A New Era for Xitaly - China Tip Sheet, March 22 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1.Trade saga with US continues

China’s Ministry of Commerce officially confirmed the dates for the next round of US-China trade negotiations on Thursday (SCMP):

“US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will be in the Chinese capital on March 28 and 29, after which Vice-Premier Liu He, the head of China’s negotiating team, will travel to Washington in early April.”

Buckle up: The two sides are pushing hard to get a deal done. But there is still one very thorny issue to sort out:

“Washington has made clear that any trade deal must have an enforcement framework at its core.”

US President Trump reportedly wants to get a deal done. But his decision to maintain tariffs could scupper any deal:

“US President Donald Trump [said] on Wednesday that tariffs on Chinese imports could remain for a ‘substantial period of time’ to ensure Beijing follows through on its commitments.”

That won’t make the Chinese side happy. And it risks re-igniting China’s perception that the Americans haven’t always negotiated in good faith.

The bottom line: While the twosides are closerto an agreement, there is still plenty of opportunity for talks to fall apart.

Finance Economics

2.CBIRC increasespresence at county level

Yesterday, we highlighted that the market and environmental regulators are looking to beef up their local capabilities.

They aren’t the only ones – the banking and insurance regulator (CBIRC) is on the local-branch-beefing-up train as well (Caijing).

What’s new?

Essentially half of the internal offices at the local level will now be dedicated to specific functions,responsible for things like:

design of policies and regulations
policy implementation
consumer rights protection

In addition, each sub-sector of the financial industry will have a dedicated office– i.e. for policy banks, state-owned banks, joint-stock banks, foreign banks, life insurers, property insurers, etc.

Some context: Previously, the banking regulator was divided purely along functional lines and the insurance regulator was divided purely along sub-sector lines. The newly combined banking and insurance regulator will have a mix of both.

Themain aim is to increase the CBRIC’s local influence – particularly at the county level.

One key reason: Smaller, local banks and insurers and not particularly well run, and often carry more risk.

But there could be problems. Many officials don’t want to relocate to lower-level CBIRC offices.

Get smart: Across the government, there is a push to boost on-the-ground policy enforcement.

READ MORE

Caijing: 银保监局监管下沉

Finance Economics

3.Hong Kongers getting easier access to mainland banks

China’s financial authorities just took a significant practical step in integrating the Greater Bay Area (GBA).

What’s the deal?

Regulators will allow Bank of China to start a trial program offering mainland bank accounts to Hong Kong citizens – without them having to visit the mainland in person.

Caixin explains the rationale:

“Having mainland accounts will make travel more convenient for Hong Kong residents as many mobile service apps such as ride sharing and food delivery require links to Chinese bank accounts.”
“Bank of China said customers will be able to link their accounts to ubiquitous mainland mobile payment systems such as…WeChat Pay and…Alipay.”

That may not seem like a big deal, but in terms of day-to-day life, it’s huge.

If Hong Kongers are going to increasingly commute to Guangdong for work, as the GBA plan encourages, having access to the mobile payments system is essential.

Just ask anyone who has traveledto Beijing recently – getting a cab in the city is impossible, so not having mobile access to pay for aDiDiis a huge headache.

Get smart: This is important, but the more important move will be giving mainlanders easier access to Hong Kong’s financial system.

What to watch: We look for more practical steps toward makingthe GBA a reality to be rolled out this year.

Politics Policy

4.Xi’s Europe visit

Xi Jinping arrived in Rome last night.

Xi wants the visit to usher in a “new era” for Sino-Italian relations (China Daily):

“I hope to work with Italian leaders to map out the future of our relationship and move it into a new era.”

The big news: China and Italy are expected to sign a memorandum of understanding (MOU) on the Belt and Road Initiative (BRI).

Why that’s a big deal: Italy will become the first G7 country to sign up to Xi’s signature foreign policy project. And it comes over the objections of other EU countries and the US.

The MOU is expected to preview Chinese investment in the four ports of Genoa, Palermo, Trieste, and Ravenna.

Some context: Increased Chinese investment in Italy is starting from a low base (FT):

“Italy…only ranks 76th globally for Chinese capital invested in greenfield projects in the last 10 years.”
“Even when including mergers and acquisitions and other forms of investment, Italy…lags behind peers in terms of Chinese investment.”

The bigger picture: The EU is trying to form a common position on Chinese investment. But it’s hard to find a consensus in such a diverse set of countries.

Politics Policy

5.Li Keqiang reiterates pro-business agenda

Li Keqiang headed to the Ministry of Finance (MoF) on Thursday.

This was Li’s first visit to a ministry since the conclusion of the Two Sessions, and it was clear that Li wanted to send a message with his visit.

That message was a familiar one: Cut taxes!

Li specifically visited the Value-added Tax Office of the MoF’s Tax Department, where he told officials (gov.cn):

“[We] must ensure that the tax burden for important industries is markedly reduced, that the tax burden for some industries is somewhat reduced, and that the tax burden for all industries only falls and does not rise.”

Li then continued his pro-business parade by heading over to the State Administration of Taxation’s (SAT) Office for Cutting Taxes and Reducing Fees.

There, he underscoredto officials the importance ofupcoming VAT reductions, which will be implemented on April 1.

Related: MoF and SAT have already released detailed policies on implementing the VAT reduction (SAT).

Get smart: The government’s number one priority for 2019 is improving the operating environment for companies. Cutting taxes is a core component of that strategy.

Politics Policy

6.Government attempts to limit fallout from chemical blast

A major explosion took place at a chemical plant in Jiangsu on Thursday(SCMP):

“The chemical plant blast…packed the force of a minor earthquake, [and] has killed at least 47 people, left 32 in a critical condition and seriously injured 58.”

And the death toll is still rising.

It’s so bad that Xi Jinping had to wire instructions back to China while flying to Italy (Xinhua):

“[The government should] search for and rescue trapped people…[and] prevent and control environmental pollution.”
“[We] must ascertain the cause of the accident as soon as possible, release authoritative information in a timely manner, and strengthen guidance of public opinion.”
“Local governments and relevant departments should learn profound lessons… [and] resolutely guard against serious accidents.”

The sad truth: Blasts like this are so common in China that the local Propaganda Department in Xiangshui County has apparently developed guidelines for how to deal with them.

The guidelines include::

Tail every journalist 24 hours a day
Use any inducement to persuade journalists not to report on the incident
Don’t let anyone except the government spokesperson speak about the event
Censor unofficial online information

The sadder truth: The Party-state is much better at covering up blasts than preventing them.

A New Era for Xitaly — China Tip Sheet, March 22

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