Driving the Day
1. China hammers US in trade white paper
On Sunday, Vice Minister of Commerce Wang Shouwen held a press conference to outline officials’ current thinking on the trade negotiations and broader economic relations with the US.
Unsurprisingly, Wang laid the blame for the recent breakdown in trade negotiations at the feet of the US (CNBC):
- “’During the consultations…the U.S. has backtracked, and when you give them an inch, they want a yard,’ Wang said.”
The government also released a wide-ranging white paper on economic relations between the countries.
Some context: Sunday’s white paper was the second that China has released on the issue.
The new white paper marks a distinctive shift in tone. The first white paper was a relatively even-keeled economic argument. The new white paper…not so much. Check out these section titles:
- “The trade war has not ‘made America great again’”
- “US trade bullying harms the world”
- “The first US backtracking”
- “The second US backtracking”
- “The third US backtracking”
Despite all the bluster, Wang reiterated that China wants to find a way back to the negotiating table.
Get smart: Wang may say China wants to negotiate, but for now it’s hard to see a path for either side to get back to the table.
CNBC: ‘The US has backtracked’: China releases official document blaming America for the trade war
Bloomberg: In Fill: China’s Whure Paper on U.S. Economic and Trade Talks
Driving the Day
2. China opens investigation into FedEx
On Saturday, Chinese state media reported that authorities have opened an official investigation into US shipping giant FedEx.
The move came less than 24 hours after China’s Ministry of Commerce unveiled its plans to create an “unreliable entities list” of foreign companies operating in China (see Friday’s Tip Sheet).
The official reason given for the investigation was the rerouting of Huawei packages – sent from Japan and bound for China – to the US.
Our take: It’s still unclear whether FedEx will be placed on the new blacklist, but at this stage we doubt it. For now, it seems that authorities are *just* trying to send a message.
Wang Shouwen commented on the Fedex investigation at his press conference on Sunday (see previous entry), calling it “understandable.”
Other MofCom offcials have elaborate on what will get a company on the blacklist (NBD):
- Taking discriminatory actions against Chinese companies, such as refusing to sell goods to them
- Backpedaling on contacts without commercial reasoning
- Inflicting material damage on a Chinese company
- Posing a threat to national security
Get smart: The Chinese government will have wide latitude to put companies on the list. That means that this already very ugly trade war could get a lot uglier.
Washington Post: Chinese trade negotiator defends FedEx probe, warns firms against hurting Chinese companies
Driving the Day
3. China’s latest round of tariffs go into effect
The hits just keep on coming. To sum up the events in just the past three days, the Chinese government:
- Unveiled a new “unreliable entities list” targeting foreign companies
- Announced an investigation into FedEx
- Released a white paper slamming the US negotiation tactics
But that’s not all: On Saturday, the most recent round of retaliatory tariffs also went into place, according to the Customs Tariff Commission of the State Council (ECNS):
- “The tariffs of 25 percent, 20 percent and 10 percent were imposed on 60 billion U.S. dollars’ worth of American exports to China, said the statement.”
- “This action was in response to the U.S. raising tariffs on 200 billion U.S. dollars’ worth of Chinese goods from 10 percent to 25 percent.”
Some context: This wasn’t a surprise – China announced these tariffs in early May after the US further raised tariffs on Chinese imports.
Get smart: All of these actions – especially the tariffs and the new entities list – are meant to be reactive and proportionate. In other words, the government wants to be seen as matching US actions – not necessarily turning up the heat further.
Get smarter: China may not want to be turning up the heat, but this spate of concerted, coordinated actions does just that.
ECNS: China’s additional tariffs on $60 bln worth of U.S. products take effect
Finance & Economics
4. PBoC claims more bank takeovers are not on the cards
On Sunday, the central bank (PBoC) released yet another Q&A on its takeover of Baoshang Bank.
Some context: Ever since the PBoC first announced the takeover on May 24, speculation has grown that Baoshang may be the first among many.
The PBoC wanted to put those fears to rest (PBoC):
- “Recently, some people in the market have worried about whether other institutions will be taken over.”
- “Please rest assured that there are no such plans at present.”
- “If any institution needs liquidity support or increases in capital, those can be carried out in a completely market-oriented way.”
The PBoC also emphasized that the takeover is being pursued in accordance with the law:
- “Taking over a commercial bank is a very solemn and cautious action.”
- “[It is done] only when a commercial bank appears in the situation identified by Article 64 of the Commercial Bank Law, [which states that a] ‘commercial bank is having or may have a credit crisis, which seriously affects the interests of depositors.’”
The PBoC also underscored that the main shareholder of Baoshang – Tomorrow Holdings – had been using a large portion of the bank’s funds illegally, leaving depositors at risk and necessitating official action.
The central bank’s argument: This is an extraordinary case, so don’t expect a bunch more of these cases.
Politics & Policy
5. Xi gathers every official in the country for study campaign launch
On Friday, Xi kicked off the Party’s new “Stay true to the Party’s founding mission” study campaign.
This campaign is a big deal. The kick-off meeting was attended by every single high-ranking official in the Party-state apparatus.
Xi, sounding a bit like a retail politician, reminded his colleagues to serve the people:
- “People have different backgrounds in the world’s most populous country, but the aspirations they hold are shared: a job that supports their family, a safe community to live, a fair chance to develop themselves, a better environment, and the ability to give their children a better future.”
- “Seeking happiness for the Chinese people and rejuvenation of the Chinese nation is the fundamental driving force behind the heroic fight of generations of CPC members.”
But ultimately, this campaign is focused on the Party:
- “Only by solving its own prominent problems first can the CPC overcome the risk of being divorced from the people, a price no political party can afford.”
- “This is why fighting formalities for formalities’ sake and bureaucratism is taken as an important part of the education campaign.”
Our take: We agree that the Party needs to better serve the people. But…we’re just not sure that a new study campaign will make that happen.
CCTV: 习近平在“不忘初心、牢记使命”主题教育工作会议上强调 守初心担使命找差距抓落实 确保主题教育取得扎扎实实的成效
Xinhua: Xi Focus-Commentary: CPC’s fearless campaign of self-reform
Politics & Policy
6. Wei Fenghe talks tough on Taiwan
On Sunday, State Councilor and Minister of Defense Wei Fenghe addressed the Shangri-La Dialogue in Singapore.
Some context: The annual meeting brings together top defense officials from around the region to discuss regional security challenges. Wei is the highest-ranking Chinese official to attend the meeting since 2011.
Wei had some strong words on Taiwan (Xinhua):
- “If anyone dares to split Taiwan from China, the Chinese military has no choice but to fight at all costs for national unity.”
- “Any underestimation of the PLA’s (People’s Liberation Army) resolve and will is extremely dangerous.”
- “We will strive for the prospects of peaceful reunification with utmost sincerity and greatest efforts, but we make no promise to renounce the use of force.”
The Taiwanese government was not happy (AP via Yahoo):
- “[The Taiwan government’s Mainland Affairs Council] asserted later Sunday that Taiwan has never been a part of the People’s Republic of China and would never accept Beijing’s threats.”
Get smart: Amidst this trade war mess, it often gets lost that cross-strait tensions are also on the rise. Taiwan, in our view, still represents the largest geopolitical risk in the region – and tensions are likely to escalate further in the run-up to Taiwan’s presidential election next year.
Xinhua: China must be and will be reunified: Chinese defense minister
Yahoo: Taiwan lashes back at Chinese defense minister’s threats
Politics & Policy
7. Government clarifies fiscal policy for science and technology
On Friday, the State Council released a plan that lays out the responsibilities of central and local governments with respect to science and technology (S&T) spending.
Some context: This is part of larger policy trend that seeks to better align local government spending responsibilities with revenues.
The central government has already clarified fiscal expectations on foreign affairs, national defense, and public services, such as healthcare (see August 14 Tip Sheet).
More context: China’s central and local governments spent a combined RMB 830 billion on S&T in 2018. 37% of that total came from the central government’s coffers.
That total will only increase in the future.
According to the notice, the central government will foot most of the bill for:
- Pioneering basic scientific research
- S&T programs that concern the development of the country’s strategic products or industries’ core competitiveness
For technology adoption, both central and local governments will rely more on government-seeded funds to push for greater commercialization.
Get smart: This plan clarifies existing arrangements – but does not change them fundamentally.