DRIVING THE DAY
1. Indigenous innovation is back
The first ever National Cybersecurity and Informatization Work Conference was held in Beijing on Friday and Saturday.
The name might sound boring, but the conference was a big deal. Xi Jinping himself was there along with all six of his Politburo Standing Committee colleagues. That’s a lot of political firepower.
Some context: The body behind this conference is the Central Cyberspace Affairs Commission (CACC). The CACC was upgraded from a leading small group to a commission at the “Two Sessions” in March as part of the MASSIVE Party-state re-org.
Xi spoke at the conference, saying (People.com):
- “We must keenly grasp the historic opportunity [presented by] the development of informatization.”
Some context: Xi thinks the information revolution will have as large an impact on human society as the agricultural and industrial revolutions had.
In 2016, Xi said that China’s failure to adapt to the industrial revolution was the reason for its “Century of Humiliation” (China Copyright and Media):
- “When the industrial revolution occurred in Europe and profound changes happened worldwide, [China] lost a historical opportunity to progress together with the world.”
Get smart: Xi is NOT going to let China miss this revolution.
Xi’s game plan:
- “Speed up breakthroughs for core technologies in the information area.”
- “Improve…financial, fiscal, international trade, human talent, and IPR protection environments…in order to better unleash… innovative forces.”
Get smarter: This is Xi’s first public statement since the ZTE slap down. Xi is clearly dead-set on creating a better policy framework to support innovation.
The bigger picture: We are heading towards a technological arms race between China and the West. Anyone who doesn’t see that is missing the boat.
Go deep: Xi’s 2016 speech is his most detailed statement on his vision for China’s internet and tech space. Read the whole thing if you want to understand where we are heading.
China Copyright and Media: Speech at the Work Conference for Cybersecurity and Informatization
Xinhua: Xinhua Headlines: Xi outlines blueprint to develop China’s strength in cyberspace
FINANCE AND ECONOMICS
2. SASAC report argues for a ZTE bailout
The Chairman of ZTE is admitting that the seven-year sanction from the US Commerce Department will “choke” the company. He said as much at a press conference Friday (ifeng).
What’s more, a report by the research arm of the SOE administrator (SASAC) is now calling for a bailout of the company. (The report was taken down from the internet).
The reasoning: Given the potential ripple effects on the overall domestic value chain, authorities can’t stand by and watch ZTE die.
That said, the report isn’t simply advocating pumping money into ZTE.
In fact, SASAC accused ZTE of “short sightedness” for compromising two key things:
- The interests of many SOEs and other Chinese businesses
- The country’s diplomatic and national image
Get smart: Just because China wants to promote indigenous innovation, it doesn’t mean that domestic firms get a free ride.
FINANCE AND ECONOMICS
3. Alibaba does its part
Speaking of indigenous innovation, China’s biggest tech companies are eager to do their part.
That’s why Alibaba is making a concerted push into things like semiconductors – a key industrial policy priority.
To that end, Alibaba took over a Hangzhou chipmaker this weekend (21stCent Biz Herald):
- “Alibaba…confirmed that the company has fully acquired Hangzhou Zhongtian Micro Systems Limited…[but] the amount of investment has not been disclosed.”
Alibaba had already been invested in the group for a while, but decided to take the relationship to the next level:
- “The marriage between the two sides was not accidental.”
- “As early as January 2016, Alibaba became the largest shareholder of the company.”
- “In June 2017, Alibaba also injected 500 million yuan into Zhongtian, and entered the field of chip infrastructure design.”
Get smart: Alibaba Chairman Jack Ma is a savvy political operator. He understands the state of play of Chinese industrial policy. Watch where the company invests if you want to know what’s really in vogue.
The big picture: China’s big private tech players, such as BAT, are all getting in to the chip business.
FINANCE AND ECONOMICS
4. Trade war update – no. 459
Here’s the latest on the slow-moving trade war.
At the recently concluded IMF spring meetings in DC, US Treasury Secretary Steve Mnuchin said he may soon be on his way to Beijing (Bloomberg):
- “Mnuchin said he’s ‘cautiously optimistic’ of reaching an agreement with China that bridges [China and America’s] differences over trade.”
- “’A trip is under consideration,’ Mnuchin told reporters on Saturday. ‘I’m not going to make a comment on timing, nor do I have anything confirmed.’”
The Ministry of Commerce said it received the information and welcomes it (MofCom).
Our take: Everyone seems to be playing nice since key economic officials are gathered in Washington for the IMF meetings. Mnuchin does seem to genuinely be contemplating a trip to China, which could turn down the trade war heat – but things are still pretty speculative at this point.
Get smart: There is still time to defuse a trade war. A Mnuchin trip to China would help. But we aren’t holding our breath.
Bloomberg: U.S. Hints at China Truce as World Warns of Trade-War Threat
FINANCE AND ECONOMICS
5. Mr. Yi goes to Washington
China’s new central bank chief Yi Gang has been in Washington for the IMF meetings.
Given his new status as PBoC governor, it’s important to track his public statements. Although this recent panel didn’t exactly seem to be a barn burner.
Yi once again reiterated China’s commitment to financial opening (Caixin):
- “China should continue pursuing its basic strategy of financial market reforms and opening up despite the present trade spat with the U.S.”
Our take: We’ve been hammering this theme over the past few weeks. China will accelerate financial opening this year, but largely because domestic firms are so dominant that foreigners can’t really compete.
The other part of Yi’s message was that Chins is doing this for its own reasons, not because of US pressure:
- “For China, the best strategy is to manage its own economy well and continue its financial market reforms and opening up.”
Our take:There was not a lot a lot new from Yi. But the international community is eating up his comments as the new face of China finance. Yi is the right man for the job.
Caixin: Reform Best Strategy to Address Uncertainties, Central Banker Says
POLITICS AND POLICY
6. Wang Yang wants the CPPCC to be more than a talking shop
The Chinese People’s Political Consultative Conference (CPPCC) held its first consultation session since electing its new membership in March.
Some context: The CPPCC is China’s political advisory body. It has no policymaking power but can recommend policies to China’s government and legislature. Every two weeks it holds a consultation session with outside experts to discuss policy issues.
CPPCC Chair Wang Yang told attendees he wants the sessions to be improved (Xinhua).
Wang got off to a good start by focusing on one of China’s top priorities: Artificial Intelligence (AI).
And he assembled an impressive list of participants from government, industry, and academia to give remarks on how to develop the sector in China. Some of the heavy hitters:
- Wan Gang – former minister of science and technology and current CPPCC Vice Chairman
- Chen Lin – famous cognitive scientist and former president of the International Association of Cognitive Science
- Robin Li – CEO of Baidu
Get smart: Wang has promised to make the CPPCC a more important part of the policymaking process. And it looks like he might pull it off.
Related: The SCMP has a long piece on China’s push to lead in driverless cars. It’s worth a read.
Xinhua: Top political advisor asks for improvements to consultation sessions
SCMP: China’s self-driving vehicles on track to take global leadership position, ahead of US
POLITICS AND POLICY
7. Xi’s pet project
Xi Jinping wants to leave his mark on China – but you probably knew that.
One of his most lasting legacies will likely be Xiongan, a new city that he is constructing south of Beijing in Hebei.
Over the weekend the Central Committee and State Council approved a plan for the city (gov.cn).
The overall goal (Xinhua):
- “By 2035, Xiongan will basically develop into a modern city that is green, intelligent, and livable” with relatively strong competitiveness and harmonious human-environment interaction.”
- “By the middle of the century, it will become a significant part of the world-class Beijing-Tianjin-Hebei city cluster… providing the Chinese solution to ‘big city malaise.’”
The city promises to strike a perfect balance between environment and economy:
- “Xiongan will strictly control land use and cap its land development intensity at 30 percent.”
- “The forest coverage rate will rise from 11 percent to 40 percent.”
- “A negative list will be implemented to close down and ward off high-pollution and energy-intensive production.”
- “Major industries to thrive in the area will include information, biotechnology, new materials, modern services, and green agriculture.”
Get smart: Xiongan’s focus on environmental sustainability is a part of Xi’s larger goal of creating a “Beautiful China.”