DRIVING THE DAY
1. Little opposition to Xi’s reign
Presidential term limits have been abolished. On Sunday the National People’s Congress (NPC) approved that and several other changes to the PRC constitution (Xinhua).
The vote was nearly unanimous. Only 0.07% of NPC delegates had the temerity to vote against the changes (SCMP):
- “The National People’s Congress passed the historic constitutional amendments with 2,958 votes in favor, only two against, and three abstentions. One ballot was invalid and 16 deputies were absent from the vote.”
Get smart: That’s a higher rate of approval than for past amendments – in 2004, there were over five times as many “no” votes, for example.
Xi is likely breathing a sigh of relief:
- “The extremely high approval rate…lends the controversial move a veneer of universal support within the establishment, in face of unceasing criticism and skepticism at home and abroad.”
Get smarter: The removal of term limits gets all the attention, but other amendments – enhancing the leadership of the Party and creating a new National Supervisory Commission – are arguably more important.
Xinhua: China Focus: China’s national legislature adopts landmark constitutional amendment
SCMP: Xi Jinping cleared to stay on as China’s president with just 2 dissenters among 2,964 votes
SCMP: China ends presidential term limits, but what other changes were made to the constitution?
FINANCE AND ECONOMICS
2. Getting serious about de-listing
Survival of the fittest. That is what China’s stock exchanges want.
That’s why the exchanges have issued new draft rules for mandatory de-listing of companies that are found to have provided false information either during:
- The initial listing process
- While applying to issue new shares, buy assets, or restructure the balance sheet
The rules have four important components (see first link below):
- Companies engaging in illegal behavior will be suspended from trading for six months (down from 12 months previously).
- After the suspension period, companies will immediately be delisted – previously they could plead their case for reinstatement.
- Companies engaged in fraud will not be allowed to re-list.
- Companies engaged in other illegal behavior, besides fraud, will have to wait five years to relist (compared to 1 year previously).
Get smart: The inability to get bad companies off of the exchanges has long been a key weakness for China’s equity markets.
What to watch: The head of the securities regulator, Liu Shiyu, gave a presser this weekend (see second link). He endorsed the new rules and said more intense legal oversight will be a theme this year.
FINANCE AND ECONOMICS
3. CBRC’s 2018 priorities: shareholding and shadow banking
China’s banking regulator (CBRC) issued an update to its new shareholding rules late on Friday.
The new rules were issued early this year (see January 8 Tip Sheet). The latest notice supports implementation of the measures (see first link).
Specifically, it calls for
- Having banks gradually reduce the number of major individual shareholders
- Broadening the restrictions on individual large shareholders to further restrict corporate crossholdings via financial vehicles
- Setting January 2019 as the deadline for implementation
In addition to tighter oversight of bank shareholding, the CBRC is also increasingly focused on shadow banking. That’s according to a recent interview by CBRC Chairman Guo Shuqing.
Guo’s basic message (paraphrased – see second link):
- “Last year the focus was on interbank assets, wealth management products, and off-balance lending. We made good progress on all three.”
- “So this year we are adding shadow banking to the list – especially trust companies and entrusted loans.”
Our take: The CBRC followed through on its promises last year. No reason to think it won’t do the same in 2018.
POLITICS AND POLICY
4. Xi tells Chongqing officials to get their act together
In recent years, Chongqing has been a hotbed of political scandal. Two former Party secretaries of the city – Bo Xilai and Sun Zhengcai – both would end up being purged.
So it was unsurprising that when Xi met with Chongqing delegates Saturday, his comments focused on political purity (Xinhua):
- “[Xi] compared political ecology to natural ecology that can be easily polluted and, if damaged, will cost a huge price to be rehabilitated.”
Xi warned about the potentially pernicious influence of friends and family:
- “Don’t let pillow talk lead you…to corruption.”
- “Don’t let your children engage in self-dealing using your name.”
- “Don’t be dragged into…’muddy water’ by people around you.”
Get smart: If forced to choose, Xi wants cadres to put Party above family.
Get smarter: Xi’s commitment to cleaning up the Party should be clear to all by now. That’s why no one should expect a let-up in the anti-corruption campaign.
POLITICS AND POLICY
5. NPC’s 2018 legislative priorities
The NPC on Sunday released its legislative plan for the coming year. It’s ambitious.
The legislature is looking to draft eight new laws:
- Foreign Investment Law
- Vehicle Purchase Tax Law
- Resource Tax Law
- E-commerce Law
- Community Correction Law
- Law on Promoting Basic Medical and Health Care
- Law on the Prevention and Control of Soil Pollution
- Property Tax Law
That’s not all. They will also revise a further eight laws:
- Law on Tax Collection and Administration
- Law on the Contracting of Rural Land
- Land Administration Law
- Criminal Procedure Law
- Organic Law of the People’s Courts
- Organic Law of the People’s Procuratorates
- Civil Service Law
- Law on the Prevention and Control of Environmental Pollution Caused by Solid Waste
Get smart: These laws and revisions are all in the drafting phase. Many of them will affect businesses and markets. Companies and investors should be assessing their potential impact – and looking for ways to input into the drafting process.
POLITICS AND POLICY
6. China’s take on Trump’s North Korea gamble
China is welcoming the potential meeting between Donald Trump and Kim Jong-un.
In fact, Xi and company say the meeting was their idea (Bloomberg):
- “China has claimed credit for the shift toward dialogue, saying that both the U.S. and North Korea had effectively adhered to its call for a dual suspension of provocations to reduce tensions.”
The Chinese are cautiously optimistic:
- “’Despite light at the end of the tunnel, the journey ahead won’t be smooth,’ [Foreign Minister] Wang Yi told reporters in his annual press conference.”
- “Now is a crucial moment for testing the sincerity of the parties.”
But they also recognize the stakes here. And they are worried that if they don’t help shepherd this process, we could end up in a much worse situation:
- “‘If the U.S. finds that the negotiations are useless and North Korea hasn’t taken any actual denuclearization, then the U.S. may adopt even more stringent sanctions or other extreme measures,’ said Yang Xiyu, former director of the Chinese foreign ministry’s Office on Korean Peninsula Issues.”
What to watch: China will likely push to have the meeting in Beijing.
Bloomberg: China’s Goal in Trump-Kim Talks: Ensure They Don’t Collapse
POLITICS AND POLICY
7. China reduces trade surplus with US by 18% in one day
Donald Trump has demanded that China reduce its trade surplus with the US by $100 billion, or roughly 27%.
Minister of Commerce Zhong Shan, speaking on Sunday, reiterated one approach. He said that if you use a different methodology to calculate the trade surplus, it shrinks by 18%.
So…Problem solved, right?
Not by a long shot.
Trump is unlikely to be convinced by Zhong’s methodology. Trump disdains economists and insists that economic figures can be manipulated to support any argument. In some ways, Zhong proved his point.
Zhong reiterated that China doesn’t want a trade war:
- “China doesn’t want a trade war with the United States and will not start one.”
But they are also not going to sit idly by:
- “[China] can handle any related challenges and will defend national and Chinese people’s interests.”
Zhong’s solution: Let us buy your high-tech exports (SCMP):
- “Zhong said part of the reason for the trade gap was that the US had restricted hi-tech exports to China.”
- “If it allowed its firms to freely sell such goods, the surplus would fall by 35 per cent, he said.”
What to watch: The Trump administration could announce the results of an investigation into unfair Chinese intellectual property practices any day now. That would allow Trump to impose tariffs on a broad range of Chinese goods.
Xinhua: U.S.-China trade deficit figure overestimated by about 20 pct: commerce minister
Xinhua: China doesn’t want trade war with U.S.: commerce minister
SCMP: No winners – only catastrophe – in a China-US trade war, Beijing says