Driving the Day
1.How China sees the BRI
You may have missed it, but on Monday, the office for the Belt and Road leading small group released a 69-page report, entitled “The Belt and Road Initiative: Progress, Contributions, and Prospects.”
According to the report, a lot of countries are involved:
- “By the end of March 2019, the Chinese government had signed 173 cooperation agreements with 125 countries and 29 international organizations.”
The report also detailed progress along six dimensions:
- Policy coordination
- Infrastructure connectivity
- Unimpeded trade
- Financial integration
- Closer people-to-people ties
- Industrial cooperation
It further broke down “infrastructure connectivity” to review progress in the following areas:
- Air transport
- Energy facilities
- Communication facilities
Good news! This is all bringing us closer to world peace:
- “The Belt and Road Initiative will help build a world of lasting peace, a world of common security and prosperity, an open and inclusive world, and a clean and beautiful world.”
Get smart: Readers might quibble with that statement, but it’s genuinely what the Chinese government believes. They see the BRI as a global development project.
Everybody always asks “What exactly is the Belt and Road?” So far, this report is the best answer we’ve got.
Driving the Day
2.China acknowledges it’s been a bumpy (Belt and) Road
The BRI report (see previous entry) also addresses one of the biggest criticisms of the initiative – that many of the deals aren’t exactly above board.
- “Clean government is the moral principle and the legal red line that we should never cross in Belt and Road cooperation.”
- “All participating countries should work together to foster a modern business environment which is corruption-free and efficient, strengthen supervision and management and control risk in Belt and Road projects, and create a public resource market which is procedure-based and transparent.”
- “During the tendering, construction, and operational management of a project, we should abide by related laws and regulations, eliminate power rent-seeking, and establish sound market order.”
Get smart: China has been tightening oversight of overseas investments in recent years. That only looks set to increase, as BRI undergoes a broader rethink(see yesterday’s Tip Sheet).
3.Consumer subsidies to disappoint
Last week, China markets got all excited about a leaked document from the country’s macro planner (NDRC) which laidout a preliminary plan to boost consumption of some key goods (Bloomberg):
- “The National Development and Reform Commission’s proposals, which Bloomberg News reported on last week, include subsidies for new-energy vehicles, smartphones and home appliances, and a significant easing in car ownership restrictions.”
But we told you not to get over-excited(see April 18 Tip Sheet). Our warning was justified:
- “The agency has since tried to downplay the document, telling state media it’ll need ‘repeated revision’ before any policies are issued.”
Our observation:Many market folks are trying to will more China stimulus into existence.
But on many fronts, the government just doesn’t have that much firepower right now, so expectations should be tempered:
- “’A lot of measures mentioned in the circulated policy draft last week are not implementable and merely serve the purpose for discussion,’ said Cui Dongshu, secretary general of the China Passenger Car Association. ‘Who knows what the final policy would be.’”
Our take: Tip Sheet readers are probably tired of hearing this by now – but economic policy support will remain targeted.
The bottom line: No. Big. Stimulus.
Bloomberg: Don’t Pin Your Hopes on Massive Consumption Stimulus in China
4.The Chinese tech freeze
Investment in the Chinese tech scene isright-sizingafter a few insane years, says the FT:
- “The amount of private equity invested in Chinese tech in the year to date has fallen to $6.3bn, down from $16.3bn in the same period last year.”
- “The subsiding interest in China comes after a three-year period in which ‘the market was really crazy, with bubbles everywhere’, said Wei Zhou, managing partner at China Creation Ventures.”
The change in investor sentiment is even hitting some of the big guys:
- “Didi Chuxing, the Chinese ride-hailing company that was valued at $56bn in January…[is] now exchanging hands in the $30 range [in the secondary market].”
The key driver here is not just eye-watering valuations:
- “Bankers ascribed a more sober climate to a mix of political and commercial considerations. An intensifying rivalry between the US and China for global tech industry leadership has complicated some investment decisions, as have concerns over increasing scrutiny in China and the US over the use of personal data.”
Why it matters: A deal may soon be inked in the US-China trade war, but the US-China tech war is just getting started.
FT: China tech groups delay IPOs as US tensions bite
5.CSRC gets a new disciplinarian
China’s securitiesregulator has anew enforcer (Caixin):
- “Wang Huimin was relieved as the discipline inspection team leader of the China Securities Regulatory Commission (CSRC) as he reached the civil servant retirement age of 60.”
- “Named to succeed him was Fan Dazhi, 54, who was previously the top disciplinary official at Bank of China.”
Fan is not new to the discipline inspection game:
- “Fan was the secretary of the discipline inspection commission at Bank of China since March 2017.”
- “He was dispatched by the CCDI as the discipline inspection team leader at the bank in January.”
Here’s how he thinks about his role in helping to control risk:
- “Fan said the assignment of discipline inspection teams to state-owned financial institutions aims to effectively prevent and control financial risks through keeping a close eye on the banks’ top management and key business areas such as credit approval.”
Get smart: The financial de-risking campaign is powering on – and guys like Fan are there to make sure that institutions don’t backslide.
Caixin: Exclusive: China Securities Regulator Gets New Top Disciplinary Official
6.Xi Jinping meets with world leaders
Beijing has said that 37 heads of state will attend the BRI Forum this week, along with a host of other high-ranking officials.
Xi Jinping has already been meeting with some of the early arrivals.
Chilean President Sebastian Pinera has gotten the biggest meeting so far. He and Xi held talks on Wednesday.
On Wednesday, Xi also met (but did not “hold talks with”):
- Special envoy of the Japanese prime minister Toshihiro Nikai
- Myanmar State Counselor Aung San Suu Kyi
- Ethiopian Prime Minister Abiy Ahmed Ali
- Azerbaijani President Ilham Aliyev
- Mozambican President Filipe Nyusi
- International Monetary Fund Managing Director Christine Lagarde
Get smart: Attending the BRI Forum is a good way to get some face time with Xi. That’s important because these high-level meetings can genuinely help to push bilateral issues and initiatives forward.
What to watch: Xi is just getting started. He will hold a lot of meetings over the coming days.
CCTV: 《新闻联播》 20190424
7.Your guide to provincial fiscal health
On Tuesday, the Ministry of Finance announced fiscal transfers to local governments for affordable housing.
This caught our eye: One of the attachments of the official announcement calculates each province’s “fiscal difficulty coefficient.”
How it’s calculated: In brief, the number measures the percentage of a government’s revenue that is devoted to basic expenses such as government salaries and basic services. The higher the percentage, the worse the score.
Not surprisingly, East China is healthier than Central China. Western China is the worst.
Want to know the three provinces with the lowest difficulty coefficient?
You may have noticed that they are all from eastern coastal regions.
Who scored the worst?
All from the west.
But here is what really matters: Compared to the year before, the indicators of 28 out of 31 provinces got worse in 2018 – including in eastern provinces.
The bottom line: Local governments are under increasing fiscal pressure – which will make it difficult for them to support local economies.