SMM Hot News - China Metal Special Report National People’s Congress Meeting: Key Takeaways II

Summary
China has held the most important political event of the year on Friday May 22- The National People's Congress (NPC) meetings, also known as “Two Sessions” in Chinese.

The annual gatherings will also reveal Beijing's plans for how to revive an economy battered by COVID-19 pandemic, which has led to the country's first economic contraction after decades of continuous growth.

Please find in our special report our in-house views and the industry expert’s takeaways on the stimulus and the policies announced at the conferences.

We will keep you posted on the latest happenings via our website www.metal.com and our social media channels on Linkedin and Twitter. 

Please register for our webinars as we continue to connect you with the latest happening in the China ferrous and nonferrous metals market. 

The next session is happening on Thursday May 28, 4pm CST, where we present to you a deep-dive on the China domestic metals market following the National People’s Congress (NPC) annual meetings.

Book your slots now. https://attendee.gotowebinar.com/register/3635021032851646987

 

Overview

China has decided not to set a target for its economic growth for 2020 due to uncertainties about the impact from COVID-19, and aims to keep the fundamentals of the economy stable, according to the government work report delivered during the “two sessions” meetings. 

 

In 2019, China’s GDP rose 6.1% to 99.1 trillion yuan, falling in line with the range target. Other economic indicators including urban unemployment rate and disposable personal income, and tax and fee cuts were also going strong in 2019.

 

Monetary and fiscal policies were largely in line with the market expectations. Notably, the budget deficit target for this year was raised to "at least" 3.6% of gross domestic product (GDP).

 

As for infrastructure and real estate, which are the key consumers of nonferrous metals, new infrastructure took centrestage as expected, while the principle of "housing is for living in, not for speculation" will remain in place and no target was set for shanty town redevelopment.

 

The construction of new infrastructure including developing a new generation of data communication network, increasing 5G applications, building more charging facilities, promoting new energy vehicles, stimulating new consumer demand and boosting industrial upgrading.

 

Expectations into the NPC meetings were high among metal industry participants, particularly in regards to more expectations around stimulus. However so far there is little in the way of major new announcements, just more of a reconfirmation of existing supporting policies.

 

China will also intensify its efforts to develop major transportation and water conservancy projects and national railway development capital will be increased by 100 billion yuan. With Beijing shifting to new infrastructure to spur its economy, the support to traditional infrastructure seems limited.

 

New urbanisation is another key focus at the “two sessions”. China will commence the renovation of 39,000 old urban residential communities this year, supporting the installation of elevators in residential buildings and the development of community services.

 

Without positive surprises from Beijing’s economic policies, the nonferrous metals sector failed to stage a substantial rally. SMM expects limited boost from new infrastructure to consumption of nonferrous metals given the strength of the recovery already seen in 2Q.

 

Faced with a global recession and global widespread of the COVID-19 pandemic, China must focus on maintaining security in the “six areas” in order to ensure stability on the “six fronts”. The “six fronts” refer to employment, the financial sector, foreign trade, foreign investment, domestic investment, and expectations. The “six areas” refer to job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments.

 

What happens next…

 

New energy vehicles (NEVs)

 

The Proposals

1. The China National Democratic Construction Association put forward a proposal on accelerating the recycling of used NEV power batteries, including adjusting the design of top-level power battery recycling, the recycling management system, R&D of recycling technology, and recycling business development. (50%)

 

2. Xu Heyi, member of the 13th National Committee of the Chinese People's Political Consultative Conference (CPPCC) and Party Secretary & Chairman of the BAIC Group brought two proposals for the "two sessions" this year, which is "Promoting Smart City Construction with Automobiles as New Infrastructure" and "Promoting Stable and Long-term Development of NEV Industry with the New Model of Combining Industry and Finance.” (80%)

 

3. Zeng Qinghong, chairman of domestic automaker GAC Group and an NPC delegate, proposed five suggestions. Two of the suggestions were related to anti-epidemic and burden reduction, supporting enterprise development, and promoting automobile consumption, while the other three were about trending topics such as Greater Bay Area NEV industry cluster development, cybersecurity and SOEs' poverty relief efforts. (90%)

 

4. Fang Yunzhou, chairman of Zhejiang Hezhong New Energy Automobile and an NPC delegate, put forward the "Suggestions on Accelerating the Introduction of a Package of Support Policies for NEVs to Promote the Stable and Healthy Development of NEVs." (80%)

 

5. Zhang Xinghai, chairman of Chongqing Sokon Industry Group and an NPC delegate, suggested, "First, tax support: extend NEV purchase tax exemption to 2025; second, R&D support: cultivate core technologies for electrification and intelligence; and third, market support: further stimulate the diversified development of NEVs; fourth, used car market support: push up used NEVs circulation." (70%)

 

6. Battery maker CATL boss Zeng Yuqun submitted two CPPCC proposals for the NEV industry--"Proposal on Accelerating the Construction of New Infrastructure for Electrochemical Energy Storage and Leading Global Energy Reform" and "Proposal on Fully Promoting the Electrification of Vehicles In Public Service Fields such as Machinery and Heavy Trucks to Win the Blue Sky Battle and Form a Highland for Global Industries." (70%)

 

7. Jing Zhu, member of the National Committee of the CPPCC, chairman of the Hainan Provincial Federation of Industry and Commerce and chairman of Haima Group, submitted a proposal at this year's "two sessions", suggesting that manufacturers’ taxes, fees and labor costs should be precisely reduced to ease the burden on the manufacturing sector. In the proposal-- "Vigorously Promote Plug-in Hybrid Electric Vehicles and Eliminate Cognitive Misunderstandings", Jing suggested that policy discrimination against PHEVs should be eliminated and PHEVs should enjoy the same preferential treatment as pure electric vehicles in terms of double-point policies, right of way, right of quasi-purchase, government car purchases and other aspects. (50%)

 

Note: The percentage at the end of each proposal denotes the probability that the proposals that will be approved this year, according to SMM’s analysts.

 

What we think…

The NEV-related proposals during “the two sessions” suggest extending national subsidies and purchase tax exemption, promoting the popularity of NEVs, opening up the circulation of used NEVs, and facilitating the upgrading of NEV technologies. Those suggestions, if implemented, are set to boost the production and sales of NEVs and support consumption of nickel, cobalt and lithium. 

 

Apart from accelerating battery recycling, most of NEV-related proposals were about the development of NEVs and related policy support. SMM believes that such policy proposals all require long-term and continuous efforts before seeing material effect, and specific and concrete measures are unlikely to be introduced in the short term (within this year). 

 

However, Beijing is no doubt in favour of the development of the NEV market according to the government work report and other comments. The government support is shifting from direct subsidies to the deployment of supporting facilities. Weaning Chinese producers off subsidies, on the other hand, will spur breakthroughs in production technology, which will boost market competitiveness of Chinese EVs.

 

Nonferrous metals

 

The Proposals

1. Zhang Tianren, chairman of the battery maker Tianneng Group and an NPC delegate, advised the relevant state departments to adjust and optimise the fiscal and taxation policies for the lead-acid storage battery industry. The departments should re-evaluate the effect of the implementation of the consumption tax, scrap the lead-acid battery tax item, or offer the consumption tax rebates to producers that have actively implemented Extended Producer Responsibility (EPR) and increase fiscal and taxation support for secondary smelters. Also, Zhang also proposes to recover the value-added tax rebate rate of lead-acid battery recycling enterprises from the current 30% to 50%, and include secondary lead ingots into the lead futures market. (40%)

 

2. Yu Dehui, General Manager of Chinalco and member of the National Committee of the CPPCC, said that blind expansion of copper smelting capacity in China should be strictly curbed to facilitate high-quality development of the copper industry. (80%)

 

3. Li Wei, Chairman of Henan Shenhuo Group and an NPC delegate said that the nonferrous metals industry should develop towards smart factories and brought up "Proposals on Further Deepening Taxes and Fees Reduction to Revitalise the Real Economy." (30%)

 

4. Zhang Yongli, chairman West Mining, said that attention should be paid to mineral resources to help the economic development of western China. (50%)

 

5. Gao Feng, member of CPPCC National Committee and Secretary General of the China Formwork and Scaffold Association, suggested that aluminum construction formwork scrap should be included in the catalog of resources comprehensive utilisation products and services that enjoy VAT preferential treatment. (40%)

 

6. Gao Bingwei, director of the innovation studio at Chalco unit Shanxi Huasheng and an NPC delegate put forward two suggestions aimed at promoting a more rational aluminum industry pattern: one is about regulating primary aluminum industry and the other is about regulating captive power plants at aluminium smelters to create a fair competition environment. (50%)

 

7. Three suggestions were brought up by Ding Shiqi, Deputy General Manager of Tongling Nonferrous Metals Group and an NPC delegate, which are "Recommendations on the Abolition of High Energy Consumption Division Methods in the Industry, and High Energy Consumption Enterprises Should be Classified Based on Standards," “Recommendations on Timely Revision of Nonferrous Metals Industry Pollutant Emission Standards Including Copper, Nickel and Cobalt Industry Pollutant Emission Standards (GB 25467-2010)" and "Recommendations on State Stockpiling of Rare Metal Rhenium for Controlling Key Strategic Resources." (70%)

 

Note: The percentage at the end of each proposal denotes the probability that the proposals that will be approved this year, according to SMM’s analysts.

 

What we think…

Copper: China’s aggressive copper smelting capacity expansion in recent years have led to the imbalance between global mine expansion and smelter expansion, which forces copper smelters to enhance their competitiveness. Yu’s suggestion is likely to slow copper smelting expansion in China. Chinese copper smelters may attach more importance to technical improvement, and outdated capacity will be forced out on a potential increase in copper, gold and silver recovery rates, smelting cost controls and other efforts.

 

Aluminum: Used aluminum formwork is currently sold by construction companies at a discounted price of SMMA00 aluminum. The price, VAT included, is around 92% of SMMA00 aluminum prices, and the construction company will offer VAT invoices. Aluminum construction formwork scrap will likely enjoy 30% tax rebate, if such material is included in the catalog of resources comprehensive utilisation products and services, which will increase profits by 424 yuan/mt at the current market price with 13% VAT. And the additional profit will be shared by the whole both sellers and buyers.

 

Lead: The suggestion that allowing secondary lead for the delivery of futures contracts emerged 2-3 years ago, but still sees limited chances of being adopted this year as the secondary lead industry needs further regulations and in light of a wide variety of producers and brands. The suggestion is likely to be approved when the sector is well regulated and the scale of producers are large enough.

 

Enterprises

 

The Proposals

1. Yao Jinbo, CEO of China's online classifieds marketplace 58.com and also a deputy to the NPC, suggested that the proportion of housing provident fund deposits should be lowered from the minimum payment of 5% to 3%, so as to effectively reduce the pressure of enterprises on employment. He also recommended further reducing the social insurance contribution rate by enterprises to a unified 12% or 13%. Other sources of income to social security funds should also be expanded while lowering the ratio. (70%)

 

2. Zhang Hongwei, chairman of Guangdong HEC Technology and an NPC deputy, called for more adjustments to the value-added tax structure and stepped-up reform of the corporate income tax system so as to reduce the tax burden of private firms and stimulate their vitality. He proposed income tax rates preferential policies for individual shareholders receiving dividends from unlisted companies. (70%)

 

3. NPC deputy Lu Dongfu, also chairman of China Railway, called for more efforts to make national railway companies "stronger, better and bigger." (80%)

 

Note: The percentage at the end of each proposal denotes the probability that the proposals that will be approved this year, according to SMM’s analysts.

 

What we think…

Suggestions around corporate tax payment are highlighted and chances that these proposals are approved would be high as China will take steps to reduce the pressure on private companies following the impact of the COVID-19.

 

Securities and futures market

 

The Proposals

1. NPC deputy Li Dongsheng, also vice-chairman of the All-China Federation of Industry and Commerce, founder and chairman of TCL Corporation proposed to promote globalisation of the economy, and also the internationalisation of Chinese companies, industrial upgrade and transformation, as well as healthy development of China's securities market. He suggested the trading hours for the securities market should be extended to 5 hours per day. (10%)

 

2. Yang Xusong, a deputy to the NPC and a member of the NPC Standing Committee in Shenzhen, took the lead and submitted joint proposals for the establishment of a futures exchange in Shenzhen with Hong Kong and Macao, allowing Shenzhen to compete for pricing power in the international market. (30%)

 

3. Li Yonglin, member of CPPCC National Committee and the Party secretary of Sinopec Tianjin said that the Shanghai Futures Exchange should introduce corresponding measures for crude oil trading to further improve trading rules and system, and enrich trading varieties. He suggested to involve Tianjin in the warehouse planning and take Sinopec Shengli Oilfield as the pilot for delivery. (50%)

 

4. NPC deputy Xu Xiao, chairman of Kaifeng Chengluocheng Construction and Development Co., Ltd., proposed setting up a futures financial reform pilot zone in Zhengzhou, to support Henan's reform of futures products listing mechanism, promote the opening-up of the futures market, strengthen the development of the over-the-counter market and expand the scope of participants in the futures market. (30%)

 

5. CPPCC National Committee member Jiang Yang, former vice-chairman of the China Securities Regulatory Commission, called for stepped-up efforts to draft the futures law and improve the legal system of the futures market. (90%)

 

6. NPC deputy Liu Lei, director-general of Liaoning Securities Regulatory Bureau, recommended the introduction of foreign exchange futures. He said China should accelerate the formulation of the futures law and establish a professional arbitration institution in the securities and futures industry. (60%)

 

Note: The percentage at the end of each proposal denotes the probability that the proposals that will be approved this year, according to SMM’s analysts.

 

What we think…

Proposals for the securities and futures industry focus on topics concerning improving trading rules and trading systems, as well as China's pricing right in the international market.

 

Other fields:

 

The Proposals

1. CPPCC Standing Committee member and NPC deputy Liu Hanyuan, also Chairman of the Board of Tongwei Group, submitted proposals regarding a more forward-looking renewable energy development goal, tax cuts for PV power generation companies, delay in PV subsidy payments, optimising the management methods of the PV power generation industry. (70%)

 

2. Cao Renxian, NPC deputy and chairman at Sungrow Power Supply, suggested to significantly increase the planned proportion of renewable energy among overall consumption during the 14th Five-Year Plan period, and to introduce carbon taxes as soon as possible. (60%)

 

3. Mo Tianquan, Executive Chairman of the Board of Directors at Fang Holdings, a Chinese real estate Internet portal, called for the establishment of a national housing market regulatory agency, effective operation of principle “housing is for living, not for speculation”. (90%)

 

4. Deputy Director of the Civil Aviation Administration of China proposed the opening of more low-altitude airspace to promote the development of the general aviation field. (30%)

 

Note: The percentage at the end of each proposal denotes the probability that the proposals that will be approved this year, according to SMM’s analysts.

 

What we think…

Proposals for renewable energy and for the respective sectors of the NPC deputies were highlighted.

 

Appendix

 

The Agenda of the “Two Sessions”

 

Proposals submitted by NPC deputies and CPPCC National Committee members will only take effect with approvals in the final political resolution report.

 

The third session of the 13th National People's Congress (NPC) 

Date: May 22-28, 2020

 

Issues to be discussed

• Deliberate the Government Work Report

• Review the report on the execution of the 2019 National Economic and Social Development Plan (“Development Plan”) and on the draft 2020 Development Plan, as well as the draft 2020 Development Plan

• Review the report on the execution of the 2019 Central and Local Budgets (“Budgets”) and on the draft 2020 Budgets, as well as the draft 2020 Budgets

• Deliberate the bill of the draft Civil Code submitted by the NPC Standing Committee

• Deliberate the draft Decision on Establishing and Improving the Legal Systems and Implementation Mechanisms for Safeguarding National Security in the Hong Kong Special Administrative Region (“Hong Kong Decision”)

• Deliberate the work report of the NPC Standing Committee

• Deliberate the work report of the Supreme People’s Court

• Deliberate the work report of the Supreme People’s Procuratorate

• Others

 

The third session of the 13th National Committee of the National Committee of the Chinese People's Political Consultative Conference (CPPCC).

Date: May 21-27, 2020

 

Issues to be discussed

• Hearing and deliberating the work report of the Standing Committee of the CPPCC National Committee

• Hearing and deliberating the report on how the proposals from political advisors have been handled since the previous annual session

• Sit in on the third session of the 13th NPC as non-voting participants, hear and discuss reports including a government work report, and discuss a draft civil code

• Review and approve a political resolution on the third session of 13th CPPCC National Committee

• Review and approve a resolution on the work report of the Standing Committee of the 13th CPPCC National Committee

• Review and approve a report on the examination of proposals

• Hold a by-election of secretary-general of the 13th CPPCC National Committee.

 

Further Reading

 

1. China Metal Special Report National People’s Congress Meeting: Key Takeaways (May 22, 2020)

 

2. SMM Webinar Ferrous Update: After the NPC meetings, will the stimulus continue to support prices or will trade issues overwhelm? (May 22, 2020)

 

3. Exclusive: China's base metals output in April (May 14, 2020)

 

4. SMM China Nickel Weekly and Nickel Downstream Sectors PMI Monthly (May 14, 2020)

 

5. SMM Copper Raw Materials Market Report (May 14, 2020)

 

6. COVID-19 WHF special: SMM offers one-to-one analysts calls (May 14, 2020)