DRIVING THE DAY
1. China’s all-star trade team
China’s trade team is in DC for four days of what look to be intense negotiations.
The delegation is led by Vice Premier Liu He.
He’s come with an impressive crew (Xinmin):
- Yi Gang, PBoC governor
- Ning Jizhe, NDRC vice chairman
- Liao Min, the new deputy director of the Office of the Central Commission for Financial and Economic Affairs
- Zheng Zeguang, vice minister of foreign affairs
- Luo Wen, vice minister of industry and information technology
- Zhu Guangyao, vice minister of finance
- Han Jun, vice minister of agriculture and rural affairs
- Wang Shouwen, vice minister of commerce
What it means: Those folks represent a broad range of ministries. That’s because these talks are going to be about more than just trade and will touch on many different sectors. Expect autos, finance, agriculture, and energy to all feature prominently.
Get smart: The Chinese team is a group of seasoned officials. Many of them have been working on trade and investment issues for years, if not decades. And many also have extensive experience dealing with the US. That’s in stark contrast to Trump’s team, most of whom are still newbies to this whole government thing.
DRIVING THE DAY, CONT’D
2. Why a trade war is unlikely – for now
So what should we expect from these talks?
The two sides are nowhere close to a deal, according to the US ambassador to China, Terry Branstad (CNBC):
- “We’re still very far apart.”
But there are reasons for cautious optimism:
- First, the Chinese can already claim a win with Trump backing off ZTE.
- Second, word is that the Chinese are willing to make some concessions on tariffs and market openings – that would allow the Americans to claim victory as well.
- Third, the US needs China onside now that Kim Jong-un is threatening to call off his meeting with Trump (WaPo).
But here’s the biggest reason for optimism: Trump wants Xi Jinping to like him. That’s according to Trump’s top economic adviser, Larry Kudlow (Axios):
- “‘There’s a little bit of a bromance’ between Chinese President Xi Jinping and Trump, Kudlow told Axios’ Mike Allen on Tuesday. ‘Bromances are always good.'”
Get smart: We look likely to avoid a full-scale trade war for now. But any accommodation will only be temporary. The long-term trajectory of US-China relations is one of increased rivalry.
CNBC: China expects tough negotiations in trade talks with the Trump team this week
WaPo: North Korea expands threat to cancel Trump-Kim summit, saying it won’t be pushed to abandon its nukes
Axios: Larry Kudlow puts faith in Trump-Xi “bromance”
FINANCE and ECONOMICS
3. Liu He promises financial discipline
Liu He is a busy man.
Before getting on the plane to DC, he addressed a group of officials on dealing with risks in the financial system.
Liu repeated the “back to basics” mantra that has defined policy towards the financial sector since last year:
- “Serving the real economy should be taken as the ultimate objective in doing financial work.”
Liu also had a warning:
- “People should understand that… money borrowed must be paid back, and there are risks in investment and prices to pay for wrongdoing.”
Get smart: Liu’s choice of the word “wrongdoing” is telling. It’s a reminder to financiers that regulators have wide remit to go after any activity that threaten financial stability.
What it means in practical terms:
- The 14-month old “regulatory storm” will rage on.
- Regulators are going to allow more defaults.
Get smarter: Financial professionals have heard Liu. His real challenge is getting the public to understand that they have to take responsibility for their investments. That’s going to be tough.
CPC People: 全国政协召开“健全系统性金融风险防范体系”专题协商会 汪洋主持
Xinhua: China’s national political advisory body highlights financial risk prevention
POLITICS and POLICY
4. Xi focuses on foreign affairs
Xi chaired the first meeting of the newly-established Foreign Affairs Commission (FAC) on Tuesday.
Some context: The FAC was upgraded from a leading small group as part of March’s MASSIVE Party-state restructuring. It is meant to further strengthen Party leadership over foreign affairs.
Who was there:
- Xi, who heads the commission
- Premier Li Keqiang, who is vice chair of the commission
- Vice President Wang Qishan, who is a member of the commission
- Head of the Party Secretariat Wang Huning, though Wang was conspicuously not listed as a member of the FAC
- Executive Vice Premier Han Zheng, though Han was also not listed as a member of the commission
Top of the agenda: Dealing with the increasing uncertainty and instability in the world.
China’s top foreign policy program? No points for guessing that it remains Belt and Road.
Also high on the agenda: Promoting and better coordinating the foreign affairs work of local governments.
The bigger picture: Xi has focused more on foreign policy than previous general secretaries. And China is becoming more assertive on the world stage.
CPC People: 习近平主持召开中央外事工作委员会第一次会议
POLITICS AND POLICY
5. Party enforcing political correctness
Xi Jinping has already prosecuted the longest-running, widest-ranging anti-corruption campaign in Party history.
And it’s only intensifying.
That was the message from the Party’s enforcer, Central Commission for Discipline Inspection chief Zhao Leji.
Zhao was in Sichuan, to speak with local discipline officials about implementing the five-year plan (2018-2022) for discipline inspections.
Zhao got straight to the point:
- “[To] safeguard General Secretary Xi Jinping’s core status and safeguard the CCP Central Committee’s authority and its centralized and unified leadership are the ‘soul’ of inspection work in the new era.”
- “Any violation of political discipline, [or] the Party’s principles and policies… should be spotted promptly.”
- “Once spotting such problems, inspectors should… enforce corrections.”
Get smart: Discipline inspections have gone beyond just policing bad behavior. Now they are also enforcing political correctness.
CPC People: 赵乐际：坚决维护习近平总书记核心地位 维护党中央权威和集中统一领导
Xinhua: China’s anti-graft chief says upholding leadership core “soul” of disciplinary inspection
POLITICS and POLICY
6. Hainan to ban traditional vehicles
In April, Hainan Governor Shen Xiaoming vowed that all vehicles on the island will be new energy vehicles (NEVs) by 2030 (NEA).
Last night, the province took its first step (China Daily):
- “Hainan is adopting a car purchase restriction policy starting May 16, to restrict the increase of cars and promote the use of new-energy vehicles.”
- “New car license plates for fuel vehicles will be issued by lottery or auction.”
- “[But you can get a license plate] for new-energy vehicles [just] by signing up starting on August 1.”
Get smart: The government will start with the low hanging fruit first, replacing fuel vehicles in the public sector, ie., taxis, city buses, government vehicles.
The bigger picture: This is just the beginning. The Chinese government is serious about phasing out fossil-fuel vehicles.