Driving the Day
1.Politburo still worried about the economy
The Politburo held its quarterly meeting to discuss the economy on Friday.
The good news: Authorities feel like things are going okay so far in 2019 (CPC):
- “This year…[we have] at the appropriate time and to the appropriate degree implemented…counter-cyclical adjustments.”
- “Market confidence has markedly improved.”
But policymakers understand that the economy isn’t out of the woods yet:
- “The external economic environment is generally tightening, and there is still downward pressure on the domestic economy.”
- “There are cyclical reasons for these [problems], but more of them are structural and systemic.”
Going forward, the meeting laid out a six-point agenda:
- Improve manufacturing
- Support private businesses
- Differentiate housing policy by city (see next entry)
- Further develop the capital markets
- Increase opening to foreign investment
- Ensure stable employment
Get smart: The official linkage of downward economic pressure to institutional and systemic drivers is new language. That’s a far cry from the prescriptionin previous downturns, which typicallyfocused on the need to “expand aggregate demand.”
What to watch: This kind of language further underscores the new approach that Chinese leaders are taking when it comes to the economy – focused more on structural issues than cyclical ones.
The bottom line: Anyone still expecting big stimulus is going to be disappointed.
Driving the Day, cont’d
2.More econ takeaways from the Politburo
We offer a few other quick observations from Friday’s Politburo meeting.
The six-point agenda outlined above was offered in place of a previous agenda that focused on the six stabilizations of:
- Foreign trade
- Foreign investment
- Domestic investment
Our take: Shifting the focus away from the need to stabilizethose issues is yet another indication that policymakers are less worried aboutaddressing cyclical issues and more homed in on structural factors.
The Politburo also repeated the phrase that “houses are for living in” and not for speculation, when discussing property policy.
The upshot: While smaller cities will be given more leeway to tinker with property restrictions, a wholesale loosening of property policyisnot on the cards.
Authorities also explicitly underscored that the economy needs to persevere with “structural deleveraging.”
We know, we know. China has yet to truly deleverage at a macro level – but the pace of leverage growth has slowed substantially, and policymakers aren’t looking to backtrack.
Get smart: All of this is just further evidence that Chinese authorities will continue to be far, far more reserved in their policy response incomparisonto past economic downturns.
Driving the Day, cont’d
3.Poverty eradication hits the home stretch
Friday’s Politburo meeting also discussed one of Xi Jinping’s signature initiatives – the drive to eradicate poverty by 2020.
The meeting reviewed poverty alleviation work in 2018 and discussed what’s comingover the next two years.
Some context: Over 82 million people have been lifted out of poverty in the last six years. But there are still over 17 million people to go.
Friday’s meeting acknowledged that helping the remaining poor will not be easy:
- “The next two years’ poverty alleviation work will be difficult and arduous.”
- “Those left [in poverty] are the poorest of the poor.”
Officials also recognized that just because someone escapes poverty, it doesn’t mean the job is done:
- “On the one hand, we must reduce poverty for the remaining poor population.”
- “On the other hand,…[we must] effectively prevent people from falling back into poverty.”
Get smart: That last point is incredibly important. One of the biggest potential problems with the anti-poverty campaign is that it might not be sustainable.
But it looks like leaders are taking steps to ensure that it is.
Driving the Day, cont’d
4.Propaganda going into hyperdrive
Friday’s Politburo meeting also discussed the Party’s propaganda work and deliberated new Party regulations that governhow the propaganda system works.
Authorities stressed that propaganda is important:
- “Propaganda work is the one of the Party’s extremely important activities.”
- [Propaganda] is the Chinese Communist Party’s political advantage.”
Within the overall propaganda agenda, there is one (unsurprising) top priority:
- “[We must] take the study, propagation, and implementation of Xi Jinping Thought on Socialism with Chinese Characteristics for the New Era as the primary political task.”
Get smart: Party leaders are eager to get the entire Party apparatus – and society more broadly – anchored in the same headspace. They are attempting to use Xi Thought to do just that.
Our thought: Xi Thought essentially includes every remark Xi has ever made – and the listjust keeps growing. That ever-expandingand amorphous quality makes Xi Thoughthard to study, propagate, and implement.
5.Politburo studies May Fourth Movement
After discussing the economy and poverty alleviation at their regular meeting on Friday, the Politburo also held a separate study session.
The topic: The May Fourth Movement.
Some context: On May 4, 1919, thousands of students took to the streets to protest the Treaty of Versailles and the Chinese government’s weak response to it.
More context: The Party believes that movement set the stage for Communism to flourish in China. So in some ways, Party leadership sees itself as the movement’s standard bearer.
That’s one reason why the movement’s upcoming 100th anniversary is so important.
But this is awkward: Despite the notion that May Fourth helped enable the Communists to come to power, now that they are in charge, the Party isn’t a fan of student movements – to put it very mildly – or their commemorations.
So what was Xi’s Jinping’s motivation for having the Politburo study the topic (Xinhua)?
- “To guide the youth to work tirelessly to secure a decisive victory in building a moderately prosperous society in all respects.”
- “Such studies must aim to make it clear why the CPC could shoulder the historical responsibility to lead the people.”
What to watch: The anniversary is less than two weeks away, and officialdom is already on high alert.
Xinhua:Xi stresses enhanced studies of May Fourth Movement, spirit
6.New cadre appraisal rules drop
Over the weekend, the Party’s General Office released new regulations governing the assessment ofcadre performance.
Some context: This is the first time the Party has revised and upgraded the rules since 2009.
The new cadre appraisal process will be focused on five criteria:
- Political loyalty and social morality
- Political skill in dealing with emergencies and mass incidents
- Diligent work ethic
- Capabilities in doing routine jobs and in dealing with crises
- Corruption – or preferably, lack thereof
The detailed KPI formulas and implementation rules will be fleshed over time by other agencies.
But the regs did outline general priorities for designing a KPI matrix. Cadres should be focused on:
- Pursuing key tasks and critical battles
- Deepening Supply-Side Structural Reforms
- Safeguard and improving people’s livelihood
- Strengthening social governance
- Promoting innovation
- Strengthening law-based governance
- Promoting social fairness and justice
- Focusing on specific tasks such as work safety, social stability, and containing new government debt
Why it matters: These KPI formulas are hugely important becausethey act as each official’s guide for where to spend energy and resources.
Get smart: Cadres will be directionless until the details of the new KPI formulas are set – that’s not a recipe for getting things done in the short term.
7.China to delay data localization rules
China is reportedly delaying the implementation of data localization requirements under the Cybersecurity Law.
The FT has the scoop:
- “Beijing had planned to announce regulations restricting cross-border data transfers by the end of last year, but regulators have dragged their feet to avoid sparking another confrontation with US companies, according to two people familiar with the process.”
- “Multinationals fear that a vague requirement to keep “important data” within China could force a costly restructuring of the way they store data in the cloud.”
That delay simply means that uncertainty for businesses will last longer:
- “’Everyone was worried about the vagueness of the definition of ‘important data,’’” said a Beijing-based lawyer who asked not to be named, who added that even companies that are taking action cannot be certain they will be compliant.
- “This is something you can’t spend money to resolve, if you don’t know what the regulators want.”
Get smart: Even if data localization rules arewatered down to appease US negotiators, they will still be onerous for foreign businesses operating in China.
What to watch: Global data and information flows are set to become increasingly balkanized,especially as more and more countries look to follow the China model here.