1.NDRC to inspect bond default risks
China’s macro planning agency (NDRC) is getting serious about bond risks.
On Wednesday, the NDRC issued a directive requiring all local branches to undertake a thorough inspection of outstanding enterprise bonds within their jurisdictions.
Some context: Enterprise bonds are issued by non-public companies – primarily SOEs. Issuance is overseen and approved by the NDRC.
Each branch of the NDRC is supposed to determine:
The number, scale, and maturity of all outstanding bonds
Coming interest and principal payments
Information about the issuer
Details about the project that the bond is financing – including its operational status
Any information on collateral that is backing the bonds
That’s just step one. Subsequently the local NDRCs are being told to:
“Conduct a comprehensive investigation of the risks to payment of principal and interest…in 2019”
For any bonds found to be at risk, local regulators will:
- Coordinate debtors and creditors to determine a plan for resolution
- Conduct monthly check-ins to make sure everybody is sticking to the plan
Get smart: We said on Tuesday, China needs more bond defaults. And the fact that regulators are proactively looking to make these defaults orderly will help contain volatility.
The Paper: 国家发改委开展2019年企业债券本息兑付等风险全面排查
2.CBIRC tells insurers to inspect local debt exposure
Regulators are not just worried about bond defaults (see previous entry) – they continue to focus on local government debt as a key vulnerability for China’s financial system, as well.
That’s why, as Daily Economic News reported on Wednesday, the banking and insurance regulator (CBIRC) has begun requiring most insurance companies to produce a written study of their risk exposure to local government debt.
The companies required to conduct studies:
Insurance holding companies
The details: The CBIRC issued this directive on December 31, and the written studies are due on February 15.
Get smart: These requirements are coming now in part because the regulator recently allowed – and encouraged – insurance companies to invest funds into the equity markets. Regulators don’t want any exposure from bad local government debt to tank the equity markets if things go bad in the provinces.
Get smarter: While most analysts are focused on the recently accelerated local government bond issuance – arguing that central authorities are looking to stimulate the economy – the reality is that central authorities are still primarily focused on containing and defusing local debt risks.
3.Data dump – trade
China’s customs bureau released trade data for January on Thursday.
Exports grew by 9.1% y/y – up from the 4.4% contraction in December, and beating expectations of another 3.2% contraction.
Imports contracted by 1.5% y/y – up from the 7.6% contraction in December, and beating expectations of a further 10% contraction.
Quick take 1: The solid January numberslikely reflecta Chinese New Year holiday that came earlier in 2019 (February 4) than it did in 2018 (February 16). That means exporters would have pushed out more product in January to beat the holiday.
Quick take 2: It’s likely the same story for the import numbers. So the fact that they remained in negative territory is a concern – and reflects weak domestic demand.
One other item of note, in the context of the ongoing trade negotiations in Beijing (CNBC):
“China’s…trade surplus with the U.S. fell to $27.3 billion in January, from $29.87 billion in December.”
Get smart: February is a critical time for Chinese exporters, as it is when they tend to renegotiate annual contracts. That means we won’t get a true read on the health – or lack thereof – of China’s external sector until the March data comes out in mid-April.
CNBC: China’s January trade data come in much stronger than expected
4.Party center launches APP to track officials
The propaganda authorities have launched a new APP for officials – Xuexiqiangguo (学习强国) – which can be read as “Study to make the country strong” or “Learn from Xi to make the country strong.”
The APP contains speeches by Xi, news, movies, and even songs – all picked by the Party center to educate officials on the Party line (Xuexi.com).
The APP tracks which officials are most engaged:
It requires real name registration.
It tracks how much time users spend looking at content, how much commenting they do, and how much they share the content.
Users then receive scores based on how much they interact with the APP.
What we’re hearing: The Organization Department is tracking everybody’s scores – implying that they will be used in performance evaluations.
The whole thing is ideology czar Wang Huning’s idea. Wang personally launched the APP last month (Xinhua).
But guess who developed the APP and operates it? Alibaba! (see link)
Our thought: Lower level officials often do not really understand the policies emanating from the top. If used well, this APP could potentially help to ameliorate that disconnect.
Then again, it is very likely that it just turns into another box-ticking exercise for officials – while doing little to improve understanding.
5.State Council wants a better workforce
On Wednesday, the State Council released the National Vocational Education Implementation Plan.
Some of the goals:
Establish 50 high-level vocational schools by 2022
Create a national standards system for vocational education covering most industries by 2022
From 2019, vocational colleges and some universities will implement a trial program to award special certificates of achievement for vocational skills, in addition to normal diplomas
Establish 300 high-level training bases for integrating education and industry
The government is keen to get companies involved – and is even encouraging them to set up and/or run their own vocational schools.
Get smart: China’s vocational education system is HUGE, with over 27 million students. But many of those schools are not suited to China’s increasingly higher-skilled economy.
Get smarter: The authorities are making a concerted effort to train a workforce that meets the evolving needs of industry.
Xinhua: State Council releases vocational education reform implementation plan
6.The economic cost of fighting pollution
In March 2014, Li Keqiang declared a “war on pollution.”
Hebei province has been on the front lines of this battle, particularly in the past two years. The FT’s Lucy Hornby and Archie Zhang are on the ground looking at how things have played out:
“A two-year anti-pollution campaign has claimed 170,000 factories, cement and fertiliser plants — the tiny local employers that dot the plains of Hebei.”
“Many have not only closed but appear partially torn down, with bricks piled up beside half-dismantled walls.”
That has hurt economic growth – and employment. So the government has been stepping in:
“Overall, spending on ‘people’s livelihood and welfare’, including pension benefits and community services, rose 16 per cent in Hebei last year.”
“That tops a 9 per cent increase the year before.”
Get smart: The anti-pollution campaign has been one of the biggest successes of the Xi years, and shows what can happen when the government gives clear directions to officials.
Get smarter: As the economic slowdown deepens, local government finances will become doubly strained. There will be less tax revenueand more social welfare obligations. This could test the government’s commitment to tackling pollution.
7.What the Party doesn’t want you to know
On Tuesday, we told you about how the Party is trying to harness new media to gets its message out (see Tuesday’s Tip Sheet).
An equally important part of propaganda work is making sure that citizens never see information that the Party doesn’t want them to see.
So what does the Party not want you to see?
SCMP recaps research by WeChatscope on the most censored topics on WeChat in 2018:
“Among the top 10 most censored topics, three were related to the flaring tensions between the United States and China: the prolonged trade war, US sanctions against ZTE and the arrest of Huawei’s chief financial officer Sabrina Meng Wanzhou.”
“Domestically, the most censored topics on WeChat included the #MeToo movement.”
“Another on the list was the vaccine scandal in July.”
“Posts about the world’s first genetically-edited babies…were also heavily censored.”
“Other heavily censored topics last year included the investigation of business tycoon Ye Jianming; top actress Fan Bingbing’s US$129 million bill for unpaid taxes and fines; a deadly passenger-driver conflict in Chongqing and a scandal surrounding Hongmao ‘Medicinal Liquor’”.
Get smart: The propaganda system is not particularly good at promoting its own messages. But it is remarkably good at keeping unwanted information out of the public’s eye (and consciousness).
WechatScope: Censored data
SCMP: US-China trade war among most censored topics of 2018 on WeChat