Driving the Day
1.PBoC mulls further interest rate liberalization
China’s central bank (PBoC) is quietly focused on further liberalizing the country’s interest rate regime.
The key issue that regulators are seeking to address: China’s two track system of interest rates – with somemarket-determined and somecontrolled by the government – needs to be unified.
Caixin has a nice in-depth piece outlining the state of play:
- “The central bank said that it will prudently advance its goal of unifying China’s two interest rate ‘tracks.’”
- “One of those tracks is the interest rates set largely by the market, such as the seven-day interbank pledged repo rate. The other refers to benchmark deposit and lending interest rates, which are set by the central bank.”
Regulators have to be careful on sequencing here:
- “Eliminating benchmark deposit rates will probably lead to a fiercer deposit competition among commercial banks, in turn forcing them to raise interest rates on loans to companies.”
- “Whatever [process regulators pursue] will have sweeping effects across the economy, influencing everything from financial asset prices to bank profits to lending costs.”
There are some obvious candidates to take over as the key policy rate:
- “Since 2016, the central bank has hinted that it intends to use the seven-day interbank pledged repo rate as the target interest rate.”
Get smart: This is the quiet part of ongoing financial reform that rarely gets attention in the newspapers.
Go deeper: Click on the link below.
2.More capacity cuts for steel on the way?
China’s steel output is soaring once again – and that’s a problem (The Paper):
- “China’s crude steel output from January to March reached 231 million tons, up 9.9% year-on-year, according to data released by the National Bureau of Statistics on April 17.”
That level of output is an all-time quarterly high.
So what’s going on? Prices were up in H2 2018, which incentivized everyone to start ramping up production, so they could get in on the profits.
But as per usual, the herd behaviorand the subsequent supply surge, has helped to tank prices as of November, and that is starting to eat into profits industry-wide:
- “According to The Paper, five steel listed companies…have issued performance forecasts for the first quarter of 2019…that uniformly point to sliding profits.”
That dynamic isleading a growing number of industry folks to expect another round of capacity cuts.
Get smart: Capacity cuts will help to boost industrial profitability – and keep the industrial sector out of a deflationary spiral.
Get smarter: There will be a debate about whether any capacity cuts are genuine and lasting. But in the short-term it doesn’t matter. That’s because associated productionrestrictions, which can be immediately enacted, drive prices much more than long-term changes to overall capacity.
The Paper: 新一轮钢铁产能过剩即将到来？一季度粗钢产量增长9.9%
3.After hours Party
Ever since Xi Jinping came to power, it’s been tough to be a Chinese official.
Now it’s getting even worse (Bloomberg):
- “For Chinese bureaucrats, getting a promotion isn’t just tied to their performance on the job — it’s increasingly about how well they behave in their leisure time.”
- “Last month, the southeast city of Quanzhou became the latest to start rating civil servants’ personal behavior.”
- “Earlier Wenzhou — a commercial hub in the east — began equally weighting behavior at work and at home for promotions and other rewards.”
- “The coastal city Zhoushan also keeps files on the so-called social credit of public servants to assess them.”
How much does that suck?
Get smart: This is only going to feed further resentment in the bureaucracy.
But spare a thought for Xi. Chinese officials have run amok for decades (some would say millennia). Figuring out how to bring them into line is not an easy task.
Bloomberg: China’s Bureaucrats Are Increasingly Judged on What They Do After Work
4.Government takes measures to improve websites
On Thursday, the State Council General Office released new measures to improve government websites.
We. Are. Stoked.
Seriously. We look at government websites…A LOT.
The new measures promise to improve information disclosure, by evaluating whether or not government websites are releasing policy documents and other information in a timely manner.
How it works:
- “Evaluation points will deducted if there are any defects in releasing news and policy analysis,offering government services, or responding to users’ messages and inquiries.”
- “Meanwhile, a government website or new media portal will get bonus points if data can be updated in a timely manner, policies can be interpreted accurately, or high-quality government service can be provided.”
Get smart: Chinese politics is often a black box. But believe it or not, Chinese policymaking is becoming more transparent.
New from Trivium UB
5. Meet “The Focused Generation” – aka China’s Gen Z
ICYMI: Last year, Generation Z hit a critical milestone– the cohort started reaching college age and entering the workforce.
And so it has begun: This group of youngsters has started to replace Millennialsas the key demographic for marketers, worldwide.
Predictably, Western market researchers responded with a series of profiles on the purchasing patterns and social values of the newest consumer group:
But China’s Gen Z, or “Post-00s,” are still an enigma to foreign firms.
In our latest UB post, we take a look at several key studies out of China’s user experience and big data research centers, to see how China’s next online user group is set to disrupt the status quo.
Spoiler alert (Trivium UB):
- “Gen-80 was popularly described as mensao 闷骚, which translates to something like “outwardly skeptical but inwardly passionate.” Gen-90 was termed satuo 洒脱, “free and unconstrained.” And Gen-00 was dubbed aijuebulei 爱觉不累, “you never feel tired when you’re doing something you love”, which might be better translated as the Focused Generation.”
- “We think the description is apt: depth of focus is the thread underlying most of this cohort’s key characteristics.”
Go deeper: Do yourself a favor and click the link below.
Trivium UB:The Focused Generation comes of age: a definitive guide to China’s Gen Z market