DRIVING THE DAY
1. CCP = Chinese Capitalist Party?
The Party wants to encourage entrepreneurship. That’s according to a new Central Committee document released Monday.
How they plan to do it:
- Require that opinions from the business community are solicited prior to drafting economic policies
- Create a stable business environment by ensuring that businesses are not caught off guard by policy or regulatory shifts
- Compensate businesses for losses caused by policy changes
- Protect businesses from overzealous government inspectors
- Establish a long-term mechanism to ensure the equal protection of property rights
Some background: Private investment has plummeted in recent years. This is the Party’s attempt to address that.
What to watch: Xi Jinping’s top economic advisor Liu He is coordinating implementation via his role as NDRC vice chairman.
Get smart: This is a sign that the Party understands the important role that private businesses play in the economy. But the private sector will not invest until it sees this high-level document translated into concrete policy.
DRIVING THE DAY, CONT’D
2. Private business should toe the Party line
There is still one big question for private businesses – to what extent will private entrepreneurs really be able to control their own businesses?
On this score, the Party and the government have some . . . errrr . . . requests (link below):
- Stay clean, green and legal
- Support the work of Party cells within businesses – also, entrepreneurs who are Party members should conform to Party rules and discipline
- Devote resources to national strategies – specifically the Belt and Road Initiative, regional integration, military-civilian integration and development in poorer parts of China
- Finally, young entrepreneurs, in particular, should be “redder”
What does that last one mean? They should conform to socialist core values, know revolutionary history, understand their obligation to the country and “combine personal ideals with the country’s rejuvenation.”
Yikes . . . thankfully, the Party schools will give them more training on how to do this.
The upshot: To the Party, each business needs to be part of the larger national strategy.
Get smart: From a domestic standpoint, that means the line between the state, Party and private business will be further blurred. For MNCs, understanding and aligning with national strategy is imperative.
Gov.cn: 中共中央 国务院关于营造企业家健康成长环境弘扬优秀企业家精神更好发挥企业家作用的意见
FINANCE AND ECONOMICS
3. Is Liaoning’s economy finally turning the corner?
That’s the question that China’s financial media is asking. The province posted positive industrial growth in August for the first time in three years (21st Cent Biz, link below).
Still, we aren’t exactly talking gangbusters growth here. Industrial output expanded by 1.9% y/y – up from contractions of 1.6% and 2.4% in July and June, respectively.
Some context: We’ll take what we can get when it comes to Liaoning. The province is the posterchild for China’s industrial woes and overcapacity problems. Simply moving out of contractionary territory is an improvement.
But hold up: There’s no guarantee that this is the start of an improving trend. The province’s challenges are deeply entrenched thanks to the large footprint of poorly-run local SOEs. And China’s overall economy is decelerating, so that won’t help.
What to watch: The challenges in the industrial northeast have meant better access for foreign investors (Arab news link below). Despite the recent improvement, the local economy is still struggling, which may force further opening.
21st Cent Biz: 辽宁8月工业增速转正 东北经济正走出低谷
Arab News: China rust belt opens door wider to foreign investors
FINANCE AND ECONOMICS
4. CSRC gets politically correct
The securities regulator (CSRC) is doing its bit to promote stability ahead of the 19th Party Congress.
It held a big work meeting on Monday. Discussions at the meeting were pretty fluffy, but the idea was simply to show that the regulator is focused on providing a stable backdrop.
What did they promise to do? Besides offering a bunch of politically correct speech, they promised to respond immediately at the first sign of trouble in the weeks ahead.
Get smart: The stock market debacle from 2015 is still fresh in leaders’ minds. They don’t want any capital market disruptions overshadowing the pomp and circumstance of the congress.
By the by – it was the CRSC’s chief discipline inspector, Wang Huimin, who presided over the meeting.
Why that matters: The high-profile presence of the discipline inspector (CCDI) at this meeting underscores two things that we’ve been stressing for a while.
- The financial crackdown isn’t going away
- The CCDI will be more involved in policy implementation going forward
Financial News: 证监会部署迎接十九大各项工作
FINANCE AND ECONOMICS
5. Banks shed WMPs
Wealth manage products (WMPs) are out of style.
The last data says that WMP growth has slowed rapidly. In fact, bank-owned WMPs have dropped by almost one-third (Caixin):
- “As of the end of June, the outstanding value of WMPs sold among financial institutions dropped 31% to 4.61 trillion yuan ($699 billion) from the end of December.”
More traditional sales to individual investors are still growing, but at a much slower pace:
- “[The] outstanding value of all WMPs, including those sold to retail investors, grew 8% to 28.38 trillion yuan during the same period . . . The growth rate, however, slowed sharply from 43% from a year ago.”
Some context: The opaque, interconnected and often speculative nature of WMPs has long constituted a risk for China’s financial system.
More context: The recent reduction is part of the financial “regulatory storm”. Increased oversight from authorities has banks taking initial steps to de-risk.
What to watch: These are good first steps. But the regulators will have to sustain their scrutiny if they want banks to stay compliant.
Caixin: Shadow-Banking Leverages Appear Reined In
POLITICS AND POLICY
6. Top leaders discuss what a good job they have done
It’s been a great five years.
That’s the message of a new exhibition at the Beijing Exhibition Center. Xi and his colleagues on the Politburo Standing Committee toured the exhibition Monday.
But Xi was quick to point out that their work is not finished (Xinhua):
- “Commending the ‘historic progress and changes’ that have taken place in China over the past five years, Xi said efforts must be made to inspire public confidence in the path, theory, system and culture of socialism with Chinese characteristics.”
Get smart: Xi is serious when he says that his work is not done. He is on a mission to re-instill faith in the Party’s mission – both among the populace and within the Party itself.
POLITICS AND POLICY
7. Li and Ross are all smiles
Li Keqiang met with US Secretary of Commerce Wilbur Ross, who is in Beijing to lay the groundwork for Trump’s visit in November.
The official readout offered nothing new and little of substance (link below).
Li repeated China’s desire for the US to treat Chinese investment fairly and lift restrictions on high-tech exports.
Ross was positive in comments to reporters (Bloomberg):
- “’U.S. officials have been greeted warmly,’ Ross said, adding that it ‘augers very well for the forthcoming visit between President Trump and President Xi.’”
- “We are looking forward to a very good session including a lot of American CEOs and we hope there will be some very good deliverables.”
Get smart: North Korea has consumed the bilateral relationship. Trade and investment issues have taken a backseat.
What to watch: All energies in the bilateral relationship are focused on the upcoming Trump visit. There’s no sign of any imminent breakthrough on disagreements over trade and investment. But there’s also no sign that either side is willing to blow things up.
Fun fact: Ross has denounced China’s trade practices, but he’s somewhat of a Sinophile – he’s reportedly collected over 200 pieces of Chinese art.