Driving the Day
1.CBIRC cracks down on auto financing
A viral video may change how car companies do business in China.
Here’s what happened (Sixth Tone):
- “In the video posted Friday on Twitter by the state-run newspaper People’s Daily, the customer can be seen sitting on the hood of a shiny red showroom car at a Mercedes-Benz dealership [in Xi’an], berating staff after she noticed an oil leak in her recently purchased vehicle.”
And keep this in mind:
- “In a later audio recording, she also complains of being charged a 15,000 yuan ($2,200) ‘financial services fee.’”
After the video went viral, the government snapped into action (Global Times):
- “Local authorities on Tuesday formed a special task force to investigate the oil leak scandal.”
- “The local taxation authorities in Xi’an have also started to probe the dealership in question for possible tax evasion and other wrongdoings.”
- “In a separate move, Xi’an authorities also announced on Tuesday that it would launch a city-wide crackdown campaign against potential wrongdoings at all dealerships in the city.”
But this is the thing that really got our attention:
- “In Beijing, the China Banking and Insurance Regulatory Commission (CBIRC) announced on Monday night that it had directed its branch in Beijing to launch an investigation into Mercedes-Benz’s auto financing unit for possible wrongdoings in collecting financing service fees.”
Why it matters: These fees are very common in the industry.If the CBIRC clamps down on them, it could seriously dent the bottom lines of carmakers’ auto financing divisions.
Welcome to political risk in China – where the combination of an unhappy custmoer, a viral video, and state media can potentially up-end a key business segment.
Sixth Tone:Unhappy Customer’s Viral Video Lands Mercedes-Benz in Hot Water
Global Times:Local authorities form task force to probe Mercedes-Benz oil-leak case
2. Messages from Q1 monetary meeting
The central bank (PBoC) held it’s Q1 monetary policy meeting on Friday.
Policymakers were meeting just as the bank was getting ready to release the blowout March lending data – but the readout of the meeting was only published on Monday.
When it comes to the economy, the PBoC sees both green shoots and continued challenges (PBoC):
- “Domestic economic and financial restructuring has undergone positive changes [in Q1], but there are still some deep-seated problems.”
That’s in line with our view that the economy has yet to fully bottom out.
In response, policymakers reiterated the same policy stance that they have over the past nine months.
The key goals include:
- Further strengthen the coordination between monetary, fiscal, and other policies
- Make timely policy pre-adjustments and fine-tune policy as needed
- Focus on risk prevention on the basis of stable growth
- Keep monetary policy appropriately loose and appropriately tight (i.e. neutral)
- Maintain reasonably abundant liquidity, but don’t flood the system
- Keep the growth rate of M2 and social financing in line with nominal GDP growth
- Focus on deepening Financial Supply Side Structural Reform
Our key takeaway: While markets were buoyed by the very big credit print in March (see Friday’s Tip Sheet), policymakers still sound relatively restrained (see next entry).
3.More thinking on the credit outlook
Speaking of monetary policy and credit growth, we’ve been looking at the credit data from Monday, and a couple observations stand out.
There were some lingering seasonal effects.The big snap back in bankers’ acceptances is especially notable in this regard:
- There was a positive swing of about RMB 450 billion in bill issuance thanks to Chinese New Year.
- Given that there was a crackdown on these bills in early 2018, that led to a big, positive base effect in March in terms of y/y growth.
Shadow banking is still on a leash:
- While the flow of shadow forms of credit snapped back in March, the major forms of shadow credit still contracted by over 10% y/y.
- So we are not yet convinced that authorities have given up on the shadow banking crackdown.
This isn’t 2016:
- Credit growth has officially bottomed out, but March overstated the acceleration trend, and we may even see some pull back in April – so don’t expect a 2016-style credit bump.
- Average credit growth for Q1 came in at 10.4%, up from 10% in Q4 2018. It’s unlikely that we break the 11% mark until Q4.
The bottom line:Now that the credit slowdown has turned the corner, look for it to level out – not to accelerate markedly.
4.Signs of life in the property market
Monthly house prices for March were released by the stats bureau on Tuesday – and the market is showing signs of life.
- “Average new home prices in China’s 70 major cities rose 0.6 percent in March, quickening from a 0.5 percent gain in February.”
- “On the whole, it logged the 47th straight month of price increases. Most of the 70 cities surveyed by the NBS reported monthly price increases for new homes, and the number climbed sharply to 65 from 57 in February.”
- “On an annual basis, home prices rose 10.6 percent in March, the highest since April 2017, and also accelerating from a 10.4 percent gain in February.”
It’s definitely good news that buyers seem to be coming back into the market. That will be further helped as some banks lower mortgage rates.
But don’t forget:Prices and sales lead hard property investment and construction activity. We’ll need to see some sustained improvement in prices before developers – who are facing huge debt repayment pressures this year – feel free to start breaking new ground. Only then will economic growth be supported.
We can’t say it enough: A recovery is coming, but it’s not happening yet.
Reuters:China’s home prices rise faster in March amid lending surg
5.Xi tells artists to toe the Party line
On Monday, the Party’s top journal, Qiushi, published remarks made by Xi Jinping on art and culture to political advisorsat the Two Sessions on March 4.
Xi thinks that art can help to diagnose society’s problems:
- “Philosophy and social sciences, including literature and art,… need to express society’s actual problems.”
- “It is necessary to take the pulse, [in order to understand] China’s health, and know if there is any disease, and what kind of medicine will cure it.”
Get smart: In an increasingly censored information environment, it is doubtful that art will be able to truly reflect much about present-day Chinese society.
But that’s probably okay with Xi.
Because his real concern is making sure that art serves the Party’s goals:
- “I hope that you will profoundly reflect the Party and the people’s struggles of the past 70 years; profoundly explain the inherent logic contained in the historical changes of New China’s 70 years; and clearly explain the road, theory, system, and cultural advantages of Socialism with Chinese Characteristics that lie behind these historical achievements.”
Get smart: Nobody is inspired by speeches like that. Don’t expect a Chinese cultural renaissance any time soon.
6.Xi wants Party groups to focus on ideology
On Monday, the Central Committee published new rules governing the work of Party groups.
Some context (Xinhua):
- “A leading Party group is a body set up by the Party within central and local state organs, people’s organizations, economic and cultural institutions, as well as other non-Party organizations.”
There are over 102,000 such groups.
More context: These rules update temporary measures that were issued in 2015.
The rules give details about requirements for establishing Party groups, and how they should relate to other organizations.
But the real goal of the regulation is to increase ideological conformity.
An anonymous Party official explained why the new rules were necessary:
- “Some [officials] erroneously believe that Party-building is a ‘secondary task’ of a Party group.”
Our take: Xi Jinping is throwing tons of resources into trying to create a Party that consists of people who think like he does. We’re just not sure he can pull it off.
7.Ties with Japan take cautious steps forward
On Monday, Premier Li Keqiang met with Japanese Foreign Minister Taro Kono, who was in town for a high-level economic dialogue held on Sunday (see yesterday’s Tip Sheet).
Li was all smiles (Gov.cn):
- “Premier Li said Sino-Japan relations have been back on track and made new progress since last year, thanks to joint efforts.”
- “The two sides should make efforts to promote the long-term, healthy and stable development of Sino-Japan relations.”
State Councilor Wang Yi was more measured (Reuters):
- “’There are major opportunities, and there are also sensitivities and weaknesses,’ China’s foreign ministry cited Wang as saying.”
- “The Japanese side has said many times that China and Japan should turn competition into coordination, and (we) hope that Japan can take even more actual steps in this regard.”
Get smart: Ties between the two countries have improved markedly over the past year. But mutual distrust runs deep on both sides.