DRIVING THE DAY
1. The craziest G20 ever?
The G20 kicks off today in Hamburg, Germany. Given the state of geopolitics, this meeting feels the most uncertain since the first time these heads of state met in 2008. That was during the Global Financial Crisis.
But China is going in with a plan.
Xi Jinping landed in Berlin on Thursday, and met with German Chancellor Angela Merkel ahead of the summit. He also met with South Korean President Moon that day, after just coming from a sit down with Vladimir Putin in Russia.
Xi’s shoe leather diplomacy in the run up to the meetings is all about getting his point of view heard by the most influential leaders before the arrival of the US President.
The most pressing US-China issue is North Korea, and Xi wants the Chinese plan for more dialogue with the Hermit Kingdom to gain backing.
Get smart: Xi’s emphasis on using a flurry of bilateral meetings to build support for the Chinese point of view is indicative of China’s broader view of multilateralism. China ultimately wants to supplant G20-style multilateralism with a host of bilateral relationships where China is at the center.
Call it a G1+19.
Reality and Perception: China is nowhere near being able to achieve that end right now. But there is an added benefit of this active diplomatic effort. Xi can continue to feed the perception that China is becoming more responsible and proactive as the US steps back from global leadership.
Xinhua: Chinese president arrives in Hamburg for G20 summit
DRIVING THE DAY, CONT’D
2. The door is open through South Korea
Xi sees a potential ally in South Korean President Moon Jae-in. He could be a difference maker in two key areas.
First is the mooted the deployment of the American THAAD missile defense shield in South Korea. China doesn’t want the missiles in its neighborhood, and Moon argued against THAAD deployment throughout the recent South Korean election.
Second is North Korea, on which Moon’s liberal Democratic Party leans toward China’s position of increased dialogue with the North.
With that in mind, yesterday Xi indicated his desire to improve relations with South Korea after last year’s deterioration.
Xi’s gamble: South Korea could represent a middle road out of the North Korea standoff. Among the interested parties, the ROK and China share the most common interests. They both want denuclearization. But given that they both share a border with the DPRK, neither wants sudden instability and an ensuing flood of refugees. Xi hopes Moon can help advocate China’s stance to the Americans.
People’s Daily: 习近平会见韩国总统文在寅
Korea Times: Moon, Xi confirm common goal of N. Korea denuclearization
SCMP: Xi Jinping backs Seoul’s efforts to restart talks with North Korea
FINANCE AND ECONOMICS
3. FX reserves increase again
It wasn’t that long ago that international investors were asking the question: How long will China’s foreign exchange reserves last?
Well today’s FX reserve data for June showed the fifth consecutive monthly increase (FT):
- “Reserves crept up to $3.056tn last month, up $3.22bn in the month.”
- “Beijing has been steadily re-accumulating foreign currency holdings following a sharp decrease in the country’s FX warchest after the central bank stepped in to halt a depreciation in the renminbi in 2015.”
Get smart: The recent improvement in China’s FX reserves is temporary and largely thanks to capital controls and a weak US dollar. Neither of those will last forever, so reserve drain will come back at some point.
What to watch for: We highlighted Pan Gongsheng’s comments on the reserves earlier in the week. Those comments may subtly be hinting at a coming shift in strategy – we outline the dynamics in our weekly finance piece. Get in touch for more.
China forex reserves climb for fifth straight month
FINANCE AND ECONOMICS
4. China’s payments system is getting revamped
Most people don’t think about it when they whip out a smart phone to pay for something via Wechat. But that simple action relies on a complex set of transactions between the app, the merchant and multiple banks.
In China, the infrastructure supporting those transactions is completely disjointed right now (Caixin):
- “Payments made online through third-party payment providers are processed separately according to different terms in the payment firm’s own agreement with banks.”
- “This makes it hard for banks to maintain consistent standards and control risks, posing a challenge to regulatory oversight.”
That’s why the PBoC is rolling out a unified third party payments system (see link below).
Why it matters: Since the Global Financial Crisis, governments have been paying much closer attention to these types of utilities, which comprise the plumbing of a financial system. It’s a daunting task, but centralizing the system should reduce payment risk for banks and increase transparency for the regulator.
Caixin: First Online-Payment Clearinghouse Takes on Mission Impossible
FINANCE AND ECONOMICS
5. The competition for China’s future talent heats up
While Beijing and Shanghai are making it increasingly difficult to get residence permits, other cities in China are competing to attract talent. SCMP highlights some of the efforts:
- “Changsha, the capital of southern Hunan province, is offering 30,000 yuan (US$4,400) to 60,000-yuan subsidies to graduates with a master’s or a doctoral degree who want to buy their first home in the city.”
- “Chengdu is revamping its talent policy to allow all full-time university graduates to apply for the city’s hukou even before they find a job there.”
- “Wuhan…is allowing all former students who graduated within three years and working in the city to apply for its hukou.”
- “Shenzhen…is providing one-off subsidies of 15,000 to 30,000 yuan to graduates who have a Shenzhen hukou.”
Demographics is destiny, so attracting young, energetic, and educated people is the best way to ensure a city’s future vitality. The outcome of this competition will determine how China’s economic and business landscape evolves over the next decade.
POLITICS AND POLICY
6. The National Textbook Committee will craft the Socialists of the future
Xi Jinping’s goal of promoting Party ideology through education is getting a long-term boost.
China has just set up its National Textbook Committee headed by Vice Premier, Liu Yandong. The committee’s main task is to ensure socialist teaching, traditional cultural and national pride are imbued in the nation’s textbooks.
Why it matters: Textbooks are powerful tool to shape the minds of future generations and create a collective world view for China’s youth. The new committee will make sure everyone is on the same socialist page (give us a break on the pun, it’s Friday!).