DRIVING THE DAY
1. China’s trust industry is in flux
For the uninitiated, trusts are financial institutions that don’t take deposits, but otherwise make loans and investments like banks do.
Data released on Monday showed that Chinese trusts’ assets-under-management stand at RMB 23 trillion as of the end of June. Most strikingly, that’s an increase of 33.8% from end-June 2016.
So why the massive growth? Industry folks think two things happened:
- Solid economic performance meant there were more investments to be made
- The clampdown on interbank leverage meant that some of those funds flowed back into these more “traditional” shadow-banking channels
So what’s next? Most people think the flow of money into trusts was a one-off, an initial result of the regulatory crackdown on banks. To sustain profits going forward, business models will have to shift toward more active management of assets.
Why it matters: The trust industry is the third largest part of China’s financial sector (after banks and insurance). If business is rapidly growing and changing, regulators need to keep up.
- 21st Cent Biz: 23万亿信托“脱虚向实”
FINANCE & ECONOMICS
2. Property markets set to diverge further
China’s real estate market is set to become even more complicated.
Tier 1 & 2 cities have seen hot sales this year, so inventories have hit record lows. Meanwhile, Tier 3 & 4 cities remain way overstocked.
Domestic analysts expect the divergence will only deepen through the rest of the year. Differences among Tier 3 & 4 cities will intensify as well.
Recent data from a private index of 80 cities shows that inventories are down overall by 11.1% y/y – down to September 2013 levels. But this has largely been driven by the extreme inventory sell down in the largest cities.
Some context: Domestic analysts are divided on what exactly is happening in Chinese property. That’s because the data is terrible – even the broadest measures only cover 70 to 100 cities out of almost 700 cities nationwide.
Why it matters: It’s insane that such an important growth engine is so poorly understood. Poor data makes for poor policy.
POLITICS & POLICY
3. Precision poverty relief
China’s top officials have been talking about poverty alleviation a lot recently.
The reason? It’s one of Xi Jinping’s pet projects.
Execution of the policy is evolving (SCMP):
- “The policy of ‘poverty alleviation with precision’ . . . marks a clear strategic change from the course followed over the previous three decades.”
- “The new strategy requires measures to be targeted at people and industries, rather than giving poor areas funding in the hope that local families would eventually benefit.”
What does this mean in practice?
- “Yao Maohui and his family, from Changhua village in Tongren, Guizhou, are part of the programme.”
- “A notice was put on their home [that] . . . lists the causes of their situation, the measures that would be taken to lift them out of poverty and when that goal would be met.”
- “The notice also names an official responsible for helping the family, giving that official’s title, picture and mobile phone number.”
Why it matters: Poverty eradication will be a major theme of Xi’s second term. It’s a sensible place for foreign businesses to concentrate CSR resources.
- SCMP: Why Xi Jinping cares so much about ending poverty in China: the political significance behind the campaign
POLITICS & POLICY
4. China’s coal cuts are real
Li Keqiang just got back from coal country.
The reason for his visit? To find out how the government’s drive to cut capacity is going.
The answer? Pretty well.
Li visited the Shigejie coal mine in Shanxi, which was closed last year. According to official media, all 2,816 employees at the mine were helped to find new jobs.
Some context: China cut over 250 million tons of coal capacity last year, and is on track to cut another 150 million tons this year.
Get smart: Cuts to China’s coal capacity have been real, and exceeded government targets. One of the reasons the policy has worked is that the government has invested a significant amount of resources into helping laid off workers get back on their feet.
- Gov.cn: 李克强：有落后的产能，没有落后的人力
- Gov.cn: Premier: Cutting backward capacity for a brighter future
- Gov.cn: Premier Li urges coal sector to dig out new economic drivers
POLITICS & POLICY
5. Comrades, Politics! Politics! Politics!
Politics should be the most important thing in a cadre’s heart. That was Beijing Party secretary Cai Qi’s message to local officials last week.
Now, the fifth ranked Politburo Standing Committee member and head of the Party School, Liu Yunshan, has telegraphed the same message to up-and-coming cadres at the opening ceremony of Party’s School new semester.
“When selecting and promoting cadres, the Party will first look at whether they are politically sober and convicted.”
Xi Jinping was more relaxed five years ago when he was the headmaster at the same venue (see link). He simply implored cadres to take the opportunity to learn knowledge, party theory and make friends.
Why it matters: Liu’s language is a reflection of how the political environment has changed and where it is going – especially as we approach the 19th Party Congress. The key criteria for cadre promotion are ground zero for understanding their behavior.
POLITICS & POLICY
6. The next chapter of China’s history
Xi Jinping is opening a third chapter in the PRC’s history.
That is the message from He Yiting, deputy headmaster of the Central Party School. The remarks are from a speech last month, published on Monday.
Who helped usher in the previous two historical chapters in PRC history? Mao Zedong. And Deng Xiaoping.
For his part, He Yiting divided the Party’s governing history into three stages:
- The Exploring Era (1949 – 1970s), which built the socialist political system.
- The Reform and Opening Era (1970s – 2012), which instilled socialism with Chinese characteristics.
- The Comprehensively Deepening Reform Era (2012 – present), which is completing difficult-and-delayed reforms and is making breakthroughs in political theory, policy and practice.
Get smart: We’ve see more than one party guru deem Xi Jinping the leader of the PRC’s third stage of development. They are actively comparing him with Mao and Deng when it comes to their contributions to China’s governance.
- CCPS: 中国共产党与当代中国治理之道