Driving the Day
1. CCCDR meeting strikes a note of urgency
On Wednesday, Xi Jinping chaired a meeting of the Central Commission for Comprehensively Deepening Reform (CCCDR).
Some context: The CCCDR was established as part of the MASSIVE Party-state restructuring in March 2018. It is the most important policymaking body in the country.
The meeting was productive, as always. The commission approved 10 documents on the following topics:
- Improving the framework for macroeconomic regulation
- Energy reform in Shanxi
- Reform of the film sector
- Enhancing innovation through opening up
- Cutting costs of high-value, high-quality medical consumables
- Management of grain reserves
- Improvement of the secondary market for construction land rights
- Developing agricultural insurance
- Changing rural customs and promoting “civilization”
- A report on implementation of CCCDR’s reform tasks
As always, the actual texts of the documents were not released.
Pay attention: What the CCCDR discusses today becomes policy tomorrow. We will see all of these filter through the policy-making apparatus in the coming months.
The official readout was terse, but we detect a note of urgency in the following:
- We must persist in deepening reforms to solve problems…[we must] enhance the internal drivers of economic development, and enhance [our] ability to cope with challenges and withstand risks.
Our take: Xi looks to be trying to leverage the intensifying struggle with the US to give more impetus to his policy agenda.
People’s Daily: 习近平：因势利导统筹谋划精准施策 推动改革更好服务经济社会发展大局
Driving the Day, Cont’d
2. Central authorities look to improve macro regulation
Readers will not be surprised to learn that we were particularly intrigued by the CCCDR’s discussion of macroeconomic regulation.
The meeting passed a document called, “Guiding Opinions on Innovating and Improving Macro Controls.”
But, alas, the details of that interestingly-titled doc were not released. Here is what we know.
- “Speed up the establishment of a macro-control target system, policy system, decision-making coordination system, supervision and evaluation system and security system that are compatible with the requirements of high-quality development and which embody new development concepts.”
The new macro control framework will attempt to balance many factors:
- “We should rationalize the relationship between the government and the market, short-term and long-term, domestic and international”
- “[We should] coordinate between stabilizing growth, promoting reform, adjusting structure, benefiting the people’s livelihood, preventing risks, and maintaining stability.”
Here is a teaser of how they want to do it.
- “We must give full play to the strategic guiding role of national development planning, improve the coordination mechanism of economic policies related to finance, currency, employment, industry and regional development, and maintain economic operations within a reasonable range.”
Our take: First off, whoever’s writing this stuff needs an editor STAT!
Our real take: It’s tough to make much of a statement so lacking in detail. But it seems that the idea is to make the overall regulatory apparatus more responsive to real-time economic developments and offset economic cyclical factors – which is in line with the recent emphasis on improved “macro-prudential thinking.”
Get smart: We expect the document to clarify the government’s new KPI formula.
Get smarter: Policymakers in most – if not all countries – have difficulty designing macro-prudential policy, because very few individuals have the remit, or ability, to see across the entire economy and asses risk.
The bottom line: It’s a good idea – but it won’t be easy to implement.
Finance & Economics
3. Regulators move to ringfence Baoshang Bank
The Baoshang Bank takeover is a developing story (see yesterday’s Tip Sheet).
The latest: It turns out that on Friday, China’s central bank (PBoC) officially established a company to manage a roughly RMB 100 billion fund to protect depositors’ savings at financial institutions.
The timing is no coincidence (Caixin):
- “The deposit insurance fund could inject capital into Baoshang Bank, acquire liabilities of the bank and explore a market-based financial risk disposal mechanism.”
Some details about the new company:
- “Huang Xiaolong, deputy head of the financial stability bureau of the People’s Bank of China, acts as the legal representative and executive director of the company.”
This has been in the works for a while, but Baoshang’s demise is a clear catalyst:
- “The central bank established the deposit insurance fund in 2015 and has since collected insurance premiums from depository financial institutions.”
- “The fund amounted to 100 billion yuan by the end of 2018…But not a penny from the fund has been used so far.”
- “There hadn’t been an independent entity to manage the fund until now.”
Get smart: Like we said yesterday, we don’t reckon Baoshang’s issues are systemic – but regulators aren’t going to take any chances to find out.
Get smarter: The PBoC is preparing to take over more banks.
READ MORECaixin Global: PBOC Sets Up Deposit Insurance Fund Management Company
Finance & Economics
4. China’s debt levels are an all-time high – but it’s not a big deal
On Tuesday, two central government-linked think tanks released an important report on Chinese debt levels.
The key takeaway from the study was that China’s debt levels jumped in Q1 2019 (Caixin):
- “China’s overall leverage ratio increased to 248.83% [of GDP] at the end of March, the highest in a data series going back to 1993.”
- “The debt-to-GDP ratio was up…5.1 percentage points higher than at the end of 2018.”
The size of the increase is worrying:
- “’The increase (in the leverage ratio) was very rapid,’ Zhang Xiaojing, deputy director of the Institute of Economics and the NIFD, said at a briefing to discuss the report.”
- “If it continues at this pace, China risks returning to the days of double-digit annual growth in its leverage ratio.”
Now that would be a problem – as it would represent a total backslide on the campaign to control debt.
But still – it’s not yet time to panic.
Get smart: As we’ve written over these past three months – the Q1 debt increase was down to some idiosyncratic factors. So while the authors are right to be concerned, the pace of debt growth is leveling out in Q2 and will continue to in the second half of the year.
Caixin Global: China Sees Setback in Efforts to Keep Debt in Check
Politics & Policy
5. State Council aims to improve to improve elderly care
The State Council held its weekly executive meeting Wednesday.
And for the first time since the Two Sessions, the meeting did not focus on improving the business environment.
Top of the agenda: Improving community-based elderly care, childcare, and domestic services.
A big part of this is about employment, according to Premier Li Keqiang:
- “Elder care, childcare and housekeeping services are crucial to improving people’s well-being, addressing the aging of the population and boosting employment.”
- “There is huge demand in this regard.”
So what is the government going to do about it? Spend some money:
- “The government will provide greater fiscal support.”
- “Training programs for elderly care workers will be supported by subsidies and other measures.”
Those measures include Li Keqiang’s favorite tool – tax cuts:
- “Between June 1 and the end of 2025, earnings of these services will be exempted from the value-added tax (VAT), and enjoy a 10-percent deduction in taxable income.”
Get smart: Lack of quality childcare and elder care is exacerbating China’s demographic challenges.
Gov.cn: 李克强主持召开国务院常务会议 部署进一步促进社区养老和家政服务业加快发展的措施等
Gov.cn: Multi-pronged support for community-based elderly care, childcare, domestic services