also underlining the likelihood of more supportive policies next year.

Furthermore, a more proactive fiscal policy and moderately loose monetary policy should be implemented in 2025. This includes fiscal deficit increase, more government bond issuance, and interest cuts.

Moreover, there is a growing awareness for upcoming global challenges notable. This can be seen as a sign that the Chinese government is already preparing for increased tariffs and other trade tensions worldwide. Meanwhile, the overall strategy of seeking economic progress while maintaining stability has not changed compared with last year.

There are four aspects on key policy areas relevant for German companies:

Increasing Domestic demand as Top Priority
Technology Innovation as Key Driver for Modern Industrial System
Stabilizing Foreign Trade and Investment
Green Development as Explicit Economic Growth Driver

Increasing Domestic Demand as Top Priority

Domestic demand will be a top priority in policymaking, ranking first among all key tasks (moving up from its 2nd position of last year). To stimulate domestic demand, the Chinese government is evolving its strategy to prioritize better social insurance and higher earnings for middle-and low-income groups. Compared to last year’s boosting the weak consumption "expectations", a more grounded approach to stimulating domestic demand can be observed.

The Chinese government will also take direct measures to stabilize the property and stock markets. As the housing and stocking investments are key pillars of many Chinese household wealth, ensuring stability in these sectors is essential to fostering consumer confidence and stimulating spending. Additionally, equipment upgrades program, consumer goods trade-in program (see Measures to Strengthen Support for Large-Scale Equipment Upgrades and Trade-In Programs for Consumer Goods ), and infrastructure projects are set to be further implemented in 2025. further implemented in 2025.

What it means for German companies: Our Business Confidence Survey (BCS) 2024/2025 results show that 56% of respondents identify weak demand in China as one of their top three leading business challenges. The renewed focus on boosting demand signals that authorities are now recognizing this issue, a positive signal towards the business community. Now German companies need to wait for further details on potential fiscal support measures to bolster the market effectively.

Technology Innovation as Key Driver for Modern Industrial System

New quality productive forces are mentioned together with technological innovation as driving forces for industrial upgrading - and therefore economic development (however, this is now placed in position 2 of key policy tasks, compared with position 1 last year). There is now an even greater emphasis on integrating technological innovation with industry development, for example through advancements in artificial intelligence.

Key tasks designated for 2025 include, for example, the strengthening of basic research and addressing key core technology challenges, likely also in response to potentially increasing trade tensions and barriers. Another example is the aim to attract more long-term capital for the technology innovation, an effort that has been made since couple of months (see: Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors)

What it means for German companies: Our BCS 2024/2025 revealed that 55% of German companies expect Chinese competitors to become innovation leaders in their industry within five years. The heightened focus on innovation as a primary driver for industry development underscores once again the need for German companies to be engaged in the Chinese market. On the one hand they have to sustain their competitive edge, both locally and globally. On the other hand, German companies possess valuable technologies and expertise that can significantly contribute to the high-quality development of China’s industry.

Stabilizing Foreign Trade and Investment

For the upcoming year, the readout highlights the importance of further expanding high-level opening-up initiatives, with greater emphasis on stabilizing both foreign trade and foreign investment (the use of the term "stabilize" in the policy language suggests that Chinese authorities are bracing for potential trade tensions in the coming year).

In 2025, more measures for ramping up foreign trade are announced, including green trade, digital trade, and service trade (this underlines the crucial role of trade in China’s economic development). Notably, green trade has been newly highlighted compared to last year’s trade agenda.

The promotion of the opening-up of the service industry will remain crucial, as well as expanding pilot initiatives in telecommunications, healthcare, and education (most of these opening-ups have been decided in 2024 and now the readout signals the need for a smooth implementation).

It is obvious that this year’s readout does not mention topics to improve the business environment for foreign companies (last year, equal participation in public procurement and data management have been highlighted as examples). However, the mentioned introduction of the private economy law and guidelines for a unified national market might benefit the general business environment for all types of companies, even though there is still a long way to go.

What it means for German companies: Both China and Germany are export-oriented economies, which may heighten competition on the global stage. Consequently, it will be essential for German companies to closely monitor significant developments in foreign trade. Regarding the business environment, it remains to be seen how the enforced expanding of opening-ups can increase the confidence of foreign companies. Here, it will be crucial to stay on track of local pilot initiatives.

Green Development as Explicit Economic Growth Driver

Green development is again set as a comprehensive strategy including economic and social development (see Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development). Furthermore, the push for green and low-carbon industry is set to drive economic growth, particularly through initiatives such as the construction of green buildings. In addition to this, the readout highlights the plan to establish a product carbon footprint management system (see Implementation Plan for Establishing a Carbon Footprint Management System) and a carbon labeling certification system, along with the promotion of a national carbon market.

What it means for German companies: China’s continued emphasis on green transformation will further offer business opportunities for German companies in the Chinese market. Currently, 25% of German companies see it as business opportunity. Also, in the current competitive environment, sustainable products can be a differentiator towards competitors. German companies are still frontrunners in areas such as circular economy, recycling, energy efficiency and more. Given the evolving policy framework in this area, local competitors, however, are also increasingly stronger in these fields.

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Archive

The Third Plenary Session of the 20th of the Communist Party of China Central Committee was held in Beijing from July 15 to 18. Typically, economic reforms for the coming five to ten years are established at the Third Plenums of the Central Committee and are therefore of high importance. The documents released afterwards are meant to point out a long-term direction. That this Plenum took place later than usual could be a sign that this long-term direction might be highly controversial within the highest ranks.

This time, the high-level documents, the Communique and the Resolution on Deepening Reform, represent – even stronger than expected – a continuation and reinforcement of existing policy directions. Even though China’s (current) economic development seems to be a major point of discussion this time during the session (and hence a major concern of the leadership), the documents lack more immediate policy twists targeting the stimulation of the economy, especially on the demand-side. Rather, the policy directions and measures are much more a manifestation of the long-term structural priorities set before:

Technological Development Above All

As expected, technological and high-quality development take a prominent position in documents. This long-term direction has been strongly (re-)emphasized in the Two Sessions, and the Plenum clearly manifests this endeavor. The leadership continues its course towards industrial transformation and technological progress, which is seen as a means to fulfill several other key necessities, such as economic growth and national security. The major points are:

Self-reliance in technology remains one of the key issues for critical industries, such as semiconductors, AI or biomedicine. Technology breakthroughs are still seen as urgently needed in the current international landscape.
Another priority is to safeguard the stability of China’s supply chains and industrial chains through a “mechanism” for assessing and responding to risks. It is the first time that this “mechanism” is mentioned, albeit without any other specification. (This is another hint towards self-reliance in high-tech and sci-tech.)
The “New Productive Forces” are expected to bring stronger impetus to economic growth. (This is basically a smarter and greener (re-)allocation of production factors.)
Education in science and technology is seen as the major measure to achieve technological development. (Achieving Technological Development via cultivating talents was already remarkably emphasized in this year’s Two Sessions.)
Supporting the transformation of scientific research results. (Progress on that end was seen as too little before.)
Digital/intelligent transformation of the real economy is another focus.

What it means for Foreign Companies

Chinese technological pursuit and industrial transformation offers many opportunities for companies offering high-quality products and solutions. As Chinese competitors gradually increase their investment in R&D, however, the competitive pressure on foreign companies in the market will also increase in the high-end segments. Also, from a national security and self-reliance perspective, foreign companies might still have a hard time winning public tenders or securing their customer base.

Indirectly Boosting Consumption in the Long-Term

Given the current economic situation, there was the hope that the Plenum would push for stimulus measures for boosting consumption. However, this is remarkably absent from the documents, but some initiatives can be related:

Only one sentence on consumption in the Resolution refers to a “refinement of the long-term mechanisms” for expanding consumption.
Monetary policy: More interest rate cuts in the near term to be expected.
Indirectly boosting consumption via stifling consumer confidence: The reform measures also target the improving people's livelihood, addressing income distribution and employment, as well as migrants’ access to public services.
In the long-term: The first time it is acknowledged that China now is “Child-friendly society”, and direct subsidies and a gradual raise of related tax benefits can be expected.

What is means for Foreign Companies

If the Chinese government will be able to reinstall consumer confidence and boost consumption is a major concern of foreign companies. The documents, however, do not propose more reform policies on stimulating consumption in the near term. They rather point to more long-term structural adaptations. These would be indeed helpful, but still very slow and challenging to implement. When consumption can be visibly boosted again is therefore still uncertain.

Improving the Business Environment

Already at the very beginning the resolution addresses the improvement of the business environment and puts a strong focus on the private sector:

Create a fairer and more dynamic market environment to stimulate innovative vitality.
Encourage, support, and guide the development of non-public ownership economy.
Ensure that all types of ownership have equal access to production factors, participate in market competition fairly, and receive equal legal protection.
Enactment of the Private Economy Promotion Law, improving the participation of private enterprises in the construction of major national projects.
Building a national unified market, strengthening fair competition review, and reinforcing anti-monopoly and anti-undue competition. (Local protectionism strongly hinders the creation of a unified market, but we might see more regional integration initiatives to mitigate this.)

What is means for foreign companies

Economic development cannot be promoted without the private sector. The recent focus on the private sector (simultaneously with the state sector) will see a continuation. Since private sector in China does not mean automatically foreign companies (as a this is a different ownership category), effects for foreign investments might be limited. On the one hand, however, the focus on fairness might have implications for an improvement of the business environment in general. On the other hand, private companies might more likely and more quickly emerge as competitors.

Same Direction for Foreign Investment

Just one of the 60 articles in the resolution focuses on foreign investment, and here also no new reform measures in sight but the usual emphasis on:

Expand the catalogue of encouraged industries for foreign investment and shorten the negative list for foreign investment. (There are regular updates here, the recent negative list is of 2021 and the encouraged list was updated July 2022.)
Remove all market access restrictions in the manufacturing sector. (This remains vague since manufacturing is not part of the negative list anymore.)
Opening-up in telecommunications, the internet, education, culture, medical services, and other sectors. (In each sector we might see pilots in selected places.)
National treatment for foreign-funded enterprises in terms of access to factors of production, license application, standards setting, and government procurement. (This resonates with the recent policy focus on fair competition and equal treatment.)
Optimize foreigner’s living in China such as the relaxation of visa policies, extension of the IIT Incentives for foreigners, guidelines for foreigners making payment in China. (Indeed, there were many of these policies recently.)

What is means for Foreign Companies

For foreign companies, this is a clear manifestation of the previous direction for foreign investment. No major deviations are to be expected in the coming 5 or 10 years or even in a longer time frame. Even though we will see further tangible policy steps in all these areas, independent technologies and innovation (or self-sufficiency) will be (even higher) on the agenda. Nevertheless, companies need to take this renewed confirmation of the long-term trends as another opportunity to carefully scrutinize what that means for them and continuously watch out for implementation policies.

At the 2024 Two Sessions, it was emphasized that high-quality development should be enforced to achieve the upgrading of the Chinese economy opposed to traditional growth models. This transformation also involves a focus on green technology, which includes high productivity levels, efficiency, innovative solutions, and advanced manufacturing techniques. Moreover, in the area of green development, the newly emerged catchphrase “new quality productive forces” can be translated to advanced techniques that will further promote China’s decarbonization goals.

Which green technologies are currently receiving the most attention in China and where should Germany and German companies keep an eye on?

To shed more light into this topic, we took a close look at the latest green tech policies in China and opportunities for German companies:

Opportunities for German Companies

Examples which are in line with the directions of latest policy updates are:

Energy efficiency: Germany has a leading position in energy efficiency technologies, such as smart metering, building insulation, and industrial automation. These technologies can help China achieve its energy saving and carbon reduction goals and reduce its dependence on fossil fuels.
Waste management: Germany has a high level of waste management, and has been promoting waste prevention, recycling, and recovery. These practices can help China deal with its mounting waste problem and create value from waste resources.
Renewable energy: Germany has a rich experience in developing and utilizing renewable energy sources, such as solar, wind, hydrogen and biomass. These sources can help China diversify its energy mix, increase its energy security, and reduce its carbon footprint.
Lightweight Solutions: German companies are strongly active in the production of lightweight composite materials (e.g. recyclable PET foam and balsa wood), replacing steel with plastic or other solutions such as products made from aluminum alloys.
Green Buildings: During planning, design, construction, operation, maintenance, renovation, and demolition German companies pay strong attention to efficiently use energy, water, and other resources, to protect occupants’ health and improve employee productivity as well as to reduce waste and pollution.
Energy Management Systems: German companies provide hardware and software applications for safeguarding process plants, and offer solutions for entire demo projects, for example smart energy villages.

Guiding Opinions on Accelerating Green Development of Manufacturing Industry

In early March 2024, the Ministry of Industry and Information Technology (MIIT) of China, in collaboration with seven other ministerial departments, issued the "Guiding Opinions on Accelerating Green Development of Manufacturing Industry" (hereinafter referred to as the "Guiding Opinions"). The document catalyzes the green transformation of China's manufacturing sector and shows important directions in China's journey towards sustainability.

The Green and Low-Carbon Transformation Industry Guidance Catalogue (2024 Edition)

China’s Green Industry Guidance Catalogue (2019 Edition) defines the scope of the green industries in China and was jointly released in 2019 by seven government agencies including NDRC, the People’s Bank of China, and the Ministry of Ecology and Environment. To align with China’s recent green development goals, the 2019 Edition has been revised for the first time in the 2024 Edition.

Implementation Plan for Green and Low-Carbon Advanced Technology Demonstration Projects

In August 2023, NDRC and 9 other national departments have taken the initiative to release a new policy Implementing Demonstration Projects Featuring Green and Low Carbon Technologies (in short “Demonstration Project”) to provide strong support including financial and tax support for several key sectors contributing to achieving China’s carbon peak and neutrality targets.

The Catalogue for Guiding Industry Restructuring (2024 Version)

The National Development and Reform Commission (NDRC), in collaboration with relevant government departments, undertook a significant revision of the Catalogue for Guiding Industry Restructuring (draft version) published in July 2023, and released the final version called the Catalogue for Guiding Industry Restructuring (2024 Version) on Dec 27, 2023. This updated version serves as a compass for investment direction and as a foundation for policymaking across crucial economic domains.