1.Data dump – credit
China’s central bank has some explaining to do, apparently.
The bank released credit data for February over the weekend – and it wasn’t great.
- The monthly flow of total credit came in at just RMB 703 billion– well below January’s RMB 4.6 trillion, and expectations of RMB 1.3 trillion.
- The pace of total credit growth slowed to 10.1% y/y – down from 10.4% in January.
- RMB banks loans grew at 13.3% y/y – down from 13.6% in January
The lower-than-expected credit print has led to worries that maybe the PBoC’s policy support won’t be quite as strong as markets were hoping (as we have long argued).
But those dashed hopes were largelya product of the hugecredit impulse in January – which led many analysts to declare the death of China’s financial de-risking drive and the start of a new round of credit pump-priming.
Just as the PBoC clearly explained that seasonal and other one-off factors drove the jump in January, the bank also explained that the reversal of those factors drove the drop in February.
So, on balance – credit growth remains slow-but-steady.
What to watch:The PBoC’s statement argued that better monetary transmission has now caused the deceleration in credit growth to bottom out.
We’re not quite so sure, but the March numbers should let us know one way or the other.
2.PBoC’s take on the credit data
There were some other interesting tidbits in the PBoC’s explanation of the February credit data.
They pointed out that improved credit growth in Jan-Feb, compared to Q4 2018, was driven by three factors:
- Solid bank lending
- A resurgence in corporate bond issuance
- A slowing contraction in entrusted lending
And banker’s acceptances (bills) saw a huge contraction in February – after accounting for a big chunk of the jump in lending in January.
Some context: The PBoC and Premier Li Keqiang got into a bit of a public spat over the large amount of bills issuance that took place in January. Li said he was concerned about it. The PBoC said it was temporary and no big deal.
Looks like the PBoC was right.
Get smart: Shadow banking – of which entrusted lending and bankers’ acceptances are a big part – can’t contract forever. And it looks like we are about to reach the inflection point where shadow banking levels out. That should support overall credit growth in the coming months.
The bank also said that credit growth will match nominal GDP growth in 2019.
Our take: Given that both are currently running at about 10% y/y – we should not expect big a comingacceleration of credit growth to be very large.
3.Yi Gang tells everybody to chill out
PBoC governor Yi Gang held a press conference on Sunday on the sidelines of the Two Sessions.
Yi’s touched on the February lending data and broader monetary policy. He made the following key points:
- No one should read too much into any one month of credit data – the big seasonal factors in January and February mean we won’t know the real underlying pace of credit growth until the March data come out (we agree).
- The PBoC’s monetary policy stance has not changed, even though it is no longer describing policy as “prudent and neutral” but instead as simply “prudent.” The PBoC just wanted a more succinct way to describe its stance.
- The bank will continue to cut reserve requirements this year, but there is less room than in the past to make cuts – so there are unlikely to be four cuts like there were last year.
- The PBoC has largely exited its day-to-day management of the currency. And the PBoC has no desire to depreciate the CNY as a trade tool.
Get smart: Yi’s fundamental message was to not get overly excited about small tweaks to PBoC language or a single data print. The policy stance is pretty straight forward – tweaking things at the edges but no major credit acceleration.
Our take: Yi is right. Everyone is wishing so hard formonetary stimulus out of China, but what you see is what you get.
4.Hu Jintao’s son gets a promotion
Xi’an has a new Party secretary – Hu Haifeng, son of former Party general secretary Hu Jintao.
That’s according to unconfirmed reports in the SCMP.
The position gives the 46 year-old Hu vice-ministerial rank, and puts him in a good position to ascend to higher office.
Hu is walking into a tricky situation:
- “[Xi’an] is reeling from a political scandal, with a string of officials under investigation by the party anticorruption watchdog, the Central Commission for Discipline Inspection.”
- “The officials were accused of corruption and dereliction of duty after they ignored direct orders from President Xi Jinping to demolish illegal villas built in a nature reserve in the Qinling mountains.”
Get smart: Usually, when an outsider is brought in to clean up a scandal-plagued city, it’s a good sign for their career, as it indicatesthattop leaders consider them capable and loyal.
Our question: As we said,Hu is stepping into a difficult situation. Is there any chance that Xi Jinping is handing him a poisoned chalice?
Fun fact: You know who also used to be Xi’an Party Secretary? Xi’s bestie (and currently #3 in the Party) Li Zhanshu.
5.Legislative plan for 2019 drops
On Friday, NPC Chairman Li Zhanshu delivered the NPC’s annual work report, which laid out the body’s priorities for the coming year.
Here are the laws that the legislature plans to work on.
They will continue to deliberate the Civil Code.
They will work on drafting eight pieces of new legislation:
- Amendment No. 11 to the Criminal Law
- Basic Healthcare and Health Promotion Law
- Property Tax Law
- Export Control Law
- Community Corrections Law
- Civil-Military Integration Development Law
- Veterans Protection Law
- Governmental Sanctions Law
They will also be revising six laws:
- Securities Law
- Officers in Active Service Law
- Military Service Law
- People’s Armed Police Law
- Organic Law of the National People’s Congress
- Rules of procedure of the National People’s Congress
They will begin studying and drafting two laws:
- Biological Safety Law
- Yangtze River Protection Law
By far the most talked about is the Property Tax Law. If the government ever introduces a property tax, it will have major ramifications for the property market and the larger economy. More importantly, it could also change the relationship between the citizens and the state.
Get smart: The Property Tax Law is hugely contentious, and will not be passed quickly.
What to watch: In April, the NPC Standing Committee will further refine this plan, and specify which laws are of greater priority.
6.Legislature debates new Foreign Investment Law
On Friday, the legislature began debating the latest draft of the Foreign Investment Law that will be approved on Friday.
State media is certainly making a big deal of the law, saying that it will usher in a “new chapter” for foreign investment.
Politburo member and NPC Vice Chairman Wang Chen, speaking on Friday, said (Xinhua):
- “The law is a full testament to China’s determination and confidence in opening wider to the outside world and promoting foreign investment in the new era.”
Get smart: The new law’s promise of “equal treatment” for foreign companies is undoubtedly positive. But there is woolly language on national security that could easily be used as pretense to discriminate against foreign companies.
What to watch: The practical impact of the law will only really be known after subsequentimplementing guidelines are formulated.
Xinhua: China’s foreign investment law to usher in new chapter of opening up
7.SAMR promotes equal treatment
“Competitive neutrality” has been a policy buzzword for the past six months.
Some context: It’s basically the idea that private and state-owned companies will be treated equally.
Li Keqiang promoted the concept in the Government Work Report last Monday:
- “We will follow the principle of competitive neutrality, so that when it comes to access to factors of production, market access and licenses, business operations, government procurement, public biddings, and so on, enterprises under all forms of ownership will be treated on an equal footing.”
But private businesses are still not happy, having seen little improvement on this front.
At a press conference this morning, Zhang Mao, minister of the State Administration for Market Regulation (SAMR) said that he has heard businesses’ complaints (Xinhua).
- “Many companies report that the first thing [they] need is not a preferential policy, but a fair competitive business environment.”
And Zhang said that SAMR is doing its part:
- “SAMR is taking action to ensure equal treatment in the area of market access.”
SAMR’s plan: The body will undertake an in-depth study in 2019 of how policies affect fair competition in specific industries (SAIC).
Why that matters: “Studying” in officialese is oftenaprecursor to taking action. So we would expect to see more concerted action in this area next year.