Driving the Day
1. Outlook not great for next week’s trade talks
US Trade negotiators are coming back to Beijing next week.
But prospects for a deal don’t look promising.
MofCom says that the US must remove all tariffs if they want a deal:
- “If the two sides are to reach an agreement, all [US] tariffs must be completely removed.”
But…it’s not at all clear that the US is willing to do that (SCMP):
- “Such a move would require the Trump administration to give up its insistence that some levies remained in place to ensure Beijing honored the deal.”
- “The US had argued that these levies should be lifted only when China made progress on certain agreed-to goals.”
Get smart: Tariffs are just one of many contentious issues that need to be addressed.
Get smarter: Getting everyone back at the table is a good start, but we still look far from a deal.
SCMP: All eyes on Huawei ban as US and China try to break trade war deadlock
SCMP: China insists US must remove all trade war tariffs as part of deal, says commerce ministry spokesman
2.Finance regulator wants a more professional banking sector
Yesterday, the banking regulator (CBIRC) held a press conference.
The key message: Banks needs to better serve the real economy.
One avenue that they are pushing:IP-backed finance (see June 27 Tip Sheet).
Some progress has already been made:
- The value of IP-backed mortgage loans increased by 98% from the beginning of 2018 to the end of Q1 2019.
One reason: The CBIRC allows banks to have higher nonperforming loan (NPL) ratios for such loans.
Don’t get too excited. This is hardly without complications. Two big problems:
- How to value intangible assets
- How to transfer such assets should a borrower default
The bigger picture: This is all part of awider push to get more money to technology companies.
3. China remains noncommital on Rohingyas
Yesterday, Premier Li Keqiang met with Bangladeshi Prime Minister Sheikh Hasina in Beijing.
Li showed Hasina some love (Gov.cn):
- “Bangladesh is a significant partner of China in South Asia.”
Some context: The two countries upgraded their relationship to a strategic cooperative partnership during Xi Jinping’s state visit in 2016.
Li was keen to talk Belt and Road:
- “China will continue to help Bangladesh by jointly stepping up the construction of Bangladesh-China-India-Myanmar [BCIM] Economic Corridor.”
Why that matters: The BCIM is one of the original six “corridors” that comprise the Belt and Road. BCIM was absent from the joint statement at the Belt and Road Forum in April, leading to speculation that the corridor had been abandoned.
Hasina tried to engage Li on the Rohingya crisis. But Li seemed reluctant (Daily Star):
- “The Chinese PM said they thought the crisis would have to be solved through bilateral channels.”
Li did, however, promise humanitarian assistance:
- “China will provide 2,500 tonnes of rice as assistance for the displaced Rohingyas who have taken shelter in Bangladesh.”
Get smart: Bangladesh would like China to put pressure on Myanmar to repatriate the refugees. But China looks reticent to play a bigger role – at least in public.
Gov.cn: Premier Li meets with Bangladeshi prime minister
China Daily: China applauded for impact of BRI, investment in Bangladesh
Daily Star: Solving Rohingya Crisis: China to press Myanmar
4.Hebei residents go back tocoal
The Ministry of Ecology and Environment (MEE) recently named and shamed officials in Baoding, Hebei.
The city backslid on using clean energyin a big way:
- More than one-third of rural households began using coal again after having previously switched to gas or electricity.
According to the MEE, the local government failed to come up with the money for clean energy subsidies as instructed. So coal remained the economical choice for Baoding residents.
Many experts think the MEE’s explanation is oversimplified.
- Clean energy heating costs are almost double those of coal.
- To make a permanent switch to clean energy, Hebei needs several billion yuan to put toward investment and subsidies.
- At present, the central government is only contributing a tiny fraction of that.
The bottom line: Clean energy will only see widespread adoption if its prices are competitive with coal.
5.Hong Kong auditors get access to mainland documents
Hong Kong regulators will now have access to audit papers of some mainland firms.
That’s after an agreement was signed Wednesday between the Hong Kong Securities and Futures Commission (SFC), and the Chinese Ministry of Finance (MoF) and China Securities Regulatory Commission (CSRC).
The details (Reuters):
- “The SFC’s new memorandum of understanding will allow the Hong Kong regulator access to papers relating to Hong Kong accounting firms’ audits of mainland-based companies that are listed, or are trying to list, in Hong Kong as well as their related persons or entities, the SFC said in a statement on Wednesday.”
That’s a lot of companies:
- “Roughly half of the 2,315 companies on Hong Kong’s stock exchange are based in mainland China, according to exchange figures.”
- “China has long been reluctant to allow overseas regulators, including those in Hong Kong, to inspect audit documents relating to mainland firms, citing national security concerns.”
Get smart: If implemented, this could help to shed some light on some of China’s biggest firms – including a lot of SOEs.
What to watch: An MoU isn’t binding, so we will be curious to see how this works in practice.
Reuters: Hong Kong, Chinese regulators agree deal on accessing Chinese audit papers