DRIVING THE DAY
1. Party finishes Congress preparations
The 7th Plenum concluded Saturday.
Here’s what happened (Xinhua):
- “A report to be made by the 18th CPC Central Committee to the 19th CPC National Congress, a work report of the CPC Central Commission for Discipline Inspection (CCDI) to the congress, as well as an amendment to the CPC Constitution were discussed and approved.”
The communique, as per usual, was terse. It repeated many of the themes and ideas that Xi Jinping has already stressed over the past five years, such as the four comprehensives and new development concepts.
One notable aspect of the communique was its strong emphasis on Party discipline:
- “If…[we] do not have strict political discipline and political rules, do not have a clean and upright political environment, then [we] will lose [our] ability to innovate, cohesiveness and fighting strength – and [we] will lose the foundation of [our] power and governing capacity.”
Get smart: The language about the Party’s “ability to innovate” was new.
What it means: For Xi, a strong Party is the key to a strong China.
Our take: Xi’s second term is will be all about defining more clearly the themes he laid out in his first term. Domestically, that means more Party control in all aspects of society. Abroad, that means a more assertive China.
Xinhua: CPC Central Committee plenum makes full preparation for key congress
DRIVING THE DAY, CONT’D
2. Xi cleans house – again
At the Plenum, the Central Committee expelled 12 members, including former Chongqing Party Secretary Sun Zhengcai and former Minister of Justice Wu Aiying.
That makes 35 Central Committee full or alternate members who have been expelled in Xi Jinping’s first term – nearly 10% of all members.
Think about that: If you are one of China’s top officials, you had a nearly one-in-ten chance of being taken down for corruption in Xi’s first term.
And Xi isn’t finished (Caixin):
- “[A]n official exhibit held on Sept. 25 in Beijing … disclosed that 40 members and alternate members of the Central Committee have been investigated or punished for corruption.”
- “The discrepancy could mean five more officials in the Central Committee may also be in trouble”.
We likely know who four of them are already. That’s because there were four alternate members who should have been promoted to take the place of the expelled full members but weren’t. Those four are:
- Liu Xuepu, deputy director of the Chongqing People’s Congress Standing Committee
- Zhu Yanfeng, president of automaker Dongfeng Motor Co.
- Zheng Qunliang, vice commander of the PLA Air Force
- Zhao Jin, head of the Yunnan Propaganda Department
Get smart: The Party rules could not be clearer. When a spot on the Central Committee opens up, alternate members take those spots in order of who received the most votes at the Party congress. Liu, Zhu, Zheng and Zhao all should have been promoted according to the rule.
FINANCE AND ECONOMICS
3. PBoC governor: The deleveraging process has begun
PBoC Governor Zhou Xiaochuan was in DC for the annual gatherings of the IMF and World Bank this weekend. He spoke about deleveraging:
- “China has begun the deleveraging process…the overall leverage ratio is dropping.”
- “One reason [corporate debt levels are so high] is that local governments borrow through LGFVs, which gets reflected as corporate debt.”
- “China’s debt structure would look more balanced if those [LGFV] debts were categorized as government debt.”
- “The result is that banks and financial institutions have underestimated local government fiscal risks.”
Zhou also discussed the new Financial Stability and Development Commission. It will focus on four areas:
- Shadow banking
- The asset management industry
- Internet finance
- Financial holding companies
Get smart: Zhou’s comments confirm what many economists already knew – that the local government debt problem is much bigger than it appears.
FINANCE AND ECONOMICS
4. Credit data is getting boring
While you were enjoying your weekend, China’s number crunchers were keeping at it. The PBoC released September credit data on Saturday.
Headline financing (a.k.a. Aggregate Financing to the Real Economy) grew by 13% y/y – down from 13.1% in August.
The 10-basis-point change in the growth rate from August to September doesn’t tell us a lot. In fact, outstanding credit grew at an average 12.9% y/y for the for the first eight months of the year. It’s been unusually steady throughout 2017, and September’s growth rate was right in line with that trend.
Some detail: The one slightly notable change from August to September was a jump in entrusted and trust loans. Combined, they registered RMB 318 billion in September – up from RMB 106 billion in August. But that’s not exactly a game-changer in an economy that has created RMB 15.65 trillion in financing so far this year.
The upshot: The monthly credit numbers are getting boring. That’s because the PBoC has been working to level out the pace of credit growth to businesses so that they accumulate debt more slowly.
FINANCE AND ECONOMICS
5. Pumping growth through prices
China’s price data for September come out on Monday morning.
- Consumer prices (CPI) grew by 1.6% y/y – down a touch from 1.8% y/y in August.
- Producer prices (PPI) grew by 6.9% y/y – up from 6.3% y/y in August.
On the consumer side, prices largely retreated thanks to a fall in food prices, especially pork which saw a contraction of 12.4% y/y in the month.
On the producer side, the jump in prices was significantly higher than analysts had expected. It was driven by an acceleration of price growth for steel, iron and non-ferrous metals like aluminum.
Get smart: PPI is the real number to keep an eye on right now. The jump last month means that the Q3 average was 6.2%, up from 5.8% in Q2 – contradicting the expectations of most observers who expected much slower inflation in the second half of this year.
What to watch: GDP data for Q3 comes out on Thursday. The higher PPI print means that we are likely to have seen an improvement in nominal GDP growth last quarter.
CNBC: China’s producer price index crushes expectations
6. Not a fun Party
The 2,287 congress delegates are arriving in Beijing (Xinhua):
- “The first delegation to arrive from outside the capital was from Inner Mongolia Autonomous Region. The delegates landed at Beijing Capital International Airport on Sunday morning.”
Unfortunately for those arriving, being a delegate is not as fun as it used to be (Straits Times):
- “’Compared to the 16th, 17th and 18th congresses, this meeting is characterized by how prudently it is run,’ Mr Wang Lilian, who has been in charge of delegate hospitality since the 16th meeting in 2002, said yesterday.”
- “’In past editions (of the congress), delegates and staff would have fruit in their rooms. There will be none of that this time,’ he said.”
- “’Food in the restaurants will be home-cooked-style dishes that are not fancy and there will be no sea cucumber and prawns. It will be buffet-style, with eight hot dishes, eight cold dishes and several types of staple food,’ he added.”
- “In the past, delegates were given custom-made services such as tailoring, free haircuts and facial treatments. And there were shops that sell gifts. ‘We will strictly not have any of these services this time,’ said Mr Wang.”
Get smart: Officials miss the perks, the common people fully support the austerity measures. It’s an important source of Xi’s popular support.
Xinhua: Delegates to CPC national congress start to arrive in Beijing
Straights Times: No freebies or prawns at China’s party congress
POLITICS AND POLICY
7. Xi promotes red education
Education is one area among many where the Party has become more active under Xi Jinping (NYT):
- “In a stern directive issued last month, the party ordered schools to intensify efforts to promote ‘Chinese traditional and socialist culture’ — a mix of party loyalty and patriotic pride in China’s past.”
- “This fall, the Chinese Ministry of Education began rolling out new textbooks in history, language, law and ethics across primary and secondary schools.”
- “The new books include studies of 40 revolutionary heroes, writings by revolutionary leader Mao Zedong like his 1944 speech ‘Serve the People’ and lessons on China’s territorial claims in the disputed South China Sea, a pillar of Mr. Xi’s foreign policy.”
Get smart: The “patriotic education” campaigns started in the early 1990s have been very successful. Even among university-educated Chinese, there are few that don’t strongly back the Party line when it comes to issues like Taiwan or Tibet.