DRIVING THE DAY
1. Is there an algorithm for socialist core values?
Facebook’s Mark Zuckerberg is not the only internet entrepreneur scratching his head these days.
Many Chinese companies are in the government’s crosshairs these days. The New York Times (which you can’t read in China) has a good rundown of some of the latest moves to clamp down on online information:
- “The country’s top media regulator on Tuesday ordered…Bytedance…to shut down its app for sharing jokes and silly videos…Neihan Duanzi.”
- “A day earlier…a popular news aggregator called Jinri Toutiao…was pulled from app stores for unspecified reasons.
- “Last week, Huoshan, the…platform for sharing slice-of-life video clips, vanished from app stores after China’s official television broadcaster rapped it for glorifying underage pregnancy.”
- “Three other popular news apps — including one run by Tencent, the giant Chinese conglomerate — were also taken down from stores this week.”
- “Another fast-growing video app, Kuaishou, was removed last week.”
The way China works: Chinese tech companies are now promising to promote socialist core values.
The bigger picture: Media and information controls are only likely to become more stringent. Chinese officials were never very keen on letting media proliferate outside official channels. Those instincts have been reinforced by the chaos caused by fake news and unregulated social media in the West.
Why it matters: China will be increasingly cut off from the world, living in its own information bubble.
FINANCE AND ECONOMICS
2. China easing off on capital controls
Regulators are thinking about relaxing capital controls.
Specifically, they are looking to reinvigorate a key mechanism for individuals to invest abroad – the Qualified Domestic Institutional Investor (QDII) program (Caixin):
- “The QDII program was created in 2006 allowing financial institutions that meet certain qualifications to invest in overseas securities and bonds.”
- “It was the only avenue for domestic investors to legally gain access to offshore markets under the country’s capital controls, until 2014 when the Shanghai-Hong Kong stock connect program was launched.”
New QDII quotas have been on ice for the past three years – basically since China’s capital outflow problem kicked off in earnest, in 2015.
That’s about to change (Caixin):
- “Issuance of new quotas, which has been suspended for 36 months, will also be resumed, sources said.”
- “SAFE said in the statement that it will update information about QDII quota[s] every month.”
Get smart: China’s capital controls have been hugely effective. But now that there is less outflow pressure, the central bank wants to gradually resume the process of capital account opening.
Caixin: China to Reform QDII in Financial Liberalization Push
FINANCE AND ECONOMICS
3. LGFVs under scrutiny
Local government financing vehicles (LGFVs) are slowly being brought to heel.
Bloomberg reports that recent regulations meant to crack down on LFGVs look effective:
- “The finance ministry said last month that LGFVs mustn’t disclose fiscal and borrowing figures of local governments, which would imply support from the authorities, in bond sale documents including prospectuses.”
- “The National Association of Financial Market Institutional Investors, a Chinese local bond regulator, has also given underwriters such guidance, according to people familiar with the matter.”
- “LGFVs appear to have started following that NAFMII order, based on onshore prospectuses released this week.”
That’s a good thing in the long-run as it will harden local government budget constraints.
But in the short-term, it may leave LGFVs vulnerable:
- “They are facing $5.4 billion of bond maturities in the overseas market for the rest of this year and a record $11.2 billion in 2019.”
What to watch: Such a large amount of maturities will test the resolve of the central government to put LGFVs out to pasture.
Bloomberg: China’s New Crackdown on Regional Debt May Curb Bond Offerings
FINANCE AND ECONOMICS
4. Xi talks economy
Xi met on Wednesday with foreign and Chinese businessmen to discuss the economy.
His remarks reveal a lot about his approach to economic policy.
- “China’s reforms only move forward, they can never end.”
What it means: Xi – and all Chinese officials – are constantly looking to improve their economic system. And if you look at the most recent Government Work Report, you will see that they are doing just that. These are not big, blockbuster reforms, but rather incremental tweaks to make the system better.
- “The Chinese economy [should]…transform…from [asking] ‘Is there enough?’ to ‘Is it good?’”
It sounds better in Chinese – trust us.
What it means: What Xi’s saying is that the focus of economic policy is all about moving up the value chain. That’s one reason that Xi is not going to abandon Made in China 2025, no matter how much pressure the Americans bring to bear.
- “We…welcome everybody to take a ride on the train of China’s economy, to share in the successes of China’s reforms, opening, and development.”
Get smart: Xi’s sincere in wanting to support development in other countries. But there’s a catch. There’s more than a hint of a return to the tribute system, where China shares its wealth with those countries that recognize Chinese superiority. It’s far from clear that other countries are willing to sign up to Xi’s vision.
POLITICS AND POLICY
5. Xi explains the Party-state re-org
Xi’s explanation of the MASSIVE Party-state restructuring has been released.
A few points:
The Party tells the state what to do:
- “In this round of deepening reform of Party and state organizations, implementing organizations of some [Party] central decision-making and coordinating bodies were placed in State Council departments.”
It’s all about getting everybody on the same page:
- “[This will create a more] unified country, legal institutions, government decrees and market.”
The goal: To remove overlapping responsibilities by putting one department in charge of one area.
What it means in practice: Many ministries now take direct orders from Party bodies.
One example: Han Changfu, Minister of Agricultural and Rural Affairs, now heads the Office of the Central Rural Affairs Leading Small Group.
Org Dept: 习近平关于深化党和国家机构改革决定稿和方案稿的说明
POLITICS AND POLICY
6. Leaders want the people to be healthy
Xi Jinping and Li Keqiang have both been promising better healthcare in recent days.
Xi, at Boao (People.com):
- “[We] will put great efforts into health-related activities, to create a physically healthy people.”
Li, at pharmaceutical company Roche in Shanghai (Gov.cn)
- “Human society will cooperate to tackle cancer as early as possible.”
So how will the government improve health?
One answer is to lower the cost of drugs, according to Li. Leading the charge for cheaper drugs will be the new National Medical Security Bureau (NMSB).
Get smart: The NMSB manages public health insurance for 1.4 billion people. And it has the authority to regulate drug prices.
What it means: The Chinese government is the biggest customer for pharmaceuticals. And they want cheaper drugs. So…expect to see cheaper drugs!
China Daily: Premier Li urges Shanghai to further improve business environment