Finance Economics
1.SAFE eases up on MNCs
On Wednesday, the foreign exchange regulator (SAFE) relaxed rules governinghow multinational companies (MNCs) manage cross-border financial flows.
Believe it or not, the idea is to make it easier for MNCs to get money in and out of China, especially for overseas borrowing and lending (ECNS):
- “The new rules greatly simplify the registration process for multinational companies borrowing from overseas or lending money abroad, and make it easier for them to manage cross-border capital.”
This is welcome: The paperwork burden for payment and settlement of foreign exchange is also set to lighten dramatically.
Why it matters: It’s always been difficult for foreign companies to get money in and out of China. And things got especially bad when capital controls were implemented in 2015-2016.
Memories of 2016 are still fresh. MNCs are nervous that regulators might tighten again if things go south in the trade war and the currency starts to depreciate rapidly.
Get smart: Chinese authorities are aware of the these concerns of foreign businesses. The new rules are an effort to alleviate them.
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The Paper: 跨国公司资金集中运营政策再升级：简化外债和境外放款登记
Ecns: SAFE relaxes cross-border flows for multinationals
Finance Economics
2.Shandong isthrowing money at foreign companies
Calling all foreign companies…Shandong wants YOU!
That’s the message the provincial government is sending with its “Reward Policy for Major Foreign Investment Projects.”
The policyis looking for Fortune 500 companies that will (21st Cent Biz):
- Set up a global or regional HQ in the province by investing USD 10 million or more
- Increase investment in an existing project by USD 30 million or more
- Start a new project by investing USD 50 million or more
The incentive: Local authorities will rebate no less than 2% of the amount of the project – up to a whopping USD 100 million dollars!
Get smart: Chinese authorities are desperate to coax in foreign capital right now. That’s opening space for deals that couldn’t be dreamed of even three years ago.
Last year Guangdong was out front, bringing in two separate USD 10 billion deals from BASF and ExxonMobil. Now, Shandong looks like it wants to replicate that success.
Some context: The Shandong economy could certainly use a boost (Caixin):
- “Two more indebted Shandong province companies entered official bankruptcy proceedings on Friday…as the region’s industrial debt problem deepens.”
That means extra brownie points for companies that are willing to invest.
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21st Century Biz: 山东：引进重大外资项目有重赏 最高奖励1个亿
Caixin: Shandong Industrial Debt Crisis Claims Two More Companies
Finance Economics
3.Property market outlook is not good
The outlook for China’s property market in 2019 is bleak.
The latest sign of weakness – a massive drop in land sales (Caixin):
- “Over the first two months of this year, property developers acquired 15.5 million square meters of land, a 34.1% year-on-year drop.”
- “The volume of land sold nationwide hadn’t suffered that steep a drop since the first three months of 2009.”
- “The value of land deals…fell 13.1% year-on-year…marking the biggest decline since 2015.”
Get smart: Land sales are a leading indicator for new property construction. Clearly developers aren’t in the mood expand.
What everybody is looking for: The current and looming weakness is leading to speculation that policymakers will loosen up restrictions on the market.
But in a visit to the housing ministry (MoHURD) Monday, Executive Vice Premier Han Zheng said not so fast (Xinhua):
- “[We will] always insist on General Secretary Xi Jinping’s requirements that ‘houses be used for living, not for speculation.’”
Han said that market stability is the top goal, followed by finding a long-term solution to fixing China’s property distortions.
What to watch: Han indicated that some cities will start piloting “long-term mechanisms” for property markets in 2019. We expect these to include a mix of land, finance, tax, and other administrative adjustments.
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Xinhua: 韩正：落实城市主体责任 稳地价稳房价稳预期 促进房地产市场平稳健康发展
Caixin: Charts of the Day: China’s Sinking Land Sales
Finance Economics
4.FSSSR gets some fleshing out
Xi Jinping first outlined the concept of Financial Supply-Side Structural Reform (FSSSR) at the February 22 Politburo meeting.
That may sound boring, butit’s a BIG DEAL. FSSSR is now the overriding framework for financial sector policy.
One problem: It’s still not clear exactly what FSSSR is. That’s why we have seen a number of influential folks throughout the policy apparatus discussing lately – and attempting to define exactly what it is.
The latest example is Huang Qifan – deputy director of the legislature’s financial and economic subcommittee.
As Huang sees it, FSSSR is born out of three key deficiencies:
- Market-oriented interest rate reforms still have a ways to go.
- Monetary policy transmission does not work well.
- Monetary authorities haven’t firmly made the jump from quantitative controls to price-based policy.
Our take: All of these lead the supply of credit to go to the wrong places – which fundamentally restricts the economy’s productivity.
Huang also homes in on an ever-increasing mantra among financial officials – China relies far too much on indirect financing.
Get smart: If you want to understand Chinese macro policy, get to know FSSSR. The specific details are still being worked, but this will likely be the key policy frameworkfor the next three years or so.
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Yicai: 黄奇帆：推进中国金融供给侧结构性改革
Politics Policy
5.Trade deal gets delayed
The US-China trade war will remain in limbo for another few months.
Some context: Markets, businesses, and policymakers had all hoped that a temporary agreement could be reached this month at a mooted meeting between Xi Jinping and Donald Trump.
But the SCMP reports that’s not going to happen. The tête-à-tête may not take place until June:
- “Xi and Trump were originally expected to meet at Trump’s Mar-a-Lago private resort in late March, but US ambassador to China Terry Branstad later said the summit had been delayed because the deal was still under discussion.”
- “Then it appeared likely they would meet the following month, but the timetable now appears to have been put back once again.”
At the working level, talks are continuing:
- “The two sides are working to keep momentum going, and this week official Chinese state news agency Xinhua said ‘concrete progress’ had been made following a phone conversation between Vice-Premier Liu He and US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Thursday.”
Get smart: The Chinese side wants a deal, ASAP. But they aren’t going to agree to a meeting between Xi and Trump until a deal is locked in. They don’t want a Hanoi situation on their hands.
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SCMP: Donald Trump-Xi Jinping meeting to end US-China trade war may be pushed back to June, sources say
Politics Policy
6.Xi wants more ideology in education
On Monday, Xi Jinping chaired a symposium with teachers of politics and ideology from around the country.
Some context: Students at all levels are required to take political thought classes that focus on the Chinese Communist canon of Marx, Lenin, Mao, Deng, and now Xi.
Xi said that education is all about training good Communists (Xinhua):
- “[We] must cultivate generation after generation of useful talents who support the leadership of the Communist Party of China and the socialist system of our country and are determined to struggle for their entire lives for the cause of socialism with Chinese characteristics.”
Xi wants education in all areas to have a greater ideological focus:
- “We should improve the curriculum system, solve the problem of coordination between various ideological and political courses, and encourage famous teachers to give lectures in ideological and political classes.”
We feel sorry already for the poor astrophysicist who is going to be forced to explain how his research contributes to the Great Rejuvenation of the Chinese Nation.
Our thought: We’ve never met anyone who actually liked their ideology classes. We doubt that will change.
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Xinhua: 习近平：用新时代中国特色社会主义思想铸魂育人 贯彻党的教育方针落实立德树人根本任务
Politics Policy
7.Data dump – fiscal revenues and expenditures
On Monday, the Ministry of Finance released fiscal data for January and February.
The headlines:
- Total government outlays for Jan-Feb were RMB 3.91 trillion, up 14.6% y/y.
- Total fiscal revenues for Jan-Febwere RMB 3.51 trillion, up 7percent y/y.
Quick take: The government is spending a lot more than it is taking in and, if it keeps it up, will come in well above the 2.8% fiscal deficit target announced for the year.
That’s going to limit the ability of the government to spend later in the year.
One big reason that revenues aren’t keeping up with expenditures: The new Income Tax Law, which came into effect on January 1.
- Revenues from personal income tax were down 18.1% y/y.
What to watch: Revenuepressureis only going to increase given that the government has yet to institute the tax cuts announced at the Two Sessions.
Get smart: The pressure on revenues means that the government may not be able to achieve the RMB 2 trillion tax cutit promised for the year.
The upshot: Economic support measures are going to be less supportive than they are intended to be.
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Ministry of Finance: 2019年1-2月财政收支情况