Driving the Day
1. Li Keqiang says no monetary stimulus coming
- “I reiterate that the prudent monetary policy has not changed and will not change. We are determined not to engage in ‘flood-like’ stimulus.”
That’s what Premier Li Keqiang said at Wednesday’s State Council meeting (Reuters).
The key takeaway: Don’t expect major monetary stimulus to come out of China soon.
Li also indicated that he wasn’t exactly thrilled with the January credit data (Wallstreet.cn):
- “The scale of social financing rose to a relatively large extent [in January] on the surface.”
- “But careful analysis shows that [the increase was largely driven by] bill financing and short-term loans rising relatively quickly.”
- “This may not only lead to ‘arbitrage’ and ‘idling'(空转) of funds, but it may also bring about new hidden risks.”
We agree with Li’s assessment of why credit growth accelerated in January – it was largely down to a one-off jump in banker’s acceptances (i.e. bill financing), not a sustainable uptick in long-term credit growth (see February 15 Tip Sheet).
But interestingly, the central bank (PBoC) seems to disagree with Li on the risks posed by this development (Wind):
- “Bill financing is an important method for offering financial support to the real economy.”
Our take: We also agree with the PBoC. Bill financingparticularly dangerous.
Despite the disagreement between Li and the PBoC, the reality is that the January increase in bill financing is unlikely to be sustained.
The bottom line: January’s lending data does NOT represent a new trend of accelerating credit growth.
Reuters: China will not change prudent monetary policy: Premier Li
Driving the Day, cont’d.
2.More positive momentum on trade talks
This will make markets happy.
Reuters reports that this week has seen significant progress in US-China trade negotiations:
- “The United States and China have started to outline commitments in principle on the stickiest issues in their trade dispute, marking the most significant progress yet toward ending a seven-month trade war, according to sources familiar with the negotiations.”
- “The broad outline of what could make up a deal is beginning to emerge from the talks.”
- “Negotiators are drawing up six memorandums of understanding on structural issues: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.”
That is good news, indeed. But despite the progress, there is one issue where China won’t budge (Caixin):
- “China will not use the yuan’s exchange rate as a bargaining chip to resolve trade disputes with the United States, a spokesman of the Ministry of Foreign Affairs said Wednesday.”
Get smart: It looks like there is genuine positive momentum toward a short-term deal to ratchet down tensions.
Get smarter: Deal or no deal– China and the USsee each other as long-term economic competitors.
3.Bank of Nanjing in the anti-corruption cross-hairs
The crackdown on the financial sector continues. The latest victim – Bank of Nanjing.
Caixin has the details:
- “The Bank of Nanjing confirmed Wednesday that three of its executives are unable to perform their duties, amid rumors that they are being questioned by the authorities in the latest crackdown on corruption in the financial industry.”
- “Sources told Caixin that the trio have been put under investigation by the Communist Party’s anti-corruption watchdog in Jiangsu province capital Nanjing since Friday.”
- “Some bond market observers suspected they were probably involved in illegally funneling lucrative benefits to government officials or other people through the sales of structured financial products.”
Get smart: This is yet another reminder that financial regulators – as well as top politicians – have not backed of the financial de-risking campaign.
Get smarter: The banking regulator (CBIRC) indicated in a key meeting earlier this year that this year’s focus will be on rooting out corruption in the sector.
What to watch: There will be lots more of these cases to come throughout the year.
Caixin: Graft Probe Rumors Swirl Around Key Bond Market Player
4.Xi talks space exploration
Xi Jinping met with scientists and engineers who participated in the research and development of the Chang’e IV space mission on Wednesday.
Some context: Chang’e IV saw China become the first country to land a spacecraft on the dark side of the moon.
Xi wasn’t alone. All six of his Politburo Standing Committee colleagues also attended the meeting.
Xi spoke of the achievement in combative terms:
- “The mission…fully embodies the spirit of indigenous innovation, whichdares to make thefirst move in chess andtakethe initiative in battle.”
But he also stressed that the successwas not China’s alone.
- “The success of the Chang’e IV mission embodied the contributions of numerous participating countries.”
Xi wants to increase international scientific cooperation:
- “We are willing to work with other countries…to expand cooperation on innovation… and promote the development of humanity’s scientific undertaking.”
Our thought: Xi is obsessed with making China into a self-sufficient technological superpower. But he knows that China is still far behind in many fields. With growing calls in the US to bar Chinese access to technology, Xi is keen to find other partners.
CPC People: 习近平：为实现我国探月工程目标乘胜前进 为推动世界航天事业发展继续努力
5.Business to get bigger say in policymaking
The State Council held its weekly executive meeting on Wednesday.
Top of the agenda: Giving business a bigger say in policymaking.
- “All regions and all ministries must listen to the opinions of businesses and industry associations when formulating or implementing any administrative law, rule, or regulation that is closely relate to the production or operation of business.”
Get smart: This is just the latest sign that the government is intent on improving the business environment.
Want to get your voice heard in the policymaking process? We can help. Do yourself a favor, and get in touch!
Gov.cn: 李克强主持召开国务院常务会 要求制定涉企法规规章和规范性文件必须听取相关企业和行业协会商会意见 使政府决策更符合实际和民意等
6.Li Keqiang’s small government revolution marches on
The State Council also announced the abolition of another batch of administrative approvals:
- “It was decided at the meeting that 25 administrative approval items, including pre-approval of corporate names before business registration and preliminary review of domestically produced medicines will be canceled.”
- “Six administrative approval items, including the practicing registration of some professions, will be delegated to government departments at or below the provincial level.”
Li acknowledged that he is essentially disempowering government officials:
- “Our reform to transform government functions affects the vested interests of government departments.”
But he said it’s a must for a more efficient economy:
- “However, administrative streamlining is a must, as excessive and cumbersome reviewing requirements would drive up institutional transaction costs and dampen market vitality.”
- “Meanwhile, the government …focus should shift to setting rules and standards.”
Get smart: Xi Jinping has increased the role of the Party in all aspects of society. But that does not mean that market-oriented reform has stopped. As always in China, it’s complicated.
Gov.cn: China to further cut red tape to invigorate the market
7.State Council discusses housekeeping – seriously
Know what else the State Council discussed on Wednesday?
Housekeeping. Not in the metaphoric sense. In the literal sense: Laundry. Dusting. Sweeping. Cleaning the sink. That kind of housekeeping.
More specifically, policymakers discussed “promoting the improved quality of housekeeping services.”
We are not s***ing you.
Our thought: Seriously? Your economy is tanking. You’re in a trade war. You’re facing a demographic crisis. Geopolitical risk is on the rise. And you’re discussing how to make sure that people clean better?
Get smart: This is not a good use of top policymakers’ time.
On the plus side…We are guessing that most readers in China employ somebody to do housekeeping. The quality of help is set to improve!
8.Party discipline commission ups it game
On Wednesday, officialmedia published the discipline commission’s (CCDI)annual work report, which was delivered by CCDI head Zhao Leji at the commission’sJanuary plenum(see January 14 Tip Sheet).
The report outlinesthe CCDI’s priorities for 2019.
The CCDI will keep the pressure on:
- “We will maintain high pressure to improve conduct and enforce discipline continuously.”
Inspections will become more centralized. Going forward, allinvestigations will be led by discipline commission at a higher level of authority than those being investigated.
As the economy slows, Zhao thinks it’s important for the Party to up its game further.
- The CCDI will enact a more accurate accountability system to rectify wrongdoings with more personal and precise penalties.
Why it matters: The discipline commission is Xi’s enforcer, and the most important body in ensuring implementation of the Party line.
Our thought:The need to change inspection systems, accountability systems, and penalties is a clear sign that the current set up is not working the way Xi wants it to.
People.cn: 忠实履行党章和宪法赋予的职责 努力实现新时代纪检监察工作高质量发展