Driving the Day
1.Xi addresses BRI criticisms
Xi Jinping delivered the keynote address at the Belt and Road Forum (BRF) this morning.
The speech was all about rebutting criticisms and allaying fears (SCMP):
- “Compared with the inaugural 2017 event, Xi’s speech was shorter and contained fewer concrete proposals.”
- “Instead, he seems to have focused more on deflecting criticism and doubts about the multibillion-dollar initiative.”
State media was surprisingly straightforward (ECNS):
- “The initiative has been mired in controversies since its launch in 2013.”
- “Every policy and initiative has its flaws.”
Xi addressed some of the biggest problems with the initiative.
- He promised that all participants would benefit, not just China –vowing to get rid of unfair subsidies for Chinese companies.
- He promised to address corruption – proclaiming “zero tolerance” for corruption and announcing the “Clean Silk Road Beijing Initiative.”
- He promised that BRI projects will be environmentally sustainable. To this end, Beijing has formulated the “One Belt, One Road Green Investment Principles.”
Get smart: Xi and co. have heard the complaints and are taking steps to address them.
Get smarter: Despite these efforts, we’d bet money that many of these problems will persist.
SCMP: Six key takeaways from Xi Jinping’s Belt and Road Forum speech to world leaders
ECNS: BRF: What differs from Xi’s speech last time and what it signals
2.PBoC reiterates policy neutrality
When it comes to its monetary policy stance, China’s central bank (PBoC) doesn’t plan to make significant changes any time soon.
That’s according to PBoC Vice Governor Liu Guoqiang.
Liu was blunt at a wide-ranging press conference yesterday (SCIO):
- “The central bank has no intention of tightening monetary policy, nor of relaxing monetary policy.”
- “We do not want to see a shortage of liquidity in the market, nor do we want to see a flood of liquidity in the market.”
- “I think this is also the requirement of the Party Central Committee and the State Council.”
Liu went on to tell everyone to just chill out, and stop trying to read day-to-day liquidity operations as signals of broader policy shifts:
- “If the central bank carries out reverse repos or MLF operation one day, it doesn’t mean that the direction of monetary policy has shifted to relaxation.”
- “It’s only to adjust short-term liquidity…not a change in the general direction.”
- “Conversely, if the central bank does not carry out reverse repo operations for several days, it does not mean that monetary policy will be tightened.”
Our take: We agree with Liu. The policy stance is firmly neutral. That means we shouldn’t expect a big credit uptick from here.
3.Surprise – PBoC wants to support the private sector
At the same press conference (see previous entry) Liu Guoqiang once again laid out the policy prescription to help the private sector:
- “We should make flexible use of monetary policy tools…expand the scale of tools such as refinancing and rediscounting, and accelerate the establishment of a policy framework for small and medium-sized banks to implement a lower deposit reserve ratio.”
Beyond that, Liu said policymakers should:
- Urge banks to lend to SMEs
- Reducefinancing costs for businesses via government loan and bond guarantees
- Push banks to rely less on collateral in order to make loans
What’s the end game?
- “Through the above measures, we can ensure that loans to small and micro enterprises by the five large SOE commercial banks will increase by more than 30% in 2019.”
Get smart: This is the same policy prescription we’ve been hearing for months. So once again, the policy direction is largely set.
Get smarter: These policies haven’t been working that great over the past nine months – we aren’t sure why they’d start to work better now.
4.Yi Gang wants a market-driven BRI
Central Bank Governor Yi Gang wasn’t at the PBoC press conference on Wednesday – he was busy speaking at the Belt and Road Forum.
Yi’s big message was that he wants to push for more market-based lending for the BRI (Caixin):
- “Yi said China will begin to take a more open and market-based approach to financing projects, reducing the amount of funds granted on favorable concessional terms by the government and relying mainly on commercial funds and private sector investment.”
- “Investment and financing decisions must fully consider participants’ capital constraints to design the financing structure in a reasonable manner and put risks under effective control.”
He also wants to avoid the BRI becoming debt-trap diplomacy:
- “[Investment decisions] must also fully consider a country’s overall debt capacity … to ensure debt is sustainable.”
At least one person was won over by Yi’s remarks:
- “’This focus on long-term success and debt sustainability as well are two very welcome steps in the direction of building safe and long-standing projects that will bring prosperity,’ [IMF Managing Director Christine Lagarde] said in a speech after Liu spoke.’”
Get smart: The BRI is genuinely undergoing a rethink in Beijing, as Chinese leadersrealize they can’t keep throwing good money after bad.
Caixin Global: Central Bank Chief Says China Will Guard Against Belt and Road Debt Risks
5.Xi Jinping presses the flesh
On Thursday, Xi Jinping continued to meet with world leaders in town to attend the Belt and Road Forum.
He held talks with Mongolian President Khaltmaa Battulga.
And he met with the following folks as well:
- Malaysian Prime Minister Mahathir Mohamad
- Philippine President Rodrigo Duterte
- Egyptian President Abdel-Fattah al-Sisi
- Serbian President Aleksandar Vucic
- Hungarian Prime Minister Viktor Orban
- Kenyan President Uhuru Kenyatta
- Belarusian President Alexander Lukashenko
- Uzbek President Shavkat Mirziyoyev
- Vietnamese Prime Minister Nguyen Xuan Phuc
- Cypriot President Nicos Anastasiades
- United Arab Emirates (UAE) Vice President and Prime Minister Sheikh Mohammed bin Rashid Al Maktoum
- Indonesian Vice President Jusuf Kalla
Get smart: Like we said yesterday, even short meetings like this can be beneficial for advancing ties.
Our thought: We are a little bit surprised to see Xi meeting with so many deputy heads of state, especially given his busy schedule. It’s a clear effort to show that he values their attendance.
CCTV: 《新闻联播》 20190425
6.Top legislator address foreign investors’ concerns
Legislatorsknowthat foreign businesses are concerned about some of the vague language in the new Foreign Investment Law (FIL).
According to Li Fei, director of the legislature’s Constitution and Law Committee, that vagueness was intentional, so the government could preserve some flexibility:
- “The law [only] sets principles so that it could leave the necessary space for the next step in actually operationalizing reform and opening up and the utilization of foreign capital.”
Reality check for Li: Foreign businesses do not want the Chinese government to have flexibility. They want clear, predictable rules.
What to watch: Li said that implementing rules will be rolled out over the coming months.
Li promised that foreign investors will be invited to weigh in:
- “[Public consultations] will not only give foreign businesses the opportunity to comment…, but will also serve to push the relevant departments to adhere to the original intention of the legislation.”
Get smart: If you want to influence the implementing rules, the clock is ticking – so get to it!
People’s Daily: 中国开放的大门只会越开越大
7.Government to cheerlead for Chinese brands
The government wants to promote Chinese brands.
To that end, the National Development and Reform Commission (NDRC), in conjunction with a host of other Party and state agencies – including the Propaganda Department and the market regulator (SAMR) – will organize the International Forum on Chinese Brand Development (IFCBD) to be held from May 10-12.
Some context: The State Council designated May 10 as Chinese Brand Day in 2017. This will be the second IFBCD.
This year’s forum marks an upgrade. State leaders are likely to attend.
Some key sectors to be promoted:
- Fast-moving consumer goods
Why this is weird: Three months ago, SAMR explicitly said that the government should not be promoting certain brands (See January 18 Tip Sheet):
- “It is easy for consumers to think that the government is endorsing [a given] enterprise, which misleads [consumers about]…product quality…and results in unfair competition.”
The big irony: The government is throwing a ton of resources into this, but it is unlikely to sway consumer preferences.
Get smart: It’s moves like this make it hard to buy the government’s avowed embrace of equal treatment and “competitive neutrality.”