DRIVING THE DAY
1. Tweaking and tweeting the CNY
US President Donald Trump will be in Beijing next week.
Part of the Chinese government’s preparations include a slight-but-steady strengthening of the currency. The past three days have seen consecutively stronger fixing rates for the CNY (that’s the rate the central bank sets each morning as an anchor for trading).
Market participants are expecting the moves to continue into next week:
- “Currency strategists and traders say that in the days around Trump’s Nov. 8-10 Beijing visit they expect the People’s Bank of China (PBOC) . . . to prop up the yuan.”
Get smart: By strengthening the currency, China hopes to head-off Trump’s previous argument that the exchange rate is held artificially weak to help exporters.
Get smarter: Most people know this by now, but the CNY is not undervalued against the dollar, if anything it’s too strong.
What to watch: Will Trump tweet about the currency? Beijing is prepping lots of little “wins” that he can claim from his trip. This could be one.
But once Trump leaves Asia:
- “Downward pressure on the yuan [should] resume through the end of the year with the U.S. Federal Reserve expected to raise interest rates.”
FINANCE & ECONOMICS
2. WTO regrets
The two key issues that will dominate Trump’s trip to Beijing: North Korea and trade.
On the trade front, a key issue is China’s relationship with the WTO.
A solid piece from the WSJ’s Jacob Schlesinger lays out some of the key dynamics:
- “China’s 2001 WTO entry was a transformative moment. Negotiations took 15 years—longer than those creating the WTO itself.”
- “The shared, underlying assumption was that China’s economy was undergoing a historic transition from state-run to market-oriented, and that WTO membership would ensure, and accelerate, that evolution.”
But those expectations have largely gone unfulfilled, in part, because China spent huge resources to figure out how to work the WTO to its advantage:
- “Most countries combine their WTO diplomatic corps with delegations to other global bodies in Geneva. Beijing built a mammoth stand-alone ‘Permanent Mission of the People’s Republic of China to World Trade Organization’.”
The upshot: It’s not just the US. Lots of countries are now asking themselves if welcoming China into the WTO was a mistake.
FINANCE & ECONOMICS
3. Tiptoeing toward privatization
Understanding China’s economy increasingly means getting into the weeds. That’s because almost every region is experiencing its own unique growth dynamics.
Those dynamics are leading to unique policy outcomes. In the struggling Northeast, we are starting to see the slightest of movements toward privatization of some provincial assets.
The FT’s Gabe Wildau and Xinning Liu have a smart piece with the rundown:
- “One Chinese province has embraced privatization to cast off its burden [of underperforming assets], setting a precedent for dealing with thousands of ‘zombie enterprises’.”
- “Dongbei Special Steel, based in the north-east rust-belt province of Liaoning, is a high-profile example of the excessive debt and poor profitability that has plagued thousands of lossmaking state groups.”
- “One of the country’s most successful private steel tycoons has agreed to invest Rmb4.5bn as part of a restructuring and will take over as the largest shareholder.”
What to watch: These kind of test cases may be a harbinger of what’s to come for local SOEs.
But, but, but: There are constraints as to what private owners can do:
- “It is unclear whether Mr Shen will have a free hand to cut costs by laying off workers.”
POLITICS & POLICY
4. Get ready for the Ice Silk Road
Xi Jinping met with Russian Prime Minister Dmitry Medvedev Wednesday.
Medvedev is in town for the China-Russia Prime Ministers’ Regular Meeting. He met with Premier Li Keqiang yesterday (see communique below).
One thing that caught our eye from the Xi meeting (Xinhua):
- “China and Russia should cooperate in the development and utilization of the Arctic navigation channels to create a ‘Silk Road on the Ice,’ Xi said.”
Some context: Xi hatched the idea of the Ice Silk Road on his trip to Moscow in July.
Get smart: The Arctic is only going to get warmer. And as it does, its importance as a shipping passage will increase.
What to watch: If it’s smooth sailing, the Arctic Passage is a much shorter and faster route to ship goods from China to Europe. It’s opening could have a profound effect on global shipping flows.
- CPC: 习近平会见俄罗斯总理梅德韦杰夫
- CPC: 中俄总理第二十二次定期会晤联合公报（全文）
- Xinhua: Xi stresses commitment to good China-Russia relations
POLITICS & POLICY
5. Take the message to the people
The Party officially has a new propaganda czar – Wang Huning.
His first mission is marshalling the troops to spread the key message from the 19th Party Congress:
- “[We must] make clear the rich meaning of Xi Jinping Thought on Socialism with Chinese Characteristics for the New Era.”
Wang wants everybody to hear it:
- “[We] must go to companies, villages, government bodies, schools, communities and speak with the cadres and officials.”
Get smart: One of the biggest challenges in governing China is that local officials often don’t understand central directives. It’s not because they haven’t heard them. It’s because the center doesn’t do a good job of explaining them. We’ll be watching Wang to see if he can improve this state of affairs.
POLITICS & POLICY
6. China’s new top cop
China’s security services are getting a shake up.
Guo Shengkun is the newly appointed head of the Central Political and Legal Affairs Commission – that makes him the country’s security czar. It also means he oversees China’s courts. It’s an important job.
Guo has been serving as minister of Public Security. But his tenure is set to come to a close as he takes on his new role.
Guo’s replacement: Zhao Kezhi. He was recently named the Party secretary of the Ministry of Public Security (see link). He should officially become minister when the legislative session concludes at the end of this week.
What it means: Guo is now the point man for implementing judicial reform in China. For his part, Zhao will likely become a state councilor in March.
Get smart: Xi has gained control of the domestic security forces in his first term. And now he has installed trusted aides in the two positions that oversee it.
POLITICS & POLICY
7. Solid waste pollution law gets a remake
It’s a dirty job. But somebody has to do it.
Zhang Dejiang, head of the legislature, reported on implementation of the Solid Waste Pollution Prevention Law yesterday.
The big news: The legislature is going to prioritize revising the law. In particular, it will tackle waste produced by businesses.
- Increasing penalties on polluters
- Developing a specialized waste recycling and treatment industry
- Improving standards related to solid waste removal
Some context: Every year, China produces:
- 3.3 billion tons of industrial solid waste
- 1.4 billion tons of medical solid waste
- 1.8 billion tons of construction solid waste
That’s on top of 70 billion tons of waste already sitting around from years past.
Get smart: This revision is coming – and it could come fast. Businesses need to get prepared. Industries were caught off guard earlier this year, when most recycling waste was banned from being imported to China.