Driving the Day
1. More Hong Kong violence as establishment urges calm
The Hong Kong protests continued to ramp up on Monday – asprotesters swarmed the main terminal at Hong Kong airport.
Things got so chaotic that Late Monday afternoon,airport authorities cancelled all remaining flights into and out of the airport (see Bloomberg link).
This latest development came after a weekend that saw police and protesters rampup the intensity of their tactics:
- On Friday, four protest marches planned for the weekend were denied permits, prompting criticisms of a crackdown on civil rights
- Sunday, clashes in the Wan Chai district saw protesters throw bricks and Molotov cocktails at police who responded with a baton charge
- Also on Sunday, police fired tear gas into the Kwai Fong metro station
City leaders have called for calm, to no avail.
Here’s Chief Secretary Matthew Cheung Kin-chung (SCMP):
- “This series of violent acts…is the most serious, widespread and destructive since the handover, pushing [Hong Kong],…to a very dangerous edge.”
Get smart: Carrie Lam’s administration remains at the crux of the unrest. Protesters are intent on seeing her out of office, and Beijing is refusing to let that happen.
Get smarter: At some point, something’s gotta give.
Bloomberg: Hong Kong Cancels All Remaining Monday Flights as Protests Swarm Airport
SCMP: Hong Kong police ramp up force, firing tear gas inside Kwai Fong MTR station, as city rocked by more anti-government protest violence
SCMP: Chief Executive Carrie Lam vows to do better job connecting with Hong Kong’s young people, as city leaders close ranks over anti-government protest crisis
BBC: Hong Kong protests: Clashes as police fire tear gas into rail station
2.Data dump – credit
The central bank released monthly credit data for July on Monday.
The takeaway: Credit growth fell back in the month, underscoring authorities’ commitment to keep their foot off the monetary pedal.
- Total financing grew by 10.7% y/y – down from 10.9% in June.
- Concerningly, RMB-denominated bank loans decelerated to 12.7% y/y growth – down from 13.2% in June, and the slowest rate since June 2018.
- Bankers’ acceptances (BAs) contracted by 15% y/y – well down from the 9.6% contraction in June.
Quick take 1: The fact that traditional bank loans are struggling is not good – especially at a time when authorities are trying to lean on banks to boost lending to the private sector.
Quick take 2: The snap-back in BAs was to be expected. Companies used these short-term instruments to borrow in June to get through the mid-year hump – so there was a reversion in July.
Get smart: The PBoC is not going to let the short-term borrowing market in BAs and other instruments drive credit growth up. Those instruments will ebb and flow around quarterly tax payments.
Get smarter: Sub-11% y/y credit growth is not a recipe for economic stabilization.
Stop us if you’ve heard this one before: We’re still nowhere near stimulus territory.
Reuters:China July new bank loans fall to 1.06 trln yuan, below forecast
3. PBoC going all in on crypto
China’s central bank (PBoC) says it’s close to unveiling a homegrown cryptocurrency.
At least, that’s according to one official (Bloomberg):
- “The bank’s researchers have been working intensively since last year to develop systems, and the cryptocurrency is “close to being out,” [said] Mu Changchun, deputy director of the PBOC’s payments department.”
- “He didn’t give specifics on the timing.”
But this ain’t your grandson’s crypto – rather than creating a democratized, decentralized crypto, Beijing’s goal is the exact opposite:
- “Unlike decentralized blockchain-based offerings, the PBOC’s currency is intended to give Beijing more control over its financial system.”
The idea is for authorities to harness all the good parts of crypto – fraud reduction and lower transaction costs – and bin the pesky parts like transparency and openness.
Get smart: Chinese authorities know the financial system isn’t up to snuff – as it doesn’t put resources in the most productive places. That’s why they are investing heavily in all sorts of fintech – to lower transaction costs for businesses, among other improvements.
Get smarter: A widely-adopted digital currencywouldgive the PBoC greater insight into transactions throughout the country, which should help improve risk management and reduce financial malfeasance.
But despite Mu’s comments– a national cryptocurrency is still years from being widely adopted, even if it is rolled out soon.
:China’s PBOC Says Its Own Cryptocurrency Is ‘Close’ to Release
4.Huawei debuts “sanction-proof” OS
On Friday, Huawei announced the development of HarmonyOS – its very own home-grown operating system.
Some context: Independence from US components and software has been a major strategic objective for Huawei since at least 2012 – and recent US sanctions have lent that goal even greater urgency. (see June 11 Tip Sheet)
According to Huawei, the first version of HarmonyOS will be used in the company’s domestically produced smart TVs by the end of 2019 and version two will be rolled out for use in PCs, watches, and head units for cars in 2020.
The big question: what about smartphones?
For now, Huawei phones still rely on Google-developed Android OS, but Yu Chengdong, CEO of Huawei’s Consumer Business Group, said that smartphones could and would be switched over to HarmonyOS should American software become unavailable.
Get smart: While there’s no doubt that Huawei is pushing hard for self-sufficiency, the continued reliance on American tech for theall-important smartphone is telling. Ifthe OS was really ready for prime time there’d be no reason not to install it in phones forthwith.
Get smarter: We suspect that Huawei isn’t ready to stake its reputation on the new, untested OS just yet.
For now, this is not the Android replacement you’re looking for.
Caixin:Huawei Unveils Self-Developed, Sanctions-Proof Operating System
5.Private businesses jump into elderly care
Private Chinese companies are getting creative when it comes to offering services for China’s elderly population.
The latest example: Lanchuang Network Technology Corp is offering customers (Reuters):
- “Telemedicine and an SOS system”
- “A small robot that can ring up a medical center in response to verbal calls for help”
- A special smartphone, co-designed with China Mobile
And Lanchuang is getting some sweet help from the government, including:
- RMB 22 million subsidies from the central government
- RMB 3 million from the Shandong provincial government
Some context: China’s quickly aging population – with 250 million folks already 60 or above – has the government worried.
That’s why the State Council released regulations to support the elderly care industry in April, which:
- reduced regulatory hurdles
- specified local government support measures
- guaranteed equal treatment for foreign investors in the space (see April 17 Tip Sheet)
Then, a State Council executive meeting in May offered further fiscal support and tax cuts for the industry. (see May 30 Tip Sheet)
Get smart: The government is well aware that it has a demographic problem on its hands – and that it doesn’t have the resources to solve it. Innovation and investment from private companies operating in elderly care – including foreign ones – will continue to be warmly welcomed.
Reuters:Smart home tech makes inroads into China’s emerging elderly care market