1.Auto sales jump in June
The downward spiral in Chinese auto sales was broken last month.
In fact, June saw pretty decent growth in car sales (Bloomberg):
- “Retail sales of sedans, sport utility vehicles, minivans and multipurpose vehicles rose 4.9% [y/y]…according to preliminary numbers from the China Passenger Car Association Monday.”
That monthly pop broke a considerable contractionary streak:
- “That’s the first increase since May 2018 for the world’s biggest market.”
Just one problem: The jump in sales wasn’t thanks to suddenly renewed consumer demand. Dealers were giving deep discounts to offload cars ahead of an impending deadline:
- “Dealers slashed prices by as much as 50% in recent weeks, according to local media reports, to clear their inventory of cars that don’t meet new stricter emission standards.”
- “Eighteen provinces and regions — which together account for most of China’s car sales — require vehicles to meet the new criteria as of July 1.”
Our thought: Enjoy it while it lasts. Deep discounts that drove sales in June will translate into even weaker sales in Q3.
Bloomberg: China Car Sales Rise for First Time in a Year on Discounts
2.Trusts barred from property lending
Chinese regulators are cracking down on trust companies lending to the property market.
For some of the most profligate firms, officials are stopping lending entirely – at least for a while (Caixin):
- “A Chinese financial regulator has ordered 10 trust companies to ensure no growth in the outstanding amount of their real estate financing businesses at least through this year’s third quarter…as regulators worry about froth in China’s property market.”
Some context: Trust companies are a key component of China’s shadow banking system. Regulators have been tightening scrutiny over their operations for the past two years as part of the financial de-risking campaign.
Officials held a meeting with trust companies last Wednesday:
- “The China Banking and Issuance Regulatory Commission (CBIRC)…required the companies to get the scale and growth of their property financing businesses under control.”
The oversight won’t go away soon:
- “The regulator will provide guidance to trust companies on a regular basis from now on.”
Get smart: The trusts aren’t big players in property financing – but regulators are casting a wide net to ensure that they have control of the country’s hottest real estate markets.
Caixin:Regulator Confronts Trusts About Real Estate Financing
3. State Council looks to improve compulsory education
On Monday, the State Council released new guidelines on compulsory education.
The guidelines aim to make students more well-rounded (Xinhua):
- “The guideline aims to develop an education system that will foster citizens with an all-round moral, intellectual, physical and aesthetic grounding, in addition to a hard-working spirit.”
Part of this means getting kids away from their desks:
- “It also called for strengthening physical education, enhancing aesthetic training with more art curriculums and activities, and encouraging students to participate in more physical work.”
The guidelines also signal a shift away from the traditional focus on memorization:
- “Heuristic and interactive methods in teaching are encouraged to inspire students to think and ask questions.”
But, this being Xi’s China, there is also a strong focus on ideology, meant to (Gov.cn):
- “Strengthen the education of patriotism, collectivism, and socialism; and guide children to listen to and follow the Party.”
Central control over curricula will also be strengthened.
Get smart: The government takes education seriously. Top officials know that human capital is an essential component of sustainable economic growth.
The big question: Is an increased focus on Party-led, socialist educationcommensurate with better educational outcomes?
Gov.cn: 中共中央 国务院关于深化教育教学改革全面提高义务教育质量的意见
Xinhua: China issues new guideline to improve compulsory education
4.Wang Yang solicits seeks advice onbusiness environment
On Monday, Politburo Standing Committee member and Chinese People’s Political Consultative Conference (CPPCC) Chairman Wang Yang sat down with representatives from China’s “democratic” political parties.
Some context: In addition to the Communist Party, there are eight officially sanctioned “democratic” parties, all of whom acknowledge the leadership of the Communist Party.
The reason for the meeting: Brainstorming ways to improve the business environment.
- “The business environment is the soil on which market entities depend on for survival and development.”
- “[It] is a country’s…core competitive strength.”
The heads of five parties gave their suggestions:
- Establish a law-based business environment that ensures fair transactions.
- Devise a negative list for the educational and cultural services industries.
- Accelerate the development of high-end healthcare services, cut taxes for smaller pharmaceutical companies, and improve IP protections for drugs and medical equipment.
- Eliminate market barriers, improve financing mechanisms, and lower taxes and regulatory burdens for private tech enterprises.
- Relax market access and regulatory approvals for Taiwanese businesses.
Get smart: China’s minority parties have more influence than most people realize. After all, it’s not just anybody who gets to submit suggestions to a Politburo Standing Committee member.
5.Wang Qishan defends globalization
On Monday, Vice President Wang Qishan said that China should remain committed to globalization at Tsinghua University’s World Peace Forum.
He said that countries should resist the rising tide of protectionism and reaffirm support for an open and multilateral trading order (SCMP):
- “China’s development can’t be separated from the world, and the world’s development cannot be separated from China.”
- “Major nations have to shoulder more responsibility and make greater contributions to the stability and peace of the world”
Wang warned of headwinds, but urged nations to press on:
- “We will see challenges and turbulence in the path ahead.”
- “But we have to stick to the principle of peaceful development, and not be shaken in pushing ahead with economic globalization.”
Get smart: An open and highly interconnected global economy benefits China and Chinese goods. That’s why top officials have emerged as such vocal champions of globalization in recent years.
What to watch: China will host negotiations in a couple weeks for the Regional Comprehensive Economic Partnership (RCEP), a trade deal involving 16 Asia-Pacific countries. Will it practice what it preaches? Or attempt to protect domestic industries?