DRIVING THE DAY
1. Kim and Trump to meet
It’s always nice when someone remembers your birthday.
The Tip Sheet officially turns one year old on June 12, 2018.
And to mark the occasion, US President Donald Trump has invited Kim Jong-un to Singapore for a summit.
It seems like a bit much, but Trump does have a flair for the dramatic. We are flattered.
China’s thinking: Xi Jinping has a month to make sure that Kim and he are fully on the same page.
CNN: Trump announces North Korea summit will be in Singapore
DRIVING THE DAY CONT’D
2. Dandong property on a tear
Everything in China eventually turns into a property play.
It’s even true for the prospect of peace on the Korean Peninsula.
China’s main border city with North Korea is already seeing the effects (Bloomberg):
- “New home sales in Dandong, which sits across the Yalu River from North Korea.., surged to an eight-year high 320,000 square meters in March, when U.S. President Donald Trump announced he’d grant an unprecedented meeting to Kim [Jong-un].”
- “Sales stayed strong at 290,000 square meters in April… as Kim made an historic first visit by a North Korean leader to South Korea.”
Everyone is getting in on the action:
- “Two Koreas shake hands, and Dandong rises!” blares the slogan at Zhao Ziye’s real estate agency in the border town, where TV screens replay footage of Kim’s visit to Beijing.”
- “Business is so brisk that Zhao says she’s trying to hire five more realtors.”
Get smart: China’s ailing northeast is desperate for an economic jolt. A North Korea opening wouldn’t hurt, but it also wouldn’t fundamentally solve the northeast’s two big problems – inefficient state-owned enterprises and an aging population.
Bloomberg: North Korea Border Town Becomes China’s New Hot Property Market
FINANCE and ECONOMICS
3. 2018 could see more bond defaults
Corporate bond defaults are in focus this year in China.
There are large payment pressures that are starting to catch up with some companies (China Banking News):
- “Analysts point out that 2018 is a peak year for the maturation of corporate debt, with as much as 5 trillion yuan in bonds scheduled to come due.”
- “Given the prevailing tightness of funds in China, Beijing’s ongoing corporate deleveraging campaign, as well as the imposition of government controls upon certain sectors such as real estate and overcapacity industries, analysts foresee considerable repayment pressure for many enterprises in months to come.”
Regulators are also taking notice, and trying to prevent contagion via bond funds (Bloomberg):
- “With corporate-debt defaults on the rise, China’s securities regulator will probe bond funds to ensure that they have proper risk controls in place.”
- “Investigation[s] will include whether individual firms’ funds are shuffling high-risk bonds between them. “
- “One suspicion is mutual-fund companies may be motivated to beautify their holdings to avoid a mass withdrawal by investors.”
Get smart: Even with record bond redemptions, actual default rates are tiny. That’s not because Chinese companies are super responsible, it’s because they continue to regularly get bailed out by local authorities.
China Banking News: Chinese Bond Market Sees Spate of Defaults in 2018
Bloomberg: China Is Said to Probe Funds’ Risk Controls as Defaults Rise
FINANCE and ECONOMICS
4. Central payments systems
Payments are also getting some regulatory attention
The PBoC doesn’t like its lack of visibility into what’s happening in mobile payments. Or the vast amount of funds that payment companies are managing (FT):
- “The People’s Bank of China intends to target some payment institutions for a trial run of new, more stringent requirements that would force them to transfer all customer funds to a centralised deposit account, the state-owned newspaper Securities Times reported, citing unnamed industry sources.”
- “The ramifications of such a system could be significant for the payment platforms industry, which has become a vital part of China’s consumer economy over the last decade.”
- “The two payment platforms run by Alibaba and Tencent make up 90 per cent of the country’s $16tn annual mobile payments market.”
Get smart: This is still in the planning phase, so there’s no guarantee it gets rolled out.
Get smarter: The central bank is set to trial the system with 26 different institutions. But there are only two that the policy is really targeting.
POLITICS and POLICY
5. China’s consumer association gets litigious
China’s consumer association is trying to bolster consumer rights – and make some money in the process.
The group is advocating for regulators to give them the ability to file class action suits against businesses that screw over their customers.
That’s why the group held a roundtable with representatives from the legislature, government, courts and legal experts to discuss the issue of “implementing a huge punitive compensation mechanism.”
How “huge” are they aiming for? Local branches of the association have conducted initial trials in the range of millions of RMB worth of damages.
Why do they want this?
- The costs for businesses of encroaching on consumer rights is too low to stop them from doing it.
Get smart: Premier Li Keqiang signaled his intent to have punitive damage policies in 2016. The roundtable focused on very technical aspects of implementation – a sign it’s moving ahead.
The big picture: This fits into two big goals of Chinese government: creating positive incentives for people to consume, and negative incentives for business – domestic ones in particular – to improve quality.
POLITICS and POLICY
6. China’s invite-only internet billionaire PARTY club?
All the big names of China’s ICT industry – Jack Ma, Ponny Ma, and Robin Li – just joined a new club called the China Federation of Internet Societies.
But they don’t run it.
Wanna guess who the boss is? Ren Xianliang, former deputy director of the CCP’s Central Leading Small Group on Cyberspace Affairs, and current deputy director of the legislature’s Social Construction Committee.
And guess who spoke at the group’s inaugural meeting? Xu Lin, director of the Office of the Central Cyberspace Affairs Commission.
What will the new group do? (Xinhua)
- Study Xi Jinping’s thought on becoming a cyber superpower and the spirit of the National Cybersecurity and Informatization Work Conference (see the April 23 Tip Sheet)
- Guide the political direction of internet organizations
- Protect internet organizations’ interests
- Promote Party-building in internet organizations
Get smart: The Party wants to keep its internet giants on a tight leash.
Get smarter: There’s an upside for China’s internet giants. They have direct access to top officials, and considerable input into policymaking.