DRIVING THE DECADE
1. Xi’s technology obsession
Xinhua has published the full text of Xi Jinping’s address to the BRICS Business Forum in Johannesburg Tuesday.
It’s worth a read if you want to understand Xi’s thinking on foreign affairs and economic development.
Xi used the occasion to discuss one of his obsessions – technology. The Big Man recognizes that technology is the key to future prosperity:
- “The next decade will be a crucial one in which new global growth drivers will take the place of old ones.”
- “A new round of revolution and transformation in science, technology and industries featuring artificial intelligence, big data, quantum information and bio-technology are gaining momentum.”
- “They are giving birth to a large number of new industries and business forms and models and will fundamentally change global development and people’s work and lives.”
- “We must seize this important opportunity to enable emerging markets and developing countries to achieve leapfrog development.”
Get smart: Talk like this is nothing new for Xi. He has been harping on the need for China to innovate for a while.
What it means: Look for continued government support for companies that are seen to be contributing to technological advancement – including foreign companies.
DRIVING THE DECADE
2. The changing world order
A key theme running through Xi’s speech in South Africa was change:
- “We are witnessing major changes unfolding in our world, something unseen in a century.”
One change that Xi highlighted was the gradual realignment of global power and influence:
- “Emerging markets and developing countries already contribute 80 percent of global economic growth.”
- “These countries account for nearly 40 percent of…global economic output.”
- “Growing at their current rates…their economic output [will] approach half of the global total in a decade.”
Get smart: Xi is redirecting diplomatic resources to focus on developing countries in order to make sure that China is positioned to best take advantage of this shift.
How Xi wants to see the world change:
- “When new rules are made on such issues as innovation, trade and investment and intellectual property protection or on new frontiers including cyberspace, outer space or the polar regions, we should make sure that the views of emerging markets and developing countries are heeded.”
Get smarter: China’s views on many issues – particularly trade, investment, cyberspace governance, and human rights – differ significantly from prevailing global norms.
As global power shifts away from the West, Chinese norms in these areas will become more prominent.
FINANCE and ECONOMICS
3. IMF issues important article IV on China
The International Monetary Fund (IMF) released its annual Article IV report on the state of China’s economy on Thursday.
While the IMF’s yearly report is always an important read, this year’s report struck as particularly poignant.
One key passage:
- “Rebalancing continued in 2017, but slowed in several dimensions.”
- “Growth became less dependent on credit, investment growth moderated…and the environmental clean-up campaign led to some improvement in air quality and energy efficiency.”
- “But many of the drivers behind the growth acceleration in 2017…slowed rebalancing.”
- “Credit intensity improved in 2017, but this could be partly temporary.”
- “The contribution of consumption to GDP declined for the first time since 2013, and services’ share of GDP grew at a slower rate.”
Get smart: The report points out something we have been harping on about for a while now – policymakers have made initial progress on the financial de-risking front.
But, but, but… we have always been clear that these initial gains are only the first step on a very long road to genuinely improving regulation and the quality of economic growth.
The IMF report seems to be right in line with that view.
Do yourself a favor and make this your weekend read.
FINANCE and ECONOMICS
4. MoF’s official response to the public policy spat with the central bank
As Tip Sheet readers know, recent weeks have seen an unusually public debate between the Ministry of Finance (MoF) and the central bank (PBoC) over what economic policy support should look like in H2 2018.
Both entities want the other to do the heavy lifting.
But Vice Minister of Finance Liu Wei admitted yesterday that it’s not’s MoF’s decision:
- “We will act as the Party Central Committee and the State Council say.”
Some context: The policy measures unveiled by the State Council Monday asked both fiscal and monetary authorities to help out (See July 24 Tip Sheet).
Here’s what the MoF will do:
- Quickly implement already planned measures, including budgeted spending, fulfilling the quota of special infrastructure bonds for local governments, and tax cuts.
- Ready new support measures for use if the economic situation deteriorates further.
- Do a better job coordinating with the central bank.
Get smart: The State Council has told the MoF and the PBoC to help out and play nice. But the policy debate is not over.
What to watch: The State Council measures are small beer. Next week’s Politburo will be decisive in deciding the policy stance for H2.
POLITICS and POLICY
5. Liu He takes over SOE reform group
Xi Jinping’s top economic adviser, Vice Premier Liu He, has been put in charge of the State Council Leading Small Group on State-owned Enterprise Reform.
Some context: The group was founded in October 2014 to break through the institutional bottlenecks impeding SOE reform. It was a very active body, meeting at least once a month in the year and a half after its establishment. However, it failed to push through reforms as quickly as many had hoped.
It should come as no surprise that Liu leads the group. His predecessor as vice premier in charge of finance and economics, Ma Kai, headed the group previously.
Other important members:
- State Councilor Wang Yong retains his position as deputy head of the group.
- Head of the SOE administrator (SASAC) Xiao Yaqing will be director of the group’s office.
Get smart: Don’t expect the approach to SOE reform to change much. Liu is a big proponent of the mixed-ownership model currently being tested.
Get smarter: The fact that the day-to-day work is still being carried out by SASAC does not augur well for faster implementation.
Get even smarter: But Liu may achieve more results, because everybody knows that Liu is Xi’s man.
POLITICS and POLICY
6. China’s new internet czar
SCMP scoops two big personnel moves:
- “Xu Lin, who worked for Xi in Shanghai, is likely to take over as the party’s international propaganda chief.”
- “Xu, 56, the head of the Cyberspace Administration of China (CAC) since June 2016, was expected to take charge of the State Council Information Office and the party’s external propaganda arm, the sources said, replacing Jiang Jianguo.”
Get smart: We have heard a lot of complaints from officials about the propaganda system. Many think the hyping of China’s greatness has gone too far.
China will also get a new cyber czar:
- “Zhuang Rongwen, also a Xi ally, is expected to take over from Xu at the CAC.”
- “Zhuang, 57, who previously worked for Xi in Fujian, has risen quickly in the official hierarchy, gaining promotion in April to head of the State Administration of Press and Publication.”
What it means: The CAC plays an important role in developing China’s information technology sector. But the fact that it continues to be headed by a propaganda official makes clear that its main focus continues to be policing the internet.
POLITICS and POLICY
7. Trade war update #283 – China and US talk past each other at WTO
The Chinese and American ambassadors to the World Trade Organization (WTO) debated each other yesterday.
It wasn’t pretty.
The US says the Chinese state is too involved in the economy:
- “The government and the Communist Party continue to exercise control directly and indirectly over the allocation of resources through instruments such as government ownership and control of key economic actors and government directives.”
China says it can do what it wants:
- “26 years [have] passed.., [and] we have never changed our position.”
- “There are more than one model of market economy in this world.”
- “China has been vigorously exploring a road of market economy which suits China’s own national situation and circumstance.”
The US says China’s policies are unfair:
- “China’s industrial policies deploy massive market-distorting subsidies and provide other forms of financial support for targeted domestic industries.”
China shoots back that maybe the US should work a little harder and stop complaining:
- “These policies are described as rocket engines.”
- “If that were the case, there would be no need for any country to work hard and enhance their productive capacity, rather all countries can simply rush to draw up fancy industrial policies.”
Get smart: Sino-US trade tensions aren’g going to be solved through the WTO.
Get smarter: The US is essentially criticizing China’s political system. That’s a non-starter for the Chinese.