Xi signals his approval of the policy direction – China Tip Sheet, March 20

Driving the Day

1. Top policymaking body meets

On Tuesday, Xi Jinping chaired a meeting of the Central Commission for Comprehensively Deepening Reform (CCCDR).

Some context: The CCCDR was established as part of the MASSIVE Party-state restructuring in March 2018. It is the most important policymaking body in the country.

The meeting was productive, as always. The commission approved eight documents on the following topics:

Development of western China
Management of research organizations
Integrating artificial intelligence into the economy
Rural governance
Public resource trading platforms
Oil and gas pipeline reforms
Provision of public legal services
Firefighting law enforcement reforms

As always, the actual texts of the documents were not released.

Pay attention: What the CCCDR discusses today becomes policy tomorrow. We will see all of these filter through the policymaking apparatus in the coming months.

This was important: The meeting emphasized that the top priorities for this year are:

Financial sector reforms
Cutting taxes and reducing fees for businesses
Improving the operating environment for businesses

Why that matters: Although the above priorities were clearly laid out in the Government Work Report, it is important that the Party’s main policymaking body has also endorsed them. This is a sign that Xi is behind the policy direction.

Driving the Day, Cont’d.

2.National pipeline gets a step closer

At the CCCDR meeting (see previous entry), officials reiterated the plan to establish a national pipeline monopoly to run China’s oil and gas pipelines, which are currently controlled by the Big Three state-owned oil companies.

The new company will be state-controlled but will attempt to attract investment from private capitalas well.

Some context: A national pipeline company has been in the works for years, so this isn’t exactly a surprise. And there have been reports for months that the government is close to finalizing a plan for the company (see December 10 Tip Sheet).

Why this is happening: Authorities present the new company as a “marketizing” reform and claim that it will:

Increase the number of upstream suppliers
Create a competitive market for downstream users

What to watch: We are curious to see how the government decides to calculate the fees for using the new pipeline. That formula will be key to attracting outside investment.

Our take: This is a good thing. The new company should lead to a more rational and efficient pipeline network as it seeks to maximize both upstream and downstream access.

Finance Economics

3.Securities regulator outlines 2019 priorities

Local investors are keen to understand what the new man at the top of the securities regulator (CSRC) is all about.

Recall: Yi Huiman replaced Liu Shiyu atop the CSRC in January(see January 28Tip Sheet). As a veteran of the banking sector, there will be a learning curve for him to get up to speed onsecurities regulation.

Yi held a high-profile press conference on February 27, but since that time we haven’t heard a lot from him.

That’s why a recent meeting of the CSRC Party committee is garnering interest.

Yi laid out his 2019 priorities for cadres at the gathering, saying officials shoud (21st Cent Biz):

Correctly grasp the essence of finance – and understand that the financial sectors raison d’etre is to support the real economy
Deepen the structural reform of the financial supply side – by providing higher quality and more efficient financial services
Balance the relationship between steady growth and risk prevention
Deal with risks in key areas accurately and effectively
Accelerate financial reform and opening up

ICYMI: That’s yet another very high-profile mention of Financial Supply-Side Structural Reform (see yesterday’s Tip Sheet).

Also, ICYMI: Regulators are still heavily focused on controlling risks.Anyonethinkingthatthe de-risking drive is overneeds to think again.

Finance Economics

4.More detail on CSRC objectives

Yi Huiman also outlined11 specific tasks for the CSRC in 2019 (see previous entry).

We highlight the more interesting of them here:

Focus on improving the quality of listed companies
Significantly raise the cost of violating laws and regulations
Strengthensupervision of the whole transaction process
Actively create conditions for medium- and long-term capital to enter the market
Enhance the opening up of capital markets
Promote unified supervision of the bond market
Actively develop futures and derivatives markets

Get smart: That’s a broad and ambitious list. We think the securities sector is in for a big – and positive – shake up this year.

Finance Economics

5.Local governmentbonds go OTC

China’s mom-and-pop investors are about to get a new place to park their money.

Soon, a lucky fewwill be able to buy special project bonds issued by local governments. The sales will take place over the counter and be offered by a handful of banks.

Some details, per Caixin:

“[The city of] Ningbo plans to sell a three-year special-purpose bond worth up to 840 million yuan to raise money to purchase land reserves.”
“The issuance will include up to 300 million yuan in notes that will be offered to individual and small institutional investors in the province.”

Provinces are getting in on the action, too (Shanghai Securities Journal):

“From March 25 to April 3, Ningbo, Zhejiang, Sichuan, Shaanxi, Shandong, and Beijing Municipal Finance Departments will…pilot to the issuance of local government bonds in the over-the-counter market.”

Apparently, ICBC will be the first bank to offers these bonds.

Our take: It’s easy to be skeptical on this one, and assume this is yet another method for the state sector to co-opt household wealth.

But ICBC argues its partly about financial inclusion. Local government bonds are high-quality investments, with a decent return. So why shouldn’t average investors get a piece of the action?

Politics Policy

6.Trade talks resume in Beijing next week

After nearly a month off, face-to-face trade negotiations with the US are set to resume (WSJ):

“U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin plan to fly to Beijing next week to meet with Chinese Vice Premier Liu He.”
“The following week, a Chinese delegation led by Mr. Liu is expected to continue talks in Washington.”

Trump still looks eager for a deal:

“’When can you get a deal done?’ Mr. Trump asked the trade representative in a March 12 exchange.”

But Bloomberg reports that Chinese negotiators are walking back previous promises:

“Chinese officials have shifted their stance because after agreeing to changes to their intellectual-property policies, they haven’t received assurances from the Trump administration that tariffs…would be lifted.”
“Beijing has also stepped back from its initial promises over data protection of pharmaceuticals, didn’t offer details on plans to improve patent linkages, and refused to give ground on data-service issues.”

That could be because Liu lacks authority (WSJ):

“[Liu has] limited authority, forcing him to seek approval of deal provisions from Mr. Xi and other senior Communist party officials.”

Our take: Trump’s the most important actor here. If he wants a deal, we’ll get a deal.

Politics Policy

7.Party guru discusses ideological risks

In January, Xi Jinping outlined a long list of risks facing the Party in a meeting with senior officials (see January 22 Tip Sheet).

But the official readout of that meeting offered scant details on exactly what the risks are.

Lucky for us, Party theoretician Liu Junxian has fleshed out one of those risks – “ideological risk” – in a recently published piece (Chinese Cadres Tribune):

“Led by the United States, Western countries are conspiring in stepping up their efforts to to Westernize and divide China.”
“China’s society has produced…a large range of political ideas representing different interest groups.”
“A significant portion of them represent unhealthy trends of thought, such as historical nihilism, neoliberalism, democratic socialism, consumerism,… extreme nationalism, and the theory of ‘universal values.’”

Apparently, many a cadre are susceptible to these insidious ideas:

“In recent years, many of the leading cadres who have been investigated…had lost faith, stopped believing in Marxism-Leninism, and believed in ghosts and gods.”
“Some publicly stated that the Communist Party is ‘illegal’and opposed the Party’s leadership.”
“Some publicly refute the status of the state-owned economy and advocate private ownership.”

Get smart: Throughout its history, the Party has swayed between periods of ideological tightness and laxity. At the moment we are clearly in a period of tightening.

READ MORE

Chinese Cadres Tribune: 刘昀献：筑牢应对意识形态领域风险的坚固防线

Xi signals his approval of the policy direction – China Tip Sheet, March 20

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