Driving the Day
1. CCCDR gets towork
On Wednesday, Xi Jinping chaired the ninth meeting of the Central Committee for Comprehensively DeepeningReform (CCCDR).
Some context: The CCCDR was established as part of the MASSIVE Party-state restructuring in March 2018. It is the most important policymaking body in the land.
As always, it was a productive meeting. The meeting approved 11 documents on:
- Establishing a national science and technology ethics committee
- Strengthening protection of intellectual property rights (IPR)
- Promoting traditional Chinese medicine (TCM)
- Maintaining rural public infrastructure
- Constructing national culture parks for the Great Wall, the Grand Canal, and the Long March
- Setting boundaries for zoning
- Establishing a comprehensive internet management system
- A pilot program for building regional medical centers
- Promoting a national pilot program for integrating industry and education
- Supporting Shenzhen to become a pilot demonstration area for socialism with Chinese characteristics
- A master plan for a demonstration area for economic and trade cooperation between China and the Shanghai Cooperation Organization (SCO)
Get smart: What the CCCDR discusses today becomes policy tomorrow. Stay tuned.
People.cn: 习近平：紧密结合“不忘初心、牢记使命”主题教育 推动改革补短板强弱项激活力抓落实
Xinhua: Xi presides over 9th meeting of central committee for deepening overall reform
Driving the Day, Cont’d
2.Party to give more leash to local officials
Wednesday’s CCCDR meeting also discussed how to improve the quality of reforms.
It was stressed that grassroots officials need to be given more leeway to craft solutions to fit their own circumstances:
- “We need to encourage and support grassroots efforts to explore more original and differentiated reforms”
Importantly, the meeting indicated that it is okay for officials to make mistakes:
- “[We] must be tolerant of mistakes made while trying to innovate reforms and push ahead with new trials.”
- “[We must] mobilize to the greatest extent the enthusiasm, initiative and creativity of cadres and the masses.”
Get smart: Xi knows that his top-down style has paralyzed many lower-level officials into inaction. That’s why we have been seeing increased efforts to give local officials more autonomy.
3. Another small bank sees liquidity troubles
ICYMI: Smalls banks in China have been having a hard time getting liquidity. And that’s despite officials repeatedly saying everything is hunky dory.
The latest example: Liaoning-based Bank of Jinzhou.
Reuters scoops that a range of financial regulators have recently been inquiring as to the best way to deal with the troubled bank, including:
- The Shenyang branch of the People’s Bank of China (PBoC)
- The local branch of China Banking and Insurance Regulatory Commission (CBIRC)
Oh and BTW: This isn’t the first government attempt to salvage the troubled bank.
- On June 11, the central bank issued a Credit Risk Mitigation Warrant (CRMW) for the first time ever, to helpBank of Jinzhou raise liquidity by providing insurance against potential loan defaults (see June 11 Tip Sheet).
But the bank’s liquidity problemshave dragged on (Reuters):
- “[L]ingering concerns about liquidity conditions at Bank of Jinzhou … prompted regulators in the province to call the meeting.”
- “Many interbank institutions might have blocked Bank of Jinzhou as a counterparty, which will likely wear the bank down.”
Our question: Do we have another Baoshang Bank on our hands?
Reuters: 辽宁监管部门召集金融机构开会 协助锦州银行渡过难关–消息
Reuters: Regulators in China discuss liquidity issues at Bank of Jinzhou – sources
4.The State Council comes down on illegal fees
On Wednesday, the State Council held its weekly executive meeting and talked about… *everyone together now*… Supporting. Small. Businesses.
Top of yesterday’s agenda – cutting fees (Gov.cn):
- “More efforts will be made to eliminate illegal fee charging to ensure the effectiveness of policies cutting taxes and fees.”
- “It is strictly prohibited that government departments transfer the expenses they should bear to enterprises.”
- “Industry associations and public institutions shall not use their administrative power to charge fees illegally.”
But how to keep officials accountable?
By “strengthening the responsibilities of government at all levels” – of course.
And if local cadres need an extra push to keep honest:
- “We will resolutely investigate and deal with illegal fee charging [by] establishing and improving mechanisms for reporting complaints, random spot checks… and joint disciplinary action.”
Get smart: Getting local governments to clean up their act is an important, but difficult, task. And so far, the track record of government efforts to support small businesses has been less than stellar.
5.State Council talks pilot financial reform
The other item on the State Council meeting’s agenda was pilot regional financial reforms.
Premier Li Keqiang stated the overarching goal:
- “Pilot reforms in selected regions should provide experience for a more comprehensive deepening of reform.”
He underscored the need for all levels of government to be on the same page:
- “Regional financial reforms and innovations need to follow macro policy and serve the larger interests.”
To put it succinctly: Li doesn’t want pilots for their own sake – he wants them to work!
Here’s the plan:
- Establish a working mechanism that allows dynamic adjustments to policy
- Enhance follow-up evaluation and third-party assessment of pilot programs
- Pilots that deliver few concrete results must promptly be remedied or stopped
- “Do-nothing pilot reforms” will not be allowed
Priority will be placed on pilots focusing on:
- Major national strategies for regional development
- Rural areas and farmers
- Technological innovation
- Further financial opening-up
Li also had some well-intentioned and straightforward advice to local officials:
- “Fulfill [your] due responsibilities while averting financial risks.”
Get smart: Li wants officials to be innovative and take the initiative on financial pilot work whilst simultaneously clamping down on good-for-nothing experimentation. That’s a tough needle to thread.
6.Trade negotiations to resume
Starting July 30, US negotiators will be in Shanghai to reopen trade negotiations with their Chinese counterparts.
US Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin will be getting down to brass tacks with their old frenemy, Vice Premier Liu He, as well as frenemy-to-be, Minister of Commerce Zhong Shan.
Topics under discussion will feature the usual suspects, including:
- IP protection
- Forced technology transfer
- Non-tariff barriers
- The trade surplus
- Deal enforcement
Negotiations promise to be a slog, but China has made a goodwill gesture to kick things off:
- China has okayed the tariff-free purchase of 3 million tons of US soybeans as a show of good faith.
Mnuchin was cautiously optimistic, but warned that challenges remain (Bloomberg):
- “I wouldn’t expect that we’ll resolve all the issues. But the fact that we’re back at the table…is important.”
- “There’ll be a few more meetings before we get a deal done.”
Get smart: This is an understatement on Mnuchin’s part. There’s going to be a helluva lot more discussion before the two sides reach any sort of comprehensive understanding.
Get smarter: The posturing surrounding the trade war has left both sides with little room to maneuver.
Reuters: Top U.S., China trade negotiators to meet in Shanghai next week
Bloomberg: China Approves Tariff-Free U.S. Soybean Purchases as Goodwill