1. PBoC lays out next steps for interest rate liberalization
For at least seven months, the central bank (PBoC) has been signaling that it wants to combine its two-track interest rate system into one.
Some context: The two-track systemconsists of a benchmark rate set by the PBoC and key market ratesset by the market.
Things finally seem to be moving ahead.
That’s according to PBoC Governor Yi Gang, who laid out his thinking in an interview with Caixin published Tuesday.
The bank will start with loan rates:
- The Loan Prime Rate (LPR) will replace the benchmark lending rate.
More context: The LPR is the rate banks give their best customers – mainly SOEs.
However, Yi said that it will be a while before the central bank will liberalize deposit rates.
The reason? To keep banks from jacking up rates, thus instituting a deposit rate war.
While we’re at it: Yi also underscored that domestic conditions, not US Federal Reserve policy, will determine China’s policy stance.
So don’t expect a PBoC cut in reaction to a Fed cut this month (Caixin):
- “The current interest rate level is appropriate, or close to a ‘golden’ level, a comfortable level.”
Get smart: Chinese interest rate reform marches on, and will improve policy transmission over time.
Bloomberg:China’s Central-Bank Governor Says Current Interest Rates Good
2. Inter-ministerial group looks to boost consumption
Now this is sexy stuff: On Tuesday, the State Council approved the creation of an inter-ministerial joint conference on promoting consumption.
Some context: A joint conference is a mechanism for ministries to facilitate discussion and coordination on specific policy areas. It’s similar to, but less authoritative than, a leading small group.
The new group includes 26 government agencies. It will be chaired by National Development and Reform Commission Chairman He Lifeng.
The group has quite a broad mandate, including:
- Coordinating efforts to expand and upgrade household consumption
- Strengthening supervision and analysis of consumption trends
- Studying and proposing suggestions for consumption-related policies
- Planning annual key work
- Promoting the implementation of relevant policies
Get smart: Efforts to boost consumption has been a core component of the government’s response to the recent slowdown. But these efforts have been scattered and ineffectual. The joint conference aims to remedy the situation.
Get smarter: Better coordination might improve things at the margin – but it won’t jolt the economy back to life.
Gov.cn:Joint conference on promoting consumption to be established
3.Li Keqiang urges better financial regulation
Li Keqiang was on the road in Shanghai on Monday and Tuesday.
He had a busy itinerary.
Most of his activities focused on the economy. He visited:
- The new area of the Shanghai Free Trade Zone (FTZ)
- Equipment manufacturer Shanghai Electric
- Zhangjiang AI Island – a district seeking to nurture AI enterprises
- IfFP Professional Skills Training – the first wholly foreign-owned financial vocational education company established in the Shanghai FTZ
During his IfFP visit, Li reminded everyone that the government decided to further open the financial sector to foreign investment over the weekend (see Monday’s Tip Sheet).
But he also noted that to make good on the promise, regulation needs to improve (Gov.cn):
- “[Li] urged more talent training cooperation between China and overseas institutions, and efforts to speed up the cultivation of financial personnel familiar with domestic regulations and international norms.”
- “The Premier also required local governments to strengthen financial supervision and prevent and dissolve financial risks to promote…development of the financial industry.”
Get smart: China’s financial sector opening is contingent on regulators feeling comfortable that they have control over the sector.
Gov.cn:Opening-up and reform encouraged in Premier’s visit
4.Snuh oh: Social credit meets internet content law
News Flash: The international media’s portrayal of China’s social credit system as an impending dystopian nightmare is overblown.
Buuuuuuut, then again – a new policy draft outlining how social credit will be applied to online behavior is a little worrying.
Yesterday, the Cyberspace Affairs Commission identified three big no-nos for companies and individuals that will result in inclusion on a public blacklist:
- Having your website shut down or your license revoked due to violations of internet content laws
- Being otherwise penalized [by internet authorities] but failing to perform the penalty
- Disseminating information that violates social morality, business ethics, honesty and integrity, or intentionally providing technology, equipment, or information services for the same purpose
Our take: That last one is incredibly vague – and ripe for potential abuse by regulators.
Oh and BTW: Blacklisted businesses may be restricted or even barred from operating in the IT sector.
Get smart: The social credit system for enterprises is basically an enforcement mechanism for existing laws and regulations. Its main purpose is to compel companies who are operating in bad faith to mend their ways.
But when those regulations are nebulous and arbitrary, the door is left wide open for abuse.
5.Former premier Li Peng dies
Li Peng – former premier and chairman of the legislature (NPC) – died at the age of 90 on Monday.
Some context: Li is most famous for being a conservative hardliner who spearheaded the government’s efforts to crack down against the Tiananmen Square protests in 1989.
Li’s official obituary offers a glimpse of how the current leadership views the events of 1989 (Xinhua):
- “Amid the political disturbance between spring and summer in 1989, …, Li took a clear stance and…made decisive moves to stop the turmoil, end the counter-revolutionary riot and stabilize domestic situation.”
By way of comparison, state media shied away from mentioning the “riot” and ensuing crackdown in Deng Xiaoping’s 1997 obituary:
- “In the late 1980s and early 1990s, when domestic and international political turmoil occurred, the Party…with the support of Comrade Deng Xiaoping … maintained the independence, dignity, security and stability of the country.”
- “Due to the firm and sober stance of the Party and the government…we have withstood a severe test.”
What it means: In the 22 years since Deng’s death, the Party has grown more confident in its political system – and its legitimacy.
6.China issues defense white paper
This morning, the State Council Information Office held a press conference to launch a new white paper entitled “China’s National Defense in the New Era”.
A lot of the messaging was familiar.
China reiterated its stance of “Never Seeking Hegemony, Expansion or Spheres of Influence”.
It also repeated that it reserves the right to use force to reunify Taiwan (Xinhua):
- “We make no promise to renounce the use of force, and reserve the option of taking all necessary measures.”
Most interesting were comments by defense ministry spokesperson Wu Qiang on Hong Kong (SCMP):
- “Some behaviour of the radical protesters is challenging the authority of the central government and the bottom line of one country, two systems.”
- “This is intolerable.”
Wu implied that the PLA might step in:
- “As to whether the People’s Liberation Army could be involved in maintaining order in the city, Wu only said ‘article 14 of the garrison law has clear stipulations’, without elaborating further.”
- “That article states that the Hong Kong government…can ask the central government for assistance from the PLA’s Hong Kong garrison in the maintenance of public order.”
Get smart: If protests in Hong Kong persistand violence escalates, we could see the PLA step in.
Xinhua: Full Text: China’s National Defense in the New Era
Xinhua: China issues white paper on national defense in new era
SCMP: Chinese military can be deployed at Hong Kong’s request to contain protests, Beijing says