Driving the Day
1.Data dump – April econ data
The stats bureau released monthly economic data for April on Wednesday morning.
The data was not good.
- Industrial production (IP) slowed to 5.4% y/y growth – down from 8.5% in March.
- Within IP, metal-cutting machine tools and autos were the worst performers – contracting by 25% y/y and 16% in the month, respectively.
- Overall investment slowed to 5.7% y/y growth – down from 6.5% in March.
- Manufacturing investment slowed dramatically, contracting by 1.2% y/y – down from 3.7% growth in March.
- Infrastructure investment slowed to 4.4% y/y growth – down from 4.5% in March.
- Property investment stayed level at 12% y/y growth – the same rate as in March.
- Retail sales of consumer goods slowed to 7.2% y/y growth – down from 8.7% in March.
Get smart: After March data outperformed expectations, April was always going to be a letdown. Today’s data show that things are cooling off pretty much across the board.
It’s hard to see a green shoot anywhere.
Get smarter: Q1 was not the bottom for economic growth in China – the deceleration is ongoing.
What to watch: Given the increased trade tensions, today’s weaker-than-expected data will only exacerbate calls for stimulus. But so far authorities are holding firm.
Gov.cn: 4月份国民经济运行在合理区间 稳中有进态势持续
2.A new solution to China’s P2P woes
China’s P2P lending industry continues to undergo restructuring as a result of increased regulatory oversight.
Regulators are pushing for consolidation (Caixin):
- “’Mergers and acquisitions are among the paths for some platforms to obtain registration qualification,’ said Zhang Yu, deputy secretary general of Beijing Internet Finance Association, an industry regulator.”
- “Zhang called for all players to step up the consolidation process and effectively revitalize existing resources.”
But there could be problems:
- “It’s not clear how many P2P platforms will qualify under a new industry registration system.”
Some context: The scale of the industry shakeup is immense.
- “As a result of the nationwide crackdown on the industry, more than two-thirds of the more than 3,300 P2P platforms have shut down.”
- “As of March, 1,021 platforms remained in operation.”
Get smart: The push for consolidation is very much in line with broader official thinking on Financial Supply-Side Structural Reform.
What to watch:
- “Regulators have set a goal of starting the long-expected registration program in some pilot cities during the second half of this year and complete the registration of the country’s remaining P2P online lending platforms in the national monitoring system by 2020.”
Caixin Global: Regulator Calls for Consolidation of China’s P2P Industry
3.Regulators dampen pork demand to contain prices
Chinese regulators are using an unusual tactic to keep pork prices in check.
Some context: A wave of African Swine Flu has infected a huge portion of China’s pigs. That hascauseda significant reduction in supply thatthreatensto send prices soaring.
Regulators are responding by effectively reducing demand for pigs at slaughterhouses (Reuters):
- “Beijing has rolled out new rules requiring slaughterhouses and processing plants to test for the African swine fever virus, slowing down business at many facilities and denting demand.”
- “’The government is checking slaughterhouses, cold storage warehouses and processing firms so nobody dares to buy pigs, kill pigs or sell meat. Live hog demand is fairly poor,’ said Feng Yonghui, chief analyst with Soozhu.com.”
The policy has been up and running for about six weeks:
- “The Ministry of Agriculture and Rural Affairs on March 15 ordered slaughterhouses to test each batch of hogs for the virus.”
- “A follow-up order from the agriculture ministry in early April, outlining requirements on traceability and inspections in processors has further dampened trade.”
Get smart: This does not look sustainable. Eventually end-consumer demand will mean slaughterhouses need to increase purchases.
Reuters: China’s new slaughterhouse rules keep lid on pork prices for now
4.Xi calls for greater Asian integration
Xi Jinping kicked off the Conference on Dialogue of Asian Civilizations with a keynote speech in Beijing on Wednesday.
Some context: The conference is a Chinese initiative to promote cultural exchange. It will take place from May 15-22 and is being attended by representatives from 47 countries.
So what is Xi’s vision for Asia? He wants Asia to be three things:
Hard to argue with that.
Xi called on all countries in the region to be more open:
- “We must stay open and inclusive.”
- “We need to be broad-minded and strive to remove all barriers to cultural exchanges.”
Irony alert: This is coming from the guy who has accelerated China’s push to effectively wall off its internet from the rest of the world. Arguably the biggest barrier to Chinese people having exchanges with other cultures is the fact that they can’t access the most popular websites in the world.
The big question: China’s global footprint is growing; as it does, Chinese people will have increasingly more contact with the rest of the world. What effect will this have on the body politic?
Youtube: LIVE: President Xi Jinping addresses Conference on Dialogue of Asian Civilizations
5.China cries foul at the WTO
On May 13, China submitted an oblique indictment of US trade practices to the World Trade Organization in the form of a “reform proposal”.
What did it say? Without specifically mentioning the US, the proposal criticized recent US actions, including the blocking of appointments to the WTO’s appellate body and the imposition of “national security tariffs” on aluminum, steel, and other goods.
The document also criticized “a certain member” of unilaterally imposing tariffs and trade barriers in contravention of WTO protocols.
Get Smart: The WTO is on its last legs. If the US continues to block appointments, the appellate body will no longer be able to function come December.
Get Smarter: China’s criticisms of the US are spot on. But if China wants to save the organization, it is going to have to acknowledge – and address – the legitimate complaints of the EU and the US.
MofCom: CHINA’S PROPOSAL ON WTO REFORM
Reuters: China says U.S. policies are causing existential damage to the WTO