DRIVING THE DAY
1. Backing down on the Sino-Indian border
Are Donald Trump and Kim Jong-Un taking notes?
If they need a blueprint for how to back down from a standoff, China and India just gave it to them.
For weeks, soldiers from the world’s two most populous countries have been engaged in an intense standoff over a disputed border in the Himalayan Mountains.
But as of Monday, the two sides were able to temporarily disengage (NYT):
- “Both sides agreed to give some ground in order to end the standoff.”
- “In a short statement, the Indian government said it had reached an ‘understanding’ with Beijing and had agreed to an ‘expeditious disengagement’ along the border.”
- “China seemed willing to compromise as well, still claiming the disputed territory, but making no mention in its statements on Monday that it was continuing to build the contentious road.”
Get smart: Despite the intensity of the standoff, there was always a fairly robust dialogue occurring outside of the limelight. This latest move helps to ease tensions ahead of the BRICS summit next week, where Xi Jinping and Narendra Modi may be able to build on the detente with a tête-à-tête.
FINANCE & ECONOMICS
2. Policy banks get back to policy lending
Back to basics.
That is the mantra throughout the financial system. Banks are supposed to take deposits and make loans. Insurers are supposed to provide long-term insurance – not short-term speculative financial products.
The latest iteration is the banking regulator’s (CBRC) new draft rules concerning two policy banks – Agricultural Development Bank and Export-Import Bank.
Essentially the rules state that these institutions should go back to policy lending instead of focusing on commercial business. While the draft rules are not explicit on proportions, local media expects that regulators will require at least 70% of each bank’s business to be policy-oriented. The remaining percentage is likely to be commercial.
Why it matters: Policy banks can be powerful tools for development if they stay within their wheelhouse. Getting financing to rural and agricultural businesses has been a consistent challenge for the Chinese financial system. Getting the Ag Development Bank back to basics will help.
- 21st Cent Biz: 政策性银行监管将“有法可依”银监会就农发行、口行监管办法征求意见
FINANCE & ECONOMICS
3. Selling the rental market
Rental is where it’s at. At least that’s what the central government thinks when it comes to fixing the housing market.
Thirteen major cities will soon roll out a “collective construction scheme”. It is explicitly meant to support the development of rental housing in some of China’s largest urban areas by unlocking more land supply. China’s land ministry outlined the pilot on Monday, naming the 11 new cities that will join Beijing and Shanghai in testing out the scheme.
Some context: China is trying to boost the supply of rental housing and fast. Over the next five years the central government wants to build 500 thousand new rental units across the country.
Why it matters: This is not just a property policy – it’s about demographics. China’s biggest issue when it comes to housing prices is affordability in the largest cities. This policy aims to tie city development goals and population flows to the release of land for rental construction.
It’s hard to see this working soon, though. Building rentals is easy, changing an entrenched Chinese preference toward home ownership is the hard part.
POLITICS & POLICY
4. Directing direct investment
Attracting more inbound investment is a government priority for H2 2017.
That’s why the State Council released Document 39 three weeks ago. The document is meant to promote FDI. To help kickstart the process, three ministries held a joint press conference to explain the policy on Friday.
Market access improvements, preferential tax rates and talent attraction were the three key concepts.
The Commerce Ministry is working to establish a timetable for relaxing investment restrictions in twelve sectors by the end of September. The accelerated timeframe may finally produce some long-awaited relaxations.
Specifically, caps on foreign equity ownership in joint ventures may be raised for autos and finance.
Why the renewed push for FDI? It’s not about just about the money. China still needs the value brought by foreign investment. The hope is also that some genuine relaxation in these areas might help to blunt the ire of US trade negotiators.
- SCIO: 国新办举行促进外资增长若干措施《通知》例行吹风会
POLITICS & POLICY
5. Energy giants get married on Valentine’s Day
In case you forgot, yesterday was Qixi – China’s Valentine’s Day.
Two of China’s 99 central SOEs decided to mark the occasion by tying the knot. The country’s SOE regulator SASAC announced that China Shenhua Group and China Guodian will merge (see link).
Shenhua is China’s biggest coal producer. Guodian is one the country’s biggest power producers, so the new company is mammoth (Bloomberg):
- “With assets of 1.8 trillion yuan ($271 billion), the new entity will be the world’s second-biggest [energy] company by revenue and largest by installed capacity”
- “The merged entity will account for 13 percent of both China’s power-generating and coal-mining capacity, according to analysts at Citigroup Inc. “
Get smart: It’s the latest instance of Xi’s “bigger, better, stronger” approach to SOE reform. It’s likely a prelude to other mergers in the energy sector.
Get smarter: The deal is supposed to ameliorate the inherent conflict between coal producers and power producers. In reality, it just brings that conflict in house, but does little to solve it.
- SASAC: 中国国电集团公司与神华集团有限责任公司实施联合重组
- Bloomberg: China Is Creating the World’s Largest Power Company
POLITICS & POLICY
6. Official assets disclosure takes root
Getting officials to declare their assets is crucial for curbing corruption.
Finally, the CCP seems to be getting serious about it, with the Party’s Organization Department now requiring officials to submit asset disclosure reports.
They are checking them twice. In the past six months, they inspected more than 100,000 reports. Of those, 2,900 were found to be incomplete.
Going forward the goal is to have 10% of reports checked randomly each year. The reports of every official up for promotion will also be checked.
Get smart: Asset disclosure is the first step in holding officials accountable. But infrastructure is a hurdle. China is still building out a consolidated database of individuals’ assets. Once that is complete, the Party can systematically track what’s going on.
- Zuzhirenshi: 强化刚性约束 释放制度力量——各地各单位认真学习贯彻领导干部报告个人有关事项“两项法规”
POLITICS & POLICY
7. Xi’s China is still corrupt
One of Xi Jinping’s pet projects is poverty alleviation. He has promised to eradicate poverty in China by 2020.
That means that the government has been throwing a lot of resources at the issue.
But – quelle surprise! – not all of those funds are being used properly:
- “The Central Commission for Discipline Inspection said 388 people in 20 provinces and regions . . . had received administrative or criminal penalties.”
- “All were officials with poverty alleviation authorities at the provincial, city or county level, and half were department directors”
Think about that for a second: The most powerful leader since Mao says he wants something done. At the same time, he instigates the widest-ranging anti-corruption campaign in Party history. And yet still hundreds of officials have decided to contravene his wishes and embezzle funds.
The upshot: For all of Xi’s efforts to impose more discipline on the Party, many local officials continue to act in their own interests – not Beijing’s.