DRIVING THE DAY
1. Xi Jinping and Davos 2.0
Xi Jinping took the stage this morning at the Boao Forum for Asia amidst the backdrop of a potential trade war with the US.
In the runup to this speech, the propaganda machine has been in overdrive, selling it as Xi’s major statement on the next stage of reform – a sort of 2.0 version of his speech from Davos last year.
Xi didn’t disappoint. He spoke about defending the global trading system and the outdated nature of zero-sum thinking.
We outline some details in the next entry.
But first, our hot take: People who know China well know that there is a large dose of hypocrisy in Xi’s free trade rhetoric. Now that China is going tit-for-tat with the US, the high ground is much harder to claim.
The Boao Forum for Asia: Home Page
DRIVING THE DAY CONT’D
2. Xi Jinping’s plan to pacify foreign businesses
Besides waxing philosophic on the merits of free trade, Xi also laid out a four-part plan to offer some big carrots to the foreign business community (and the US administration):
1. “Significantly broaden market access” in the financial and manufacturing sectors.
- “China will accelerate the opening-up of the insurance industry, ease restrictions on the establishment of foreign financial institutions in China, and expand their business scope.”
- “These industries [auto, ship building and aircrafts] are now in a position to open up. Going forward, we will reduce as soon as possible limits on foreign investment…particularly for automobiles.”
2. Make the investment environment more attractive
- “China will complete the revision of the negative list on foreign investment in the first half of this year and implement an across-the-board the management system based on pre-establishment national treatment.”
3. Strengthen IPR protection
- “Stronger IPR protection is a requirement from foreign enterprises, and even more so of Chinese enterprises.”
- “China is re-instituting the State Intellectual Property Office this year to step up law enforcement and significantly raise the cost for offenders.”
4. Expand imports
- “The country will work hard to import more products that are competitive and needed by the Chinese people [including autos.]” (editor: that tweet writes itself, Mr. Trump!)
- “[We will] seek faster progress toward joining the WTO Government Procurement Agreement.”
- “We have a genuine desire to increase imports and achieve greater balance of international payments under the current account.”
Get smart: The foreign business community suffers from “promise fatigue” when it comes to China’s long-awaited market openings.
But this year certain areas like autos and finance are set to see some legitimate improvements, and that’s in large part thanks to pressure from the US.
But but but… they will continue to open in a way that is meant to ultimately strengthen China and Chinese companies.
Xinhua: Xi addresses opening ceremony of BFA annual conference
FINANCE AND ECONOMICS
3. Financial data monitoring gets a reboot
China’s financial regulators are going for “full coverage.”
What’s that mean? Basically, regulators are acknowledging that the data they have on the financial system is inconsistent and incomplete.
So on Monday, the State Council issued a new regulation called “Opinions on Promoting Comprehensive Statistical Work in the Financial Industry.”
The rationale of the document (Reuters):
- “The existing system lacks sufficient monitoring and risk warning of certain key areas that ‘operate beyond the statistics system’, such as cross-sector financial activity, systematically important financial institutions and financial holding companies, the cabinet said in the statement.”
- “’To fend off systematic financial risk, we must have warning and monitoring data of higher quality and effectiveness,’ the statement said.”
The PBoC will spearhead the effort over the next five years, but parts of the plan will be rolled out more quickly:
- “From 2018 to 2019, the government will improve statistics of key areas including asset management products, systematically important financial institutions, financial holding companies, as well as bond, currency and foreign exchange markets to more effectively identify system-wide risks.”
Get smart: This is part and parcel of the broader effort by regulators to identify their regulatory blind spots. It’s long overdue.
Reuters: China to create national financial database to fend off systemic risk
FINANCE AND ECONOMICS
4. Is RMB devaluation back on the table?
The RMB short-sellers are back.
Just yesterday, we wrote that China’s currency saw the biggest quarterly strengthening in a decade. But bets against the currency have risen since the beginning of April as traders think that strength can’t be sustained.
That’s in large part because of the ramp up in the trade war rhetoric over the past ten days.
Devaluation prospects were further buoyed by a Bloomberg report that China is studying the effects of devaluing the currency as one tool to stick it to the Americans:
- “Senior Chinese officials are studying…the effect of using the currency as a tool in trade negotiations with the U.S….[and] what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports.”
Get smart: We are sure that all sorts of options are being studied on the Chinese side. But a purposeful currency devaluation would be one of the last options China’s leaders will exercise, because of the potential financial instability it may incite.
Get smarter: That does not mean they won’t let the currency devalue gradually and “naturally,” if that is an outcome of the rising trade tensions.
Bloomberg: China Is Studying Yuan Devaluation as a Tool in Trade Spat
POLITICS AND POLICY
5. Han Zheng’s portfolio
Executive vice premier Han Zheng’s portfolio is becoming clear – and it’s a big one.
On Monday, he visited the Ministry of Ecology and Environment (MEE) and Ministry of Housing and Urban-Rural Development (MoHURD). This morning he was at the new Ministry of Natural Resources.
What it means: Han will be overseeing policy with respecto to energy, the environment, and natural resources. He will also be a major player in housing policy.
Han’s got a lot on his plate. Recent meetings and visits to other ministries reveal that Han is also overseeing the government restructuring and macroeconomic management.
Get smart: Han is basically taking over the portfolio of his predecessor.
Why it matters: There had been speculation that Han might have a reduced portfolio, with vice premier (and key Xi ally) Liu He taking over some of the areas traditionally overseen by the executive vice premier.
Xinhua: Chinese vice premier demands improved government services
POLITICS AND POLICY
6. Wang Qishan sighting
Vice president Wang Qishan met with Singaporean prime minister Lee Hsien Loong in Zhongnanhai Monday.
Wang told Lee that China could learn from Singapore (Straits Times):
- “[There are] many areas where Singapore’s developmental experience would still be relevant for China to take reference from.”
Why China is interested in Singapore: It’s a thoroughly developed country that’s ruled by one party.
What to watch: We are still looking for clues as to exactly what Wang’s role will be. It seems clear that he will be involved in foreign affairs – will he also be involved in domestic policy?
Straits Times: Singapore continues to support China’s opening up, upholding of global trading system: PM Lee