In last week’s Hengqin Record, Alex Kocsis noted the “Three Critical Battles” among the Chinese government’s nine policy priorities in 2018, all of which impact considerably on Hengqin. This week he explains exactly what the “Three Critical Battles” refers to:

Hengqin Record: What are the Three Critical Battles?
Alex Kocsis: Xi Jinping has very clearly signaled that the Three Critical Battles are the top policy priorities for 2018. They are:

1. Preventing and resolving major [financial] risks
2. Conducting targeted poverty reduction
3. Controlling pollution

Progress on these three fronts will dominate official life in 2018. Policymakers across the system will be under pressure to demonstrate progress on all three initiatives.

Why these three areas? In his 24 January 2018 speech at the World Economic Forum in Davos, Vice Premier Liu He described the reason that these three areas were chosen:

“The Three Critical Battles are all about mending the most pronounced deficiencies in our development, and ensuring that we comprehensively build a moderately prosperous society,” he said.

Xi has promised to build a moderately prosperous society by 2021. This is how the Three Critical Battles fit in to that plan:

• China’s rapid build-up of debt has made the economy vulnerable to a financial crisis, so it’s imperative that financial risks be addressed and a crisis averted.
• Xi has made eradicating poverty a fundamental precondition of establishing a moderately prosperous society.
• Prosperity for the Party – and the Chinese people – is no longer just about “stuff.” It’s also about “quality.” Widespread environmental degradation has become the public’s top concern in recent years, so cleaning the environment is also a must for Xi.

So what are the goals? The March 2018 Government Work Report defined the specific targets for the Three Critical Battles.

At the core of financial de-risking is slowing the pace of debt accumulation. Officials refer to this as “controlling the macro leverage ratio.” The financial “regulatory storm” succeeded in slowing the pace of debt accumulation in 2017. Expect the storm to keep raging in 2018.