Driving the Day
1. China lawyers up against the US
Yesterday, MofCom announced that it had formally lodged a complaint with the WTO over the latest round of trade tariffs from the US.
In case you forgot: On August 1, US President Donald Trump announced a new 10% tariff on the remaining USD 300 billion of Chinese exports that had yet to be taxed. Those penalties were later increased to 15% and went into place on September 1.
China’snot taking it lying down.
In its complaint to the WTO, China alleged that (Xinhua):
- “The tariffs imposed by the United States severely violated the consensus reached…[at the G20].”
- “China will firmly safeguard its own legitimate rights and interests and resolutely uphold the multilateral trading system.”
Some context: This is the third action that China has brought against the US in relation to the Trump tariffs.
What next? If the US doesn’tsettle the case within 60 days, China can ask the WTO to adjudicate, a process which could drag on for years.
Get smart: As we’venoted before, the WTO is basically powerless to resolve the trade war between its two biggest members.
Get smarter: China knows this and is looking to rhetorically position itself as the defender of the international trading order.
2.Tax cuts make local governments scramble to sell assets
Get this: Guangdong, Sichuan, and Liaoning are seeking to sell off state-owned assets.
At least, that’saccording to the latest reporting from Caixin.
Why the sell off?
To help pay for tax cuts, which were mandated by the central government.
Some context: In March, the government rolled out a plan for RMB 2 trillion of tax cuts to support the economy. And despite a less-than-encouraging update on China’sfiscal situation from the finance minister recently (see August 26 Tip Sheet), MoF remains committed toseeing them through.
So, what’sup for grabs?
- “The assets considered for sale will be idle state-owned assets as well as assets operating inefficiently over the long term.”
And how’s the strategy working out so far?
According to MoF, in the first seven months of 2019, China’s fiscal revenue rose to RMB 12.56 trillion – a 3.1% y/y increase.
- Tax revenue increased by just 0.3% y/y
- But non-tax revenue surged by 24.8% y/y – and state asset sales accounted for a quarter of the increase
Get smart: Selling off state assets will help in the short term. But as the economy continues to decelerate, local governments will continue to face substantial fiscal pressure.
3. China wants to raise more hogs
Chinese officials are still wrestling to get pork prices under control.
A number of steps have been taken to address the issue, but officials are still concerned.
That’s why on Monday, Vice Primer Hu Chunhua visited a hog farm in Sichuan province, and called for yet more policy efforts to to ensure hog production, including:
- Production subsidies
- Additional credit and insurance support
- Scrapping of previous production restrictions
- Designating special land for hog raising
Echoing the vice primer, the Ministry of Transport and the Ministry of Agricultural and Rural Affairs issued a notice on Monday, saying:
- Trucks that are legally transporting hogs and frozen pork will be exempt from toll charges from September 1 to June 30 next year.
And that’s not all:
- The State Council relaxed restrictions on hog production in rural areas.
Get smart: As we’vesaid before, affordable pork is a quality-of-life issue for many Chinese. Officials will pull out all the stops to get prices under control.
4.Carrie Lam wants out (maybe)
Yesterday, Reuters released an audio recording from a closed-door meeting that Hong Kong Chief Executive Carrie Lam held with business leaders last week.
What was on it?
In the recording, Lam made statements indicating that she would step down if she could and that her political autonomy was severely restricted (Reuters):
- “If I have a choice, the first thing [I would do] is to quit.”
- “The political room for the chief executive… [to maneuver] is very, very, very limited.”
She also claimed that the central government has no plans to send in troops ahead of the 70th anniversary of the PRC, on October 1.
- “I can assure you that Beijing does not have a deadline.”
- “[Beijing] has absolutely no plan to send in the PLA.”
Today, Lam held a press conference where she denied that she had ever considered resigning, claiming she was speaking hypothetically (The Guardian):
- “The choice of not resigning is my own choice.”
- “I believe I can lead my team…out of this impasse.”
Get smart: Lam’srecorded musings seem to confirm what we already suspected—Beijing is unwilling to appease protesters by having her step down.
Get smarter: Beijing’srefusal to play ball makes any de-escalation very difficult.
Reuters:Special Report: Hong Kong leader says she would ‘quit’ if she could, fears her ability to resolve crisis now ‘very limited’
The Guardian:Hong Kong protests: Carrie Lam denies she considered resigning
5.China aims forsports greatness
On Monday, the State Council released new guidelines meant to help China become a sports superpower.
The big goal (Gov.cn):
- “China should become a modern leading sports socialist country by 2050, and its people’s physical fitness, comprehensive levels, and global influence in sports should be ranked near the top globally.”
The guidelines look to improve five areas:
- national fitness
- the sports industry
- sports culture
- international sports exchanges
What happens now: The build-out of sports facilities.
The government will also boost broader support for the industry:
- “The circular also calls…[for building] a modern sports industry system through building a complete sports industry chain, accelerating the integrated development of sports and its related industries, and promoting the coordinated development of regional sports industries.”
- “The development, design and manufacturing of sports goods will be supported, and their supply capacity will be improved as well.”
Private companies will also play a bigger role:
- “Private organizations [will be allowed] to enter the sports industry, promoting football, basketball and volleyball and supporting the development of vocational sports.”
Get smart: Believe it or not, top officials know that the private sector is more capable than top-down planningwhen it comes to creating a vibrant and sustainable sports industry.
Gov.cn: Outline released to build China into sports leader