Driving the Day
1.Xi tells cadres to ask for instructions – or else!
Yesterday, we told you that Xi Jinping remains unsatisfied with the Party apparatus. One particularly vexing problem is the system’s inability to carry out policy.
On Thursday, the Central Committee released new regulations to address the issue:
- “Chinese Communist Party Regulations for Asking Instructions and Reporting on Major Matters”
They make it incumbent upon lower-level officials to seek guidance and approval from higher-level groups with respect to a broad range of situations.
This makes sense in some cases, such as when an official has difficulty in implementing her/his superior’s policy – or for trans-regional issues that need coordination.
But the regulations also instruct cadres to seek advice from their superiors for when designing pilots. Pilots by their very nature are experimental, so why not give officials more leash?
Want to know the best part? Article 30 specifies when cadres should ask for instructions. After a list of (mildly) specific situations, it also tells cadres to ask instructions about “other important tasks that need instructions.”
And here’s the kicker: If you are found to have not asked for instructions when you should have, you will be penalized!
Sounds like a recipe for timid cadres to us…
Our take: This exemplifies Xi’s centralizing tendency. We are sympathetic to the desire for more consistent policy implementation. But there is a risk that this move only further gums the system up – as all decisions are kicked upwards for approval.
CPC People: 中共中央印发《中国共产党重大事项请示报告条例》
Driving the Day, cont’d.
2.Everybody reports to Xi
Speaking of centralization…
In recent days, Politburo members delivered their annual reports to Xi Jinping.
Some context: Since last year, Xi has required that every member of the 25-strong Politburo submit a report to Xi personally, describing his or her work over the past year.
According to the official readout, Xi has “conscientiously reviewed” the reports.
The readout praises the work of the Politburo comrades, which appears to be mostly about following Xi’s orders. Here’s a representative passage:
- “Politburo comrades have, on their own initiative, reported to the Party Center and General Secretary Xi Jinping on the situation regarding progress in thoroughly carrying out the Party Center’s decisions, and have asked instructions of the Party Center and General Secretary Xi Jinping in a timely manner regarding major problems, major projects, and major works.”
Pretty gripping stuff!
The bottom line: Xi is calling the shots. That could lead to more unified policy. But it also means that Key Man Risk is on the riseif no one can speak truth to power.
CPC People: 中央政治局同志向党中央和习近平总书记述职
3.PMI a wake-up call to investors
Global stock markets got a wake-up call in terms of China’s short-term growth trajectory on Thursday (Nikkei):
- “Factory activity in China contracted to a three-year low in February as export orders fell at the fastest pace since the global financial crisis.”
We’ve said before that we don’t love the PMI as a great indicator of the health of the economy, and the readings around Chinese New Year tend to be extra weak, despite seasonal adjustment.
Complacency around the Chinese growth picture has been setting in among investors, who have largely overestimated the size and effectiveness of recent economic support measures and are hoping for big future stimulus that won’t come, in our view.
Add in a weakening external picture and the economic picture is dark:
- “New export orders shrank for a ninth straight month…amid faltering global demand.”
- “The sub-index fell to 45.2, the lowest since February 2009.”
Get smart: Weakglobal economic growth should keep developed world central banks dovish – and that should support emerging market (EM) assets. But overly bad economic data out of China will continue to spook global markets, hurting flows to EMs.
Whichever of those two dynamics is more powerful over the coming months will determine how much room Chinese stocks have to run.
Nikkei: China factory activity shrinks to 3-year low in February
4.PBoC repeats”no big stimulus” message
Markets just don’t seem to be getting the message from the central bank (PBoC) – a surge in credit is not on the cards for 2019.
So the PBoC continues to repeat its mantra. On Thursday, a keybank official made the case again (Caixin):
- “(We) will fully take into account new changes in the economic and financial situation to fine-tune (policies), but we will do this in a measured manner and firmly avoid flooding the economy (with credit),” Wang Jingwu, head of the Financial Stability Bureau of the People’s Bank of China (PBOC), said in an interview with the Financial News.
The bank will tweak policy around the edges:
- “(We) will keep a close eye on and carry out a dynamic assessment of market liquidity and factors affecting it, and be vigilant against the formation of a ‘liquidity delusion’ and expectations of one-way (moves in the monetary policy) among market participants,” he said.
Get smart: We know we sound like a broken record to our readers. But we, like the PBoC, want to make sure the message is clear.
Significant monetary and credit loosening will not ride to China’s economic rescue.
Caixin: Central Bank Official Downplays Chances of Credit Binge
5. Population challenges intensify
Weak PMIs helped drive equity markets lower on Thursday (see Entry 3).But PMIs were not the most important data released yesterday.
This will have more lasting consequences (Reuters):
- “China’s working-age population fell to its lowest level since 2009 last year and was below a billion for the first time since 2010, data released on Wednesday showed.”
- “Slowing population growth and a shrinking pool of workers present a challenge to China’s economic growth as well as its state-run pension program.”
- “China’s total working-age population, or the number of people aged between 15 and 64, was 998.3 million people last year, compared to 1.0026 billion at the end of 2016.”
- “[That was] the biggest decline since the working-age population began falling in 2014.”
What’s more, there are now fewer people under the age of 15 than above the age of 60.
Get smart: A swiftly aging population is the biggest hurdle to maintaining China’s economic growth rate. For now, policymakers have no game plan to address the issue.
Reuters: China working-age population shrinks, presenting pitfall for pension plans
6.Greater Bay Area coordination challenges
Top leaders are all in on the Greater Bay Area plan (see Feb 19 Tip Sheet).
But they face one big problem: How do you integrate three areas with separate political and legal systems?
At a press conference yesterday, officials sought to address the issue.
They didn’t do a good job.
Here is NDRC Vice Chairman Luo Wen:
- “[We will] explore connecting the systems, building a ‘policy bridge’…and pushing forward market integration.”
And here is Mi Jian, head of the Macau government’s Policy Research and Regional Development Bureau:
- “The best way out now is to simplify this seemingly extremely complex issue.”
- “As for what simplification is, we are all discussing [that].”
The central government did promise this:
- “[We will] give play to the decisive role of the market in resource allocation., and administrative intervention will be reduced further.”
- “When dealing with matters involving Hong Kong and Macau, [we will] fully consult the opinions of the SAR governments and people…to ensure proper procedures.”
Get smart: The GBA plan was delayed for months because this coordination issue is so difficult to solve – and it’s not clear the various governments agree on an approach.
This is likely to be a perennial problem for the GBA.