DRIVING THE DAY
1. Everybody is in Beijing!
The 19th Party Congress starts at 9:00 am Wednesday.
All the delegates are already in town (Xinhua):
- “All 38 delegations to the 19th National Congress of the Communist Party of China (CPC) had arrived in Beijing by Monday evening for the upcoming political event.”
Who do those delegations represent?
- “The delegations represent the Chinese mainland’s 31 provincial regions, departments of the CPC Central Committee, central government organs, enterprises controlled by the central government, central financial system, the People’s Liberation Army, the Armed Police, and CPC members of Taiwan origin.”
What will they do? Though many personnel decisions are decided before the congress, delegates still play an important role in selecting the Central Committee (SCMP):
- “A shortlist of candidates is produced by an electoral committee known as the presidium, this always exceeds the number of positions available, so delegates are given the rare opportunity to vote for their favorites, which they do by ‘eliminating’ those they like least.”
Despite what you might think, these votes have led to surprises in the past:
- “Former party propaganda chief Deng Liqun… failed to be voted on to the Central Committee at the 13th national congress [in 1987] even though he had been preselected to join the Politburo by party veterans”.
- “In 1992… Xiao Yang, then party boss of Chongqing…failed to secure enough votes to land a place on the Central Committee… [H]e had been slated to become an alternate member of the powerful Politburo.
Get smart: These votes are part of the “institutionalization” of Chinese politics in the post-Mao era. Events in Xi’s first term have indicated that elements of this institutionalization may be coming undone – this congress will help us to understand if that is true or not.
DRIVING THE DAY, CONT’D
2. Top bodies swear allegiance before the Congress
The Party committees of the State Council, National People’s Congress and Chinese People Political Consultative Conference – the three most essential components of central state apparatus — all held meetings on Monday to study outcomes of the Seventh Plenum.
All three meetings came to the same conclusion: uphold the Party, and Xi Jinping’s, leadership.
Get smart: These pro forma meetings didn’t happen before 17th and 18th party congresses.
FINANCE AND ECONOMICS
3. Gut checking Supply-Side Structural Reform
Enjoy it while it lasts.
That’s one of the key messages from a solid Bloomberg piece out today that provides a gut check on the progress of Supply-Side Structural Reform in five key commodities:
- Oil Refining
The general argument is that production shutdowns have caused upstream prices to continue rising this year. That should last through the spring, but then new capacity is set to come back online. Here’s the take on aluminum:
- “The combination of shuttering of unlicensed capacity, stricter environmental controls and winter curbs have put a rocket under aluminum prices.”
- “Winter controls could mean as much as one million tons in lost output.”
But, but, but:
- “’There’s still 8.5 million tons of new capacity coming on stream up to 2020,’ Paul Adkins, managing director of consultant AZ China Ltd., said in an interview.”
We agree with the point that it’s all about production, not capacity. We’ve been saying it for months.
What to watch: If production ramps up in the Spring, prices may nosedive.
Bloomberg: How China’s Economic Shock Therapy is Shaking Up Commodities
FINANCE AND ECONOMICS
4. China’s new financial commission will have teeth
The structure of China’s Financial Stability and Development Commission (FSDC) is getting attention in domestic media.
The renewed scrutiny comes after the central bank governor, Zhou Xiaochuan, outlined the commission’s four key focuses over the weekend (see yesterday’s Tip sheet).
Caixin looks at who’s in charge:
- As expected – “the commission will be chaired by the vice premier in charge of the finance portfolio”.
Get smart: Currently, that’s Ma Kai, but he’s on his way out. There has been speculation that Xi Jinping’s economic adviser Liu He could be tipped to succeed him.
Who else is represented?
- “The central bank and three regulators will each have one deputy head sit on the body”.
There will be an enforcer:
- “[The commission] is building a mechanism for conducting inspections tours at institutions with financial risks, and it will shoulder the most critical functions of supervision and imposing accountability.”
Get smart: The new commission will strike fear in the financial industry – much like the anti-corruption campaign struck fear in the Party.
What to watch: More details, including personnel appointments at the FSDC will emerge after the 19th Party Congress.
POLITICS AND POLICY
5. Industrial policy gurus learn to manage expectations
Recently, a high-ranking official from China’s industrial policy powerhouse (MIIT) said that China is “studying a timeframe for banning traditional vehicle production” (see the September 11 Tip Sheet).
Reality check: Any move on this front is still in the exploratory phase, says Caixin.
The point of making such proclamations now is all about “expectation management”. At least according to Chen Qingtai – the secretary general of China EV 100, an industry association:
- “A timetable is good for coordination and cooperation between government and business.”
A possible timetable, per Wang Chuanfu, Chairman of Chinese automaker BYD:
- By 2020 – buses
- By 2025 – trucks
- By 2030 – all vehicles
But take Wang’s proclamations with grains of salt. BYD has made a big bet on EV already and hence is a major advocate.
Still automakers have gotten the message. The big ones, including Volkswagen and General Motors, have announced ambitious plan to market new EVs or set up EV joint ventures with Chinese companies.
Get smart: Managing expectations is one thing, but regulators may be exaggerating the speed of the shift. It will still take years for EV technology to fully mature.
POLITICS AND POLICY
6. NPC sets its next meeting
The National People Congress Standing Committee will next meet from October 30 to November 4.
It will be a busy session for the legislature. A dozen laws are up for deliberation, including:
- A revised Anti-Unfair Competition Law
- A revised Standardization Law
- A draft E-commerce Law
- A draft Law on Contracting Rural Land
Why it matters: While the Party congress gets all the media attention, the business of government continues.
What to watch: This session will be a big one – we’ll have a full rundown of the proceedings once they conclude.