1. PBoC cuts RRR
On Friday, the central bank (PBoC) cut the reserve ratio requirement (RRR) for banks.
- All banks will have their RRR cut by 50 basis points from September 16.
- City commercial banks that operate within provincial boundaries will see their RRRs cut by a further 100 basis points, which will occur in two steps – a 50-basis-point cut on October 15 and another on November 15.
The expected impact:
- The PBoC says the new cuts will release RMB 900 billion of liquidity.
- That’s more than the RMB 800 billion and RMB 280 billion released by the January and May cuts, respectively.
The bank was keen to say that is not the start of large-scale easing (Bloomberg):
- “’The cut is not flooding the economy with stimulus and the stance of prudent policy has not changed,’ it said in a separate statement.”
- “Overall liquidity in the banking system will stay basically stable, according to the PBOC.”
Get smart: Authorities remain committed to a targeted approach. This move is all about maintaining liquidity, but is not going to lead to a big upswing in credit growth.
Reuters: China’s yuan slips, stocks gain after Beijing cuts RRR
2.Data dump – trade
August trade data was released on Sunday.
Things do not look good:
- Exports contracted by 1% y/y in August – down from 3.3% growth in July and below expectations of 2-2.2% growth.
- Imports shrank by 5.6% y/y in August – the same decline as in July and a little above expectations of a 6-6.4% drop.
- The trade surplus clocked in at USD 34.83 billion in August – down from USD 45.06 billion in July and below expectations of USD 43 billion.
The trade war with the US is not helping:
- Exports to the US fell 16% y/y in August – significantly down from the 6.5% y/y decline in July.
- Imports from the US also decreased 22.4% y/y in August.
- The trade surplus with the US came in at USD 26.95 billion in August – slightly less than the USD 27.97 billion in July.
Our take: The weak import numbers reflect weak domestic demand, and further reinforce our view that growth is unlikely to bottom out until early next year.
3. PBoC to better regulate fintech
The People’s Bank of China (PBoC) recently released a three-year roadmap for fintech development.
This marks the bank’s first ever policy dedicated to fintech.
In a sign of the times, the paper kicks off with a call for self-reliance:
- “[We need to] explore the safe application of emerging technologies in the financial sector and accelerate the reversal of the situation where key core technologies and products are subject to [the control of other] people.”
But the bank also cautions against moving ahead too quickly:
- “[We should] deeply study the applicability, safety, and stability of the supply chain of new technologies, and scientifically select and apply relatively mature, controllable, stable, and efficient technologies.”
Translation: The PBoC wants emergingfintech thoroughly examined before being rolled out on a larger scale.
Get smart: Central banks around the world tend to be conservative when it comes to fintech. The PBoC is no exception.
4.Merkel talks trade and Hong Kong in Beijing
On Friday, German Chancellor Angela Merkel arrived in China for her 12th (!) state visit.
Xi Jinping and Premier Li Keqiang both met with her.
Xi urged more economic cooperation (Gov.cn 1):
- “Xi stressed that it is necessary to make the pie of China-Germany cooperation bigger.”
Li was also keen to focus on the economy (Gov.cn 2):
- “[Li] expressed his hope that Germany could maintain an open market to China, ease export restrictions on civil technology, …and offer equal and fair treatment to Chinese enterprises in investment review and market access.”
Merkel said that she is all for a more robust economic relationship:
- “The German side, she said, …will push forward a conclusion of the China-Europe investment agreement negotiation within its rotating EU presidency to build a more reliable trade partnership.”
But Merkel also wanted to talk Hong Kong (SCMP):
- “Hong Kong’s rights and freedoms must be guaranteed.”
Li told her to mind her own business:
- “Chinese people have the capability and wisdom to manage well our own affairs.”
Get smart: China is unlikely to be swayed by Western pressure on “internal” issues such as Hong Kong and Xinjiang.
Gov.cn: Xi meets German Chancellor Angela Merkel
Gov.cn: Premier Li meets German Chancellor Angela Merkel
SCMP: Angela Merkel raises Hong Kong issues with Premier Li Keqiang
FT: Angela Merkel visits China as Hong Kong unrest grows
DW: Angela Merkel in China: A trip fraught with difficulties
5.Discipline inspectors go after the foreign affairs apparatus
On Friday, head of the Central Commission for Discipline Inspection (CCDI) Zhao Leji chaired a meeting to prepare for the latest round of discipline inspections.
Some context: This will be the fourth round of inspections since the 19th Party Congress in October 2017.
The scope: Inspections this time will focus on 37 central Party and state institutions.
The foreign affairs apparatus is getting particular attention. The following institutions will all be inspected:
- United Front Work Department
- CPC International Department
- Office of the Central Commission for Foreign Affairs
- Taiwan Affairs Office
- Ministry of Foreign Affairs
- Chinese People’s Association for Friendship with Foreign Countries
- All-China Federation of Taiwan Compatriots
- Chinese People’s Institute of Foreign Affairs
Other prominent institutions to be inspected include the Supreme People’s Court, Ministry of Justice, and Central Party School.
The focus: In addition to rooting out corruption, this round of inspections will also focus on problems in selecting and promoting officials.
Get smart: This is in response to new Party rules that seek to improve the official appointments system (see May 28 Tip Sheet).
Get smarter: These inspections reflect a larger trend that sees discipline officials focusing less on rooting out corruption and more on ensuringpolicy implementation.
CPC People: 赵乐际在十九届中央第四轮巡视工作动员部署会上强调 坚守政治巡视职能定位 督促中央和国家机关坚决做到“两个维护”
Xinhua: China gears up for new round of disciplinary inspection
Xinhua: 37 central Party, state institutions targeted in new round of disciplinary inspection
6.Beijing commits to continued local debt control
On Friday, Ministry of Finance (MoF) officials reaffirmed their commitment to control local government debt.
Some context: This comes in the wake of the State Council’s announcement that it will accelerate local government bond issuance in a bid to stabilize investment (see September 5 Tip Sheet).
The MoF is keen to make sure that local governments remain fiscally responsible. At a press conference Friday, MoF officials said:
- “Special bonds must be used for profitable government investment projects.”
- “[Bond issuance] will be focused on projects that local governments must eventually undertake sooner or later.”
Beijing also warned local governments that they would be on their own in the event of an emergency:
- “[We] insist that the central government will not bail out [local governments].”
- “[We] insist that whoever borrows money should be responsible for it.”
Get smart: The central government will have its hands full as it pursues the conflicting goals of stabilizing investment and controlling local government spending.