1.Top officials still focused on deleveraging
On Friday, the central bank (PBoC) released its Q1 Monetary Policy Report.
One key message: We are still focused on deleveraging.
The bank admitted that it has a difficult needle to thread (PBoC):
- “If monetary policy is loose, there will be more leeway to restructure existing debt in the short term, but it may also lead to the reckless expansion of new debt.”
- “If the monetary policy is tight, we are better able to control the growth of new debt, but it may also lead to excessive pressure on the existing debt payment plans as well as the bond market.”
The Ministry of Finance (MoF) is also focused on deleveraging.
In a recent article, Minister of Finance Minister Liu Kun acknowledged that off-balance-sheet debt by local governments is still a challenge. But the ministry is seeking ways to resolve the issue (Qiushi):
- “[We should] study adopting various measures, including…replacing debt with market-oriented financial instruments, [and] regulating government expenditures.”
Get smart: The slowing economy will test officials’ resolve in dealing with the country’s debt load. For now, they remain committed.
2.Central government promises to further cut drug prices
On Friday, Premier Li Keqiang sent instructions to the 2019 National Medical Reform Work Video Conference.
Some context: The annual conference sets the direction for healthcare reform.
Li told attendees to “thoroughly implement the Healthy China strategy.”
More context: The Healthy China strategy is the overarching framework for healthcare reform. It aims to get China’s healthcare system on par with those of developed countries by 2030.
Li specified areas where he hopes to see improvement this year, including:
- Expanding health insurance
- Improving screening for cancer and chronic disease prevention
- Developing “Internet Plus” healthcare
- Further improving the drug procurement system
Vice Premier Sun Chunlan, who chaired the conference, echoed Li on drug procurement:
- “The centralized drug-purchasing mechanism should be improved and extended to lower prices of drugs and medical consumables to ensure the supply of basic and first-aid drugs, she said.”
Get smart: The new drug procurement system is shrinking margins for pharmaceutical companies and leading to consolidation in the industry.
Get smarter: Deficiencies in the healthcare system have been one of the biggest gripes among average Zhous in recent years. The unequal distribution of medical resources and frequent drug and vaccine quality scandals have minted a fair bit of discontent.
3.SAMR gets a new boss
On Friday, Xiao Yaqing took over as Party secretary and director of SAMR, China’s powerful market regulator.
Some context: SAMR emerged from the MASSIVE Party-state reorganization of March 2018. And it’s a powerful agency. Apart from market regulation, SAMR hasauthority over anti-monopoly and IPR protection.
It wasn’t supposed to be this way. Former SAMR deputy head Bi Jingquan was supposed to take over the top spot. But Bi lost his job after last fall’s national vaccine scandal (see August 17 Tip Sheet).
So, who is Xiao Yaqing?
- He served as head of the body overseeing state-owned enterprises (SASAC) for the past three years.
- Formerly, he headed up the state-owned aluminum giant Chalco.
- Xiao also served for seven years as a deputy secretary-general at the State Council, where he served directly under former vice premiers Zhang Dejiang and Ma Kai.
What to watch: SAMR is tasked with creating a better operating environment for private companies. Given Xiao’s deep ties to the state-owned sector, there will be questions about how committed he is to fostering the private sector.
4.Wang Yang gets real on the trade war
On May 16, Politburo Standing Committee member Wang Yang laid out top leaders’ assessment of the trade war.
Speaking to the Association of Taiwan Investment Enterprises on the Mainland (ATIEM), a group of Taiwanese businesspeople, Wang said (SCMP):
- “The government had assessed the impact of the near year-long dispute and estimated that in the worst case scenario gross domestic product growth would be one percentage point lower than expected.”
Why that’s a big deal: Wang is the first high-level official to offer specifics about how the trade war might affect the economy. And his assessment is more bearish than the statements we have seen by other officials (see May 10 Tip Sheet).
Wang’s comments were not reported on the Mainland. We are only aware of them because they were reported in the Taiwanese press.
Get smart: Wang is underestimating the potential impact of the trade war – growth could definitely be dinged by more than one percentage point.
Our question: Was Wang trying to downplay the potential impact of the trade war? Or does he really believe that that is the worst-case scenario?
CPC People: 汪洋会见台企联第五届会员代表大会代表
SCMP: Trade war could slice 1 per cent off China’s economic growth, top party official says
5.Time to start prepping for National Day
On Sunday, the general offices of the State Council and Central Committee announced “mass activities” to celebrate the 70th anniversary ofthe founding of the People’s Republic of China (PRC), which will take place on October 1.
The activities will focus on fostering patriotism.
Aptly named “Me and my Motherland”, theactivities will take multiple forms, including:
- Leading cadres to tour urban and rural areas to fathom changes in the country
- Storytelling by citizens about endeavors to realize their dreams
- Thematic book readings
- National defense education activities
- Cherishing the memory of revolutionary martyrs
Get smart: The 70th anniversary of the founding of the PRC is the final event in a year of many sensitive anniversaries. Don’t expect any loosening of the political environment until we are well past this holiday – if then.
What to watch: If the economy starts to tank due to the trade war, expect China’s leaders to increasingly turn to nationalism to shore up popular support.