Driving the Day
1. Trade talksresume, we yawn
The on-again, off-again US-China trade negotiations are on…again.
That’saccording to a short statement from Xinhua today (via SCMP):
- “Vice-Premier Liu He, who leads the trade negotiations for the Chinese side,spoke to his US counterparts, Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.”
- “Both sides exchanged views on economic and trade issues.”
- “Both sides agreed to continue communication.”
Our take: This trade war is exhausting. But it’s good that the two sides are still talking.
Still, the ground has shifted in China. Leaders in Beijing now expectthe US to give a little for the negotiations to genuinely go anywhere:
- “Vice-minister of commerce Wang Shouwen, another key member of China’s trade negotiation team, said on Monday that both countries would need to compromise if they were to reach a trade deal.”
What to watch: For our money, a trade deal in 2020 looks unlikely – no matter how well the presidential tête-à-tête in Japan goes this week.
2.More Baoshang Bank fallout
The liquidity challenges in China’s interbank market are proving decidedly difficult to iron out.
Over the weekend, the central bank (PBoC) moved to give brokerages more leeway to keep the money flowing by – get this – allowing them to increase their short-term borrowing (Caixin):
- “The PBoC raised the quota for… GF Securities Co. Ltd.’s outstanding short-term commercial paper to 17.6 billion yuan.”
- “Citic Securities Co. Ltd.,Huatai Securities Co. Ltd., Guotai Junan Securities Co. Ltd.,and Haitong Securities Co. Ltd. have [also had their quotas] raised.”
- “Securities firms’ short-term commercial papers are a debt instrument with maturities under 91 days.”
- “The quota refers to how much of this kind of debt the brokerages can take on at any one time.”
To put the new quotas into perspective:
- “The enlarged quotas for the five securities firms total 185 billion yuan, over three times more than their previous combined quota.”
- “Injecting liquidity into the leading securities firms will support their lending to small and midsize nonbanking institutions.”
Get smart: We know this stuff is boring to a lot of our readers, but interbank problems are what cause banking crises. We aren’t at that point yet, but the jitters are proving awfully hard to tamp down.
3. Drone company embraces localization
Chinese tech companies are finding creative ways to allay US concerns about their products.
On Monday, Chinese drone maker DJI published a letter that itsent to the Senate Subcommittee on Commerce, Science, and Transportation the same day.
Some context: The subcommittee held a hearing on drone security last Tuesday – asking whether Chinese drones feed data back to the Chinese government.
The DJI letter claims that its customers have full control of their data (DJI):
- “DJI drones do not share flight logs, photos, or videos, [nor do they] automatically send flight data to China or anywhere else.”
- “The security of a company’s products depends on the safeguards it employs, not where its headquarters is located.”
The company enumerated safeguards it will employ to allay congressional concerns:
- Re-purposing a warehouse in California to assemble “Government-Edition” Mavic 2 Enterprise Dual drones.
- Ensuring data collected by the drone can only be accessed via a physical wire, after it lands.
What to watch: Chinese tech companies will increasingly embrace localization and production offshoring for the US market – thanks to US national security concerns.
Get smart: This is something foreign companies have been doing in China for a long time. The question is – will it work in reverse?
4.Xi reviews more rules to bring the Party in line
The Politburo held its monthly meeting on Monday.
They deliberated two documents:
- Regulations on Organizational Staffing Work of the Communist Party of China
- Regulations on Rural Work of the Communist Party of China
China’s top leaders decided that the Party needs beefed up rules around staffing in order to follow through with the MASSIVE Party-state restructuring announced in March 2018.
Despite saying that the new rules have “incredibly important significance,” the readout did not specify what they will entail.
The readout was similarly vague on the new rural work rules.
One thing was clear, however. The Party wants to strengthen its presence at the grassroots level:
- “We should strengthen Party construction in the countryside and turn countryside grassroots Party organizations into propaganda advocates of the Party’s propositions, implementors of the Party’s decisions, and leaders of grassroots governance.”
Get smart: These documents attempt to address two perennial problems for Chinese leaders. The first is a lack of control over the central bureaucracy. The second is a lack of control over grassroots officials.
People’s Daily: 中共中央总书记习近平主持会议
5.Study campaign is not all fluff
Xi Jinping’s “Stay true to the Party’s founding mission” study campaign is off to a flying start.
Some context: Launched three weeks ago (see June 3 Tip Sheet), the campaign aims to instill a greater sense of purpose in Party members – and to increase loyalty.
All departments throughout the political system have scrambled to get their own study sessions going.
The Party Center has been very helpful – providing fun case studies for everyone to learn from.
In Tianjin, Henan, and Anhui, officials got to learn about the story of Fuyang, Anhuiwhere (The Paper):
- “The prominent problem of… bureaucratism in the fight against poverty has… destroyed the Party’s image, wasted public resources, failed the people’s expectations, and damaged the relationship between the Party and the masses.”
So, what happened?
Officials in Fuyang spent poverty alleviation funds to paint the house of poor peoplewhite – to cover their real living conditions.
Luckily, there was a happy ending: The Fuyang Party Secretary was sacked.
Get smart: Xi is telling officials that there will be consequences if things don’t get done right.
6.Liu He meets top scientists
Vice Premier Liu He paid a visit to the Chinese Academy of Sciences (CAS) last Friday.
Some context: Science and technology policy falls under Liu He’sremit as vice premier.
More context: The CAS is China’s top research institute for driving national tech RD. Each member of the CAS is an influential advisor on policies within their respective areas of expertise.
Liu’s key message:
- It’s time to make breakthroughs in core technological areas.
At the same time, Liu doesn’t want scientists to shut themselves off from global exchanges.
- He asked CAS to strengthen scientific and technological cooperation with developed countries.
Get smart: As Chinese technology comes under increasing pressure from American sanctions, the government will look to incentivizeprogress in core and cutting-edge technologies.
It’s all about reducing dependency on foreigners, and Liu He will continue to lead that charge.