Driving the Day
1. Hong Kong protestors storm Legco
Last night, a group of protestors in Hong Kong forcibly occupied and vandalized the city’s Legislative Council (LegCo) chambers.
- The occupiers used makeshift battering rams to enter the building.
- They then graffitied the council chamber and hung a colonial-era Hong Kong flag.
By 1:00 am, police had cleared the protestors from the chamber.
Some context: July 1 is the anniversary of the handover of Hong Kong to the PRC. It is typically marked by public protests against the government.
The Hong Kong government condemned the incident in an official statement (SCMP):
- “These protesters seriously jeopardized the safety of police officers and members of the public. Such violent acts are unacceptable to society.”
A representative for the State Council’s Hong Kong and Macau Affairs Office also chimed in (Jiemian):
- He expressed support for the Hong Kong government and condemned the episode as a challenge to the “one country, two systems” model.
Get smart: There is no sympathy for the protestors in Zhongnanhai. These protests will increase calls for Beijing to take a more forceful line with Hong Kong.
SCMP: Hong Kong police clear protesters occupying legislature after day of unprecedented violence and chaos
BBC: Hong Kong protests: Carrie Lam condemns ‘extreme use of violence’
2. Yi Gang speaks in Helsinki
On Monday, People’s Bank of China (PBoC) Governor Yi Gang delivered a keynote speech at a conference hosted by the Bank of Finland in Helsinki.
He used the opportunity to reiterate the monetary policy stance:
- “The central bank’s interest rates are at a comfortable level, economic growth is close to its potential and the current policy stance is enough to deal with different situations.”
Yi told everybody to expect lower growth:
- “China’s economic growth will continue to be moderate as labour supply shrinks, local officials place less stress on the growth of gross domestic product and environmental protections get tougher.”
Get smart: Yi is being very clear – again! – that large-scale stimulus is not in the offing.
Bloomberg:Trade Truce Better Than Expected But Issues Remain: PBOC’s Yi
3.PBoC still all about de-risking
Xi Jinping is mobilizing the entire Party-state for the new “Stay true to the Party’s founding mission” study campaign (see May 31Sheet).
The central bank (PBoC) recently held its own study session. The readout was published on Monday.
The bank leadership used the meeting to reinforce the de-risking campaign:
- “[We] must take the prevention and resolution of major financial risks as the top priority in safeguarding China’s financial security.”
- At present, we must pay special attention to risks imported from abroad; prevent external shocks and the transmission of market volatility [from abroad]; actively prevent and resolve risks of key [financial] institutions; and firmly stick to our bottom line of not letting systemic financial risks occur.”
Get smart: The PBoC is worried that the trade war could drive RMB depreciation. That, in turn, will constrain monetary policy.
The bottom line: De-risking remains at the top of regulators’ agenda. That’s another reason not to expect stimulus.
4. Li Keqiang visits Liaoning
On Monday, Li Keqiang was in Dalian, Liaoning, in preparation for the World Economic Forum meeting to be held there this week.
Li took the opportunity to visit Liaoning Port Group.
- “[He] praised the company for introducing outside nvestment through restructuring, transforming their operating mechanism, and turning losses into profits in a relatively short time.”
- Liaoning Port Group was a state-owned enterprise (SOE) owned by the Liaoning government established in 2017 by the merger of Dalian, Yingkou, and Jinzhou ports.
- In late 2018, centrally-administered SOE China Merchants took a 49.9% stake in the group.
- Early last month, the Liaoning government transfered a further 1.1% to China Merchants, giving the latter majority control.
Li also made a point to visit private petrochemical producer Hengli Petrochemical.
He inquired about the business environment:
- “Li inquired in detail whether the policies to reduce fees and taxes were being carried out.”
- “He was very happy to hear a positive answer from the head of the enterprise.”
And said that:
- “To support the development of private enterprises…we should treat state-owned and private enterprises equally.”
Get smart: Li Keqiang and other leaders talk a lotabout equal treatment for private and state-owned companies. But they always seem to prioritize SOEs when they go on inspection tours. Actions speak louder than words.
5.Party membership surpasses 90 million
The Chinese Communist Party turned 98 years old on Monday.
The Central Organization Department decided to celebrate by publishing some stats on Party membership:
- Party membership grew by 1.03 million people in 2018, to 90.59 million total.
- Overall, there were 2.06 million new members in 2018, of which 80% were under 35.
Our thought: We’re surprised that a fifth of new members are over 35 years old.
Get smart: That means that over one million people left the Party in 2018, mostly due to death or being purged.
Party membership growth has accelerated in the Xi era:
- From 1978 to 2012, 61.5 million people joined the Party – roughly 1.8 million per year.
- From 2012 to 2018, 12.7 million people joined – roughly 2.1 million per year.
We were not expecting this:
- The percentage of state-owned companies with Party cellsdecreased from 91.2% in 2017 to 90.9% in 2018.
- And the number of private companies with Party cells dropped from 1.88 million in 2017 to 1.59 million in 2017.
Our question: Is the big decreasein private companies with Party cells because private companies are dissolving their Party cells? Or because lots of private companies are going out of business?
6.Huawei reducingdependence on US
In an interview with Canada’s Globe and Mail last week, Huawei founder Ren Zhengfei said his company seeks to end its reliance on American technology within two years.
In case you forgot: The US placed Huawei on the Entity List in May, effectively banning the sale of crucial American components to the company.
Ren sees the US actions as an attempt to destroy the company (Globe and Mail):
- “[The US has] added Huawei to the list not because we have done something wrong and need to be punished, but because they want to wipe us out.”
- “If someone wants to condemn you, they can always trump up a charge.”
Get smart: Since Ren’s interview, US President Donald Trump has said he might soften the ban on selling to Huawei. But that will not change Huawei’s long-term calculus. The company now sees reliance on US tech as a vulnerability that must be eliminated.
Globe and Mail: Huawei’s CEO has a message for Canada: Join us and prosper in the 5G future
Caixin Global: Huawei Working to End Reliance on U.S. in Two Years, Founder Says