Driving the Day
1. CCCDR focuses on the economy
On Monday, Xi Jinping chaired the 10th meeting of the Central Committee for Comprehensively Deepening Reform (CCCDR).
Some context:The CCCDR was established as part of the MASSIVE Party-state restructuring in March 2018. It is the most important policymaking body in the land.
As always, it was a productive meeting.The meeting approved 11 documents on:
- Integrating an advanced manufacturing sector and modern services industry
- Creating a better environment for private enterprises
- Promoting high-quality trade
- Promoting the flow of labor and human capital
- Reducing burdens on primary and secondary school teachers
- Ensuring the supply of key agricultural products
- Coordinating the supervision of financial infrastructure
- Strengthening scientific and technological innovation to support a peaceful China
- A plan for greener living
- Responsibilitiesof those investing state-owned capital in financial institutions
- Intensifying the fight against plastic pollution
Get smart: It’s no coincidence that the majority of these documents center on improving the economy. With no end in sight to the current slowdown, top officials are increasingly focused on bolstering growth and development.
What to watch:What the CCCDR discusses today becomes policy tomorrow. Stay tuned.
Driving the Day Cont’d
2.Xi’s quasi-market-oriented plan for the economy
The readout from Monday’s CCCDR meeting was terse, as usual.
But from the little that we got, it seems clear that China plans to push through with marketizing reforms.
The push to promote the private sector continues:
- “[We must] guarantee that all types of ownershiphave legal and equal access to factors of production, fairly and equally participate in market competition, and receive equal legal protections.”
As does the push for more liberalized trade:
- “We will promote the orderly and free flow of factorsboth internationally and domestically… and deep[en] market integration.”
The labor market is also set for liberalization:
- “We must eliminate systemic deficiencies that hinder the social mobility of labor and talent.”
But don’t get too excited. Xi and co. have not gone all free market on us.
- The plan to improve manufacturing doesn’t mention “markets” at all. Instead, the Party plans to “cultivate a modern industrial system.”
What that means: Activist industrial policy is not going anywhere.
Get smart: The economic slowdown is giving increasing impetus to market-oriented reforms.
Get smarter: Even the most liberal of China’s policymakers still believe that the state has an important role to play in shaping markets.
3. Data dump – inflation
This morning, the National Bureau of Statistics released inflation data for August.
- CPI was up 2.8% y/y – the same rate as in July.
- PPI fell by 0.8% y/y – down from the 0.3% contraction in July.
Quick take 1: Food prices continue to drive CPI growth. Food inflation grew 10% y/y in August, up from 9.1% y/y in July. However, non-food prices contracted 0.2 percentage points, down to 1.1% y/y – keeping overall consumer prices relatively stable.
Get smart: Pork’s where it’s at – with prices up 46.7% y/y in August. African Swine Fever is still ravaging the country’s pig stock, causing prices to soar.
Quick take 2: This is the second straight month of deflation for producer prices. That’s not what policymakers want to see. We’re betting that the authorities will institute supply restrictions on key commodities in the near future.
4.Auto sales hit record low
Regular Tip Sheet readers know the auto sector has been struggling (see February 19 Tip Sheet).
According to stats from the China Passenger Car Association:
- Auto sales in August fell for the 14th time in 15 monthsto 1.564 million units – a contraction of 9.9% y/y.
- August sales increased 5.4% from July, but that’s the slowest growth in years.
Some context: This is the longest decline in auto sales in three decades.
The sluggish sales have policymakers worried.
- On August 27, the State Council released new guidelines to boost consumption, which called on local governments torelaxpurchase restrictions on autos (see August 28 Tip Sheet).
Get smart: It’s not clear that the central government’s call to relax purchase restrictions will be heeded. That’s because many local governments don’t want more cars on the road as they focus on alleviating congestion and tackling air pollution.
The Paper: 乘联会：8月中国乘用车市场零售环比增5.4%，为历年最低
5.Localities ask for more legislative power
Last week, Li Zhanshu, chairman of the national legislature, called in legislators from around the country for a two-day meeting in Tianjin.
Some local legislators requested a bit of breathing room (Xinhua):
- “Some localities have suggested that existing local legislative powers are too limited in scope”.
- “[The legislators] suggested giving localities a greater degree of legislative space.”
Some context: Legislative power is very centralized in China. Local governments are forbidden from passing any legislation that contradicts national laws. City governments have even less leeway.
The national legislature was down with the proposal:
- “With the proliferation of new situations and new tasks, it is also necessary to create enabling conditions for local People’s Congresses to make legislation.”
The national legislature promised reforms to endow local governments with more legislative power.
Get smart: China’s high degree of centralization means that national legislation sometimes fails to meet local conditions. But Beijing worries that giving localities too much authority could undermine the implementation of national laws.
What to watch: How exactly the central government reallocates legislative authority remains to be seen.
Xinhua: 栗战书在省级人大立法工作交流会上强调 加强和改进新时代地方立法工作 更好助力经济社会发展和改革攻坚任务
6.Hong Kong insurance connect placed on hold
Yesterday, Hong Kong Insurance Authority Chairman Moses Cheng Mo-chi announced that the roll-out of the planned “insurance connect” between Hong Kong and the mainland would be postponed.
What’s that? The proposed connect would allow mainland customers living in the Greater Bay Area to buy Hong Kong insurance policies and vice versa.
Cheng said that a “challenging” business environment was to blame for the delay (SCMP):
- “[The] insurance connect scheme will definitely be delayed as a result of the challenges of international business operating environment [sic] as a result of the ongoing US-China trade war.”
- “It would be hard to launch a new connect scheme under the current economic situation.”
Some context: In-person insurance purchases by mainlanders in Hong Kong have dropped off precipitously since the protests began.
Get smart: Ostensibly a casualty of the trade war, the connect was likely scrapped due to the ongoing protests in Hong Kong.
Get smarter: The protests are complicating plans to push forward with the Greater Bay Area initiative that looks to integrate Hong Kong, Macau, and Guangdong.