Driving the Day
1.CBIRC highlights successes, outlines next steps
On Monday, China’s banking and insurance regulator (CBIRC) held a high-profile press conference.
The goal of the presser: to highlight the success of the financial de-risking campaign, and to outline next steps (Reuters):
- “China has met its target for reducing debt levels but will keep cracking down on riskier types of financing to contain risks to its financial system, the [CBIRC] said on Monday.”
Markets were buoyed by comments that regulators are happy, and will provide support for the private sector:
- “The regulator [also] said in a statement on Monday that it had ordered all of the country’s banks to sharply increase financial support for private companies.”
But here’s what markets ignored: The bulk of the press conference centered around the work that regulators still have to do (SCIO).
- “Many potential risks have not been completely eliminated, and the early-stage achievements…need to be consolidated.”
Specific goals going forward include:
- “Continuing to increase efforts to dispose of non-performing assets of banking institutions”
- “Taking precautions against the liquidity risks of small- and medium-sized banks”
- “Focusing on shadow banking activities including…entrusted loans and trust loans”
- “Keeping a close eye on financial risks from real estate”
Get smart: Markets want to believe de-risking is dead. It isn’t.
Reuters: China says meets debt control target as it ramps up economic support
2.Banks clamp down on funny business in bill issuance
Apparently, Li Keqiang had a point.
Readers will recall his public spat with the PBoC over the January lending data – when he argued that a resurgence in short-term banker’s acceptance (aka bills) drove risky lending in China.
The PBoC said he was worrying to much.
But now, it seems that banks are cracking down on their bills business (21st Cent Biz):
- “Reporters have learned that some banks are planning to start to undertake holistic inspections into their bill discounting businesses, by the end of February.”
- “Once arbitrage activity is found, banks will take drastic measures quickly, including suspending the discount business of corporate bills.”
- “Reporters also learned that some banks are upgrading their systems to more quickly verify discount volumes against sales revenue.”
Apparently, punters were issuing cheap bills to invest in higher-yielding structured deposits:
- “In January, there was a price difference of about 100 basis points between the bill interest rate and structured deposits.”
- “Many bill intermediaries invested funds into structured deposit to earn the price difference.”
Get smart: This crackdown should mean that a key supporter of credit growth in January has become a key drag in February. So we expect credit growth to resume decelerating this month.
21st Century Biz: 多家银行启动票据套利内部自查 票据套利“盛宴”曲终人散
3.Delivery drivers protest
Tensions are running high among China’s army of delivery drivers, as competition drives the biggest delivery company to cut costs.
TechNode has the skinny:
- “Food delivery giant Meituan Dianping faces pushback as its delivery fleet staged a series of strikes in several major cities across the country this past week in protest of recently lowered wages.”
- “A picture featuring a row of scooters bearing signs reading ‘Stop taking orders’ parked on a university campus in Jinan, the capital of eastern Shandong province, was posted Sunday by [a] Weibo user.”
- “At least two other strikes by delivery fleets contracted to Meituan have taken place since last week – one in Linyi,…Shandong province, and another in Dongguan…in southern Guangdong province.”
Things are getting intense:
- “The conflict has become physical at times… with confrontations breaking out between striking workers and merchants who continue to use the platform as well as striking workers sabotaging deliveries for peers that continue to take orders from the platform.”
Our thought: We’ll be interested to see where the Chinese government comes down on this. Beijing gets twitchy at the slightest hint of labor unrest. But it also doesn’t want to make deliveries more expensive at a time of weakening consumer demand.
TechNode: Meituan labor strikes underscore profitability pressures
4.Huawei’s big win in Saudi Arabia
For the past month, we’ve been highlighting Huawei’sglobal troubles – and the increasingly bifurcated global technology ecosystem that is developing.
Huawei can breathe a bit easier aftera big win in Saudi Arabia (Caixin):
- “Telecommunications giant Huawei Technologies Co. Ltd. said that Saudi Arabia will fully embrace its next generation 5G infrastructure technology.”
- “The kingdom will begin deploying the company’s 5G infrastructure over the next year, becoming one of the first countries to roll out the technology.”
- “Saudi Arabia’s support was particularly welcomed in Beijing.”
Get smart: Saudi Arabia is an important Middle East ally of the US – and will continue to be. That’s why it’s decision to go with Huawei is particularly important.
The Saudi rationale:
- “The monarchy is looking to diversify its oil-dependent economy into other fields and early adoption of 5G technology is seen as a way of supporting the development of a stronger “digital” economy.”
- “Huawei will invest $20 million annually in projects in Saudi Arabia to support its diversification push.”
Get smart: US calls to ban Huawei increasingly seem to be falling on deaf ears.
Caixin: Huawei to Build Saudi Arabia’s 5G Infrastructure
5.Foreign investment regime to get makeover
On Monday, Xi Jinping chaired the second meeting of the Commission for Overall Law-based Governance.
Some context: Thecommissionwas created in March 2018 to better coordinate legislation, law enforcement, and the judiciary. Its first meeting was in August 2018.
Monday’s meeting was busy. The commission approved seven documents:
- A report on the commission’s work in 2018
- Priorities for the commission’s work in 2019
- The 2019 plan for drafting Party regulations
- The legislature’s 2019 legislative plan
- The State Council’s 2019 legislative plan
- Opinions on initiating model events for constructing a law-based government
- Opinions on constructing the governance system of Hainan and supporting Hainan’s reform and opening up
- Draft temporary rules on the process for making big administrative decisions
Quick take 1: If it’s coordination you want, this should do the trick. The commission will make sure that the Party, legislature, and government are all rowing in the same direction when it comes to drafting laws and regulations.
Quick take 2: The opinions on Hainan are intriguing, and imply that we may see some interesting reforms on the island.
Foreign business pay attention: The meeting also said that “unified fundamental laws regarding foreign capital must be formulated.” This implies more than just the new Foreign Investment Law, which will be passed in a few weeks.
CPC People: 习近平主持召开中央全面依法治国委员会第二次会议
Xinhua: Xi highlights favorable legal environment for reform, development, stability
6.Wealthy Chinese are downbeat about economy
Chen Tianyong, a wealthy Shanghai real estate developer, moved to Malta last month.
After he left the country, he explained why in a letter posted on social media:
- “China’s economy is like a giant ship heading to the precipice.”
- “Without fundamental changes, it’s inevitable that the ship will be wrecked and the passengers will die.”
Whoa. That’s pretty dramatic.
But Chen is far from alone in his pessimism:
- “Only one-third of China’s rich people say they are very confident in the country’s economic prospects, according to a recent survey of 465 wealthy individuals by Hurun, a Shanghai-based research firm.”
- “Two years ago, nearly two-thirds said they were very confident.”
- “Those who have no confidence at all rose to 14 percent, more than double the level of 2018.”
And get this:
- “Nearly half said they were considering migrating to a foreign country or had already started the process.”
Our experience: It’s pretty rare to meet well-off Chinese who don’t either have a foreign passport or are looking to acquire one.
Get smart: The exodus of China’s wealthy is a pretty damning statement on China’s system.
NYT: China’s Entrepreneurs Are Wary of Its Future