1. Tariffs go up, markets yawn
New tariffs from both China and the US kicked in at noon on Sunday in China.
Asian markets were mixed on Monday – because everyone knew these were coming, and China is looking to backload most of this round of tariffs (CNBC link), so there wasn’t a big impact.
Both sides also appear committed to holding talks in DC in September, but nothing has been publicly confirmed.
We still caution against undue optimism about a deal:
- None of the structural issues that have kept a deal from happening till now have changed
- Despite the willingness to talk, attitudes are hardening in Beijing – and the perception of Trump as intransigent is growing
Still, Beijing is holding the line and not stimulating the economy (see next entry).
Go deeper: Our head of econ research, Andrew Polk, was on Bloomberg this morning to talk about our latest views, check it out at the link below.
2.FSDC signals more of the same
The Financial Stability and Development Committee (FSDC) met over the weekend – and the gathering was pretty much a snoozefest.
Some context: The FSDC was created in 2017 to help coordinate financial and economic policy. It’s a State Council body, led by Xi Jinping’s right-hand man on the economy, Vice Premier Liu He.
More context: The meeting came exactly one month after the Politburo meeting that set the economic policy direction for H2 2019 – which will looka lot like policy in H1 2019.
However, there were some new-ish specifics from the FSDC (21st Cent Biz):
- “We should fully tap the potential of investment demand [and] explore the establishment of an incentive mechanism for investment projects.”
Get smart: Hopefully by now we don’t have to say it – this isn’t stimulus. Officials are worried about the slow pace of investment, so they might try more targeted incentives to keep it from falling further.
- Officials also discussed the need to improve the transmission of monetary policy.
Our take: This is just officials saying, “Let’s make sure and get the implementation right on the new loan prime rate” aka LPR (see August 27Tip Sheet).
Bottom line: For now, what you see is what you get on econ policy.
21st Century Biz: 国务院金融稳定发展委员会召开第七次会议
3. Landmark legislative framework for social credit on its way
Last Friday, NDRC deputy director Lian Weiliang presided over a symposium of top officials to further define a national legislative framework for the social credit system (SCS).
Some context: Since work on the social credit system began in 2014, the central government has been more or less content to sketch general guidelines for the SCS buildout, but has largely left provincial and city governments to hash out the details of how social credit is rolled out locally.
That lack of specificity has lead to fragmented implementation of the SCS.
- Local regulations differ (and sometimes conflict) from place to place – a state of affairs that has drawn criticism from China’s political and academic circles, who have called for stronger top-down standardization.
But according to Mr. Lian, standardization is coming in the form of the “PRC Social Credit Law” (中华人民共和国社会信用法), which has already been drafted for internal discussion.
The law is expected to clarify some of the legal ambiguity and help get local SCS implementation efforts all moving in the same direction.
One big question: Will the new regs clarify a corporate social credit grading scheme?
Need to know more about the corporate SCS? Get in touch, we’ll get you briefed.
4.Politburo announces next Party plenum
The Politburo held its monthly meeting on Friday.
The big news: Officials announced the Central Committee will hold its 4th Plenum in October.
Some context: Except for the five-yearly Party Congress, Central Committee plenums are the most important Party meetings. They usually focus on one macro-governance topic and set the overall policy strategy for that area.
It’s been a while (WSJ):
- “The gap between the last plenum in early 2018 and October is the longest interval between the conclaves since the early 1970s, during the Maoist Cultural Revolution.”
The long gap has led to speculation about political unity:
- “Some party members and political analysts said the lengthy delay points to discord within the party and with President Xi Jinping’s leadership.”
Our take: We see no sign of a split in the Party or a challenge to Xi’s leadership.
The topic for this year’s plenum (Xinhua):
- “How to uphold and improve the system of socialism with Chinese characteristics and make progress in modernizing China’s system and capacity for governance.”
Get smart: Xi has spent seven years trying retool the Party to make it a more effective institution. We expect this plenum will reinforce those efforts – not offer a radically new strategy.
CPC People: 中共中央政治局召开会议 决定召开十九届四中全会 中共中央总书记习近平主持会议
Xinhua: Xi Focus: 19th CPC Central Committee to hold fourth plenary session in October
WSJ: After Lengthy Delay, China’s Communist Party to Meet in October
5.Hong Kong rocked by clashes
This weekend, protests in Hong Kong saw a big uptick in intensity.
Here’s the latest.
- Pro-democracy activists Joshua Wong and Agnes Chow were arrested by Hong Kong police, reportedly in connection with activities that took place on June 21.
- Thousands of protesters defied a police ban and took part in mass demonstrations
- Protesters used firebombs in pitched battles with riot police who responded with rubber bullets, dye-infused water cannons, and live warning shots.
- Protesters committed widespread vandalism at several metro stations, prompting the police to send in an elite tactical squad
- Denied access to the airport by police, protesters blocked roadways and trainlines linking the airport to the city
Chinese state media had a dire warning for the protesters (Xinhua):
- “Faced with strong condemn [sic] from Chinese people, the end is coming for those attempting to disrupt Hong Kong and antagonize China.”
Get smart: Beijing still desperately wants to avoid direct involvement. But violent escalation of the protests will make that position increasingly untenable.
Get smarter: This next four weeks is a critical period – both Beijing and the protesters are eyeing the 70th Anniversary of the PRC that will take place on October 1.
Hong Kong activists Joshua Wong and Agnes Chow arrested
Hong Kong protesters defy ban and battle police
Chaos on Hong Kong’s MTR network as police chase protesters into station, beat people on train, and arrest 63
Masked protesters wreak havoc on Hong Kong airport and trash railway station, forcing desperate travellers to head to city on foot
Commentary: Violence in Hong Kong must end now
6.Ain’t no party like a Party rules party…
Apart from getting things moving on the 4th Plenum, last Friday’s Politburo meeting was all about Party regulations.
The meeting deliberated three new regs:
- Regulations on the Formulation of Intra-Party Rules
- Provisions for Filing and Reviewing Intra-Party Regulatory and NormativeDocuments
- Provisions for the Intra-Party Regulatory Implementation of the Responsibility System
While none of these are yet public, they cover the making, review, and implementation of intra-Party rules.
Together, the three regs aim to rationalize already existing Party rules and give them more teeth.
They will do so by:
- making lower level Party rules consistent with higher ones
- imposing political responsibility on senior officials to implement all Party rules
Get smart: Xi Jinping sees the Party’s laws and regulations as important tools to rule the Party.
Get this: Since coming into power, Xi has led the formulation or revision of over 180 Party rules. That’s 70% of all existing Party rules!
7.… cause a Party rules party…
On Sunday, the jolly old times continued when the Party dropped the new Regulations on Rural Affairs Work (previously deliberated at the June Politburo meeting, see June 25 Tip Sheet).
The new regs make it explicit that the very top of the Party is in charge of rural work (Gov.cn):
- “The Central Leading Small Group on Rural Affairs works under the Politburo and its Standing Committee and is responsible to the Party center.”
- “[It] reports to the Party Center and to the General Secretary.”
Some context: Rural affairs work has previously been handled largely by state organs.
And at the grassroots level, the regulations now give village Party secretaries more power:
- “The village Party secretary shall act as the chairman of the village committee based on legal procedures.”
Believe it or not: It’s long been common practice for villages to choose the chairman of the village committee through direct election.
- That is now set to end.
Get smart: The new regs give the Party tighter control of village affairs.
8.… don’t stop!
We saved the best for last – the Party’s Regulations on Propaganda Work.
Some context: These regs were deliberated back at the April politburo session (see April 22 Tip Sheet). And while the full text of the regs is not out – and we doubt it ever will be – we’ve finally gained some more insight.
According to Xinhua, the regs cover pretty much all aspects of propaganda, including (Xinhua 2):
- Propaganda theory
- News and public opinion
- Ideology and morale building
- Culture, literature, and art
- Internet propaganda and information content management
- External propaganda
- Grassroots propaganda work
- Ideological management
Huang Kunming, head of the Propaganda Department, summed up the reasoning behind these regs succinctly, saying they are meant to (Qiushi):
- “Make the nature of socialism clear.”
- “Ensure that the red flag will never fall and that the regime will never change color.”
And according to Huang, we are now at a critical juncture:
- “Especially in the critical period of the great rejuvenation of the Chinese nation… propaganda and ideological work needs more than ever to make the Party’s banner clear and strengthen its leadership.”
Get smart: The Party sees this as a life or death issue. Going forward, we should expect a more rigorous propaganda push – both domestically and globally.