FINANCE AND ECONOMICS
1. Why China’s financial regulators are patting their own backs
China’s financial regulators are crowing – for the time being at least.
The reason? They are pretty satisfied with initial progress at taming the interbank market.
You may be asking yourself – Why do those guys at Trivium constantly talk about the interbank market? Because it’s the lifeblood of China’s financial system. Cleaning it up is crucial.
On Friday, the banking regulator (CBRC) put out a statement highlighting the following achievements:
- Interbank assets have been reduced by RMB 3.2 trillion over the last 8 months – that’s a contraction of 13.8% from August of 2016.
- Since the beginning of the year medium-sized joint-stock banks have seen interbank assets reduced by a whopping 45%.
- Banks’ wealth management products have shrunk by RMB 2.2 trillion since the beginning of the year.
The key context: All that has happened even as bank lending held up well in August. So slower lending among banks still hasn’t disrupted traditional loan creation.
What to watch: Progress on the interbank market is only step one – a lot of loans that were going to other banks are now finding their way into property speculation.
- 21st Cent Biz: 银监会：资金空转持续减少 股份行同业资产下降45%
FINANCE & ECONOMICS
2. CDB gets a facelift, sort of
The banking regulator (CBRC) has issued yet another update to the rules governing the China Development Bank (CDB).
These updates come out every few years, and tend to retool the CDB’s business at the margins. It’s clear that regulators want to reassert some control over the bank, which had grown increasingly independent over the past decade.
CDB’s raison d’être is development. But that doesn’t really make money. So the bank uses its commercial business to subsidize its development lending.
The paradox: The more commercial business it does, the further it gets from its core responsibility.
Where to draw the line between the two is a regular topic of debate and review among regulators.
Why it matters: With RMB 12.6 trillion in assets, CDB is China’s fifth largest bank, and on the cusp of the global top ten – so it’s systemically important.
- The Paper: 银监会明确国开行定位：以开发性业务为主，辅以商业性业务
POLITICS & POLICY
3. The Party wants to control the Internet
China Cybersecurity Week kicked off this weekend. To get things started right, Liu Yunshan, #5 in the Party, was in Shanghai for the hoopla.
Cybersecurity week is part of an effort to educate the public on the dangers of internet crime, and apparently there are a lot (Sixth Tone):
- “A report on the security of mobile phones . . . said that more than 90 percent of Android smartphones for sale in China contained serious safety bugs.”
- “[S]uch flaws allow hackers to control the entire phone and obtain the user’s passwords, bank account information, and more.”
- “[A]nti-virus software company Qihoo 360 said in a report . . . that nearly 11 million company email addresses were vulnerable to cyberattacks.”
- “It also said the contact information of about half of all Chinese who go online . . . was leaked in 2016, making them easy targets for telephone swindlers and other scams.”
Get smart: The Chinese authorities don’t like things that they can’t control. That’s why the new Cybersecurity Law and related regulations are so stringent, even though some of the implementation details are still being decided.
Check this out: The China National Vulnerability Database keeps track of viruses and other cyber threats (link below).
- CPC: 刘云山：为党的十九大胜利召开营造良好网络环境
- Sixth Tone: China’s Cybersecurity Week Kicks Off With Flurry of Warnings
- CNVD: 国家信息安全漏洞共享平台
POLITICS & POLICY
4. Is China’s top diplomat stepping down?
China’s top diplomat, State Councilor Yang Jiechi, will step down after the 19th Party Congress. That’s according to the Hindustan Times, at least:
- “Diplomatic sources based in New Delhi and Beijing confirmed to Hindustan Times that councilor Yang will step down . . . by March 2018.”
According the same article, he will be replaced by Foreign Minister Wang Yi.
Get smart: Take all personnel speculation with a grain of salt.
Get smarter: Whether Yang steps down is one of the most interesting questions for this year’s congress. According to the old retirement norms, Yang is young enough (barely) to serve another term. So his departure is not a certainty.
Get supersmart: We think Yang has a 57% chance of being promoted to the Politburo:
Want to know who else will get promoted? We have a premium politics service for those who want to go deep. Get in touch ( email@example.com ).
- Hindustan Times: Chinese Communist Party meet: State councillor Yang Jiechi likely to step down, Wang Yi to replace him
POLITICS & POLICY
5. MEP gets serious about air pollution
Anyone who has spent the winter in northern China knows that air pollution is a major problem.
But Minister of Environmental Protection Li Ganjie is trying to address it (Xinhua).
SCMP sums up the efforts:
- “Speaking at a conference on Thursday . . . Li Ganjie said the ministry would send experts to Beijing, Tianjin and 26 other cities in Hebei, Henan, Shanxi and Shandong to look into the source of pollution in those places and to advise the local authorities on what to do about it.”
- “In a bid to reduce the average PM2.5 concentration and the days of heavy air pollution over winter – from 10 to 25 per cent – the ministry will also send out 102 teams . . . to check on the polluters in these 28 cities.”
- “They will visit several times over the four-month inspection period to ensure pollution regulations are enforced.”
Get smart: The MEP has emerged as a strong ministry under Xi Jinping. That’s because top leaders know that pollution is the most prominent – and visible – threat to social stability. Expect an even stronger MEP in Xi’s second term, and increasingly stringent enforcement of environmental rules and regulations.
Watch this guy: At 53, Li Ganjie is one China’s youngest ministerial-level officials. That means that he will likely be an important player for the next 15 years.
- Xinhua: 京津冀治污是否下真功夫 环保部派千名干部量化巡查
- SCMP: China to send over 100 pollution inspection teams to cities around Beijing
POLITICS & POLICY
6. The central government wants to boost private investment, again
Weak private investment has been a major concern for top leaders for a while now.
And things are going from bad to worse. For the first eight months of the year, private investment expanded by only 6.4% compared to the same period in 2016.
That number topped out at 7.7% back in March, which means the last five months have seen low single digit expansion, which is better than negative growth, but an effective flatlining of private capital expenditure.
That’s why the State Council released another document to “energize effective private investment”.
The major measures:
- Streamline approvals and cut costs
- Attract private investment into PPPs by giving them equal terms
- Discipline government officials who break contracts with private businesses
- Build a “clean” and “close” ecosystem between government and private businesses (see next entry)
Get smart: The fact that the government has to lay out these basic principles shows just how bad the environment is right now for private companies in China.
- Stats.gov.cn: 2017年1-8月份民间固定资产投资增长6.4%
- SCIO: 促进民间投资、“双创”政策落实第三方评估吹风会图文实录
- Gov.cn: 国务院办公厅关于进一步激发民间有效投资活力促进经济持续健康发
POLITICS & POLICY
7. Can business and government be clean and close?
Xi Jinping wants relations between the government and private business to be “clean and close”. That’s what he said at a March 2016 meeting with some of China’s biggest tycoons (link below).
The slogan was repeated in the State Council’s most recent document to boost private investment.
What does it mean? Here’s what Xi said:
- Clean. For officials that means no trading of power for money. For business it means following the law.
- Close. For officials it means helping private business to solve problems. For business it means supporting the local economy.
Get smart: It’s a good slogan, but private businesses will want more than flowery language. The hard truth is that Xi is much more concerned with strengthening the state-owned economy. Private businesses will continue to be second-class citizens.