Driving the Day
1. Xi illustrates policy priorities in Inner Mongolia
Official media has released more details of Xi Jinping’stravels in Inner Mongolia on Monday and Tuesday.
- Xi visited a neighborhood in Chifeng city’s Songshan multi-ethnic district to promote ethnic unity.
- Xi hiked in a forest zone in Chifeng and visited the regional department of natural resources to stress the importance of environmental protection.
- Xi toured the village of Ma’anshan and demanded more efforts to improve people’s well-being and fight poverty.
- Xi met with senior military officers stationed in Inner Mongolia.
Get smart: These activities were not chosen at random. With each, Xi is sending a message to the wider Party about his priorities.
The bottom line: These visits provide a pretty good summary of Xi’s agenda – promote social stability, protect the environment, eradicate poverty, and strengthen the military.
2.H1 fiscal data dump
Yesterday, the Ministry of Finance released H1 fiscal data.
Revenue growth has flatlined:
- Overall tax revenue came in at around RMB 9.24 trillion, representing growth of 0.9% y/y – down from 14.4% growth in H1 2018.
- VAT revenues increased by 5.9% y/y – down from 16.6% growth in H1 2018.
- Enterprise income tax revenues increased by 5.3% y/y – down from 12.8% in H1 2018.
- Individual income tax revenues came in at RMB 563.9 billion – down 30.6% y/y.
But the government is still spending:
- Central government expenditures clocked in at RMB 12.35 trillion, representing growth of 10.7% y/y.
- Local government expenditures reached RMB 10.66 trillion, an increase of 10.8% y/y.
Key policy areas saw big spending increases:
- Poverty alleviation spending increased by 46.7% y/y.
- Environmental protection spending increased by 19.7% y/y.
- Science and technology spending increased by 17.3% y/y.
The government is collecting more money from state-owned enterprises (SOEs) to manage the shortfall:
- The government collected RMB 220.3 billion in income from SOEs, an increase of 340% y/y.
Get smart: Fiscal policy is clearly in support mode.But this is hardly massive stimulus.
3. Li Keqiang gets input on the economy
On Tuesday, Premier Li Keqiang sat down with top officials to discuss the economy.
Li invited economists and business leaders to give their thoughts on the current economic trajectory. Those who spoke were:
- Liu Yuanchun, an economist and vice president of Renmin University
- Li Xunlei, chief economist at Zhongtai Securities
- Wu Ge, chief economist at Changjiang Securities
- Wang Min, Chairman of XCMG Group, a state-owned heavy machinery manufacturer
- Wang Jun, Chairman of Zhejiang Tailong Commercial Bank
- Wang Xing, CEO and founder of meituan.com
The meeting did not signal any new direction in policy (Xinhua):
- “China will continue to implement a proactive fiscal policy, a prudent monetary policy and an employment-first policy, while making good use of counter-cyclicalregulation tools and carrying out anticipatory adjustments and fine-tuning when necessary.”
Li did make a point of saying that he wants to foster more tech enterprises. He urged officials to (Gov.cn):
- “Create favorable conditions to bring about more tech unicorns and tech pioneers”
- “Accelerate the cultivation of new drivers of economic growth”
- “Expedite the transition from outdated divers of economic growth to new ones”
Get smart: Li is soliciting expert input for the Politburo’s BIG mid-year economic review set to take place at the end of the month.
Xinhua: Premier Li calls for more efforts to keep steady, healthy economic development
4.CPPCC discusses the economy
The State Council is not the only one discussing the economy (see previous entry). The CPPCC, the country’s top political advisory body, also held a symposium on the economy on Monday.
Nine CPPCC members shared their views, including former top Party and state economic advisors Yang Weimin and Liu Shijin. Officials from key ministries also took part.
Despite the decent H1 economic data (see Monday’sTip Sheet), they don’tthink economy is out of the woods.
Here are their key recommendations for stabilizing the economy:
- Keep improving the business environment to energize market entities
- Launch an initiative to double the size of the middle class
- Prepare a more proactive fiscal policy
- Take a more sophisticated approach to financial-derisking that develops proper financing channels as sources of liquidity rather than simply cracking down on illegal channels
- Develop broader international cooperation to offset the trade conflict with US
Get smarter: This meeting is also in preparation for the Politburo’s mid-year economic review, set to happen later this month.
5.Wang Yang encourages coastal regions to support Xinjiang
Politburo Standing Committee Member Wang Yang has been in Xinjiang for the past few days.
From Sunday to Tuesday, he chaired a meeting on how to get governments and officials from eastern China to help out in Xinjiang.
Some context (Xinhua):
- “China has been implementing the ‘pairing assistance’ program in Xinjiang since 1997, channeling financial support to Xinjiang from other regions of the country and sending cadres and professionals to work and hold tenures there.”
Wang wants more competent officials to come west:
- “Wang urged other regions in the country to send competent officials and professionals to Xinjiang and support the region in advancing local industrial development, improving people’s livelihoods and alleviating poverty.”
He also wants more Uighurs to head east:
- “Efforts should be made to promote exchanges among different ethnic groups as well as between people in Xinjiang and other regions.”
- “People from ethnic minority groups in Xinjiang [should be encouraged] to seek development in other regions of the country.”
Get smart: The Party’sXinjiang policies have exacerbated ethnic tensions, not dampened them.
Xinhua: 第七次全国对口支援新疆工作会议召开 汪洋出席并讲话
Xinhua: China highlights support to Xinjiang through pairing assistance
6.Meet your new permanent record
Hang on to your hats. Implementation of the social credit system (SCS) for businesses, public organizations, and SOEs is picking up speed.
A new policy released yesterday by the State Council clarifies social credit’s role in market regulation.
Good credit will come with some sweet perks, like fast-tracked approvals for administrative processes.
Bad credit, on the other hand, gets you:
- Restrictions on stock issuance
- Restrictions on bidding for government projects
- Increased inspections
- Restricted access to loans and tax incentives
- Restrictions on luxury consumption, like first-class plane or train seats
- Inclusion on public blacklists
There are repercussions for individuals as well. Legal representatives and key personnel directly responsible for “untrustworthy” acts will see their personal credit take a hit.
It’scool, though: Unless there’s been a serious violation or endangerment of public safety, corporate credit can be rectified by providing proof of compliance, submitting “credit promise” notes, completing credit training courses, and participating in charitable activities.
Get smart: The big dogs are specifically excited about utilizing social credit to crack the whip on tax evasion, poor safety records, environmental pollution, non-payment of wages (esp. to migrant workers), and the production of low-quality products.