Driving the Day
1.China to accelerate financial opening
Yesterday, Premier Li Keqiang delivered a speech at the World Economic Forum (aka Summer Davos) in Dalian.
The big news: China has moved up the timeline for opening its financial services sector.
Here’s Li (Caixin):
- “China will abolish caps on foreign ownership of securities, futures and life insurance firms in 2020, one year earlier than planned.”
Some context: In April 2018, China committed to scrapping equity caps in these industries by 2021.
Li also promised to address some of foreign companies’ biggest complaints (Gov.cn):
- “China will continue to push forward foreign exchange reform and capital account convertibility, lower overall tariffs, improve related laws, and enhance protection of intellectual property rights.”
Get smart: China has been consistently making good on promises to open the financial sector over the past year.
Get smarter: It’s easy to read this as a reaction to criticism from the US and EU that China is not open for business. That probably plays a part, but is not the real driver.Financial sector opening has been in the works for years; it just got temporarily derailed by the 2015 stock market meltdown and subsequent outflows crisis.
Gov.cn: Premier addresses 2019 Summer Davos Forum
FT: China to allow foreign ownership of securities companies in 2020
Caixin Global: China to Scrap Foreign Ownership Caps on Financial Firms a Year Early
2.Li reiterates that large-scale stimulus is not coming
Li Keqiang also used his speech on Tuesday to discuss the economy.
Li admitted that the economy is slowing. But he told everybody not to worry:
- “China is well prepared for new downward pressures.”
In the medium- to long-term, the outlook remains favorable:
- “The positive long-term development trend of China’s economy will not change because China’s huge market, rich human resources, complete industrial facilities and surging new impetus provide sufficient resilience, potential and room for maneuver to the economy.”
Li was also at pains to reiterate that the government has no plans to unleash large-scalestimulus à la 2009-2010:
- “The old development way of strong stimulus and extensive growth will be abandoned.”
Instead, the focus remains on improving the business environment:
- “Reforms will be expanded to create a market-oriented, law-based business environment that meets international standards, energizing market players.”
- “Meanwhile, more efforts will be made to implement larger-scale tax and fee reductions and promote administration streamlining, and improve regulations and services.”
Get smart: The government will continue to look to cushion the slowdown. But they are not trying to reverse it.
Gov.cn:Premier addresses 2019 Summer Davos Forum
3.Erdogan and Xi talk Turkey
On Tuesday, Xi Jinping held talks with Turkish President Recep Tayyip Erdogan in Beijing.
Some context: Turkey has a large population of Uighurs, many of whom have been vocal in their criticism of the mass detentions being carried out in Xinjiang.
That’s not all (Reuters):
- “Turkey is the only Muslim nation to have regularly expressed concern about the situation in Xinjiang, including in February at the U.N. Human Rights Council, to China’s anger.”
On Tuesday, Xi got straight to the point (Xinhua):
- “On anti-terrorism security cooperation, Xi said China appreciates Erdogan’s reiteration on many occasions about not allowing anti-China separatist activities instigated by any force in Turkey.”
- “China is ready to strengthen cooperation with Turkey in the field of international anti-terrorism.”
What that means: Help us round up those Uighur dissidents in Turkey.
Erdogan seems cool with that:
- “[Erdogan said that] residents of various ethnicities [are] living happily in Xinjiang…thanks to China’s prosperity.”
- “Turkey will not allow anyone to drive a wedge in its relations with China.”
- “He also expressed the readiness to…strengthen security cooperation with China in opposing extremism.”
Get smart: Erdogan – like Xi – is more interested in geopolitics than the traditional norms of the liberal world order.
4.China aims to dominate in new energy vehicles
On Tuesday, Xi sent greetings to the opening of the 2019 World New Energy Vehicle Congress in Bo’ao, Hainan.
Some context: This is the first meeting of the congress. It is hosted by the China Association for Science and Technology (CAST) and the Hainan government.
More context: China is already the largest producer and purchaser of new energy vehicles (NEVs) in the world.
Xi said he’s a fan of NEVs (Gov.cn):
- “The new energy vehicle industry … helps inject strong impetus into the global economy, reduce greenhouse gas emissions, and improve the global ecological environment.”
The father of China’s NEV program, Former Minister of Technology Wan Gang, spoke at the congress. He said NEVs are a big deal (People’s Daily):
- “The global auto industry is experiencing changes not seen in a century.”
But Wan also said that China should not completely abandon the development of traditional fuel vehicles(Yicai).
Get smart: Chinese policymakers are committed to becoming the world leader in NEVs.
Get smarter: There is considerable debate about how the government should support the industry going forward. The government is currently in the early stages of drafting a new NEV development plan for 2021-2035.
People’s Daily: 万钢：中国新能源汽车融入世界 加快创新应用推动产业发展
CGTN: CGTN: Xi sends congratulatory letter to World New Energy Vehicle Congress
5.China to forge world’s largest shipbuilder
China’s two largest state-owned shipbuilders, China Shipbuilding Industry Corporation (CSIC) and China State Shipbuilding Corporation (CSSC) are in merger talks.
Some context: CSIC and CSSC were originally one company. They were split in 1999.
The new company will be big:
- The two companies’ combined assets are worth over RMB 500 billion.
- The new company would be the world’s biggest shipbuilder by capacity.
More context: The merger has been rumored to be in the works for several years now.
So why now?
- Earlier this year, it was announced that the world’s largest shipbuilder, Hyundai Heavy Industries (HHI), would acquire the world’s second biggest shipbuilder, Daewoo Shipbuilding and Marine Engineering.
- That has helped to catalyze the long-discussed CSIC-CSSC merger.
The rationale for the merger, according to an official with State-owned Assets Supervision and Administration Commission’s (SASAC) is to:
- Increase the companies’ global competitiveness
- Reduce internal competition
- Help to improve debt structure at the companies
Get smart: In the past, China used to divide up huge SOEs in order to break down domestic monopolies. Now they are reversing course, merging SOEs with a view to making them globally competitive national champions.