DRIVING THE DAY
1.Xi stresses political purity
The Politburo met on Friday and reviewed four documents.
First was a report by the Politburo Standing Committee (PBSC) on the reports it had recently heard by the Party groups atthe State Council, legislature, supreme court, supreme procuratorate, political advisory body, and the Central Committee’s secretariat (see January 8 Tip Sheet).
Why that matters: It’s a reminder of how Xi has asserted the authority of the Party over the state.
The second document was on strengthening the Party’s political work. Xi wants obedient believers (People.cn):
- “Guaranteeing that the entire Party obeys the Center…is the primary political task.”
- “[We] must be resolute in our political beliefs…and purify the political environment.”
Thirdwas a document on the rules for asking instructions from the Center.
Why that matters: The policy transmission and implementation mechanisms do not always work. Top leaders want to fix that.
Finally, the meeting reviewed a revised document on how to promote cadres. The doc puts being “red” above being expert:
- “[We] must persist in putting political standards first [when evaluating cadres].”
Putting it all together: The meeting encapsulates Xi’s rule. The Party controls everything, and political purity is most important.
People.cn: 中共中央政治局召开会议 习近平主持会议
2. CSRC gets a new chief
Liu Shiyu is out and Yi Hiuman is in at the China Securities Regulatory Commission (Caixin):
- “Veteran banker Yi Huiman, chairman of Industrial and Commercial Bank of China, has been named Communist Party chief and chairman of the China Securities Regulatory Commission (CSRC), succeeding Liu Shiyu, the official Xinhua News Agency reported Saturday.”
Yi will have his work cut out for him, trying to reform and revive China’s equity markets.
For some background on Yi, see our January 24 Tip Sheet.
Liu Shiyu has fallen out of favor with top leadership. This is quite the demotion:
- “Liu, 57, has been named head of the All-China Federation of Supply and Marketing Cooperatives, Caixin has learned from sources close to the CSRC.”
- “The state-backed organization manages supply and marketing for major agricultural goods nationwide.”
Get smart: Overseeing China’s notoriously casino-like equities markets has cost more than a few officials their careers. Best of luck to Yi Huiman – we genuinely hope he succeeds.
3. Shanghai stays the course on housing policy
The Shanghai government is trying to put to bed any notions that they city is going to relax its property policies soon.
Authorities hammered the message home in their annual work report (Yicai):
- “In 2019, Shanghai’s strengthening of regulation and control of the real estate market will be unmoved, it will not be relaxed, and[we will] maintain overall the stability of housing prices.”
Instead, the focus will continue to be on building out the rental market:
- “We will intensify the construction of rental housing and build and transform 212,000 rental housing units.”
- “We will further relax access to low-rent housing and supply 80,000 new guaranteed housing units of various categories.”
Get smart: While some third- and fourth-tier cities might see somewhat relaxed property policies in 2019, the biggest cities will continue to maintain tight controls.
Affordability is still a huge issue in the big cities. Authorities hope that a combination of price controls and development of the rental market will solve the problem.
What to watch: The property market is going to have a tough year – and it will continue to weigh on economic growth.
4. Trade talkskeep on keepin’ on
Preparatory meetings for the latest round of US-China trade talks kick off today in DC.
The working-level conversations will set the stage for the big guns to talk later in the week, when Vice Premier Liu He travels to Washington.
Bloomberg has a nice piece laying out the potential scenarios – it’s worth a click.
The piece also offers some sage advice:
- “Interpreting if they’d made real progress toward a truce won’t be an easy matter.”
Get smart: Initial perceptions will drive equity markets late in the week. At this stage it’s a coinflip as to how things will be interpreted – but we are betting on market optimism.
Don’t let any good vibes lull you to sleep. If talks fall apart, tariffs and tensions will ratchet up fast.
Bloomberg: Here Are Three Scenarios for U.S.-China Trade Talks This Week
5. Xi wants more expansive Party media
On Friday, Xi also led his Politburo colleagues on a tour of the People’s Daily, where they discussed “media integration.”
What Xi wants (Xinhua):
- “To boost integrated media development and amplify mainstream tone in public communication so as to consolidate the common theoretical foundation for all Party members and all the people to unite and work hard.”
Xi wants to make sure that the people are hearing the Party’s message no matter where they get their information:
- “Efforts should be made to develop websites, microblogs, WeChat, electronic newspaper bulletins, mobile newspapers, internet protocol television and other forms of new media to enable the voice of the Party to directly reach all kinds of user terminals and gain new public opinion fields.”
- “Priority should be given to mobile platforms.”
- “We should strengthen the management of new media in accordance with the law to ensure a cleaner cyberspace.”
Get smart: For the Party, the purpose of media is not to keep people informed of what’s going on – it is to disseminate the Party’s messages, and rally support for the Party’s agenda.
6. Bonded zones to open further
The State Council has released new opinions to further open up bonded zones.
Some context (FTZ-Shanghai):
- “A bonded zone is a special trade zone [that] has special arrangements for customs duties, import/export duties and several supervision approaches.”
Here’s some of what the new opinions aim to do (Gov.cn):
- “A number of items produced inside the comprehensive bonded zones will be exempt from the cargo-handling list for automatic import licensing, including key products like mobile phones and automobile accessories.”
- “[There will be] preferential policies…for industrial innovation, technical innovation, and engineering research, as well as emerging R D institutions.”
- “Logistics distribution centers should be established, with trade procedures further simplified.”
- “Goods not subject to import tariffs, trade restriction certificates, and tax reimbursement, will have an easier journey entering and exiting the bonded zones.”
- “Enterprises in bonded zones will be allowed to conduct high-technology and high added-value tests and global maintenance services.”
- Remanufacturing operations will be allowed…, including aerospace and engineering machinery.”
- “Cross-border e-commerce, outsourcing services, and future delivery will also be encouraged.”
Get smart: Officials have been clear that they will continue to relax trade and investment restrictions in 2019. Further opening the bonded zones is a part of that plan.
What’s the Bonded Zone
State Council calls for development of bonded zones
7. Cutting reliance on oil
China’s electric vehicle (EV) industry association, EV 100, wants the government to ban traditional fuel vehicles.
That’s according to a report it released following a workshop in Beijing last week.
The workshop was co-hosted by the China Oil Consumption Cap Plan and Policy Research Project (COCCPPRP), an initiative being carried out by various domestic and international research organizations, including some from the main macroeconomic planner (NDRC) and the main environmental regulator (MEE).
The report said that the negative externalities of oil use are mounting(Jiemian):
- “In 2015, our country’s total external cost for oil was RMB 441.3 per ton…accounting for 0.05% of GDP.”
Any guesses as to how EV 100 wants to solve that problem?
Yep– they want the government to give more support to the EV industry.
But there is a debate around what approach to take.
- EV 100 proposed a planto ban traditional fuel vehicles over time.
- But former NEA deputy director Zhang Yuqing thinks a less aggressive approach is more sensible, and argues for using more natural gas in transport.
Get smart: The government will definitely move to curb oil consumption. But howthey’ll do itis very much up for debate.