Finance & Economics
1. CNY still in focus
As US-China tensions sit somewhere between a simmer and a boil, the impact on China’s currency remains in focus.
On Friday, the central bank (PBoC) set the morning CNY/USD exchange rate at 6.8993. That was a teeny touch stronger than Thursday’s fix, but otherwise the weakest rate since December.
That currency weakness has authorities looking to signal confidence. The latest messenger was PBoC Vice Governor Liu Guoqiang (Asia Times):
- “China is ‘capable and confident’ of keeping the renminbi exchange rate stable on a reasonable and balanced level, said Liu.”
- “Liu made the remarks in an interview with Financial News.”
Markets are interpreting Liu’s statements as an indication that the central bank will steady the currency before it crosses the 7/USD level.
But we aren’t so sure. To us it sounds like Liu is looking to highlight the PBoC’s overall capability to manage the currency through a bout of depreciation without creating a genuine crisis:
- “Liu said China has gained much experience in dealing with exchange rate fluctuations and has many policy tools available.”
- “’As the world’s second largest economy, China has proper macro regulation and effective market mechanisms, so there is no basis for a currency crisis,’ he noted.”
Get smart: The PBoC cares more about signaling confidence in its ability to manage the currency through an adjustment than defending an arbitrary exchange rate.
Asia Times: China can keep RMB exchange rate stable
Bloomberg: China Draws Line in Sand for Yuan as Fix Stays Stronger Than 6.9
Politics & Policy
2. Think tank advocates for ICE ban
Chinese officials have been toying with the idea of getting rid of traditional combustion engine vehicles for a couple of years (see September 11, 2017 Tip Sheet).
Now, one think tank is pushing the idea hard (Caixin):
- “[Beijing] could galvanize the rest of China’s megacities by becoming the first to ban the sale of new fossil fuel-run buses, shipping vehicles and taxis in the coming years.”
- “It should then ban the sale of new conventionally powered private cars by 2030, the Innovation Center for Energy and Transportation said in a report released this week.”
The report forecasts that the end of traditional vehicles will happen soon:
- “The report forecast that gas vehicles’ days are numbered in China, with sales expected to peak around 2025.”
- “Hybrid and pure-electric vehicles will gradually take the lead from that point on, with pure-electric models likely to make up 85% of the market by 2050.”
And the tide has already started to turn:
- “New-energy vehicle sales surged by more than 60% last year to 1.25 million units.”
Get smart: There is a lively debate on the future of automobiles in China, and this report is just one voice among many. But it’s an important indicator of where the conversation is.
What to watch: The government is currently drafting a New Energy Vehicle Development Plan (2021-2035), which should give more clarity on how the debate is evolving.
Caixin: Beijing Should Ban New Conventional Car Sales by 2030, Think Tank Says
Politics & Policy
3. The Party evaluates local governments by rule of law
Time for local governments to get excited!
Why? Because the general office of the Central Commission for Comprehensive Law-based Governance (CCCLBG) has recently launched a new contest for city- and county-level governments.
The challenge: To rule by law.
Higher level cadres don’t need to feel left out. The contest will later expand to include them as well.
How will participants be judged? The CCCLBG general office is keeping things simple – it will judge local governments on a mere 100(!) criteria.
A few of those are about building a better business environment. Governments will be judged on how consistently they:
- Abolish rules and practices biased against non-state businesses
- Honor agreements with businesses
- Give businesses 30 days to give input to new regulations
- Consolidate the enforcement of market regulation, environmental protection, and other areas related to business
Other criteria might pose more of a challenge, as local governments are also supposed to:
- Ensure that the local proportion of failed administrative lawsuits is below the national average
Get smart: The most effective way to make governments adhere to the law is to set up a fair, transparent, and independent judicial system.
Get smarter: This contest falls quite a bit short of that.
Politics & Policy
4. NPC expands oversight of state assets
Last year, the National People’s Congress (NPC) took inventory of financial assets owned by the state (See October 25 Tip sheet).
Now they’re at it again. And this time, they’ve got a plan.
On Wednesday, the NPC released a new five-year plan to broaden oversight and improve supervisory mechanisms, including a timeline to review reports in the following areas:
- Assets of public institutions in 2019
- Assets of non-financial SOEs in 2020
- State-owned natural resources in 2021
- A comprehensive report on all types of assets in 2022
The reports will gradually expand to cover assets such as land, infrastructure, pension funds, foreign exchange reserves, government funds, and public capital in public-private partnerships.
The NPC will assess:
- whether the value of state assets is being preserved and improved over time
- how well the portfolio of state capital is optimized
- whether such capital serves national strategic goals
The NPC is also required to propose actionable suggestions for improving asset management.
Get smart: In terms of transparency, inviting legislative oversight of state assets is a step in the right direction.
Politics & Policy
5. Government to consolidate zoning plans
On Thursday, the Central Committee and State Council released opinions on building an integrated system for land zoning plans throughout the country.
The goal is to further consolidate zoning authority, which had previously been scattered across several government departments – until the 2018 government restructuring started the consolidation process.
According to this new regulation, the government is looking to have a unified master plan for the development and protection of territory, nationwide.
Some context: The problem of overlapping land-usage claims by different government agencies is rampant.
More context: This issue is compounded by the fact that governments often change the zoning purposes of land seemingly on a whim, leaving land claimants in limbo.
The Ministry of Natural Resources will be in charge of formulating the new unified plan. And authorities are looking to give it real teeth by:
- explicitly prohibiting new Party bosses or governors from changing land plans formulated by a predecessor
- requiring lower-level plans to comply with the central plan
- not allowing exploration and construction activities that contravene the master plan
Why it matters: The master plan will have a big impact on where companies can invest, and what projects they can invest in.
Gov.cn: 中共中央 国务院关于建立国土空间规划体系并监督实施的若干意见
Politics & Policy
6. Li pledges vocational support
Regular Tip Sheet readers will be aware that the government is increasingly worried about unemployment (see yesterday’s Tip Sheet).
Those worries were on full display Thursday at the government-held Videoconference to Deploy and Promote Vocational Skills.
Premier Li Keqiang sent instructions to the conference.
He promised big support for worker training (Gov.cn):
- “A total of 100 billion yuan in unemployment insurance funds and other training funds will be allocated to the campaign to improve vocational skills.”
The campaign has a broad set of goals, including:
- Providing training programs for workers
- Assisting in worker relocation
- Helping the poor
- Enhancing worker safety
Get smart: Nothing worries the government more than the potential for wide-scale unemployment, as it could lead to social instability.
Authorities are clearly going out of their way to get ahead of the problem as the economy slows.
Our take: This response is much better than trying to pump up the economy through stimulus.
Gov.cn: Premier stresses importance of vocational training