Driving the Day
1. Xi tells cadets to prepare for battle
Xi continued his tour of Jiangxi on Tuesday.
He visited the People’s Liberation Army Infantry College in Nanchang to inspect the cadets.
Some context: The school is a recent creation. It was established in 2017 on the 90th anniversary of the PLA’s founding by merging two existing military colleges – one in Jiangxi and one in Hebei.
More context: Since 2015, Xi has led an ambitious overhaul of the PLA designed to combat graft and raise the military’s operational capabilities.
Xi’s message (Xinhua):
- “Military education should meet the requirements of combat, the needs of the armed forces and the demands of future missions.”
Big shocker: He also called for loyalty, urging cadets to “move forward in a politically correct direction” and to follow the lead of the Party.
Get smart: Xi’s overhaul of the military is arguably his biggest achievement, and a cornerstone of the “national rejuvenation” which he hopes will be his lasting legacy.
Get smarter: Despite the reforms, the Chinese military is untested and lags behind in many areas.
READ MORECPC People: 习近平:全面提高办学育人水平 为强军事业提供有力人才支持
Xinhua: Xi stresses military personnel education for strong armed forces
Finance & Economics
2. Rare earth stocks soar
At this stage it’s not clear whether Chinese authorities are looking to use the rare earths industry as a point of leverage in the trade war.
But Xi Jinping’s visit to JL Mag Rare-Earth on Monday certainly sent the message that such a move is under consideration (see yesterday’s Tip Sheet).
Mainland and Hong Kong traders took notice (Nikkei):
- “Shares of China Rare Earth Holdings, a company that makes rare-earth and refractory products, soared as much as 132% in Hong Kong.”
- “Shares of JL Mag Rare-Earth, which develops and makes material used in high-performance magnets, jumped by the day’s 10% limit in Shenzhen.”
The expectation is that a significant supply reduction, via export controls, would send prices soaring – helping profitability.
Our take: At this stage the optics around Xi’s rare earths visit seem to be exactly that – optics. There is no indication that export controls are imminent.
What to watch: Chinese authorities feel compelled to retaliate for the recent US restrictions on Huawei. But their goal is to match US actions without further increasing tensions, so we expect a measured response.
READ MORENikkei: Chinese rare-earth stocks rally after Xi’s plant visit amid trade war
Finance & Economics
3. Stock exchanges push bad companies to delist
Despite the ramp up in trade tensions, financial regulators continue to go about their business.
At the top of their agenda: Cleaning up the funny business in the stock exchanges.
As part of that effort, authorities are looking to get poorly performing companies delisted in favor of better performing, new-economy companies.
While it got lost in the shuffle thanks to the recent geopolitical moves, on Friday the first four companies to be delisted in 2019 were named (Caixin):
- “The Shanghai Stock Exchange (SSE) announced Friday that Hareon Solar Technology Co. Ltd. would be kicked off the board while Shanghai Potevio Co. Ltd. had chosen to delist.”
- “The Shenzhen Stock Exchange said the same day that Chengdu Huaze Cobalt & Nickl Mtrl Co. Ltd. and Fujian Zhonghe Marketing Co. Ltd. would both be booted.”
Such moves have been in the works for several months:
- “The Shanghai and Shenzhen stock exchanges issued final versions of tough new mandatory delisting rules in November, which laid out expanded grounds for forced delisting.”
We expect more delisting of underperforming companies in the coming months.
Get smart: Regulators are still focused on pushing forward with financial de-risking and improving Chinese capital markets.
READ MORECaixin Global: Bourses Prepare to Boot Year’s First Batch of Sub-Par Companies
Politics & Policy
4. Xi checks out vegetables in Jiangxi
We continue to get more details about Xi’s activities in Jiangxi.
On Monday, he went to rural Yudu County to check out the Zishanfuxi Vegetable Production Park.
He was particularly interested to learn more about the “developing enterprises + cooperatives + farmers and poor households” development model practiced in Yudu.
Some context: One of Xi’s trademark initiatives has been poverty alleviation in rural areas.
Workers at the park were happy to see Xi:
- “We thank the Party for its good policies and for helping us to live happy lives!”
Xi waived off the praise and said he was just doing his job:
- “The Communist Party always strives for the people’s happiness, and the Party Central Committee is sparing no effort to improve the lives of the people.”
- “When the sesame blossoms grow tall, the people’s lives will be yet better!”
Get smart: Of course official media praised Xi. But he does deserve some credit. He has done a lot to focus attention – and money – on helping out China’s rural communities.
READ MORECPC People: 习近平祝福乡亲们：芝麻开花节节高，今后日子会更好！
Politics & Policy
5. Party passes new rules on Party education
The latest addition to Xi’s Party-building mission, “Regulations on Party Education and Administration Work”, were released in full yesterday. They are in effect as of May 6.
Some context: Xi’s Party-building efforts are kicking in to high gear. In April, regulations on Party group work were released. Last week saw the initiation of a new Party study campaign (see May 14 Tip Sheet).
The new rules are all about getting the Party’s 90 million members on the same page.
To that end, the new regulations require all Party branches to have a dedicated monthly “Party day” devoted to Party work.
Our take: Nobody is going to like Party day.
Get smart: Xi’s fondness for Party-building reflects his belief that the Party has lost its way and needs reforming.
Our take: While we agree with Xi Jinping’s assessment of the Party’s current woes, we just don’t see any of the recent initiatives as helping to address these problems.