Driving the Day
1.NDRC rolls out new consumption measures
On Tuesday, China’s main macroeconomic regulator (NDRC) rolled out yet another round of measures to support consumption in 2019.
The policy offers incentives for upgrading various electrical appliances and other household items. But its main focusis boosting auto purchases (Nikkei):
- “The policy package announced by the National Development and Reform Commission, which steers the Chinese economy, centers on monetary incentives for trading in vehicles compliant with older emissions regulations and compact vehicles popular in rural areas.”
- “’Automobiles are a pillar of Chinese consumption. We want to both encourage consumption and raise the technical level of the industry,’ an NDRC official said Tuesday.”
- “The plan will subsidize trade-ins of cars that conform to 2007 emission regulations as well as replacements of cars with engines of 1.6 liters or smaller in rural areas.”
- “The value-added tax for used-car purchases by businesses will also be cut to 2% from 3%.”
Get smart: This might be a short-term balm for the sector, but it won’t fix the more structural issues that the industry is facing.
Get smarter: It’s all part of policymakers’ new approach to economy policy support – helping private businesses, improving the business environment, and subsidizing consumption – in lieu of big bang stimulus.
Nikkei:Beijing unveils auto subsidies to recharge consumption
2. Shantytown renovation push slows
China’s property market struggles look set to deepen for three reasons:
- Financing willremain relatively tight.
- Buyers are becomingmore cautious as prices level out.
- Policy support is waning.
To that last point– provincial governments are ratcheting down their goals for shantytown redevelopment this year.
Caixin has the details:
- “As of Monday, 17 provincial-level regions had announced their 2019 goals for so-called shantytown renovation.’”
- “Of those, 14 either lowered the target from last year or did not provide a specific number of apartments to be rebuilt, according to Caixin calculations based on official data and state media reports.”
Some place are cutting way back:
- “Beijing and the northwestern province of Shaanxi halved their targets, while Henan province, in Central China, lowered its number by 70%, becoming the most aggressive areas to downsize the program.”
Why it matters: Shantytown redevelopment is an important part of overall construction activity. Given the market downturn, developers hoped policy-driven construction would offer a counter-cyclical buffer.
Our take: It’s going to be a tough year for the property market, and for the economy, too.
3.Local government bonds en vogue
Investors in China are on the hunt for high quality assets that offer a decent return.Provincial bonds fit the bill.
The Ministry of Finance (MoF) is looking to take advantage of the demandand help local governments reap the savings from lower yields (Caixin):
- “The Finance Ministry is requiring that government units issue bonds at a minimum spread of 25 to 40 basis points, or 0.25 to 0.40 percentage points, above the five-day average yield of central government bonds of the same maturity.”
- “The move, which lowers the spread from the previous minimum of 40 basis points, reflects a recent surge in demand for local government bonds.”
But the ministry wants to retain at least some spread – otherwise, local government bondyields might start converging with those of central government treasuries.
And that would stop everyone from buying them – why invest in a riskier local government asset at the same price as central government debt?
Why it matters: These dynamics go to show the lack of investment alternatives right now. Folks are still wary of the stock market, and property isn’t doing so hot (see previous entry) – so might as well look for something safe.
Caixin:China Cuts Local Government Bond-Rate Guidance
4.Legislature debates Foreign Investment Law
China’s legislature began a special two-day session Tuesday to review the draft Foreign Investment Law (FIL).
Some context: The law had languished for years, but is now being fast-tracked as the government seeks to change the narrative that foreign business is not welcome. The legislature deliberated a first draft of the law at the end of December (see January 9 Tip Sheet).
Over the past month, the legislature has been gathering feedback (Xinhua):
- “The draft was distributed to agencies at the central and local governments.”
- “[It] was published…online.”
- “Foreign business chambers and foreign companies…[were approached for] their opinions.”
NPC Observer runs down what’s new:
- Defines “pre-establishment national treatment”
- Explicitly requires foreign companies to comply with the Company Law Partnership Law within five years of the FIL’s enactment
- Requires that foreign companies be “promptly” compensated for any expropriation or requisition of their investments
- Introduces new penalties for violating information reporting requirements
What next: The legislature will hear the law at its annual session in March, where they will almost certainly pass it.
Get smart: The rushed legislative process is likely to lead to a relatively vague law. The real impact will only be know once supporting regulations are formulated.
Xinhua:China eyes further opening-up in updated draft foreign investment law
NPC Observer:NPCSC Adds Special Session for Second Review of Foreign Investment Law
5.Government reform quietly marches on
On Tuesday, Executive Vice Premier Han Zheng chaired a meeting on reforming government and streamlining administration.
It’s all about getting the government out of the market:
- “The work should focus on enabling the market to play the decisive role in resource allocation and adhering to the direction of market-oriented and law-based reform.”
Han told cadres to deepen reforms to facilitate business registration.
He also said that a pilot scheme to reduce approval times for construction projects by one-half should be rolled out nationwide.
Get smart: Administrative reform is not sexy, and does not get a lot of press. But it has been the main focus of the State Council since Li Keqiang took over as premier in March 2013. And over those six years, the government has been slowly, but surely, chipping away at administrative burdens on companies.
Gov.cn:Vice-premier stresses deepened reform of govt administration