DRIVING THE DAY
1. Financial markets get nervous post-congress
Now that the Party Congress is over, China’s financial markets are back in focus.
Bond markets are especially skittish. Last week, the yield on benchmark 10-year treasuries steadily increased by 10 basis points.
Then on Monday, they jumped another 12 basis-points – that’s quite a single-day move. Now yields look poised to break above the 4% mark for the first time since September 2014.
What it means: Rising yields mean that traders are selling off Chinese bonds.
Why it’s happening: There are a combination of factors driving the selloff, but it’s primarily driven by renewed expectations that regulators will heighten scrutiny over the financial system now that the congress is over (see entry below). There is also growing concern that inflation is broadening.
Get smart: The period between 19th Party Congress and the end of the year was always set to be a tense one for China’s financial markets. The regulators signaled as much when they talked about the coming “rectification phase” of the financial cleanup.
The previous phase was about identifying weaknesses, and the next will be about fixing them.
For months, we’ve been writing about the likelihood of financial tightening after the congress. Get in touch if you’re interested in our premium finance subscription.
Bloomberg: China Bond Selloff Spreads to Stocks as Deleveraging Risks Mount
Bloomberg: China Corporate Bond Investors’ Luck May Be About to Run Out
DRIVING THE DAY, CONT’D
2. Financial regulators send tightening signals
Financial regulators are sending clear signals that more regulatory pressure is coming:
First, on Friday, the banking regulator (CBRC) held a meeting where its chairman, Guo Shuqing, recommitted to “preventing and resolving” financial risks.
- The message: we are just getting started on the financial cleanup.
Then, also on Friday, the PBoC injected money into the banking system using 63-day reverse repo contracts – previously, 28-days had been the longest-dated contracts.
- The message: money will be available to banks, but it will be more expensive.
Finally, over the weekend a new head of discipline inspection for the central bank was appointed.
- The message: Keep the heat on the banks, or we’ll keep the heat on you.
Get smart: Chinese traders understand these signals – they all combined to push bond yields up on Monday.
Get smarter: The financial crackdown is just getting started. We expect China’s yield environment to stay tight through the end of the year. But regulators are being proactive, which lessens the likelihood that they will make a mistake by overdoing it.
21st Cent Biz: 银监会传达十九大精神：坚决防范和化解新形势下金融风险
Bloomberg: China Central Bank Sells 63-Day Reverse Repo for First Time
Caixin: 中央纪委驻央行新任纪检组长徐加爱 此前任浙江政法委书记仅两月|金融百晓生
POLITICS AND POLICY
3. Xi to Politburo: “You work for me”
Xi Jinping chaired the first meeting of the new Politburo on Friday.
The meeting approved two sets of new rules:
- Rules on Enhancing and Securing Centralized Leadership of the CCP Central Committee by the Politburo
- Specific Rules on the Politburo’s Implementation of the Eight-point Frugality Rules
The rules require all Politburo members to submit annual written reports on their work to Xi Jinping.
They also institutionalize the procedure for top Party and state entities to submit annual work reports to the Politburo.
What it means: Xi Jinping is wasting no time in his second term. The new rules are meant to ensure that the most important party and state organs are loyally carrying out his policies.
Get smart: These new rules will help to further centralize decision making in Xi’s hands. That should ensure that everyone is singing from the same political hymnal.
Get smarter: All this centralization carries the risk of policy paralysis. With everything needing Xi’s approval, there is real risk that the big man becomes a bottleneck.
POLITICS AND POLICY
4. New Politburo cracks its books
The Politburo also held its first study session on Friday (which is separate from the body’s regular meetings).
The topic was predictable enough: Studying the spirit of the 19th Party Congress.
- Per Xi: “Members of the Political Bureau of the CPC Central Committee should regard the study and implementation of CPC congress spirit as their first Party course”
What to watch: The entire Party-state apparatus – from Beijing to the smallest county – will spend the next two months studying the spirit of the 19th Party Congress.
Get smart: These study sessions are no longer a formality. Xi Jinping is demanding a higher degree consistency in policy implementation across regions. It’s an uphill battle, but we think he will be largely successful.
CPC: 习近平：切实学懂弄通做实党的十九大精神 努力在新时代开启新征程续写新篇章
Xinhua: Xi urges study, implementation of CPC congress spirit
POLITICS AND POLICY
5. Seven provincial Party bosses reshuffled
We’ve got a new Politburo, but the personnel reshuffle is far from over.
Over the weekend, seven new provincial Party secretaries were installed – that’s almost a quarter of all provinces.
Who went where?
- Shanghai:Li Qiang, 58,previously Jiangsu Party secretary
- Guangdong: Li Xi, 61, previously Liaoning Party secretary
- Jiangsu: Lou Qinjian, 60, previously Shannxi Party secretary
- Hebei: Wang Dongfeng, 59, previously Tianjin mayor
- Shaanxi: Hu Heping, 53, former Shaanxi governor.
- Liaoning: Chen Qiufa, 62, previously Liaoning governor
- Fujian: Yu Weiguo, 62, previously Fujian Party secretary
Get smart: Li and Li are Xi’s guys. He now has trusted associates running China’s biggest provincial economy (Guangdong) and most important city (Shanghai).
One to watch: Hu Heping, a Japanese-trained engineer, has been on the fast track for the last four years. At only 53 years old, he’s likely to be an important politician for the next 15 years.
People’s Daily: 上海等3省市党委主要负责同志职务调整
People’s Daily: 广东省委主要负责同志职务调整 李希兼任广东省委书记
People’s Daily: 河北省委主要负责同志职务调整 王东峰任河北省委书记
People’s Daily: 福建省委主要负责同志职务调整 于伟国任福建省委书记
People’s Daily: 辽宁省委主要负责同志职务调整 陈求发任辽宁省委书记
POLITICS AND POLICY
6. Supervisory commissions are coming
In our view, the biggest policy development in Xi Jinping’s second term will be the establishment of the new National Supervisory Commission.
We just got one step closer. The Party’s General Office just told all local governments, from provinces down to counties, to establish local supervisory commissions before next March.
What to watch: the National Supervisory Commission will be established at the annual meeting of the National People’s Congress in March.
Why it matters: This is anti-corruption campaign 2.0. The new commissions will expand the authority and remit of the Party’s disciplinary bodies, which will play a bigger role in the implementation of all sorts of policy going forward.
POLITICS AND POLICY
7. How the sausage is made: 19th Party Congress edition
Xi Jinping’s speech at the Party congress was over 32,000 characters. How did he write it?
Xi headed a drafting group (Xinhua) that included Liu Yunshan, Wang Qishan and Zhang Gaoli as deputies.
But the real work was done by a team of advisors. We’ll know the complete list soon. But here’s five of them.
- Yang Weimin – deputy director of the Office of the Leading Small Group on Finance and Economics.
- Qu Qingshan – head of the Party History Research Office.
- Han Jun – head of the Office of the Leading Small Group on Rural Affairs.
- Gao Xuanmin – executive deputy head of the Organization Department.
- Jiang Jinquan – SASAC’s disciplinary head.
Why it matters: Xi’s got a lot on his plate. That means that his advisors are more important than ever – they are the ones that have to do the heavy lifting when it comes to drafting policy.
Get smart: Li Keqiang was not involved. It’s further proof that he is out of the loop.
SCMP: 5 men 10 months and 1 long speech cadres behind Xi