DRIVING THE DAY
1. The draft of the 19th Party Congress Report is hot of the presses
Unfortunately, it’s not out for public consumption.
Who has seen it? Xi Jinping and his Politburo peers gave it a once over at their meeting Monday – exactly one month before the 19th Party Congress is set to commence.
In fact, they deliberated three crucial political documents that will be approved at the 19th Party Congress:
- The 19th Party Congress report that Xi Jinping will deliver (specifics were not released)
- Amendments to the CCP constitution (see next entry)
- The discipline commission’s (CCDI) work report covering the last five years
Some context: The Party is making its final push to build consensus on what exactly should be in Xi Jinping’s report at the congress next month.
Content is still being finalized. Next month’s 7th Plenum will offer a final chance for last-minute tweaks before the congress.
Sound confusing? It is – reach out and we can explain it in detail.
DRIVING THE DAY, CONT’D
2. Did Xi Jinping score his first goal?
Thanks to yesterday’s meeting — we now know for sure that “major theoretical opinions and major strategic thoughts” will be added to the Party Constitution at next month’s congress.
Why that matters: That’s a pretty clear indication that some form of Xi Jinping’s theory of governance will be put into the constitution. But we still don’t exactly how it will be characterized. The exact name of Xi’s contribution will indicate Xi’s standing within the pantheon of China’s Party leaders.
Get smart: It’s still too early to conclude that Xi will get everything he wants at the congress, although it is tempting to do so. The CCP has updated the constitution’s guiding ideology at every congress since the 15th congress in 1997.
DRIVING THE DAY, CONT’D
3. An eight-point plan for a better Party
Beyond prepping for the Congress, Monday’s Politburo meeting also deliberated a separate report that discussed the “eight-point code” to improve working styles.
Say what? The code is meant to improve bureaucratic efficiency. And the Politburo is meant to set a positive example for the rest of the Party when It comes to implementation.
Some context: Xi Jinping introduced the “eight-point code” immediately after he took the helm five years ago. The rules sometimes sound trivial. One, for example, states that official meetings should be focused and to-the-point. Another calls for less traffic control when leaders travel by car to avoid inconveniencing the public.
What it means: Xi Jinping is re-emphasizing these rules and he’s keeping score – judging the compliance of each senior leader.
We wouldn’t be surprised if the report they discussed is used as one tool for deciding personnel arrangements.
FINANCE & ECONOMICS
4. Environmental protection is disrupting business
Last week, the Greater China CEO of Schaeffler, a Germany auto supplier, sent a “letter for emergency help” to the Shanghai government.
The cause? The Shanghai government decided to cut off power and tear down facilities at one of Schaeffler’s local suppliers due to environment violations.
The consequence? Per the CEO’s estimate, the shutdown could disrupt manufacturing in 49 auto factories across China.
Schaeffler asked for a three-month transition period to keep the local supplier alive while the company switches to a new supplier. Local government has yet to sort a solution.
Get smart: Often local governments are not willing to pull the plug on business. But that’s not the case when it come to polluters. In fact, governments are pulling the plug on polluters at an increasingly fast clip.
This is now a clear business risk. Foreign companies operating in China need to do a sweep of suppliers to gauge this new counter-party risk and preempt potential supply chain disruption.
- Caixin: 环保压力致原材料停产 上汽通用切换零部件
FINANCE & ECONOMICS
5. Mortgages get more expensive
Banks in Beijing are trying to turn the screws. The banking regulator (CBRC) has asked them to get tougher when it comes to property market loans.
The latest move, per Caixin:
- “Several banks in Beijing are said to have raised the interest rates on first-home housing loans, beginning Thursday, marking the sixth time this year they have done so.”
- “After the upward adjustment, the rates on first-home housing loans will be 10% higher than the 5-year benchmark interest rate in Beijing, with certain banks requiring as much as 20% above the benchmark.”
What it means: Banks are under increasing regulatory pressure to help cool frothy housing markets in China’ biggest cities. Previous regulatory measures have been ineffectual – demand has just been too strong – so now the banks are getting more involved.
Why it matters: If the incremental tightening continues, there is a risk that regulators overdo it.
POLITICS & POLICY
6. How local governments goose property
Sticking with the property theme, Nate Taplin at the WSJ makes a great, and underappreciated, point about the strength in property this year.
A major development that has gone largely unnoticed:
- “Local governments are directly buying up large quantities of houses developers haven’t been able to sell and filling them with citizens relocated from what they call “slums”—old, sometimes dilapidated neighborhoods.”
- “That helps explain why the drop in unsold inventories of apartments over the past year has been so sharp—down 22% on the year in August.”
- “That has helped prop up the market, especially in China’s smaller cities, despite more restrictions on housing purchases and slowing official figures on sales growth.”
Get smart: Social policy drives outcomes for China’s economy just as much or more than traditional “economic policy”. You can see these dynamics in all sort of areas – environmental policy, for example, is a critical driver of the push to shut capacity.