Driving the Day
1.State Council looks to boost trade
You may have heard – China’s economy isn’t looking so good.
And…it’s also in a trade war with the US.
Those two dynamics are taking a toll on China’s international trade.
So it comes as no surprise that Wednesday’s State Council executive meeting focused on “stabilizing trade.”
The big focus is on helping out struggling exporters. The meeting resolved to (Gov.cn):
- “Improve the export tax rebate policy and accelerate the tax rebate process”
- “Expand the role and coverage of export credit insurance”
- “Reduce export insurance premiums and research special types of insurance that better meet the needs of enterprises”
- “Direct financial institutions to increase foreign trade financing support for small and medium-sized enterprises”
The meeting also promised to reduce tariffs, but did not offer details.
Get smart: These measures are aimed at taking the heat off exporters in the short term.But there are larger structural factors ailing Chinese exports. The rising cost of labor means that the era of cheap exports is over – and it ain’t coming back.
Gov.cn: 李克强主持召开国务院常务会 确定进一步稳外贸措施 以扩大开放助力稳增长稳就业等
2.June trade data preview
Speaking of trade, the June trade data comes out on Friday. And…it’s set to be bleak.
Reuters offered a sneak peak of the grim tidings:
- “Imports are expected to have fallen for a second straight month, pointing to continued weakness in domestic demand.”
- “China’s June exports are expected to have declined 2 percent from a year earlier, according to the median estimate of 34 economists in a Reuters poll.”
The coming weakness has been previewed by other data:
- “Factory activity surveys showed export orders also shrank last month, pointing to further weakness in the third quarter.”
Get smart: The US and China might be back at the negotiating table – but that isn’t helping China’s immediate export picture.
Get smarter: Weak external demand will continue to weigh on Chinese growth in H2 2019.
3. China pumps the gas on ICE incentives
Policymakers are tweaking their approach to the auto sector.
Some context: For years now, China has been in a headlong rush to develop its electric vehicle (EV) industry – to the neglect of internal combustion engine (ICE) vehicles.
Buta renewed focus on improving the fuel efficiency of traditional autos has prompted a policy shift.
The government has released new draftrules for the “dual-credit system,” which mandates that auto manufacturers produce a certain number or EVs(Caixin):
- “Carmakers that manage to produce a certain number of low-fuel consumption vehicles will have a slightly reduced requirement for the amount of EVs they must churn out.”
- “The policy revision should encourage carmakers to upgrade their energy-saving technology and to experiment with more hybrid vehicle models.”
Get smart: Policymakers are looking to both promote EVs and improve the technology and efficiency of traditional ICE vehicles.But…the policies aren’t very well coordinated.
Get smarter: These tweaks won’t do anything to alleviate the primary challenge totraditional automakers– demand is in the dumps.
Caixin Global:China Gives Conventional Vehicle Incentives a Little Gas
4.State Council works on social insurance
It just wouldn’t be a State Council meeting if participants didn’t talk about helping out private businesses.
On Wednesday, officials discussedthe need to cut social insurance payments for companies.
Previous moves on this front have already saved companies a bundle this year (Gov.cn):
- “In the first half of this year… companies saw their spending on workers’ basic pensions, unemployment insurances and work-related injury insurances decrease by over 128 billion yuan.”
And Li Keqiang wants to keep the good times rollin’:
- “We must ensure full delivery of our policies introduced early this year to reduce employers’ contributions to social insurance schemes.”
But if companies aren’t contributing to social insurance – who’s going to pay?
Our take: The easing of the social security burden will help companies marginally in the short term.
Li’s got an answer for that:
- “This year, all large- and medium-sized state-owned enterprises, state-controlled enterprises, and [state-owned]financial institutionswill see 10% of their state-owned equity transferred to the National Council for Social Security Fund.”
Get smart:Pension funds need cash, not illiquid shares of SOEs, to become financially viable.
Gov.cn: Social security funds to be replenished with State capital
5.Belt tightening on public transport spending
The central government is trying to get its books in order.
That’s why, on Wednesday, the State Council General Office released new guidelines to clarifythe responsibilitiesof central and local governments with regards to transportation spending.
The simple version: The central government will pay for the national transportation network. Local governments will pay for local networks.
The guidelines cover six fields:
- Civil aviation
- Postal service
- Comprehensive transportation
The guidelines explicitly call out provincial governments:
- “Provincial governments should be properly strengthened to assume the responsibilities and abilities of basic public services in transportation, so as to avoid handing over the responsibility of excessive expenditure to grass-roots governments.”
Get smart: These reforms are part and parcel of larger fiscal reforms that seek to better align local government spending responsibilities with revenues.
Gov.cn:State Council issues guideline on transportation finance duties
6. The Party wants some legal counsel
On Wednesday, the general offices of the Central Committee andState Council published new guidelines to improve the public legal service system.
The general goal is to have (Gov.cn):
- “A modern public legal service system, which is convenient, efficient, equal, inclusive and covers both urban and rural areas…set up by 2022.”
But this is what we found most interesting: The rules encourage both the Party and the state to get legal counsel on policymaking.
Some context: This is not a completely new development. Zhongnanhai already lawyered up in 2017.
The goals are to:
- Expand the work of legal advisers and public lawyers in Party and government organs
- Hear opinions of legal advisers and public lawyers before discussing and deciding major matters
- Improve the working mechanism of lawyers participating in major decision-making
Get smart:Xi Jinping is sincere in his desire to create a more rules-based Party-state. But he also wants to make sure that he gets to make all the rules.