America is Back, to Where? Fiscal Statistics, REITs, National Carbon Exchange, Hydrogen Vehicles, Huawei Patents

Intelligence and Insights on China's government actions, foreign policy, economy, and the capital markets.

The symbolic contrast in Anchorage between the US and China is epic. America is proud it is back, and China is ready to reset the relationship for the future.

A meme went viral on Chinese social media piecing two photos together. One featured the year 1901 when Qing Court’s top officials were coerced into signing the Xinchou Accord, carving China by foreign conquests. The other one is from Anchorage, two full lunar calendar cycles later. China defied the US from across the diplomatic table. Anchorage becomes a national symbol that China will never go BACK to its position of weakness. 

Across the room, Secretary of State Antony Blinken pronounced that “America is back.”

Back to the old and the familiar, and back to America’s heyday nostalgia. One thing not back for America, however, is its towering power and strength as the preponderant global leader in all aspects by a lavish margin. When America established the post-WWII global order, America accounted for 50% of the global GDP then. With that sort of margin of economic extraordinariness, global order was naturally shaped in America’s image west of the Berlin Wall. Today, America is 25% of the global GDP and shrinking. America is not back to its economic preponderance and global position of strength. We are not sure if America will be back. If so, when. 

Here is an anchoring moment in Anchorage that the media have gripped partially.

Yang said, “ I now say one thing. America is not qualified, from the advantage of strength, to speak to China.” ( Interpreter delivered as “position of strength”)

Chinese President Xi gave his basic view of the coming world order in March that the East rises and the West declines (东升西降). During the Congressional sessions, he went further that China now can see the world on equal footing (中国可以平视世界), implying an equal position with the US. 

Chinese statements in Anchorage were carefully contemplated. No acts would be spontaneous in Chinese statecraft for such a momentous occasion. 

Yang said, and China believes that America is no longer qualified for its position of strength. China does see the world on relative strength basis. 

Is America back? It depends on what America sees in the mirror of truth. 

China is indeed rising, and the rise is disturbing to any current or future leaders in Washington D.C. But it is only a secondary issue to America’s own reclaim to strength.

Where does America see itself in the second half of the century? When will America’s economy double again? How much would American’s average income rise by the end of the decade? How much does America plan to invest in education, research, infrastructure, 5G, 6G, and space exploration by 2030? When does America plan to reach carbon neutrality? 

America needs a bold vision for the future. China has no ability to define America’s place in the world, nor does the US’ Western allies. Future lies in America’s own hands. 

America is not back until its vision and strength are back. 

An old world order no longer serves the new. The world is fundamentally transitioning between two world orders, leading to all aspects of global disequilibrium. 

It is euphoric to many that America is back. The world does not move backward, despite even America’s wish. The movement of the heavens pursues constant change. 

Zhuangzi, the ancient Chinese philosopher, once dreamed that he became a butterfly. When he woke up, he was not sure if the butterfly became him or he became the butterfly. 

Truth lies not in what one sees. Transcendence is the only truth. 


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Decoding the Two Sessions & New Economic Priorities 2021


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Government in Action

China’s Fiscal Revenue and Expenditure Show Shifts

China’s notable growth of fiscal expenditure in innovation and education by double digits is done with purpose. History will show countries that invest heavily in innovation and education will reap outcomes for the long term. 

China’s fiscal revenue in January-February totaled US$642.98 billion (RMB 4.2 trillion), up 18.7% YoY. Tax revenue and non-tax revenue rose 18.9% and 16.8%, respectively. A low base from the same period last year and the recent economic recovery have contributed to the two-digit growth.

China’s overheated stock market has contributed to the growth in stamp duties by 65.5% YoY.

Other notable revenue growth from taxation includes value-added tax by 19.9%, corporate income tax by 13.2%, and tariffs by +16.5%.

Fiscal Expenditure

China’s fiscal expenditure in January-February totaled US$549.59 billion (RMB 3.6 trillion), rising 10.5% YoY. Revenue in the central government’s general public budget dropped 10.2% YoY, while revenue in the local general public budget rose 13.6% YoY.

This is consistent with the “increase the scale of transfer of payments from the central government to local governments” stated in the report on China’s central and local budgets. According to the report, the general transfer of payments to local governments will rise by 7.8%.

Fiscal expenditure by category:
  1. Education: US$88.4 billion (RMB 574.9 billion), up 16.2% YoY.
  2. Science and technology: US$11.8 billion (RMB 76.9 billion), up 27.6% YoY.
  • The annual Central Economic Work Conference stated that the need to “strengthen the national strategic science and technology forces” was the top policy objective for 2021. (read more)
  • Director of the State Council Development Research Center, Lü Wei (吕薇), said that “Strategic science and technology forces are the pillar of China’s new development pattern.”


  1. Culture, tourism, sports, and media: US$6.9 billion (RMB 45 billion), up 20.5% YoY.
  2. Social security and unemployment: US$104.3 billion (RMB 678.4 billion), up 10.5% YoY.
  3. Health care: US$47.3% (RMB 307.4 billion), up 13.2% YoY.
  4. Energy conservation and environmental protection: US$10.8 billion (RMB 70.5 billion), up 2.3% YoY.
  5. Urban and rural communities: US$43.6 billion (RMB 283.2 billion), up 13% YoY.
  6. Agriculture, forestry, and water conservancy: US$35.1 billion (RMB 228.4 billion), up 2.8% YoY.
  7. Transportation: US$24.3 billion (RMB 158.1 billion), down 7.1% YoY.
  8. Interest payments on debt: US$17.3 billion (RMB 112.5 billion), up 17.7% YoY.


China to Launch National Carbon Trading Platform by Q3 2021

China’s national carbon exchange will begin trading by the end of June this year, confirmed by the Minister for Ecology and Environment Huang Runqiu (黄润秋).

The carbon market, which will enable industrial emitters to trade carbon credits, represents an important step in realizing the government’s net carbon neutrality goal in 2060. (source 1)

Under the system, emitters will initially be issued credits for free. Firms that need to emit more than allowed will be forced to buy extra credits from other firms, creating a secondary market for carbon emission rights. A futures exchange will also be launched in Guangzhou to enable trading a range of carbon derivative products. (source)

Cap-and-Trade Program

The Q3 deadline for commencing trading follows the official announcement of the scheme on February 1st. A proposed cap-and-trade system (whose aim is to reduce carbon emissions) has been in the works since 2015 when Chinese President Xi Jinping (习近平) pledged to introduce a national system at the Paris Climate Accord. (read more)

However, China’s carbon market has seen an incremental development since 2011, when pilot schemes were launched across seven municipalities and ‘industrial regions.’ These pilot systems had traded a total of 406 million tonnes of CO2 equivalent gases by August 2020. (source 1) (source 2)

Beijing’s Green Agenda

While the development of a comprehensive and well-operating carbon market is seen as critical in Beijing’s broader green agenda, its success will hinge on both the market scale and the pricing of the credits themselves. The first phase of the scheme will cover China’s (overwhelmingly coal-fired) electric power sector and its oil refineries, with the former accounting for around 30% of its total emissions. Carbon credits are also expected to price cheaply, at only around US$6 per tonne, versus around US$36 per tonne in the EU. (source)


National Carbon Exchange in Countdown, as China Mobilizes on Carbon Goals

The 9th meeting of the Central Financial and Economic Affairs Commission, presided by President Xi Jinping, zeroed in on two key targets, “ 2030 Carbon Peak and 2060 Carbon Neutrality,” on March 15.

China’s financial innovations will facilitate the achievement of its carbon targets, and its status as the world’s largest carbon market will aid its carbon-related financial market ambitions. China’s carbon agenda has called for a virtuous development cycle of industrial and financial upgrades.

This effort is once again designed with a top-down national approach, supported by the energy bureau, the environmental ministry, the Central Bank, and the financial regulators.

On the supply side:

Government subsidies will continue to support new energy technology and companies. In 2020, $270B of the $300B energy subsidies went to the wind and solar industries. Wind, solar, hydropower, and new energy vehicles will continue to benefit.

The launch of the national carbon exchange will use financial means to incentivize traditional energy companies and industrial carbon emitters to upgrade to greener energy sources and technologies. The national carbon exchange is currently in the countdown mode to commence trading on June 30th.

On the demand side:

A low-carbon lifestyle will be encouraged by introducing financial incentives for individuals. Guangzhou has piloted the first regional carbon exchange platform, Tan Pu Hui. Residents can earn carbon coins (credits) by opting for low-carbon transportations, savings of water and electricity usage. The carbon coins can be exchanged for merchandise or further into cash. This pilot program was launched on Dec. 24, 2019.

Versatile financial platforms related to energy trading and carbon derivatives are being designed at the moment. We will continue to zero in on the subject.


China Draws Ambitious 2025 Plan for Hydrogen Vehicles, Creating another RMB 1 Trillion Industry

Hydrogen was listed as an energy source for the first time, in the Energy Law of the People’s Republic of China (draft for consultation). 

2020-2022 Promotion policies for FCVs were separated from those of plug-in electric vehicles (PEVs) in the Notice on Optimizing Fiscal Subsidies for Promoting New Energy Vehicles (NEVs) from four central ministries. (read more)

The MoF alongside four other ministries (MIIT, MOST, NDRC, and NEA) issued the Notice of Five Ministries regarding the Development of Fuel Cell Vehicle Demonstration (五部门关于开展燃料电池汽车示范应用的通知) recently. It sends a strong message with a four-year program that aims to promote the development of hydrogen fuel cell technology in China. 

Hydrogen fuel cell technology -

is treated as a key technology by the Chinese government. It produces efficient energy, zero pollution, and low noise. It allows China to achieve indispensable policy goals: 

  • Fuel Cell energy will become the preferred choice for ships. China Shipbuilding Industry Corporation (CSIC), China’s leading shipbuilder, announced that it would be supplying fuel cell-battery ships along the Yangtze River, Pearl River, and the Bohai Sea areas in 2021.
  • Fuel Cell batteries are also ideal for drones. China is now the third country that owns the independent fuel cell-powered drone technology, after the US and Germany.
  • It increases China’s competitiveness in global auto technologies.
FCV Targets
  • By 2025, China aims to run 50,000 fuel cell vehicles (FCV) on the streets, among which 10,000 units will be FC commercial vehicles, and 40,000 units, FC passenger cars;
  • By 2030, the aim is to run over one million FCVs on the streets. 
  • By 2030, 50% of the energy used to produce hydrogen should come from clean energy sources. 
Heavy Subsidies

The Chinese government has actively set up policy strategies over the past few years mainly aimed at subsidizing the purchase of FCVs on the demand end. 

Market Growth Remains Small

In 2019, only 2,700 vehicles were sold (accounting for 0.015% market share). This can be explained due to the high price and technological challenges that FCV still faces in China. A major cause of these challenges is the reliance of China’s FCV industry on foreign technology imports, e.g. from Japan or the U.S. 

The current Policy Aims to Address Weakness 

Notice of Five Ministries on Launching Fuel Cell Vehicle Demonstration addresses this issue by shifting the focus from subsidizing the purchase of FCVs to strengthening the domestic production supply chain. 

  • It aims to achieve this by rewarding financial aids to selected cities (which can apply for subsidies). Such cities can use the awarded funds flexibly to subsidize all FCV supply chains such as R&Ds, setting up refueling infrastructure, commercialization of vehicles etc. 
  • While there is no direct statement that foreign companies won’t be able to receive such funds from cities, the plan seems to have an explicit focus on developing domestic supply chain capacity and reducing dependence on foreign imports which makes it unlikely that foreign companies will be considered for being rewarded with funding.



China Pilots REITs to Finance Digital Infrastructure Rise

Infrastructure Real Estate Investment Trusts (REITs) formally enters into a pilot phase in China. China's infrastructure REITs may become a US$300 billion-US$735 billion market within a decade, driven by "new infrastructure" and e-commerce assets.


Notice on REITs Trials in 2020

In April 2020, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly issued “Circular 40”-the Notice Concerning Work to Advance Infrastructure Real Estate Investment Trust Trials (《关于推进基础设施领域不动产投资信托基金(REITs)试点相关工作的通知》).

It aims to “fully make use of the capital markets to actively support the REIT trials for high-quality infrastructure in key areas and industries in accordance with the market principles and the rule of law.” (read more)

What’s significant about the pilot Infrastructure REITs?
  1. Infrastructure REITs aims to finance China’s next phase of development through digital infrastructures, including 5G, data centers, logistics centers for E-commerce, and cross-border digital trade warehouses, etc.
  2. Contrary to the Western REITs experience, China's main goal is to support China’s digital infrastructure building. The plan overtly excluded residential and commercial real estate properties from the REITs.
    Therefore, China’s REITs are not designed to finance real estate developments and properties.
  3. China needs innovative and structured financial instruments to share market-based risks and returns between the public and private investors.
  4. China's pilot REITs aim to control leverage in the infrastructure sector, creating space for new projects and growth.
Unleash capital from existing infrastructures for greater expansion opportunities

Between 1995 and 2019, China invested nearly RMB 150 trillion (US$23.1 trillion) in infrastructure development. So far, China’s infrastructure development projects have been mostly SOE-led and heavily debt-leveraged.

Infrastructure REITs can now unleash existing assets locked in the existing infrastructure projects and divert the funds for greater infrastructure expansion. (read more in Chinese)

REITs development in local Five-Year Plans

Shanghai aims to be the primary listing and trading center for future infrastructure REITs according to its regional 14th Five-Year Plan. (read more in Chinese)


Other provinces, including Jiangsu, Guizhou, Jiangxi, Gansu, and Chongqing, have also highlighted in their Five-Year Plans to actively pursue REIT trials to promote investment, financial reforms, and innovation.


China’s Economic Recovery Statistics Released

China’s National Bureau of Statistics has released key data on the country’s economic recovery, concentrating on the first two months of 2021, comparing to the same periods in 2020 and 2019. (read more)

Industrial Production Accelerates

In February, China’s Manufacturing Purchasing Managers’ Index was 50.6%, above the 50% threshold for 12 consecutive months. Furthermore, the expected index of enterprise production and operation activities rose to 59.2%, 1.3% higher than in January.

Service Industry Business Activity Index in Expansion 
  • The national service industry production index increased by 31.1% YoY and 14.1% from January-February 2019, with a two-year average growth rate of 6.8%.
  • The real estate industry increased by 51.4% YoY, with a two-year average growth rate of 11.8%.
  • Information transmission, software, and information technology service industries increased by 26.1% YoY, with a two-year average growth rate of 14.4%.
  • February 2021 service business activity index reached 50.8%, remaining above the threshold for 12 consecutive months.
  • Business activity indexes for retail, catering, entertainment, and other household consumption-related industries were all in the expansionary range.
CPI Drop vs. PPI Growth

Between January and February, the national consumer prices fell by 0.3% YoY. This included:

  • 0.9% YoY increase for the categories of food, tobacco, and alcohol, of which tobacco, alcohol, and pork fell by 9.6%, grain rose by 1.5%, fresh fruits rose by 2.2%, and fresh vegetables rose by 6.9%.
  • -0.3% in housing prices and clothing. 
  • -0.1% in prices of daily necessities and services.
  • -3.3% for transportation and communications.
  • 0.3% for education, culture, and entertainment
  • 0.4% for health care.

At the same time, the national factory prices for industrial producers rose by 1% YoY. From January to February, the purchasing prices of industrial producers nationwide increased by 1.6% YoY.

Investment Growth in Fixed Assets 

National investment in fixed assets (excluding rural households) reached RMB 4,523.6 billion in two months, with a YoY increase of 35%. Since January 2021, fixed asset investment has increased by 2.43%.

Trade in Goods
  • The total value of trade in goods reached RMB 5,441.8 billion in the first two months of 2021, with a YoY increase of 32.2%.
  • Among these, exports saw an increase of 50.1%, while imports accounted for an increase of 14.5%.
  • From January to February, exports of mechanical and electrical products increased by 54.1% YoY, accounting for 60.3% of total exports.
  • General goods trade accounted for 61.6% of total trade, increasing 1% over the same period last year.
Urban Unemployment Dropped 
  • 1.48 million new jobs were created in cities and towns across the country at the beginning of 2021.
  • In January, the nationwide urban unemployment rate was 5.4%. It rose 0.1% in February, basically remaining stable over the past 3 quarters.
  • The unemployment survey rate among the urban registered population was 5.7%, and the unemployment rate inclusive of all population working in the cities was 5.2%.
  • The unemployment rates of the population aged 16-24 and the population aged 25-59 were 13.1% and 5.0%. The youth population between ages 16-24 remains the highest unemployed cohort.
  • The average weekly working hours of employees in national enterprises were recorded at 46.3 hours.

Huawei Releases IP White Paper, and the state of China’s IP Ownership

Huawei’s number of global patent applications rose sharply after 2010, most notably in comparison to Qualcomm. The patent applications measured here are not exclusive to 5G, and do not pertain to the same categories. However, the sharp rise since 2010 indicates the strong growth in investments in R&D by Huawei. 

This trend also coincides with the larger Chinese initiatives to invest in innovation over the past decade, particularly post the 2008 Global Financial Crisis. 

Based on the empiricals of international patent filings, 

  • China overtook Germany as the world’s third largest patent filer in 2011. 
  • China overtook Japan as the world’s second largest patent filing in 2017.
  • China overtook the US as the world’s largest patent filer in 2019. 

China Becomes Top Filler of International Patents in 2019

China’s Economic Recovery Statistics Released

China saw a double digit growth of patent filings in Europe in 2020. Europe has increasingly become a crucial market for Chinese IP’s global applications.

World’s top 10 patent filers in 2019 ( Patent Cooperation Treaty or PCT)

The world top patent applicant remained Huawei in 2019. Of the top 10 global patent filers in 2019, 3 are Chinese companies-Huawei, Oppo and Pingan). 

(Source: World Intellectual Property Organization)


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