DRIVING THE DAY
1. Say my name: Xi Jinping’s comrades support his authority
Many China watchers were disappointed yesterday.
They had predicted that Xi Jinping’s leadership status would be elevated to an almost Mao-like level at this year’s Party congress. That would happen if Xi gets his name attached to a governing concept in the Party constitution.
But in Xi’s report to the congress, his ideological contribution did not include his name. Instead it was called “The Thought on Socialism with Chinese Characteristics for a New Era”.
That mouthful provides a stark contrast to Mao and Deng’s contributions, which include their names – “Mao Zedong Thought” and “Deng Xiaoping Theory”.
But we’re not worried. We still think Xi’s name will be added at the conclusion of the congress when the constitution is amended.
Three Politburo Standing Committee members agree with us. Zhang Dejiang, Yu Zhengsheng and Liu Yunshan all said the same thing at meetings to discuss Xi’s report:
- “The theoretical innovation is “’Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.'”
How it will happen: On the last day of congress, it will be announced that all delegates unanimously agree that Xi’s name should be added.
That’s the same story that they told last year when Xi achieved “core” status. It wasn’t his idea – it was the will of the Party.
Get smart: Xi looks more powerful if his name is added by the Party, and not by Xi himself.
Don’t agree with us? Get in touch and we can debate!
DRIVING THE DAY, CONT’D
2. Economic policy is all about supply-side reforms
We’ve been digging into Xi Jinping’s report to the Party congress all day to divine any clues for economic policy in the come five years, and the 2020-2035 timeframe.
Despite the mind-numbing length of the speech, there are a brunch of pretty clear signals in there.
One nugget that caught our eye: in theopening paragraphs of the section on the economy, Xi stated:
- “We should pursue Supply-Side Structural Reform as our main task, and work harder for better quality.”
What it means: We’ve been yammering on about this for a while now, but it’s worth another reminder – Supply-Side Structural Reform (SSSR) is the key economic policy framework in China right now.
That will only become more true in 2018 and beyond. So if you want to understand the trajectory of the economy you need to understand SSSR – whether you are an investor, business person, or government official.
We’ll give a full rundown of the economic and business implications of the report to our premium subscribers tomorrow. Get in touch if you want to become one.
FINANCE AND ECONOMICS
3. China’s Q3 GDP data: the number to know
Real GDP growth came bang in-line with market expectation of 6.8% y/y when it was released this morning – that was down a scooch from 6.9% in Q2.
But as we’ve been pointing out this week, the number that matters more is nominal GDP growth, which came in at 11.2% y/y – up a scooch from the 11.1% seen in Q2.
Some context: While the improvement in nominal growth from Q2 to Q3 wasn’t anything to write home about, it’s the year-to-date nominal performance that stands out. The economy grew at 11.3% y/y in the first nine months of 2017 – that is the best nominal GDP growth since way back in 2011 before the deflationary impulse hit China.
More context: That means the GDP deflator – or the broadest measure of economy-wide inflation – stands at 4.4 percentage points so far in 2017. That number compares to an average deflator of 1.4 percentage points in the previous 5 years.
What it means: That solid inflationary print is almost exclusively thanks to rising commodity prices. That has been a huge boon for Chinese industrial businesses because it means awesome profits, and better ability to manage debt.
FINANCE AND ECONOMICS
4. September property data quick take
Property investment came in solid in September. Capital expenditures in the sector grew by 9.2% y/y – up from 7.8% y/y in August and the 7% average over the previous four months.
But despite the strong activity last month, forward looking indicators slumped. New housing starts grew by only 1.4% y/y – that is the second lowest print since housing restrictions first started to be rolled out in October 2016.
Meanwhile, new housing sales contracted by 1.5% y/y – that is down from a 4.2% expansion in August, and marks the first contraction in sales since March 2015.
What’s it all mean? Exactly what we’ve been telling you – property activity has defied the odds all year, remaining resilient in the face of ever-tightening policy. That’s one reason for those solid GDP prints from above.
But the forward-looking indicators suggest the 2017 property boost will translate into a 2018 drag on the economy.
5. Business gets on board Xi’s train
Businesses have been quick to show support for Xi Jinping’s Party congress report, promising to play their role in supporting Xi’s vision (Beijing News):
- Liu Chuanzhi, Chairman of Lenovo Holding Group:“[Lenovo’s] investment will play a key role in developing real economy … [and] fostering more Chinese businesses.”
- Wang Jianlin, Chairman of Wanda Group:“Wanda’s retail film, tourism, sports, health and children’s entertainment businesses…will help people to live a better life” (a key phrase in Xi’s report).
- Zhang Jindong, Chairman of Suning Holding Group:“Suning will actively participate in poverty alleviation…”
- Cheng Wei, Chairman of Didi:“General Secretary Xi’s report specifically mentioned … developing the clean energy sector… Didi is making efforts to realize efficient, convenient and green transport. [Our] platform has 200 thousand new energy vehicles. That number will exceed one million in the future.”
Get smart: Chinese businesses are being quick to align their strategies with Xi’s new vision.
MNCs should be doing the same.
Want to know how? We’ve got in-depth analysis of the report and its implications specifically for MNCs. There are plenty of clear takeaways for business strategists.
Just reply to this email if you want to know more.
Beijing News: 柳传志王健林等企业家点赞十九大报告
POLITICS AND POLICY
6. China’s Central SOEs are getting bigger
Here’s what Xi had to say about SOEs yesterday:
- “We will support state capital in becoming stronger, doing better and getting bigger”.
Get smart: That’s the same strategy that Xi has pushed in his first term.
Xiao Yaqing, head of the central SOE administrator (SASAC), says the strategy is working (Caijing).
- Central SOE assets are nearly RMB 55 trillion – that’s nearly twice what they were in 2012.
- Central SOE profits from 2012 to 2017 are expected to be RMB 6.4 trillion – that’s 30% more than from 2007 to 2012.
There is no doubt that central SOEs are bigger. But are they really better? Returns on SOE assets were less than one-third of the returns that the private sector saw in 2016.