DRIVING THE DAY
1. One Very Big Thing
Xi Jinping has officially gotten his name written into the Chinese Communist Party’s constitution. His theoretical contribution to China’s governance was officially formulated as:
- “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”
It has a nice ring to it.
Just in case you are reading the Tip Sheet for the first time – this is a huge deal.
Regular readers will know that the inclusion of Xi’s name was fairly widely anticipated, but that doesn’t make it any less important of an occurrence.
That’s not all: In addition to his “thought”, Xi also got many of his signature initiatives added to the Party constitution. These include the Belt and Road Initiative and Supply-Side Structural Reform, among others (see second Xinhua link).
What it means: The inclusion of Xi Jinping’s name in the Party constitution while he is still in power confirms what many China watchers had long argued: Xi is officially the most authoritative Chinese leader since Mao Zedong.
The upshot: It’s Xi’s way or the highway. Efforts to realize his vision of a rejuvenated Chinese nation will intensify. And any cadre who is not wholeheartedly pursuing Xi’s initiatives is now in direct violation of the Party constitution itself.
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Bloomberg: China’s Communist Party Further Elevates Xi Jinping
DRIVING THE DAY, CONT’D
2. Meet your new corruption czar
The Party has officially released the names of the 19th Central Committee.
There was one glaring omission: Wang Qishan.
For the past five years, Wang has been the head of the discipline inspection commission (CCDI). In that role, he enforced the most intense corruption crackdown in Party history.
One key question in the run-up to this Party congress has been: Would Wang would break retirement age norms – at 69 years old Wang should retire according to Party custom – and stay on the Politburo Standing Committee for another term?
That question is now answered – Wang is done.
So who will replace him? Meet Zhao Leji.
Zhao was the former head of the Party’s Organization Department, and as of today, he has become a member of the CCDI. As the highest-ranking Party member within that organization, he should succeed Wang as the head of the CCDI when the Standing Committee is officially announced tomorrow.
Get smart: A changing of the guard should help to further institutionalize the anti-corruption campaign.
DRIVING THE DAY, CONT’D
3. Central Committee gets a makeover
- The 204-person-strong committee includes 126 new faces.
- 12 of 24 current politburo members remained on the Central Committee. That includes three folks whose future was unclear: namely Li Keqiang, Hu Chunhua and Han Zheng.
- That means the latter two still have a shot at the Standing Committee – we’ll find out out tomorrow.
- Former Vice President and Politburo member Li Yuanchao didn’t make the cut. Li was young enough to stay on for another term, so his removal showcases the ongoing dismantling of the Communist Youth League – it’s unclear whether he will go quietly or be investigated for corruption.
- Four current government ministers are also not on the new list – they were respectively in charge of: 1) Health and Family Planning, 2) Industry and Commerce, 3) Land Resources and 4) Human Resources and Social Security. They’ll be removed from their government posts by March.
What it means: So far the power transition has not gone off-script. Xi seems to be largely getting what he wants, but in a way that is not breaking from established Party norms.
What to watch: The new Politburo Standing Committee will walk out onto the stage tomorrow at 11:45 am Beijing time.
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FINANCE AND ECONOMICS
4. China’s pension fund wants to invest USD 30 billion overseas
That what the fund’s chairman, and former finance minister, Lou Jiwei told the SCMP:
- “China’s 2.1 trillion-yuan (US$317,181 billion) national pension fund is seeking more overseas investment opportunities to diversify its risks, its chairman Lou Jiwei has told the South China Morning Post.”
- “The overseas portfolio of the fund, mainly stocks and bonds, only accounted for 10 per cent of the total, while the government cap was set at 20 per cent, Lou said.”
Get smart: A rapidly aging population means that China’s pension fund is going to need better returns. If they can get those overseas, they will.
Get smarter: Lou is the former head of China’s sovereign wealth fund (China Investment Corporation), and has as much experience in evaluating overseas opportunities as anybody.
Reality check: Recent clampdowns on outbound investment do not mean that China is done investing overseas. It just means that they will be more selective in how they do it.
FINANCE AND ECONOMICS
5. A top government think tank calls for more opening
FDI into China has grown by a measly 1.6% y/y for the first nine months of 2017.
That a significant improvement from the 6.5% contraction we saw in the first seven months of the year, but such low growth still has central regulators very concerned.
The reason behind this slow growth? (Caixin):
- A disconnect between central and local government thinking: the center takes the FDI challenge seriously but many localities think it’s no big deal.
That’s according to Wei Jianguo, deputy director of an important government-linked economic think tank (CCIEE).
Wei says local governments think:
- China is rich and doesn’t need foreign capital
- Foreign technology, human resources and management practices aren’t that important
- It’s better to take a “wait-and-see” approach for the services sector
For its part, CCIEE is advocating more opening in healthcare, education and finance.
Get smart: The low-hanging-fruit of FDI liberalization is already done. Opening of the sectors listed above will challenge two key levers of Party control – finance and education. And Xi Jinping has stated his desire to find “distinctly Chinese” solutions to the nation’s healthcare challenges.
Any opening in these areas will be very gradual.
6. Tesla takes a China gamble
Keep an eye on Tesla’s recently announced China factory. It will be in Shanghai’s Free Trade Zone (FTZ).
It may change the way that foreign manufacturers configure their operations in China. Or it could just present a new way for the country to disadvantage foreign companies. As the L.A. Times explains:
- “Such an arrangement would break with the decades-long approach to foreign access to the huge and fast-growing Chinese motor vehicle market.”
That’s because in the FTZ, Tesla can fully own its operations as opposed to joining a joint-venture with a Chinese company:
- “Ford, General Motors, Volkswagen and Nissan all have been required to enter into a 50-50 joint venture with a local Chinese automaker, in which profits are split and much of the technology developed by the foreign manufacturers is shared.”
The rub: While they won’t be splitting profits, by producing in the FTZ, Tesla will be hit with a 25% tariff on every car that it “exports” to the Mainlaind from the FTZ.
Get real: The FTZ has fallen far short of expectations when it comes to improving market access in China.
POLITICS AND POLICY
7. A better life means a beautiful China
Minister of Environmental Protection Li Ganjie has been touting the country’s “unprecedented” efforts to protect the environment (CPC).
Some context: Li’s right. Environmental inspections and attendant fines have skyrocketed over the past three years.
Li’s message: You ain’t seen nothing yet (SCMP):
- “Li said more teams would be dispatched next year and that the government was considering how to make inspections a long-term arrangement.
- ‘We are looking at ways to have central protection inspectors installed within organisations so that inspections can become part of the system,’ he said.”
Get smart: Xi says he wants to shift the Party’s focus away from economic growth and towards creating a “better life” for China’s citizens. Cleaning up the environment is at the heart of this effort.
Get smarter: But so far, regulators are trying to have their cake and eat it, too. They claim they can clean up the environment without denting growth. If that was the case, why didn’t they do it before?
What to watch: The MEP is beefing up – it will absorb several government agencies and become a super regulator next March.
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