1. The new LPR drops
The very first issuance of the new one-year lending prime rate (LPR) came out this morning.
The magic number (drumroll please…):
That’s not exactly a massive move:
- The previous LPR – calculated under a different method – was just six basis points higher at 4.31%.
- The soon-to-be-mothballed benchmark one-year lending rate was just 10 basis points higher – at 4.35%
Get smart: As we wrote yesterday, the immediate impact of the new LPR on actual lending will be minimal. But over time, it should improve monetary policy transmission.
What to watch: The LPR is calculated as a spread over the rate on the one-year medium-term lending facility (MLF). It’s likely that the central bank will cut MLF rates later this year to help bring down the LPR.
September would be a good time – especially if the US Federal Reserve is looking to cut rates then as well.
2.More liquidity support for small banks
Authorities are still looking to boost liquidity for small and medium-sized banks.
Their latest tool:Standardized notes.
Some context: Smaller banks in China have had a hard time getting financing ever since the regulatory takeover of Baoshang Bank in late May.
So what are these new notes? Time to get wonky, courtesy of Caixin:
- “Standardized notes are tradable beneficiary certificates backed by a pool of commercial paper or bankers’ acceptances…with similar maturities, which are restructured to be given the same value per note.”
Okay. In somewhat more layman’s terms:
- “Many industry players said that the standardized notes can be seen as asset-backed securities (ABS) backed by discounted commercial paper or bankers’ acceptances.”
The first beneficiary is one of the usual suspects:
- “The first batch of standardized notes are backed by an asset pool formed by discounted commercial paper accepted by Bank of Jinzhou Co. Ltd., with a total value of 500 million yuan ($71 million).”
Get smart: This will not be a panacea for small banks’ liquidity strains.
Get smarter: Standardizing bankers’ acceptances should allow wealth management products to invest in them under the new asset management rules.
3. More economic support coming?
Bloomberg scoops that policymakers may be looking to increase the quota for local government bonds:
- “Policy makers may raise the annual quota for so-called special bonds from the current level of 2.15 trillion yuan ($305 billion), according to the people, who asked not to be named as the matter isn’t yet public.”
- “The amount of the increase hasn’t been decided yet, one of the people said.”
If it happens, we’ll likely hear about it at the next session of the legislature (NPC) which kicks off later this week:
- “The next meeting of the NPC is on Aug. 22 to 26, according to a statement published on the legislature’s website.”
- “The public agenda for the meeting includes a regular discussion on the government’s budget implementation this year, but it doesn’t specify if a new bond quota will be reviewed.”
Some context: The current bond quota is set to be used up by the end of September.So a quota increase would allow bond issuance throughout Q4.
Our take: If this happens, it’sless about stimulus and more about keeping local government bond issuance from falling off a cliff – as it will otherwise fall to zero in Q4.
Get smart: Money or no, there aren’t a ton of good projects for local governments to invest in.
Bloomberg: China Considering Increasing Local Debt Sales to Boost Stimulus
4.US gives Huawei (another) 90-day reprieve
On Monday, US Commerce Secretary Wilbur Ross announced that Huawei has been granted another 90-day Temporary General License, enabling it to continue transacting withUS customers.
Some context: Huawei was added to the US Entity List back in May, but at the time the Trump administration granteda temporary reprieve, which expires today.
This newest delay is not about helping Huawei. It’saimed at giving some US companies, particularly rural telecom networks, sufficient time to kick their Huawei habit.
Ross summed up the situation concisely in a news appearance (Bloomberg):
- “We’re giving them a little more time to wean themselves off.”
But of course, the Trump administration giveth and the Trump administration taketh away.
- Ross also announced that an additional 46 Huawei affiliates were to be placed on the entity list.
Despite the temporary relief, Huawei is less than psyched. The firm hit out at the decision in a statement:
- “The [reprieve] does not change the fact that Huawei has been treated unjustly.”
- “It’s clear that this decision, made at this particular time, is politically motivated and has nothing to do with national security.”
Get smart: Reprieve or no, the die is cast. The great tech decoupling is underway.
Bloomberg: U.S. to Ease Huawei Sanctions for Another 90 Days, Ross Says
Huawei: Media Statement Regarding the U.S. Commerce Department’s Decision to Extend the Temporary General License for Huawei
5.Huawei keeps on keepin’ on
Huawei executives will welcome the latest 90-day reprieve from US sanctions (see previous entry).
But the company is far from sitting on its hands.
Over the weekend, its first 5G enabled phones began selling in China (CNBC):
- “Huawei’s Mate 20 X 5G — which costs 6,199 yuan ($880) — went on sale in China on Friday.”
China’s 5G future is fast approaching:
- “China hasn’t rolled out its 5G networks yet but they are expected to come online later this year in major cities and throughout the rest of the country in 2020.”
Huawei is also heavily expanding its RD presence in Russia (Caixin):
- “Huawei intends to recruit 500 people by the end of 2019 and attract a further 1,000 new specialists over a period of five years, the influential Moscow-based business daily Vedemosti reported Thursday.”
- “If the reports are true, the move would nearly quadruple Huawei’s total RD personnel in Russia.”
What to watch: Huawei isn’t taking hits from the US lying down. Will we look back on 2019 as theyear that Huawei was hobbled – or the year that it launched itself toward global success?
6.China’s BeiDou satellite system overtakes GPS
Speaking of tech decoupling…
Nikkei reports that China’sBeiDou satellite system has officially overtaken the US’s GPS in size, boasting 35 satellites to GPS’s 31.
Some context: For years, GPS has been the undisputed leader in satellite location services. This dominance has forced electronics manufacturers to make their products compatible with GPS standards.
But now, China is presenting a viable alternative.
BeiDou is finding a number of takers outside China itself:
- Pakistan’smilitary uses BeiDou for all its positioning data needs.
- A number of American smartphone manufacturers use BeiDou compatible chipsets.
- Switzerland-based STMicroelectronics has adopted BeiDou for its automotive semiconductors.
Unsurprisingly, the US is concerned about the security implications.
- Whereas GPS satellites only transmit signals, BeiDou can both transmit and receive, prompting fears that private data could be sent back to the Chinese government.
Get smart: As with 5G, the proliferation and adoption of Chinese technology will inevitably meet with suspicion in Washington…but find eager customers elsewhere.
Get smarter: It’s not sexy, but competition over international technical standards will be one of the main battlefields of the US-China tech rivalry in years to come.
7.Xi promotes cultural confidence
President Xi Jinping has been on a sightseeing tour in the northwest province of Gansu.
- On Monday, Xi visited the Mogao Grottoes in Dunhuang – a world-renowned Buddhist religious and cultural site.
- On Tuesday, he visited Jiayuguan – the fortress at the western end of the Great Wall.
Xi’s message in Dunhuang:
- “[Xi] called for well preserving the quintessence of Chinese culture.”
Irony alert: Buddhism (like, um, Marxism) is not Chinese in origin, but a cultural import.
Then again, maybe Xi is aware of the irony:
- “He also called for more efforts in cultural exchanges with other countries and learning from fine achievements of civilizations in the world.”
Get smart: A core component of Xi’s political program is trying to boost “cultural confidence.” But what, exactly, constitutes Chinese culture is a complicated question.
Gov.cn: Xi visits cultural heritage site in Gansu
Xinhua: Xi calls for preserving quintessence of Chinese culture
8.Li looks to boost employment
On Monday, Premier Li Keqiang was on the ground in Heilongjiang, where he hosted a symposium on employment (or lack thereof).
He heard reports from:
- The Party secretary of Heilongjiang
- The governors of Heilongjiang, Hebei, Shandong, Hunan, and Shaanxi
Li stressed that employment is of primary importance:
- “Employment is pivotal to people’s wellbeing, and our top priority for development.”
But he admitted that things are not looking good:
- “High attention must be paid to the fact that the surveyed urban unemployment rate rose in July.”
To address the problem, Li continues to advocate for a business-centered approach (Xinhua):
- “[Li] urged efforts to help labor-intensive enterprises and those faced with temporary difficulties pull through.”
But he also implied that we might see some broader stimulus (Gov.cn):
“To expand final demand, projects that address weak links, strengthen economic development potential, and improve people’s livelihood must be accelerated.”
Get smart: If the employment situation starts to drastically deteriorate, that could lead the government to consider larger-scale stimulus.