Driving the Day
1.Preparing for the worst in the trade war
Both Chinese and US officials say that trade negotiations have not broken down, despite the ratcheting up of US tariffs last week.
The two sides characterized Friday morning’stalks as “constructive” – but no one really knows where things go from here.
Vice Premier Liu He laid out China’skey requirementsafter last week’s talks concluded (Bloomberg):
- “In a wide-ranging interview with Chinese media…Liu He said that in order to reach an agreement the U.S. must remove all extra tariffs, set targets for Chinese purchases of goods in line with real demand, and ensure that the text of the deal is ‘balanced’to ensure the ‘dignity’ of both nations.”
Liu’s tone wasn’t exactly one of conciliation:
- “We will deal with this rationally…But China is not afraid, nor are the Chinese people.”
Official media reiterated that message on Monday (Reuters):
- “China does not want to fight, but is not afraid to do so, the ruling Communist Party’sPeople’s Daily said in a commentary.”
Get smart: The Chinese still want the trade war to end – but officials seem to be preparing for the worst.
What to watch: The US Trade Representative has indicated it will explain the timeline for imposing tariffs on the rest of China’s exportson Monday.
The clock is ticking.
Bloomberg: Trump Warns China to Act on U.S. Trade Deal or Face Worse Terms
Reuters: China’s door to talks with U.S. on trade always open: state media
Caixin: No Breakdown in U.S.-China Trade Talks, China’s Top Trade Negotiator Says
2.PBoCis at the ready
China’scentral bank (PBoC) is looking to reassure markets that it has things under control – despite the ratcheting up of tariffs and trade tensions with the US.
The bank says it still has plenty of bullets in its gun if it needs to react to further economic weakness or financial volatility (Caixin):
- “‘In the face of a changing economic environment at home and abroad, China has ample room for monetary policy and plenty of tools in its policy kit, making it capable of responding,’said Sun Guofeng, head of the monetary policy department of the People’s Bank of China.”
For now, the policy stance has not changed:
- “The central bank will maintain a prudent monetary policy while keeping liquidity reasonably ample, Sun said.”
- “The monetary authority will properly manage money supply and fine-tune policies according to changes in economic conditions, Sun said.”
Get smart: That is the same phrasing that policymakers have used to describe policy for months.
Our take: It’sgood that they are not panicking, but simply reiterating the same message won’t be a huge confidence booster for domestic markets.
Caixin: China Has Ample Policy Tools for Uncertainties, Central Bank Says
3.Premier Li reaches out to business
Premier Li Keqiang is obsessed with tax cuts.
The latest evidence: On Friday, he held a special symposium to discuss the issue.
Li invited representatives from several businesses to Zhongnanhai to get their feedback on how the cuts are proceeding.
These companies included:
- Hisense Group
- Sany Heavy Industry
- TBEA Co., Ltd.
- China Construction First Group
- ZTO Express
- Transn IoL Technology Co., Ltd.
- SF Express
- China Railway Construction Corporation
- JAC Motors
Not surprisingly, businesses said they love the tax cuts (Gov.cn):
- “Attendees of the symposium…unanimously said that the new round of tax and fee cuts went beyond their expectations.”
They also had suggestions for how to improve the business environment. Unfortunately, the official readout of the meeting was mum on what those suggestions were.
For his part, the premier was insistent that officials ensure the tax and fee cuts genuinely benefit all businesses:
- “Related departments should guarantee an obvious tax cut in the manufacturing industry, keep a close eye on tax burdens in the construction industry, and ensure that all industries see their taxes go down, especially for small and micro enterprises, said the Premier.”
Our thought: Can the government afford all of this?
4.Government promotes Chinese brands
On Friday, the Chinese government held celebrations in Shanghai to celebrate China Brand Day.
Some context: May 10 was designated China Brand Day by the State Council in 2017.
As we told you in the April 26 Tip Sheet, the government is making a big deal out of China Brand Day this year.
- Premier Li Keqiang sent instructions to the event.
- State Councilor Wang Yong attended and delivered a keynote address.
Neither leader’s statements were particularly noteworthy. Here’s some typical gobbledygook from Wang:
- “[Wang] called for a new round of technological and industrial revolution, sticking to the innovation-driven strategy, and for strengthened technological innovation to increase brands’ technology content, value, innovation and life vitality.”
Pretty rousing stuff…
Why this matters: Never forget – China’sleaders talk a lot these days about giving equal treatment to foreign companies. But they are only doing so because they believe the competition will help to improve Chinese companies.
Gov.cn: Premier calls for professional spirit to boost Chinese brands
5. State Council releases legislative work plan
On Saturday, the State Council released its legislative work plan for the year.
It’s going to be a busy year(Gov.cn):
- “In 2019, a total of 13 draft laws will beproposed for deliberation to the National People’s Congress Standing Committee.”
These laws are:
- Draft Deed Tax Law
- Draft Retired Veterans Protection Law
- Draft Community Rectification Law
- Draft Cryptography Law
- Draft Atomic Energy Law
- Draft Export Control Law
- Draft Revision of the Law on the Prevention and Control of Environmental Solid Waste Pollution
- Draft Revision of the Tax Collection Management Law
- Draft Revision of the Copyright Law
- Draft Revision of the Security Administration Punishment Law
- Draft Revision of the Maritime Traffic Safety Law
- Draft Revision of the Prison Law
- Draft Revision of the Archives Law
But that’s not all:
- “Additionally, 42 administrative regulations will be formulated and amended.”
Get smart: Companies should identify the laws and regulations that affect their business and make sure to track the progress.
There is no reason to be blindsided by these legal and regulatory developments – the government is telling us now that they are coming.
Gov.cn: State Council releases legislative work plan for 2019
6.Hainan gets to work on building ecological civilization pilot zone
Over the weekend, the Party andState Council jointly released an implementation plan aimed at turning Hainan into the China’s fourth “national ecological civilization pilot zone”.
Some context: Since 2016, the provincial governments of Guizhou, Jiangxi, and Fujian have been trialing dozens of measures from the central government’s “Integrated Reform Plan for Promoting Ecological Progress”. Hainan is set to become the fourth such province as a part of the government’s ongoing effort to transform the island by dint of wide-ranging reform initiatives.
In particular, the Hainan plan is set to reduce reliance on fossil fuels and increase the use of renewables:
- “[We will] build a “clean energy island”, greatly increase the proportion of new energy, and implement dual control of total energy consumption and intensity.”
- “[We will] push hard to”cutting coal and reducingoil”
The plan also reaffirmed its commitment to the gradual phasing out ofconventional fuel vehicles.
Get smart: The switch to renewable energy resources should be comparatively easier for Hainan since the province was never a major consumer of traditional fuel sources in the first place.
Our thoughts: The term “national ecological civilization pilot zone” doesn’texactly roll off the tongue.
Gov.cn: 中共中央办公厅 国务院办公厅印发《国家生态文明试验区（海南）实施方案