DRIVING THE DAY
1. Xi’s vision
As we told you on Wednesday, Xi Jinping’s speech to the 19th Party Congress heralded a significant shift for the Party when he redefined the “primary contradiction” facing society.
What is the primary contradiction? Xinhua has an explainer:
- “Marxists interpret the world through dialectical materialism. Contradictions — or ‘dynamic opposing forces’ — are omnipresent in society and drive social change.”
- “The ‘principal contradiction’ is what defines a society.”
- “By identifying and solving it, society develops peacefully.”
- “Left unsolved, it can lead to chaos and eventually, as Marx predicted, to revolution.”
The new contradiction is “between unbalanced and inadequate development and the people’s ever-growing needs for a better life”.
What that means: Xi is arguing that China should no longer be focused solely on quantitative growth metrics, but instead should promote more qualitative measures of development.
Xinhua: Xinhua Insight: China embraces new “principal contradiction” when embarking on new journey
DRIVING THE DAY, CONT’D
2. Keep it qualitative
So what are some of those qualitative growth metrics that the Party wants to focus on? Xinhua gives a list of deficiencies that can be improved:
- “The very highest level of education is not available – it’s in acute short supply.”
- “There are long waiting lists in the best hospitals.”
- “Tourist sites are crowded and services there have hardly advanced at the same pace as people’s expectations.”
- “Smog remains an obvious problem.”
- “Development between various Chinese regions varies sharply.”
- “The gap in personal wealth between the haves and the have-nots is a serious concern.”
Get smart: Education, healthcare, the environment and inequality. These will be the focus going forward.
Get smarter: Companies should gear their GR and CSR strategies to support these initiatives.
FINANCE AND ECONOMICS
3. Government toys with a property tax
The Ningxia government ruined a lot of people’s weekends when it released new regulations Friday night.
What happened? The province released implementation rules for a property tax (link below). That triggered widespread speculation that a nationwide property tax is on its way – not least because Xi Jinping reaffirmed that “houses are for living, not for speculative investment” in his party congress report.
The worries look overblown, though. The Ningxia government quickly released another statement to calm fears (link below).
The money quote:“[The notice does] not issue new policies.”
Get smart: Local governments can’t roll out a property tax before national legislation on the matter gets revised.
The current timeline: Based on the NPC’s current legislative priorities, the earliest we would expect to see national property tax legislation is in 2019.
What to watch: We will have a new government administration in March. They might move property tax legislation up on the agenda.
FINANCE AND ECONOMICS
4. SOEs are getting bigger and happier
Our monthly update on SOE performance is getting a bit boring. Profits continue to improve, while debt-to-asset ratios remain stable.
SOEs are making money:
- Total SOE profit growth was 24.9% y/y through the first nine months of 2017.
Especially local SOEs:
- Profits for central SOEs grew by 17.8% y/y.
- Profits for the local guys grew by a whopping 40.3%.
Debt levels are stable:
- The total SOE liability-to-asset ratio ticked up to 66.1% in September from 65.9% in August.
- The ratio for central SOEs stayed steady at 68.2%.
- The ratio for local SOEs rose to 64% from 63.6% in August.
Get smart: With headline profits this good, there is little impetus for reform.
POLITICS AND POLICY
5. Xi talks liquor prices
Since Xi delivered his report to the Party congress on Wednesday morning, delegates have been meeting to discuss it in more detail.
Xi, who is officially a delegate from Guizhou, met with representatives from that province.
Hanging out with the big man can be intimidating (Xinhua):
- “When Xi Jinping sat down to talk with grassroots Party members, no one was quite sure how the conversation would turn.”
Turns out Xi wanted to talk about baijiu. Here’s his conversation with a local distiller:
- ‘What is your drink called?’ Xi asked.
- ‘Yanbo,’ Yu answered.
- ‘How much does it cost?’ Xi continued.
- ‘Our price is reasonable for ordinary people,’ Yu said.
- ‘What, may I ask, is the price?’ Xi said.
- ‘It sells for only 99 yuan,’ Yu replied.
- ‘That’s not cheap! A high price is not the key! It may not be so popular if it gets too expensive…[But] the price should be determined by the market. You cannot reduce it to 30 yuan on the basis of what I just said,’ Xi said.
Get smart: Xi is no free marketeer, but he’s not totally anti-market either. That’s what these comments – and their wide reporting in official media – are meant to convey.
One reality: Our bet is that despite Xi’s remarks on market-determined prices, the baijiu maker will lower his prices soon. That speaks volumes about the relationship between the government and markets in China.
Fun fact: We’ve heard that Xi loves his baijiu. And that he can hold his liquor. His favorite kind? Moutai, of course.
POLITICS AND POLICY
6. Wang Qishan looks likely to step down
Over the weekend, delegates discussed who would be on the next Central Committee (Xinhua):
- “Delegations of the 19th National Congress of the Communist Party of China (CPC) Saturday deliberated the proposed name lists of nominees for the candidates of members and alternate members of the 19th CPC Central Committee, and members of the Central Commission for Discipline Inspection (CCDI).”
The SCMP reports that Wang Qishan is not a candidate for either:
- “Two sources who have seen the lists confirmed to the Post that Wang was not among the names, meaning he will step down from the Politburo Standing Committee.”
Get smart: We are only a couple of days away from knowing the personnel outcomes of the congress. Speculation at this stage is pointless.
We’ll have a full rundown of the personnel moves and their implications for business, investors and governments for our premium subscribers in the days after the congress – if you want to know how to become one, get in touch.
Xinhua: (CPC Congress) CPC delegations deliberate nominees for new central leadership
SCMP: He’s the anti-graft tsar about to leave China’s top leadership. So what will happen to Wang Qishan?
POLITICS AND POLICY
7. Businessmen get on board with Xi’s agenda
Last week, we told you how businesses have been quick to show support for Xi’s congress report.
More of China’s most famous businessmen are jumping on the Xi bandwagon:
Jack Ma, Chairman of Alibaba Group, shared his understanding of entrepreneurs’ responsibility in China. He sounds a lot like Xi:
- “Entrepreneurs don’t exist just to make money. A modern superpower requires a group of modern entrepreneurs that make it their responsibility to enrich the people and strengthen its country.”
Zhang Ruimin, Chairman of Haier Group, showed his confidence in “China’s own path”:
- “[Haier] will not take Western traditional management methods as [our] standard … [instead we will] make China’s . . . methods the world’s best.”
Get smart: Ma and Zhang know that good relations with the Party are the key to success in China – especially under Xi.
BJ News: 马云张东宁等企业家热议十九大报告