1.Consumption holds up during CNY
The health of consumers will be key to China’s economy in 2019.
Consumption is clearly slowing, and the government is cutting taxes to free up cash for households.
But consumer sentiment remains unclear.
That’s why the spending data from the Chinese New Year holiday, released on Sunday, are particularly important.
Some context: The Chinese New Year is a time when people across the country get together with family – and given that dining, shopping, and sightseeing are major family activities, it’s a good time to measure households’ willingness to spend.
This year’s stats (MofCom and MCT):
- “[From February 4th to the 10th,] national retail and catering enterprises saw sales of about RMB 100.5 billion, an increase of 8.5% over last year’s Spring Festival.”
- “Tourism income was RMB 513.9 billion, an increase of 8.2% y/y.”
Get smart: Growth in both indicators dropped from double digits last year, which is in line with recent trends in broader consumer data – down, but not in the dumps.
The bottom line: Eight percent growth is decent, and the recent tax cuts are just starting to kick in. So Chinese consumers aren’t in full-on penny-pinching mode yet.
2.PBoC’s new rolesclarified
The central bank (PBoC) was given an expanded role in policymaking in the MASSIVE Party-state restructuring last March.
Just before the holiday, central authoritiesreleased the bank’snew organization plan, which clarifires some of those new responsibilities.
What you need to know:
- The PBoC runs the daily operations of the State Council’s Financial Stability and Development Committee (FSDC), the most important body for financial sector policy.
- The PBoC has a new Marco Prudential Assessment Administration Bureau that will further strengthen MPAs and the PBoC’s oversight over individual institutions.
- The Financial Markets Department willhave enhanced authority tosuperviseall financial system infrastructure – including for internet finance.
Get smart: The central bank’s increased responsibilities should help tofill in some regulatory gaps, and cut down on the regulatory arbitrage that has long plagued China’s financial system.
3.Rural banks reined in
China’s rural commercial banks are getting back to basics.
That’s according to a longpiece by Caixin, highlighting the latest regulatory developments for China’s 1,400+ small, rural lenders.
Some context: Rural commercial lenders have historically been a key channel to provide financing to rural and agricultural businesses in their local areas. But in recent years, many of them have increasingly diversified lending and investment decisions – by both industry and geography.
More context: On January 14, the banking regulator (CBIRC) released Document No. 5, instructing rural lenders to restrict their business to the local county in which they operate and once again focus on rural and agricultural businesses.
As the document put it, those lenders should:
- “adhere to the market orientation of serving ‘agriculture, the countryside, and farmers’ and small and micro enterprises.”
The implementation of these measures has just started in earnest, although most banks will have a year to get fully compliant with the document’s more specific requirements.
Get smart: This is all part of the ongoingpush to help the struggling private sector – especially SMEs.
Get smarter: Rural banks are pushing back against the regulations. There is a reason they diversified away from agricultural lending in the first place…
4.Huawei gets a break in Thailand
Huawei is getting wins anywhere it can.
The US is pressuring countries around the world to ban Chinese telecoms companies from participating in infrastructure for 5G networks.
But Thailand isn’t listening.
Huawei launched a 5G testing facility there Friday (Reuters):
- “The 5G test bed in Thailand, the United States’ oldest ally in Asia, will be Huawei’s first in Southeast Asia.”
Huawei has further expansion plans in the country:
- “Huawei is in talks with telecoms operators, such as Advanced Info Service Pcl and TRUE, to secure local partnerships ahead of a national rollout scheduled for December 2020, industry sources with knowledge of the matter said.”
For Thailand, the potential economic benefits of Huawei’s investments are a strong pull:
- “Huawei has previously set up a cloud data center worth $22.5 million in Thailand’s [Eastern Economic Corridor (EEC)], a centerpiece of the government’s policy to boost growth in the country that has struggled to attract foreign investors besides the Chinese.”
Why it matters: We could be headed for a bifurcated global technology ecosystem, split between Chinese and Western spheres. Each side wants to make sure that its sphere is as large as possible. Places like Thailand will be key arenas of competition.
5.USTR Lighthizer headed to Beijing
US-China trade negotiations continue to grind on.
US Trade Representative Robert Lighthizer will head to Beijing on Thursday for the latest round of talks. Working-level negotiations started in China’s capital on Monday.
Some context: The March 1 deadline to come to an agreement is approaching fast. That’s when Trump may decide to ratchet up existing tariffs on USD 200 billion worth of Chinese exports to 25% from the current 10%.
So this week’s talks are critical.
The US side is hoping to schedulean in-person meeting between US President Trump and Xi Jinping in March (Axios):
- “President Trump’s advisers have informally discussed holding a summit [at Mar-a-Lago] next month…to try to end the U.S.-China trade war, according to two administration officials with direct knowledge of the internal discussions.”
- “Both officials… stressed that nothing is set.”
- “The meeting could come as soon as mid-March.”
In the meantime, the two leaders are likely to talk by phone later this month.
Our take: It’s clear that the two sides are still far apart on a lasting deal. Despite the optimism that recent talks have spurred, the best we can hope for, at this stage, is an extension of the March 1 deadline.
6.Xi clarifies his approach to environmental protection
Better late than never.
The Party’s top journal, Qiushi, published the contents of Xi’s May 2018 speech at the National Environmental Work Conference (see May 21, 2018 Tip Sheet).
Xi said now is the time to address China’s environmental problems:
- “[We have entered] a window of time during which [we] have the ability to solve outstanding problems in [China’s] ecological environment.”
- “If [we] don’t take advantage of that window, the issues will be more difficult to solve, the cost will be greater, and the consequences will be heavier.”
Xi is calling for a fundamental change to the economic model:
- “The goal is to change traditional production and consumption models that ‘produce massively, consume massively, and emit massively.’”
The bottom line: Xi and other top leaders see environmental degradation as one of the biggest threats to the Party’s legitimacy. That’s why cleaning up the environment is now a political imperative.
7.Turkey condemns Xinjiang re-education centers
In recent days, reports emerged that famous Uyghur folk singer Abdurehim Heyit had died in a Xinjiang prison.
Reports of Heyit’s death prompted the Turkish foreign ministry to issue a scathing denunciation of Xinjiang’ re-education camps (Turkey MFA):
- “Practices violating the fundamental human rights of Uighur Turks and other Muslim communities in the Xinjiang Uighur Autonomous Region have worsened.”
- “It is no longer a secret that more than one million Uighur Turks incurring arbitrary arrests are subjected to torture and political brainwashing.”
- “The reintroduction of internment camps in the XXIst century and the policy of systematic assimilation against the Uighur Turks carried out by the authorities of China is a great shame for humanity.”
Why that matters: Turkey’s statement is the strongest condemnation of the re-education camps that we have seen from a majority-Muslim country.
The Chinese have denied that Heyit is dead. They have also defended the re-education centers (Chinese Embassy in Turkey):
- “Since establishing the education centers, Xinjiang has gone more than 25 months without a violent terrorist incident.”
The bigger picture: The Xinjiang camps could end up being Xi’s biggest policy failure. They will alienate a whole generation of Chinese Muslims (of all ethnicities) and undermine China’s international standing.
Turkey MFA: QR-6, 9 February 2019, Statement of the Spokesperson of the Ministry of Foreign Affairs, Mr. Hami Aksoy, in response to a question regarding serious human rights violations perpetrated against Uighur Turks and the passing away of folk poet Abdurehim Heyit
Chinese Embassy in Turkey: 驻土耳其使馆新闻发言人就土耳其外交部发言人2月9日有关表态答记者问
WSJ: Turkey Calls on China to End Mass Incarceration of Muslim Uighurs