Driving the Day
1. China shows restraint in trade war
Let’s all just take a beat.
That was the message out of China on Thursday – when the commerce ministry announced that at least for now, it won’tretaliate to the latest round oftariffs that US President Donald Trump announced on Friday (Bloomberg):
- “’China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war,’ Ministry of Commerce spokesman Gao Feng [said].”
- “The most important thing is to create the necessary conditions for continuing negotiations.”
Gotta say: We didn’t see that coming.
But it seems like the first genuinely positive development in the trade war for months.
That said, it’s not at all certain that in-person talks will proceed next month:
- “Gao said that both sides are discussing the previously announced trip in September by Chinese negotiators to Washington.”
Our question: Trump has vacillated on this latest round of tariffs since he announced them on Friday. Did the Chinese sense he regretted making the announcement in a fit of pique and are looking to give him an out?
If not – they certainly risk the perception of weakness. But this time, it’s worth the risk.
Bloomberg: China Indicates It Won’t Retaliate Against Newest U.S. Tariffs
2.Bank rescue mission heats up
This could be a big deal: China’s central bank (PBoC) is telling local governments to ramp up the nationwide small bank rescue mission.
Reuters has the details, citing a piece from the Economic Information Daily:
- “The report…said [new] rules could require high-risk financial institutions, local governments and the country’s regulators to jointly take on the responsibility of risk resolution for smaller banks.”
It looks like banking consolidation is about to ramp up:
- “The PBOC, the country’s central bank, would also encourage merger talks, instead of bankruptcies, when dealing with problematic financial institutions.”
Authorities are increasingly concerned that a combination of weak economic growth and bank solvency issues will lead to an explosion:
- “The central bank will diversify its policies and dismantle the bomb based on the cause and nature of the risks.”
Get smart: This is the beginning of a reckoning for the banking sector. Regulators tipped the first domino with their de-risking campaign, which has now laid bare the challenges in the sector.
The hope is that by being proactive, each bank can be dealt with individually – rather than cascading into a systemic issue.
Things are about to get very interesting.
Reuters: China considers new rules for smaller banks to limit risk: report
Economic Information Daily: 中小金融机构风险处置路线图浮现
3. Xinjiang policy gets thumbs up from Uzbekistan
Yesterday, Xi Jinping met with Prime Minister of Uzbekistan Abdulla Aripov in Beijing.
Surprise, surprise – the Belt and Road Initiative (BRI) was top of the agenda.
Xi called for China and Uzbekistan to work together to promote“high-quality construction” of the BRI (China Daily):
- “The key to…China-Uzbekistan relations is that both sides always adhere to the spirit of good-neighborliness, mutual benefit and mutual assistance.”
The two also discussed more weighty matters.
- Xi urged Uzbekistan to work with China to combat the “three evils” of terrorism, separatism, and extremism.
Finally, Xi promised to increase Uzbek agricultural imports and continue to strengthen commercial and cultural ties between the two countries.
Right on cue, Aripov referred to China as Uzbekistan’s “most reliable neighbor and partner.”
Aripov then gave tacit approval for China’s mass internment of Uighurs in Xinjiang, sayinghe supports China’s efforts to secure its “sovereignty, security, and unity.”
Get smart: If anybody was going to object to China’s Xinjiang policy, you wouldexpect it to be one of the Central Asian countries (orTurkey). But thus far, they are all keeping mum.
Our questions: Is China buying them off? Or is this just autocratic solidarity? Maybe a little of both?
China Daily: Xi asks China, Uzbekistan to promote quality Belt and Road construction
4.State Council aims to improve business environment, again
The State Council did its thing on Wednesday, holding its weekly executive meeting.
You are not going to believe what was on the agenda.
Wait for it.
Waaaaait for it….
Cutting red tape and improving the business environment!
- “An additional 13 categories of industrial products including internal combustion engines and brake fluid will be exempted from applying for a permit for production.”
The meeting also stressed that the government needs to rethink how it does its job. Instead of shaping markets, it should just look to make sure that they are working fairly:
- “The meeting stressed that efforts should be made to shift the focus of administrative resources from approval to regulation to improve the business environment and stimulate market vitality.”
Get smart: Li Keqiang has been pushing this “transformation of government functions” mantra ever since taking over the premiership in 2013. But progress has been slow.
The bottom line: The bureaucratic mindset of Chinese officials is deeply entrenched – and not easy to change.
Gov.cn: 李克强主持召开国务院常务会议 部署深化放管结合加强事中事后监管 促进公平竞争提升市场效率等
Xinhua: China expands market access to industrial products
5.“Credit commitment system” makes taxpayers and corporates pinky swear
China’s personal income taxlawwasmodified last year, allowing citizens to self-declare tax deductions.
That raises the question: How do you ensure that citizens tell the truth?
The government’s answer: Authorities are leveraging the social credit system (SCS) to keep a tight lid on false reporting.
A policy released yesterday by the State Taxation Administration will require taxpayers to sign a “credit commitment letter” confirming that their self-submitted tax docs are truthful.
Commitment letters will be stored in the social credit files of the individuals and companies that sign them, shutting the door on “I didn’t know” excuses in case of violations.
So what? This doesn’t just apply to the tax space. The signed statements are part of a larger push called the “Credit Commitment System,”which encourages market players to issue public pledges promising to operate in good faith and to honor the SCS.
Get smart: The government eventually hopes that big data will make the SCS a finely-tuned tool of predictive risk assessment, catching issues like tax violations before they even start. But the tech and the infrastructure are nowhere near ready.
Until they are, making everyone pinky swear not to lie will have to do.
6.Nobody parties like the Communist Party
Thursday morning, the State Council Information Office held a press conference announcing plans to celebrate the 70th anniversary ofthe founding of the People’s Republic on October 1.
It’s time to Party!
Planned activities include:
- First and foremost, an “important speech” by General Secretary Xi Jinping
- A major military parade and inspection of the troops at Tiananmen Square
- Then, a “people’s march” (not the kind in Hong Kong)
- A night-time variety show and fireworks display
- An awards ceremony honoring citizens and foreigners who have made exemplary contributions to socialism with Chinese characteristics
Get smart: The festivities aremeantto remind Chinese people of the Party’s achievements over the past 70 years. But it’s also about Xi showcasing his grip on power.
Case-in-point: Officials at the press conference saidthe military parade at the upcoming 70th anniversary will be larger than those inthe 60th and 50th anniversaries – and display more advanced weapons.
Get smart: That’s Xi’s way of one-upping his predecessors Hu Jintao and Jiang Zemin.