DRIVING THE DAY
1. A grand navy parade
On Thursday, Xi Jinping donned his military fatigues to oversee the largest naval fleet review in PRC history (Xinhua):
- “Taking part in the review were more than 10,000 service personnel, 48 vessels and 76 aircraft.
- “They included the aircraft carrier Liaoning and latest submarines, vessels and fighter jets.”
In his first five years, Xi already invested a lot in building up China’s navy:
- “More than half of the vessels [in the parade] were commissioned after the 18th CPC National Congress in 2012.”
Don’t expect Xi’s drive for a strong navy to slow down. Here’s what he said Thursday (CPC):
- “The task of building a formidable People’s Liberation Army Navy has never been as urgent as it is today.”
Why? It’s an essential part of China’s “national rejuvenation.”
The optics: Xi is showing Asia that China is the dominant power in the region. It’s a reminder that the “Asia for Asians” concept that Xi promoted earlier this week in Boao is also an Asia where China is on top.
What it means: As China’s relative strength grows, friction with the US will grow as well. That means geopolitical risk is on the rise for the foreseeable future.
What to watch: The navy hasn’t finished yet! It will conduct live-fire drills in the Taiwan Strait on April 18 amid rising tensions between China, the US, and Taiwan.
FINANCE AND ECONOMICS
2. Anbang: first a bailout, now downsizing
The bailout process for Anbang officially began a few days ago. We covered that in the April 4 Tip Sheet.
Now the restructuring is getting underway, as regulators are seeking to unload assets in earnest.
According to a Bloomberg scoop:
- “The once-acquisitive insurer plans to hire an adviser to manage the sale of parts of its portfolio, according to the people, who asked not to be identified because the information is private.”
- “Some bankers were in Beijing earlier this month pitching officials from Anbang and the Chinese banking and insurance regulator, one of the people said.”
What we hear: The regulator prefers a private or partially private buyer from the real economy.
Why this matters: The asset sale is a reminder that this was not a purely political move to depose a tycoon who had simply run afoul of China’s leadership. The company has obvious debt issues that need to be addressed, forthwith.
Get smart: China’s regulators are far from infallible. But they aren’t going to sit idly by and watch a potentially systemic company implode.
Our take: Critics will cry “moral hazard!” But a bailout is better than a crisis.
Bloomberg: Waldorf Owner Anbang Interviews Banks to Manage Asset Sales
FINANCE AND ECONOMICS
3. More MandA coming in China’s upstream sectors
You ain’t seen nothing yet. That was the message from Xiao Yaqing, head of China’s SOE administrator (SASAC).
More MandA are yet to come in heavily state-owned sectors (Bloomberg):
- “‘Some of the central state-owned enterprises in certain industries are too fragmented and have low efficiency,’ said Xiao Yaqing, chairman of the State-Owned Assets Supervision and Administration Commission.”
- “‘We support companies that are willing to come together on their own,’ he said in an interview on Wednesday on the sidelines of the Boao Forum in Hainan province.”
Get smart: A lot of folks criticize state-led MandA as not being market driven. And while that’s true, it’s also true that China’s upstream industries like coal, steel, and aluminum are incredibly fragmented and in dire need of consolidation.
China’s plan is to basically get to a market outcome, of a smaller number of scaled up players in each industry, but to minimize the dislocation by letting the state run the process.
It may not be efficient, but so far it has been quite effective. In regulators’ view, that’s a win.
Bloomberg: China’s $26 Trillion State-Asset Watchdog Says More MandAs to Come
FINANCE AND ECONOMICS
4. China’s trade deficit
China recorded a trade deficit of USD 4.98 billion in March. That’s the first deficit since February last year.
The trade data came in this morning:
- Exports shrank by 2.7% – down from a whopping 44.5% in February.
- Imports grew by a subpar 14.4% – up from 6.3% in February.
If we look at the first quarter as a whole, export growth (yuan denominated) was 7.4% y/y, and import growth was 11.7%.
But this could be the only number that matters:
- The Q1 trade surplus with US is still widening.
- The bilateral surplus was USD 58.25 billion, up 19.4% y/y.
What it means: Trade hawks in the Trump administration will use the widening bliateral surplus to push for a trade war. Buckle up!
Bloomberg: China Exports Post Seasonal Drop, Leaving Surprise Trade Deficit
POLITICS AND POLICY
5. On the ground at the China-North Korea border
The North Korea situation is in flux, to say the least:
- Kim Jong-un recently visited Beijing.
- And Donald Trump is still hopeful of a one-on-one sit down with Kim.
- Yet soon-to-be-confirmed US Secretary of State Mike Pompeo says he could imagine a ground invasion of the Hermit Kingdom.
With that backdrop, Sue-Lin Wong at Reuters has done some excellent on-the-ground reporting from the China-North Korea border:
- “Cui Changwan, the local government official who had been called in when border guards stopped me, shoved a document into my hands and jabbed his finger on the page which stated that ‘without approval, foreigners are not permitted to enter areas out of bounds to foreigners.’”
- “I asked him to show me the rule that said I was in such a place.”
- “‘It’s an internal document which you’re not allowed to see,’ he replied, spittle flying at me. In the office behind us, a colleague of his played video games.”
The takeaway: China is leaving nothing to chance.
China’s leadership isn’t falling asleep on this issue and neither should anyone else.
The piece is worth the click.
Reuters: Edgy times on China’s border with North Korea
POLITICS AND POLICY
6. Government gets to work
The State Council has designated which government agencies will be responsible for carrying out the tasks of the Government Work Report approved last month (gov.cn):
- “A total of 57 specific tasks in 12 aspects are distributed to main ministries and departments in line with their functions.”
Get smart: There are actually more than 57 tasks, as some tasks have more than one component. We count 72 total.
One takeaway: The NDRC is still China’s most important economic organization, despite having lost a few functions in the government re-org. The “mini State Council” is involved in a whopping 59 of the 72 tasks.
What gets us excited: We were eager to see who would be involved in financial de-risking. This caught our eye –The Public Security Bureau will play a big role in the de-risking.
What it means: Some bankers are going to jail.
Get smart: In case you haven’t figured it out yet, the effort to clean up the financial sector is FOR REAL. Don’t’ say we didn’t warn you!
Gov.cn: Work division laid out for implementing Government Work Report
POLITICS AND POLICY
7. WebMD comes to China?
We told you yesterday that both Xi and Premier Li Keqiang have been promising to improve healthcare.
One way they plan to do it: More online health services. That’s according to the State Council meeting that took place on Thursday.
How it will work (gov.cn):
- “Medical institutions will be allowed to provide online diagnostic services for some common and chronic diseases in patients’ follow-up visits to their doctors, according to a decision at the meeting.”
- “The top two levels of hospitals within the country’s three-tier hospital system will be encouraged to provide online services, including consultation, reservation and test result inquiry.”
It’s all for the people, according to Li:
- “Internet Plus healthcare can help alleviate the problem of inaccessible and expensive public health services that have long been a big concern for the general public.”
Get smart: The push for better healthcare has been underway for over a decade. But it’s becoming a higher priority with the Party’s new focus on “giving the people a better life.”
What to watch: We should see a policy document released on this matter in the coming weeks.
Gov.cn: 李克强主持召开国务院常务会议 确定发展“互联网+医疗健康”措施等