1. Liu He calls forcoordinated efforts to maintaineconomic stability
Yesterday, Vice Premier and head of the State Council Financial Stability and Development Committee (FSDC) Liu He held a teleconference with local governments and financial institutions across the country.
Echoing other top leaders’ recent remarks, Liu painted a dark picture (Gov.cn):
- “The economy is facing increasing downward pressure.”
But he assured everyone that the government has it under control:
- “Our country has sufficient macro policy tools.”
Liu gave instructions to financial institutions.He wants them to go against their instincts and lend MORE amid the economic slow-down.
- “Actively provide credit support to enterprises that have market-oriented products, are profitable and well-managed, but are short of funds.”
Meanwhile, financial regulators are asked to:
- Step up counter-cyclical adjustments and improve themonetary policy transmission mechanism
- Resolveexisting structural risks
For their part, local governments are urged to improve financial regulations with effective crackdowns on illegal financial activities.
Get smart: None of these messages are particularly new.
Update: Just as we were going to press, the central bank cut the reserve requirement ratio (RRR) for banks. That should make it marginally easier for them to do the stepped-up lending Liu is asking for. We’ll look at the RRR cut more on Monday.
2.Chinese policymakers’ perspective on the trade war
As the US and Chinese negotiators get set to meet again in October, both sides will be looking for points of leverage.
Given Chinese policymakers’ concern about economic growth (see yesterday’s Tip Sheet), it’s easy to thinkthat China is hard pressed to make a deal soon.
But we couldn’t disagree more:
- Chinese policymakers haven’t resorted to major stimulus despite the slowing economy and the added uncertainty of US-China trade tensions.
- To us, this suggests that Chinese officials are confident in their ability to shepherd the economy through this downturn.
- Misplaced or not, this confidence should indicate to US policymakers that China’s economic growth is not a viable point of leverage for pushing Chinese officials to acquiesce to US demands on trade.
Our head of economic research, Andrew Polk, offered this perspective at a hearing of the US-China Economic and Security Review Commission in DC on Wednesday morning.
Go deeper: Check out Andrew’s full written testimony, linked below.
Weekend plans? You can check out the full video of hispanel with Victor Shih and Elizabeth Economy at the link below – solid insights all around.
USCC: Hearing on “U.S.-China Relations in 2019: A Year in Review”
USCC: Testimony before the U.S.-China Economic and Security Review Commission Hearing on “U.S.-China Relations in 2019: A Year in Review”
3. The Party praises Confucian communists
On Thursday, the Party hailed 58 citizens as “moral role models.”
Some context: The Party has been bestowing these awards on a biannual basis since 2007.
What’s a moral role model you ask? Xinhua explains that one must have outstanding achievement in:
- Helping other people
- Acting bravely for a just cause
- Being honest and trustworthy
- Working hard and “making great contributions”
- Showing filial piety and love for their family
That last one’s our favorite – it’s straight-up Confucian.
Xi took the opportunity to send instructions to the awards ceremony:
- “We should cultivate and practice socialist core values [and] promote the construction of social morality, professional ethics, family morality, and personal moral character.”
Sounds nice, but…don’t nobody care about socialist core values. Just sayin’.
Get smart: Socialism with Chinese characteristics is not your father’s socialism. It’s an eclectic blend of, among others, Leninism, Legalism, Socialism, Marxism – and Confucianism.
Why that matters: Party ideology is…not that ideological. That pragmatism is one reason that the Party has been able to stay in power for 70 years.
4.China and Russia continue to deepen cooperation
The past week has looked likeSino-Russian Friendship Week.
Don’t believe us? Check out the evidence:
- On Wednesday, Vice Premier Han Zheng met with Gazprom CEO Alexei Miller in Beijing.
Some context:Gazprom’s “Power of Siberia” pipeline is set to open in less than three months, on December 1. It will bring natural gas from Russia to China.
- And yesterday, Vice Premier Hu Chunhua met with Russian President Vladimir Putin in Vladivostok on the sidelines of the fifth Eastern Economic Forum.
Fun fact: Last year, Xi Jinping himself attended the forum (see September 12, 2018 Tip Sheet).
Just like last year, both country’s leaders were all smiles.
Putin, reading the tea leaves for Sino-Russian relations, saw only good times up ahead:
- “Russia welcomes Chinese investment and expects more positive outcomes from bilateral cooperation.”
And noted that their two countries have each other’s backs in global affairs:
- “By coordinating with each other, Moscow and Beijing play important roles in international issues.”
Hu was equally excited to underline the good relationship:
- “China is ready to work with Russia to implement the important consensuses reached by the two presidents and continuously push bilateral ties forward.”
Get smart: Sino-Russian ties are deepening across the board. Don’t expect anything but a jolly good time for the foreseeable future.
5.Solomon Islands to cut ties with Taiwan
This week, senior ministers in the Solomon Islands have been weighing the pros and cons of breaking off diplomatic ties with Taipei in favor of Beijing.
Some context: The Solomon Islands hasmaintained ties with Taiwan since 1983 and is Taipei’s largest South Pacific ally.
While it’s not officially a done deal yet, the switch looks to be a foregone conclusion. The taskforce responsible for evaluating the transfer is dominated by pro-switch politicians.
Peter Shanel Agovaka, a senior government minister responsible for liaising with Beijing had this to say:
- “It is time that we make new friends – it’s time that we should move on with our life.”
- “Our new relationship will deal with…a One China policy that recognizes only Beijing as the official government administration.”
Behind the scenes: Beijing has reportedly offered the Solomon Islands a sizeable “development fund” to help with the transition.
More context: Including the Solomon Islands, Taiwan is only recognized by 17 countries worldwide, several of which are in the South Pacific.
Get smart: Beijing’s development funding is an offer that many cash-strapped island nations can’t refuse.
What to watch: If the Solomon switch becomes official, will other Pacific countries follow suit?