DRIVING THE DAY
1. New negative list
China released the newest version of it’s negative list for foreign investment late on Thursday.
Some context: The negative list specifies areas in which foreign investment is either restricted or not permitted.
The NDRC removed restrictions on 22 items, in sectors that included:
- Professional services
The new list leaves 48 items still in the restricted category of investment – a reduction of 24% from 63 on the previous list.
This looks meaningful. Some of the openings represent areas that the government had for many years been reluctant to open to foreign investment, including:
- Seeds (excluding wheat and corn)
- Graphite exploration
- Automotive manufacturing (see April 18 Tip Sheet)
- Aircraft manufacturing
- Gas stations
- Power grids
- Railway networks
Get smart: Policymakers are taking steps that they had previously been unwilling to take. That’s in large part because FDI has growth has slowed to a trickle. Policymakers realize they have to grant more significant market access if they want more FDI.
What to watch: The new list will take effect on July 28, 2018.
The Paper: 新版外商投资准入负面清单发布：对汽车、金融开放作整体安排
Xinhua: China Focus: China unveils shortened negative list for foreign investment
FINANCE and ECONOMICS
2. Monetary policy remains neutral, but liquidity will be tweaked
The central bank’s (PBoC) Monetary Policy Committee met on Thursday and issued a statement on the outlook for monetary policy.
The big picture: The monetary policy stance hasn’t changed – it remains “neutral and prudent.”
So don’t be snookered by all those analysts predicting loosening!
What is changing is that the PBoC is increasingly focused on the external economic environment – i.e. the trade war and how it will affect China’s growth.
That’s not totally new: It’s a reiteration of what central bank governor Yi Gang recently stated.
Central bank officials are in monitoring mode – they are not looking to preempt the trade war with stimulative policy.
Another change in the PBoC’s language was around liquidity, which the PBoC says it will keep “reasonable and abundant.” That is opposed to the previous description of “reasonable and stable.”
What that means: The central bank recognizes that the bankingg system is running into liquidity issues because of the financial de-risking campaign.
Look for the PBoC to offset the pain with more liquidity injections and reserve requirement cuts.
But offsetting pain is not stimulus – and more liquidity will not lead to accelerated credit growth.
Reuters: China central bank to keep policy neutral, liquidity reasonably ample
FINANCE and ECONOMICS
3. More property restrictions
Property markets just won’t quit – buyers have an insatiable appetite to purchase units in the top cities, and so developers keep building.
The problem is that more and more people are being priced out of the market.
To counteract this, the government is once again trying to clamp down.
It is waging a six-month campaign in 30 cities to find and root out folks who are skirting the rules (Bloomberg):
- “The special campaign will target unlicensed real estate agencies, developers’ violations and false advertising, according to a statement Thursday from the Housing Ministry.”
- “Cities including Beijing and Shanghai will be involved in the six-month operation starting in early July, according to the statement, which said that officials will focus on rent manipulation, postponement of sales by developers to fetch higher prices and non-compliant loans to fund down-payments.”
Get smart: Policymakers are in a pickle when it comes to housing. If these new measures are ineffective – just like the many rounds of tightening over the past year-and-a-half have been – then they can’t solve the issue of affordability. But if the measures are effective, then activity in the property market will slow – just when other parts of the economy are quickly decelerating.
It’s not an enviable position to be in.
Bloomberg : China Escalates Crackdown on Property Speculation in 30 Cities
POLITICS and POLICY
4. Li Keqiang’s small government revolution
Li Keqiang is at it again.
On Thursday he convened a national conference on streamlining the government. All top central government officials were in attendance. And the conference was simultaneously beamed to provincial officials across the country.
The meeting was short on specifics, but full of sweet-sounding promises:
- “[Li] urged…further cutting taxes and fees, and creating a better business environment.”
- “Premier Li also stressed inter-departmental supervision via the internet.”
There were a few concrete aims:
- “[Within] five years, starting a business should be shortened to five days.”
- “Reviewing construction projects and customs clearance should take half the time [that it does now].”
And this could actually be a big deal:
- “Those who deliberately create obstacles for people and enterprises or neglect their duties should be held accountable.”
Get smart: The government will become more efficient when officials are held accountable for inefficiency.
Get smarter: The coming trade war is going to dent growth. That means reforms (like the ones above) to make the economy more efficient are more pressing than ever.
Gov.cn: 国务院召开全国深化“放管服”改革转变政府职能电视电话会议 李克强发表重要讲话
Gov.cn: Premier Li calls for continuing efforts to push administrative reform
POLITICS and POLICY
5. Unnecessary licenses to be abolished by year’s end
Speaking of cutting red tape…
- “The State Council issued a notice on June 28 urging its departments and local governments to abolish unnecessary certificates by the end of 2018.”
- “The regulations and documents that endorse unnecessary certificates should also be amended or abolished.”
- “State Council departments are asked to submit advice on each certification item to be canceled or retained to the Ministry of Justice by the end of September.”
Get smart: The Ministry of Justice has become a much more important player after the government restructuring. That’s because the State Council’s Legislative Affairs Office was moved into the ministry. That makes the MoJ a key stakeholder for business.
POLITICS and POLICY
6. China releases WTO white paper
China has just released a white paper on the World Trade Organization (WTO).
A look at the chapter titles gives a pretty complete view of the content:
- China Has Faithfully Fulfilled Its WTO Accession Commitments
- China Firmly Supports the Multilateral Trading System
- China’s Significant Contribution to the World After Accession to the WTO
- China Is Actively Advancing Opening-Up to a Higher Level
At a press conference, Vice Minister of Commerce and Deputy International Trade Representative Wang Shouwen touted China’s free trade credentials:
- “As of 2010, China had already delivered on all of its tariff reduction commitments, lowering the overall tariff level from 15.3 percent in 2001 to 9.8 percent.”
- “Afterwards, China voluntarily slashed its import tariff rates on an interim basis for many times, Wang said.”
- “In 2015, China’s trade-weighted average tariff was reduced to 4.4 percent, fairly close to 2.4 percent of the United States and 3 percent of the European Union.”
Get smart: China thinks it has fulfilled its WTO commitments. Most advanced economies think China has not. Neither Wang’s words nor this paper are likely to change anybody’s thinking.