Driving the Day
1. Did the NDRC just launch its version of CFIUS?
Yonghui Supermarket is in the process of raising its stake in Wuhan Zhongbai Group – a local state-investedretailer – to 40%.
That’s pretty standard stuff, until something peculiar happened (SSE):
- On Wednesday the NDRC asked Yonghui to file for a foreign investment security review and to submit supplementary documents.
Some context: Yonghui is majority Chinese-owned, but about 20% of the company is owned by British conglomerate Jardine Matheson through a subsidiary.
This is a big deal: As far as we know, this is the first time a Chinese government agency has required a national security review for such an investment.
More context: A national security review framework for foreign investments has existed on paper since 2011 – and it was officially enshrined in law in March.
It’s unclear what is going on.There are currently no details on why the NDRC asked Yonghui to file the application.
But here are two things we do know:
- Retail businesses are not usually seen as national security threats.
- Yonghui is only seeking a 40%stake in Zhongbai – not majority ownership
Get smart: Murky enforcement of the security review process is a good way to scare off foreign investment. In fact, if Yonghui is a harbinger, FDI could be severely restricted.
Get smarter: That doesn’t strike us as being aligned with other policy priorities – namely, a strong push to attract foreign investment.
But frankly, we’re not quite sure what’s going on here.
2.New normal for property developers
Some of China’s big property developers are starting to worry that the latest round of property restrictions are going to be the new normal.
Here’s a rundown of what’s happened (Caixin):
- “Since March, the central government has repeatedly stressed that ’houses are for living, not for speculation.’”
- “The banking and insurance regulator have asked banks to carefully screen developers’ qualifications when issuing loans and have barred trust companies from providing new financing to real estate companies.”
But that’s not all:
- “In July, the National Development and Reform Commission stepped up control over developers’ bond sales, restricting several companies from selling domestic debt while tightening requirements on developers’ overseas bond issuance.”
- “In a key policy meeting in late July, the Politburo affirmed that the property market will not be used as a form of short-term stimulus.”
Get smart: That’s a big break from past precedent – when policymakers religiously used the property market as a lever to boost slowing economic growth.
What’s next: Here’s a thought form the chairman of property company Sunac China Holdings:
- “Strict control of the financing side may be normalized.”
The bottom line: Property won’t ride the economic rescue.
3. China might restrict ICE usage – instead of sales
On Tuesday, the Ministry of Industry and Information Technology (MIIT) released a response to a legislator’sproposal to baninternal combustion engine (ICE) vehicles.
MIIT hinted an ICE ban is unlikely in the near term. Instead the push will be to make them more energy-efficient:
- “While supporting the development of NEVs, China also attaches great importance to… energy-saving vehicles.”
Some context: Back in September 2017, MIIT Vice Minister Xin Guobin sparked widespread concern in the auto industry when he suggested an eventual ICE ban may be coming.
More context: Xin walked the comments back almost immediately – but the damage was done.
Even more context: In March, Hainan announced that the province plans to stop selling ICEs by 2030.
MIIT now says the tradeoff between NEVs and ICEs will come down to:
- Technical costs
- Effect on energy savings and emissions reduction
- Market demand
And pilot local programs will come first, such as:
- Replacing urban buses and taxis with NEVs
- Setting up ICE-prohibited areas
The implied message: Industrial planners will consider restrictions on ICE usage – but not necessarily on sales.
Stay tuned: A new NEV development plan to guidethe sector through 2035will come out in 2021.
4.China-Japan-Korean trade talks inch forward
Chinese Foreign Minister Wang Yi met with his Japanese and South Korean counterparts in Beijing on Thursday.
- The three discussedapotential trade agreement between their countries.
Um…awkward! Japan and South Korea are currently embroiled in a rapidly escalating trade dispute.
Premier Li Keqiang dropped in on the meeting – signaling the importance that the Chinese place on these talks.
There were signs of progress (SCMP):
- “’There is certainly political will from the three parties to speed the negotiations on a free-trade agreement,’said Jun Saito, deputy press secretary of Japan’s ministry of foreign affairs.”
Former Chinese vice commerce minister Wei Jianguo does a good job summing up China’s underlying motivation to get a deal done:
- “The current global system is under the heavy influence of US protectionism and unilateralism, and no country can remain undamaged.”
- “It is necessary to promote the trilateral FTA and move towards a rules-based system, rather than being victims of the unilateral trade protectionism.”
Get smart: China wants to increase its influence in the region, and a China-Japan-Korean trade pact would be one good way to do it.
Get smarter: Trade tensions with the US, as well as growing frustration with China inside the EU, make this deal all the more important to the Middle Kingdom.
5.MofCom warns US over tariffs
Stop us if you’ve heard this one before:
- Yesterday, Ministry of Commerce spokesman Gao Feng warned that China would take appropriate countermeasures if the US followed through on its threat to impose new tariffs on Chinese goods.
By now, Mofcom’s position on the issue has become a familiar refrain (Xinhua).
- “Trade wars produce no winners.”
- “China does not want a trade war, but it is not afraid of one, and it will fight one if necessary.”
- “If the United States acts arbitrarily, China will have to take countermeasures.”
Gao also appealed to the bottom line of ordinary Americans.
- “If the United States goes ahead willfully, it will have a serious negative impact on U.S. businesses and consumers.”
- “Some U.S. financial institutions have predicted that the tariffs would cost an ordinary U.S. family 1,000 U.S. dollars a year on average.”
Get smart: There’s nothing really new in Gao’sremarks, butthere’s no reason to doubt MofCom’s sincerity. China is still eager to negotiate, butwilling to slug it out if it has to.
In case you forgot: The trade war is set to get worse before it gets better.
Xinhua: China vows countermeasures if U.S. puts new tariffs on Chinese goods