1. Baoshang Bank fallout continues
The government continues to try to contain the fallout from the Baoshang Bank takeover.
The latest (Reuters):
- “China’s state-backed deposit insurance fund will start taking over Baoshang Bank’s interbank debts from July 8, three sources familiar with the matter told Reuters.”
- “The sources cited a document as saying that the deposit insurance fund, incorporated by the People’s Bank of China (PBOC) on May 29, will take over a total 150 interbank negotiable certificates of deposit (NCDs) issued by Baoshang before May 24 that mature after July 16.”
And then there’s this (Caixin):
- “Shanghai-listed China Merchants Securities Co. Ltd. and Shenzhen-listed GF Securities Co. Ltd. announced on Monday and Tuesday, respectively, that they have each received approval from the central bank to issue up to 5 billion yuan in financial bonds, according to their exchange filings.”
Get smart: Tip sheet readers saw this coming(see June 27 Tip Sheet).
Get smarter: These moves are about trying to ensure that liquidity doesn’t dry up in the interbank market.
Get even smarter: Regulators are in a tricky spot. They want to be proactive in addressing potential liquidity challenges. But every action they take stokes anxieties that the situation is worse than it appears.
2.China and Bulgaria upgrade relations
On Wednesday, Xi Jinping met with Bulgarian President Rumen Radevin Beijing.
The big news: The two leaders decided to elevate the bilateral relationship to a strategic partnership.
Xi was happy with his new, upgraded friendship:
- “[Our] two countries share many of the same views on the international situation and should jointly safeguard the international system based on multilateralism and international law.”
And even more so to hear that Radev is on board with his favorite foreign policy project:
- “[Bulgaria is] ready to deeply participate in the Belt and Road Initiative by giving full play to its advantages of location in the region and trying to become a gateway and hub connecting Europe and Asia…”
Like, really on board:
- “… and welcomes Chinese enterprises to increase investment in Bulgaria.”
Don’t worry Brussels! Xi is still pro-EU:
- “China…firm[ly] support[s]the European integration process, EU’s unity and growth and Europe’s more important role in international affairs.”
Get smart: Despite Xi’s assurances, Brussels won’t be too pleased with this development.
Our thought:For all the EU’s fears of Chinese influence, many Eastern European countries have been underwhelmed by China’s commitments so far.
Xinhua:China, Bulgaria lift ties to strategic partnership
3.State Council urges more reforms in FTZs
The State Council did its thing Wednesday, holding its weekly executive meeting.
Top of the agenda: Giving free trade zones (FTZ) more authority to try out new policies.
Some context: There are currently 12 FTZs across the country, and six more on the way.
- “Related provincial and municipal governments will be urged to delegate more provincial administrative authority to the pilot free trade zones, especially in investment approval and market access.”
- “The government will step up exploration of measures to widen market access, especially in opening the service sector.”
Get smart: More reforms and easier market access are good. But most important for businesses is a fair market environment.
That’s why this is more important:
- “Pilot programs in competition policy will be launched in the zones as part of efforts to level the playing field.”
What to watch: Last week, Hainan became the first FTZ to introduce such a program. The province is planning to root out discriminatory policies and practices in 12 sectors by 2020, including healthcare, education, and finance.
4.State Council moves to contain African Swine Fever
African Swine Fever is ravaging China’s pigs (Reuters):
- “As many as half of China’s breeding pigs have either died from African swine fever or been slaughtered because of the spread of the disease, twice as many as officially acknowledged, according to some estimates.”
On Wednesday, the State Council released new guidelines to control the outbreak.
The new guidelines look to consolidate China’s extremely dispersed pig farming industry:
- “Local governments and ministries should promote large-scale pig farming and reduce the number of small pig farms to improve biosecurity levels in the sector, the State Council said in the document published on its website.”
- “The government will provide production subsidies to large-scale pig farms in areas heavily affected by the disease, and encourage major consumption areas to expand pig production to improve self-sufficiency in supplies, the cabinet said.”
Get smart: The biggest obstacle to large-scale farming is the difficulty of transferring rural land use rights. Wednesday’s guidelines don’t even mention the issue.
Get smarter: Rising pork prices will further constrain room for monetary easing. It’s one more reason we don’t expect large-scale stimulus.
Reuters:China has shown ‘shortcomings’ in bid to contain African swine fever: cabinet
5.Beijing to leave Hong Kong to Hong Kong – for now
Ever since protests kicked off in Hong Kong a few weeks ago, the big question has been – what will Beijing do?
The SCMP has some insight into Beijing’s thinking:
- “The bottom line for Beijing is to keep Hong Kong stable and to avoid bloodshed.”
- “’The strategy is to avoid escalation of violent confrontation and remain calm but firm over the principle issues,’ the source said.”
Thus far, Beijing has taken a relatively hands-off approach. But that doesn’t mean they aren’t watching closely:
- “A task force from Beijing has been stationed in Shenzhen since June 9…to assess the facts on the ground, sources have told the Post.”
- “’As of Tuesday, they were still in Shenzhen assessing the situation, reviewing the strategy and discussing the way forward,’ a source said.”
- “All relevant mainland Chinese ministries… have recently sent officials to the city to gather intelligence.”
Get smart: Thus far Beijing has been relatively restrained in its response to developments in Hong Kong. But the PRC won’t hesitate to step in if they think things are getting out of control.