Driving the Day
1.China isn’t dialing backits industrial policy
It’sthat time of year – late March, which marks the annual China Development Forum (CDF) in Beijing.
CDF is a posh gathering ofglobal businesses leaders, foreign dignitaries, and high-ranking Chinese officials, who all come together to talk about the vast opportunities that businesses can realize by investing in China.
The platitudes are palpable.
That’s why coverage of Minister of Industry and Information Technology (MIIT)Miao Wei’sspeech caught our eye.
Miao – who has been a key proponent behind China’s industrial policy, Made in China 2025 – said that the government should stop “micro-managing” industrial enterprises.
His comment is being taken as an indication that perhaps Beijing is willing to budge on its aggressive industrial policy.
Not so fast: Despite that one phrase, the rest of Miao’s speech was essentially a blueprint for very activegovernment involvement in industry (Jiemian):
- “For emerging industries, we should cultivate and develop new energy automobiles, new materials, artificial intelligence, and other emerging industries.”
Get smart: Chinese leaders know what global businesses want to hear, so they are on point with their messages at CDF.
Get smarter: We’ve argued for months that now is a great time to be investing in China – but that doesn’t mean industrial policy is dead. No by a long shot.
Reuters: China to reduce government intervention in industrial sector
2.Financial opening set to keep on trucking
Another clear and consistent message outof CDF (see previous entry):financial opening is set to ramp up further.
The message was hit consistently by a number of financial officials, with central bank governor Yi Gang being the latest, on Sunday.
Yi’s key message (21st Cent Biz):
- “The financial services industry should apply the same regulatory requirements and standards to Chinese and foreign financial institutions in the aspects of shareholding ratios, forms of establishment, shareholder qualifications, business scope, and number of licenses.”
Yi outlined five areas where China needs to focus in terms of financial opening, and highlighted four key priorities for continued de-risking (Bloomberg):
- “An important task for this year is to study how capital markets can more accurately determine prices, supply sufficient types of hedging tools so that all types of investors can more effectively manage risks.”
His speech came on the back of a similar oneby Wang Zhaoxing, vice chairman of the banking and insurance regulator, on Saturday.
Get smart: There’s one key difference between Yi’s message on financial opening (which we buy) and Miao’s message on industrial policy (which we don’t buy).
The first is consistent with broader rhetoric and action from the government, and the second isn’t.
21st Century Economic Report:
China Has a Lot of Financial Opening Up to Do, Says Central Bank
21st Century Economic Report:
3.Han Zheng promises more opening.
Executive Vice Premier Han Zheng addressed the opening of the China Development Forum (CDF) on Sunday, too.
Han was at pains to say that China’s economy will continue to become more open:
- “Opening-up was key to China’s economic growth in the past, and the high-quality development of China’s economy in the future can only be achieved with greater openness.”
To do that, the government will look to facilitate more trade:
- The country will continue to take active moves to expand imports, further lower tariffs and facilitate customs clearance to better share the opportunities of its large market with the rest of world, he said.
And Han also promised to open more sectors to foreign investment:
- “We will continue to relax controls over foreign investment access, reduce the negative list for foreign investment, and allow wholly foreign-invested enterprises in more areas.”
Our thought: It may not be happening fast enough for most foreign companies, but China is still on anopening path. That is in marked contrast to many Western countries these days, who are focused more on erecting barriers (sometimes literally!) between themselves and the outside world.
Vice-premier: Opening-up ‘a distinctive symbol’ of China today
4.Han Zheng lays out environmental protection priorities
On Friday, Han Zheng headed over to the environmental protection ministry (MEE) to discuss work priorities for the year.
First things first – you got to get the politics right (gov.cn):
- “[We] must improve our political stance, and deepen our study and comprehension of Xi Jinping Ecological Civilization Thought.”
Get smart: This is a (worrying) sign of the times. All work is now “political” in the Xi Jinping Era.
Once the obligatory loyalty screed was complete, Han moved on to environmental protection.
Han said officials need to be better at discovering environmental problems:
- “[We] must construct a robust and scientific mechanism for discovering problems, extensively mobilize the masses, and strengthen society’s supervision.”
In discussing the Yangtze River, Han said that once problems are discovered, they must be dealt with severely:
- “[We] must…increase the strength of our penalties.”
The bottom line: Enforcement of environmental rules and regulations will intensify. Foreign companies need to double and triple checkthat they are compliant. And to the extent possible, companies should do the same for their suppliers.
5.No clear path for competitive neutrality
In his March 5 Government Work Report, Li Keqiang said that the government would follow the principle of “competitive neutrality” for the first time (see March 11 Tip Sheet).
Some context: Competitive neutrality is the idea that state-owned enterprises (SOEs) will be forced to compete with private enterprises based on market principles.
The term has been the talk of the town at the CDF.
Han Wenxiu, deputy director of the office of the Party’s top economic policy making body, promoted the idea (21st Century Biz).
As did Liu Shijin, an important economic policy advisor. Liu said that SOEs should have less interference from government officials.
Liu also took a swipe at Xi Jinping’s “stronger, better, bigger” approach to SOEs (see September 28 Tip Sheet):
- “The government can encourage enterprises to become better and stronger.”
- “[But] no matter whether they be state-owned enterprises, private enterprises, or foreign enterprises, going bigger should be determined by the market.”
Get smart: There is a debate going on among policymakers about how to approach the state-owned economy.
Our take We are likely to see a more hands-off approach to SOEs in non-strategic sectors.
6.Xi gets Italy endorsement for Belt and Road
Xi Jinping was in Italy from Thursday until Sunday.
The trip was a resounding success.
Xi got the royal treatment (FT):
- “Xi…has been received in a style normally reserved for visiting royalty, including cavalry guards escorting his limousine into the presidential palace, and a state banquet on Friday evening closed by the Italian Italian tenor Andrea Bocelli.”
The big news: Italy signed up to Xi’s signature foreign policy project – the Belt and Road Initiative (BRI). That makes Italy the first G7 country to endorse BRI.
It was a particular coup for Xi because it came over the objections of Italy’s traditional allies:
- “Rome’s endorsement …[has] caused consternation in Washington and Brussels, which have voiced concern about China using the initiative to gain influence or control over strategically important assets across the world.”
Important context: The EU is looking to take a tougher stance towards Chinese trade and investment practices. It is also trying to force Beijing to adopt higher standards and be more transparent about the BRI.
Get smart: Italy’s embrace of Xi and the BRI undermines EU efforts to get tough with China.
What to watch: Xi will meet with the EU’s top leaders tomorrow – French President Emmanuel Macron, German Chancellor Angela Merkel, and European Commission President Jean-Claude Juncker.
CPC People: 习近平同意大利总理孔特会谈
The Financial Times:Italy endorses China’s Belt and Road Initiative
Reuters: Italy endorses China’s Belt and Road plan in first for a G7 nation