Driving the Day
1.Politburo focuses on business environment
The Politburo met on Friday.
They had an extensive agenda, centered around reviewing four documents:
- A draft of the government work report to be delivered next month at the Two Sessions
- A report on the work of the central leading group for disciplinary inspections in 2018
- Regulations assessing Party and government officials
- A report on disciplinary inspections of poverty relief efforts
The government’s main focus in 2019: Improving the business environment.
With respect to discipline, the meeting noted that:
- “Efforts should be made to expose political deviation in the implementation of the Party’s…guidelines and policies.”
When it comes to evaluating officials, political orientation is key:
- “The political standard must be incorporated into every aspect of official assessment to ensure that leading officials and cadres at all levels closely align themselves with the CPC Central Committee…in terms of political stance, direction, principle, and path.”
Putting it all together: In 2019, cadres are going to be told to improve the business environment. And if they don’t, they’ll be punished.
CPC People: 中共中央政治局召开会议 中共中央总书记习近平主持会议
Xinhua: CPC meeting discusses draft government work report
2.Financial de-risking marches on
On Friday, Xi Jinping also chaired a Politburo Study Session to discuss the financial sector.
There are two big tasks:
- Improving financial services
- Defusing financial risks
Xi pointed out that the industry faces several challenges:
- “The financial industry’s market structure…and level of service are not yet in line with the requirements of high-quality economic development.”
Xi wants a more diversified banking system:
- “A multi-level banking system with wide coverage and diverse expertise should be established.”
And more small banks:
- “The number of small and medium-sized financial institutions…should be increased, while financial services to the small and micro firms…should be improved.”
Our take: Xi’s prescription for supporting the private sector is more directed lending, not marketization.
On the risk side, Xi reiteratedthat “financial security is an important part of national security.”
He indicated that the industry is going to come in for a lot more scrutiny:
- “Supervision of senior officials in financial institutions and regulators should be enhanced, and more should be done to fight corruption in the financial sector.”
Get smart: Local markets were buoyed, as they look for more support for the financial sector.
Get smarter: This isn’t about pumping up the sector, it’s about making it better and more efficient. That means the de-risking campaign marches on.
CPC People: 习近平：深化金融供给侧结构性改革 增强金融服务实体经济能力
Xinhua: Xi stresses role of finance in serving real economy
3.PBoC mulls changes to monetary policy operations
China’s central bank (PBoC) is doing some soul searching, asit decides whether or not to change how it executes monetary policy (Caixin):
- “The PBOC is mulling a major shift in the way it creates and manages the country’s money supply.”
- “Part of the debate now underway is how big a role Chinese government bonds (CGB) should play in this process.”
Some context: The Ministry of Finance (MoF) floated this idea earlier in the year.
- “Officials from the central bank and the Ministry of Finance have been discussing how the issuance and trading of [CGB] could be used in the implementation of monetary policy and have reached a preliminary consensus to take practices used in developed countries as a guideline.”
We highlighted the MoF deliberations and the PBoC’s seeming reluctance back in the January 19 Tip Sheet.
There are still a lot of details to be sorted:
- “Many details have yet to be fully explored — including an appropriate monetary transmission mechanism…and which maturities of CGB would best enable the central bank to provide liquidity to the financial system.”
Get smart: This would be a major change to monetary operations in China. It’s a space worth watching.
4.Deadline extended on trade talks
China and the US continued trade talks through the weekend.
The big news: On Sunday, US President Donald Trump said he will delaytariff increases.
- “As a result of these very productive talks, I will be delaying the U.S. increase in tariffs now scheduled for March 1.”
- “Assuming both sides make additional progress, we will be planning a Summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement.”
- “A very good weekend for U.S. China!”
Vice Premier Liu He, speaking on Friday, was similarly upbeat:
- “From China’s perspective, firstly, we believe that it is extremely likely that [a deal] will happen.”
The result: Chinese markets had a great Monday (FT).
- “The announcement on Twitter sent China’s CSI 300 index of companies listed in Shanghai and Shenzhen up by as much as 4.6 per cent on Monday.”
Trump’s lead negotiator is a bit less sanguine (WSJ):
- “U.S. Trade Representative Robert Lighthizer said progress was made on unspecified structural issues but cautioned that some ‘big’ hurdles remain before a deal is reached.”
Get smart: Ultimately, the specifics of the negotiations will not be the deciding factor in whether or not we get a deal. That will come down to the rapport between Trump and Xi when the two meet next month.
WSJ: China Trade Talks Extended as Trump Pushes to Close the Deal
SCMP: US and Chinese officials say a trade war deal is ‘extremely’ likely
SCMP: China, US will ‘redouble efforts and speed up’ trade talks, Chinese Vice-Premier Liu He says
FT: Trump tariffs respite sends China stocks soaring
5.Trump says he won’t block Huawei
On Friday, Trump dropped a bombshell.
Speaking of a possible ban on Chinese telecoms providers (i.e. Huawei), Trump said he didn’t want to:
- “artificially block people out based on excuses or based on security.”
Instead, he implied that he would be happy to have Huawei in the States:
- “I want to have competition with China – fair competition.”
- “I don’t want to block out anybody if we can help it.”
- “We want to have open competition.”
Why that statement is a big deal: There have been reports for months that Trump would sign an executive order banning equipment from Chinese telecoms companies.
What’s more, it completely undermines other American officials, notably Secretary of State Mike Pompeo, who have been urging allies to ban Huawei.
The big takeaway: Trump calls the shots. And that means that US policy is never predictable.
SCMP: Trump says US will discuss dropping charges against Chinese tech giant Huawei in coming weeks
CNBC: Huawei’s new foldable phone will top both Apple and Samsung in price, costing around $2600
6.Education reform to promote Xi Thought
Anybody running a company in China knows that it can be difficult to find qualified workers.
The government knows that as well, which is why it is seeking to overhaul the education system.
Over the weekend, the Central Committee and State Council released two education reform plans:
- An education modernization strategy that runs through 2035
- A work plan for the strategy that runs through 2020
Although lacking specifics, the general direction in both plans makes sense.
The goals are to:
- Ensure equal access to education for all
- Making sure that vocational education is suited to industry needs
- Investing more in basic research
- Integrating more technology into schools
But we are pretty wary of this (gov.cn 1):
- “The primary taskis the study and implementation of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.”
- “[We must] promote the entering of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era into textbooks, classrooms, and [students’] minds.”
Get smart: China’s education system is as much about indoctrination as building skills. That’s why the system fails to produce many graduates with critical thinking.
7.Local officials to be responsible for food safety
Over the weekend, the general offices of the Central Committee and the State Council released a set of rules to hold local officials accountable for food safety.
Some context: Xi has promised to provide people a “beautiful life,” of which having safe food is a key component.
The new rules make local leaders responsible:
- “Local party committees and governments at all levels have overall responsibility for food safety in the region.”
- “The main person in charge [of the local Party committee] has primary responsibility for food safety in the region.”
The rules promise to track performance:
- “[We must] comprehensively use measures such as assessments, rewards, and punishments to push leading cadres in local Party and government to perform food safety duties.”
Get smart: In the past, food safety scandals wouldn’t necessarily bring down the local Party secretary. That looks set to change.
The bottom line: Xi is attempting to improve accountability within the system.
Gov.cn: 中共中央办公厅 国务院办公厅印发《地方党政领导干部食品安全责任制规定》