The Chinese side was very eager to have a joint statement - China Tip Sheet April 10, 2019 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1.China and EUto complete investment treaty by 2020

Li Keqiang met with European Council President Donald Tusk and European Commission President Jean-Claude Juncker in Brussels on Tuesday for the annual China-EU Summit.

The big news: The two sides signed a joint communique.

Why that’s a big deal: As of yesterday, it appeared that the two sides could not agree on a joint statement (see yesterday’s Tip Sheet).

There was some high drama to get the statement across the line (SCMP):

“The two sides were able to draft a joint statement at the last minute, but not before European negotiators initially threatened to walk out from the discussions.”

The Chinese really wanted a statementto get done (Euractiv):

“’The Chinese side was very eager to have a joint statement,’ European officials noted.”
“Beijing sent new draft proposals on Saturday, Sunday and Monday evening to narrow the outstanding gap.”

Industrial subsidies were perhaps the biggest point of contention. Here is what the two sides agreed (European Council):

“Both sides will intensify the discussions with the aim of strengthening international rules on industrial subsidies.”

This is more important: The two sides promised to conclude an investment treaty by 2020.

Get smart: The Europeans are making out like they got big concessions from China. But we don’t see it.

Finance Economics

2. Rural banking consolidation takes a step forward

The banking regulator (CBIRC) has given approval for a small Jiangsu bank to consolidate rural lenders in a handful of provinces (Caixin):

“The CBIRC granted approval on Thursday for Shanghai-listed Jiangsu Changshu Rural Commercial Bank Co. Ltd. to set up a special village bank called Xingfu Village Bank in the southern province of Hainan to manage its other 30 village banks.”
“Xingfu Village Bank will hold the complete stakes of 30 village banks based in the provinces of Hubei, Jiangsu, Henan and Yunnan.”
“The new bank will also be able to acquire other community banks across the country.”

Authorities haven’t explicitly outlined the rationale here, but it looks like an effort to further boost lending to small, rural enterprises.

The goal is to incentivize lending by bringing down costs, via streamlined ownership and management:

“Currently, most of the village banks that have been set up by large commercial banks are managed by a designated department or business division within the parent bank.”
“This management model comes with higher management costs because it gets harder to coordinate as more village banks are established.”

But one key challenge remains:

“Rural community banks…are exposed to high levels of risk because most of their borrowers…often lack adequate collateral.”

Finance Economics

3.Coal import restrictions expanded

Chinese authorities are looking to restrict coal imports in 2019 – capping shipments at the same level as 2018.

Reuters has the scoop:

“Three…sources were told by provincial-level customs officials to restrict their imports in 2019 to no more than 2018 levels.”
“A fourth source, an official with a government-affiliated body who was familiar with the import policy, said the decision was made by China’s State Council.”

The move is geared to protect domestic producers by supporting coal prices:

“’Mining companies and provincial governments voiced their opposition against more imports,’ said the official.”

But industrial producers aren’t exactly happy about it, as previous restrictions are already denting profits:

“Rising domestic coal prices have pressured profit margins at Chinese coal-fired utilities, industry executives said at the Coaltrans conference in Shanghai on Tuesday.”
“’Imported coal could be a supplement to domestic coal supply and help to control coal prices,’ said Guo Xinyi, director of the fuel department at China Huaneng Group.”

Why it matters: Even subtle changes to Chinese import policies have a huge impact on global coal shipments. This will be a big hit for foreign producers that were banking on sales to China.

Finance Economics

4.Shenzhen launches new stock indices for the GBA

Integration of the Greater Bay Area has ramped up since February (see March 22 Tip Sheet).

On Tuesday, the Shenzhen Stock Exchange launched two new equity indices to track the performance of businesses in the region (Caixin):

“The two indexes will track listed companies registered or headquartered in the Greater Bay Area, which covers nine cities of Guangdong province and the cities of Hong Kong and Macau.”
“The indexes will track shares traded Hong Kong, Shenzhen and Shanghai that are qualified for the stock connect program.”

The idea is to further integrate the financial fortunes of companies in the GBA:

“The Bay Area Innovative 100 index includes 100 companies that are in emerging sectors including advanced manufacturing, services, marine business and other strategic industries.”
“The 10 largest stocks tracked by the index include Tencent Holdings, Ping An Insurance, Hong Kong Exchanges and Clearing Ltd. and China Merchants Bank.”

Get smart: Integration of the GBA has serious political will behind it. Development of the area looks poised to further hasten China’s financial opening.

What to watch: The central bank should soon be issuing a plan for financial sector development in the GBA.

Politics Policy

5.State Council assigns tasks to government ministries

On Tuesday, the State Council divvied up government work for the coming year:

“The State Council released a document on April 9 detailing the division of main work tasks among ministries and departments for implementing the 2019 Government Work Report.”
“A total of 98 tasks in 13 aspects are appointed in line with their functions.”

But that actually undercounts the numberof tasks. Many items on the listactually include multiple sub-tasks.

We are slightly (okay excessively) dorky when it comes to these things, so we went ahead and counted up everything that needs to get done.

By our count, there are actually a whopping 191 total tasks. That is a hugeincrease over last year, when there were only 72 (see April 13, 2018 Tip Sheet).

Our take: Government leaders areincreasingly frustrated with poor policy implementation. To try to improve the situation, they are being more specific about what needs to get done – and who is responsible.

Politics Policy

6.Policymakers get to review their own policies

On February 15, we argued that the market regulator (SAMR) has too much control over which “outside parties” can input into the fair competition review process (see February 15 Tip Sheet).

Some context: All government agencies have recently been required to review existing policies and amend or cancel those that favor specificcompanies.

More context:Everynew policymust also go through an explicit anti-competition review before being published.

Yesterday, SAMR responded to our concerns…sort of.

Officials at the agencyacknowledged that undertakingthird-party reviews istoo arduous, for now(SCIO):

“Self-review is the core of the fair competition review system.”
“China’s existing policy documents are large in volume and technically complex.”
“It is not easy to make major adjustments in the short term.”

But SAMR also recognizes that self-reviews are not exactly ideal:

“Self-review is prone to lack motivation, objectivity, and justness.”

So, what is SAMR going to do? There are two big ideas:

Conduct more frequent spot checks of government agencies
Establish platforms where the public can complain about bad policies – and name and shame the offending officials

Our take: It’s good that SAMR is being honest about the difficulties of carrying out a comprehensive review. But we’re also skeptical about how much impact the more limited approach will have.

The Chinese side was very eager to have a joint statement — China Tip Sheet April 10, 2019

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