Driving the Day
1. Xi and Trump agree to not escalate trade war – for now
Xi Jinping’s highly anticipated meeting with US President Donald Trump took place on Saturday in Osaka, Japan.
The big news: They agreed to resume trade negotiations – and not escalate the trade war further.
The meeting lasted approximately 80 minutes.
Xi stressed the need for cooperation (Xinhua):
- “One basic fact remains unchanged: China and the United States both benefit from cooperation and lose in confrontation.”
Afterwards, Trump was positive (White House):
- “We had a very good meeting with President Xi of China. Excellent. I would say excellent.”
- “We’re right back on track.”
Xi appeared to get his biggest ask – a relaxation of the US ban on selling equipment to Huawei (WSJ):
- “Mr. Trump said that he would allow more sales of American components to the telecom giant, and that the Commerce Department would soon review its legal measures restricting these exports.”
The US also agreed not to place tariffs on a further USD 300 billion of Chinese goods – for now.
For its part, China agreed to resume buying American agricultural goods.
Get smart: This is not a truce – or even a ceasefire. It’s a temporary agreement not to expand the conflict further. We remain very far from a permanent settlement.
Xinhua: Xinhua Headlines: Xi, Trump agree to restart trade consultations, set tone for China-U.S. ties
White House: Remarks by President Trump and President Erdoğan of Turkey Before Bilateral Meeting | Osaka, Japan
WSJ: Trump Allows U.S. Sales to Huawei as Trade Talks Resume
2.Xi seeks to inspire Party members
Over the weekend, the Party’s top journal published Xi Jinping’s May 31 speech that kicked off the “Stay true to the Party’s founding mission” study campaign (See June 3 Tip Sheet).
According to Xi, the impetus for the campaign comes from a worsening external environment:
- “The external environment is complex, the challenges are severe, and unstable and uncertain factors have significantly increased.”
To deal with the challenges, Xi needs better cadres. He sees two big problems that plague most Party officials:
- “Some Party members and cadres still lag far behind the requirements of the Party Central Committee in theoretical study.”
- “[They] have insufficient entrepreneurial spirit and don’t have a strong sense of responsibility.”
- “Promptly promote good cadres, and resolutely correct the cadres who are unfaithful to the Party, dishonest, and incompetent at their jobs.”
Get smart: Xi’s right – encouraging good behavior is all about incentives. Unfortunately, we’re not sure a study campaign does very much on that front.
3. NDRC issues revised negative list
On Sunday, the National Development and Reform Commission (NDRC) published a new negative list which relaxed restrictions on foreign investment in several key areas.
Some context: The negative list specifies the sectors in which foreign investment is not permitted or subject to certain restrictions. In theory, anything not on the list is open to foreign investment.
Actually, it released two lists:
- One for free trade zones (FTZs), which reduces the number of restricted areas from 45 to 37.
- One for the rest of the country, which reduces the number of restricted areas from 48 to 40.
The lists are essentially the same.
Here are some of the sectors now fully open to foreign investment:
- Shipping agencies
- Gas and heating pipelines in cities with over 500,000 residents
- Petroleum and natural gas exploration
- Molybdenum mining
The timeline: The new listtakes effecton July 30 and the relevant restrictions are set to be fully lifted by the end of the year.
Get Smart: China continues to make good on pledges of continued opening.
Get Smarter: Lifting of market access restrictions is only one piece of the puzzle. Just as important is ensuring that foreign companies in China are treated equally.
4.NDRC and MofCom encourage foreign investment in new list of industries
On Sunday, the NDRC alsoreleased a new version of the Encouraged Industries for Foreign Investment Catalogue.
Some context: The catalogue specifies industries where foreign investment will receivepreferential treatment. The most recent version was published in 2017.
The catalogue is divided into two components:
- A nationwide catalogue that includes 415 industries, of which 67 are new and 45 are modified from the previous list.
- A catalogue for the central, western, and northeastern regions that includes 693 industries, of which 54 are new and 165 are modified from the previous list.
The new catalogue prioritizes high-end, intelligent, and green manufacturing, which accounts for more than 80% of the new and revised items in the nationwide catalogue.
The list is too long to detail here, but some sectors that readers might be interested in include:
- 5G core components
- Integrated circuits
- Cloud computing equipment
- AI robots
- New energy vehicle components
- NEV charging stations
- Logistics warehousing facilities
- Cold chain logistics
- Carbon capture
- Materials for cytotherapeutic drugs
- New materials for aerospace products
- Monocrystalline silicon
Get smart: Aligning your investment with the encouraged list not only puts you on the good side of the government, but also expedites regulatory approvals.
Xinhua: China releases new industry catalogue encouraging foreign investment
5.Legislature decides to grant amnesty to criminals
The legislature (NPCSC) concluded its bimonthly session on Saturday.
They passed one new law – the Vaccine Administration Law.
NPC Observer has the skinny:
- “The Law…was quickly drafted after the Changsheng vaccine scandal last year.”
- “[It] subjects vaccines to more stringent regulation than other types of drugs at every stage of their life cycles.”
- “The Law will take effect on December 1, 2019.”
The legislature also decided to grant amnesty to certain criminals on occasion of the 70th anniversary of the PRC.
NPC Observer again:
- “[The] special amnesty decision marks the second time [the legislature has granted amnesty] during Xi’s tenure.”
- “It last did so in August 2015, just days before the 70th anniversary of the end of World War II.”
- “The NPCSC’s decision that year granted amnesty to four classes of convicts, leading to the eventual release of 31,527 convicts nationwide.”
- “Because Saturday’s decision includes more exceptions than the 2015 decision, it is unclear whether it would lead to the release of more convicts or not.”
Get smart: Corrupt officials are – surprise, surprise – not eligible for amnesty.
NPC Observer: NPCSC Grants Amnesty to Convicts to Mark 70th P.R.C. Founding Anniversary
6.State Council aims to move people back to the countryside
On Friday, the State Council released new guidelines to boost industry in rural areas.
The big goals:
- “Achieve a remarkable share of added value of rural primary, secondary and tertiary industries in county-level GDP within five to 10 years.”
- “[Build] a complete rural industrial system with widening access to profits for rural residents.”
The government will promote a range of industries in the countryside, including:
- Planting and breeding
- Farm product processing
- Rural tourism
- The “new rural service industry”
Money will be forthcoming:
- “The fiscal mechanism, financial services, and guarantee of land and talent will be improved to support the revitalization drive.”
This is all about getting people to move back to the countryside:
- “[The guidelines] encourage migrant workers, graduates of vocational colleges, veterans, and technology staffers to return home.”
Get smart: For decades Chinese citizens have been moving from the countryside to the cities. We don’t expect that trend to be reversed.
Gov.cn: Guidelines on rural industry revitalization released