Driving the Day
1. Trump delays tariff hike
On Wednesday, US President Donald Trump announced via Twitter that he had a National Day present for the Chinese people.
- The 5% tariff hike on USD 250 billion of Chinese exports planned for October 1 will be postponed until October 15.
Trump said it outright: He made the decision as a gesture of goodwill in honor of the 70th anniversary of the PRC’s founding.
Awww you shouldn’t have!
Trump may have been responding to China’s announcement yesterday that it was exempting certain American goods from tariffs (see yesterday’s Tip Sheet) – or maybe he just wanted to goose the stock market for a couple of days.
In any case, it seems clear that he viewed China’s move as sort of peace offering (BBC):
- “I think they did the right thing. I think it was good for them.”
- “It was a big move. People were shocked. I wasn’t shocked.”
Get smart: Tariff delays may be aimed at creating warm, fuzzy feelings before the next round of talks in early October, but the two-week reprieve is a band-aid on a bullet wound.
Our take: These small gestures do nothing to resolve the underlying trade conflict. We’re still pessimistic on prospects for a deal.
Driving the Day, Cont’d
2.Former diplomat skeptical on trade talks
We’re not the only ones who are skeptical that a trade deal will get done.
Zhou Xiaoming – China’s former top diplomat in Geneva – expressed the same view in a recent interview (Guancha):
- “The two sides disagree too much on the objectives of the negotiations.”
- “It is almost impossible to reach an agreement in the short term.”
Zhou shed some light on why talks in July led nowhere:
- The Chinese side insisted that any agreement conform to WTO rules, which effectively undercut a number of key US requirements – including Chinese purchases of US agricultural products.
Zhou urged Chinese officials to be clear on the US’s objective:
- “Economic and technological decoupling is the objective of the entire US government.”
Zhou said that officials must prepare for that potentiality, even if it is not their desired outcome.
Don’t worry. Zhou’s got a three-step plan for dealing with decoupling:
- Improve the business environment for foreign companies
- Set up more RD facilities abroad
- Diversify China’s supply chains
Get smart: Preparing for decoupling is essentially decoupling.
The big question: What happens to third countries? Will they be forced to pick sides? Or will they find a modus vivendi with both countries?
3. Bumpy road ahead for auto sales
Hot on the heels of Monday’s dismal auto sales data (see yesterday’s Tip Sheet), another top industry association weighed in on the numbers yesterday.
The verdict: It’s not looking great.
According to Shi Jianhua, senior official atthe China Association of Automobile Manufacturers (CAAM), the tough times are here to stay (Reuters):
- “Perhaps the next three years will be at a low or small negative growth.”
Though there might be a small light up ahead:
- “The sales in the second half of the year should become better, but we are not sure to what extent.”
Beyond the broader decline in sales, this caught our attention:
- New energy vehicles (NEV) sales fell 15.8% in August – following a 4.7% fall in July.
Some context: The July contraction was the first decline in NEV sales since January 2017 – a far cry from last year’s 62% jump in sales.
Told you so: Remember when we predicted weak auto sales in Q3 (see July 9 Tip Sheet)? Well, this is it.
Get smart:We’re with CAAM on this one. Don’t expect an uptick in auto sales anytime soon. Moreover, the recent subsidycuts on NEV purchases will continue to affect sales in thesector for some time.
4.Xi wants Hong Kong to learn from Macau
Yesterday, Xi Jinping met with Ho Iat Seng, Macau’s newly elected chief executive.
We’re using the term “elected” loosely here. Ho ran unopposed and had the strong backing of mainland authorities due to his strongpro-Party message.
Unsurprisingly, the meeting was a bit of a love-in.
Xi offered his hearty, if unimaginative, congratulations to Ho (Xinhua):
- “You have…made contributions to the country’s reform and opening up, modernization, as well as the prosperity and stability of Macau.”
- “Your nomination and election with overwhelming support fully show that you have won broad endorsement in Macau.”
Xi also praised Macau as a shining paragon of the “one country, two systems” model:
- “’One country, two systems’ has proved to be a workable solution welcomed by the people.”
- “[Macau has] demonstrate[ed] to the world the successful implementation of ‘one country, two systems.'”
Get smart: Compared to Hong Kong, Macau has been only too happy to accept the “one country,two systems” formulation.
Get smarter: That’s partially because Macau is distinctly not Hong Kong. With a population of just over 650,000 (nearly 44% of whom were born in the mainland) and generous social benefits, Macau doesn’t share many grievances with its angsty neighbor.
Xinhua: President Xi meets Macao’s new chief executive
5.Internet regulators tighten up online environment
On Tuesday, the Cyberspace Administration of China (CAC), China’s top internet authority, released draft regulations for internet management.
The regulation banned a wide range of online content, including (ECNS):
- “Content that endangers national security, promotes terrorism, incites ethnic hatred, damages national religious policies, spreads falsehoods or information related to obscenity, gambling or violence.”
- “Harmful information…containing [vulgarity], sexual seduction and blood, hyping celebrity scandals, inciting discrimination against certain groups, using exaggerated headlines or harming juveniles’ health.”
So what’s going to take the place of all that steamy erotica and salacious rumor mongering?
We’re glad you asked…
The regulation encourages the promotion of:
- Xi Jinping Thought
- Interpretations of socialism with Chinese characteristics
- The Party’s policies
- Highlights of economic and social development
Can you say RATINGS BOOM?
Website operators have been asked to step up.
- They must establish a mechanism to conduct real-time content checks and deal with rumors.
- They also need to promote more “encouraged” content to users via push alerts.
Information service platforms are even being encouraged to develop a grading system for users and provide differentiated services to users with different grades.
Our thoughts: Welcome to the Great Firewall 2.0.
6.State Council looks to make sure the people are happy
The State Council did its thing on Wednesday, holding its weekly executive meeting.
Surprise, surprise…the meeting focused on addressing fallout from the slowing economy.
Top of the agenda: Ensuring the people’s basic welfare.
Officials went through a laundry list of pressing problems and actions that must be taken:
- Providing employment
- Stabilizing pork prices
- Ensuring that people have natural gas for heating
- Alleviating poverty
- Guaranteeing that flood victims have adequate housing
- Adroitly implementing the social security system
- Making sure that basic pensions are paid in a timely manner
Li also told officials to get out there and find out what else is wrong (Gov.cn):
- “All ministries must deepen their grassroots understanding of the expectations and demands of the masses, and carefully sort out and make every effort to solve the prominent problems concerning people’s welfare.”
- “[We] must let the demands of the people’s welfare lead [us] in fostering new points of economic growth.”
Get smart: The government is increasingly worried about the fallout from the economic slowdown. But officials arecertainlynot sitting on their hands. They are trying to proactively address problems before they become crises.
Gov.cn: 李克强主持召开国务院常务会议 要求紧扣群众关切进一步保障好基本民生等
7.China looks to deepen economic ties with Japan
On Wednesday, Li Keqiang met with a HUGE delegation of Japanese businessmen – over 200 executives were in attendance.
Some context: Japanese investment in China is up by double digits this year after the warming of relations that started last year.
Li said he wants to deepen economic ties (Gov.cn):
- “Faced with more uncertain and unstable factors in the global economy, China and Japan, two major economies, should take complementary advantage of each other and strengthen cooperation.”
- “It will benefit the two nations, and is also conducive to the regional and global economy, as well as world peace and prosperity.”
Li also repeated his classic opening spiel:
- “China will continue pushing forward comprehensive opening-up in more areas at higher levels, and is dedicated to a market-oriented, rule-based and internationalized business environment.”
Get smart: As tensions with the US heat up, China is trying to strengthen economic ties with other major economies.
Gov.cn: Premier holds talks with Japanese economic delegation
8.China and Kazakhstan upgrade relations
Yesterday, Xi Jinping met with Kazakh President Kassym-Jomart Tokayev, who is in Beijing for a state visit.
The two decided to upgrade relations and develop a“permanent comprehensive strategic partnership.”
What does that mean? Well, it’s only one step away from the “comprehensive strategic co-operative partnership,”which is generally seen as the highest level of bilateral relations for China.
Xi said the two countries should work together (Xinhua):
- “China and Kazakhstan should take a clear-cut stand in upholding multilateralism and an open world economy, so as to contribute to promoting a fairer… global governance system.”
What that means: Xi wants countries like Kazakhstan to join China in trying to diminish the influence of capitalist democracies in international institutions.
Tokayev was on board, and had nothing but positive things to say:
- “Kazakhstan firmly supports the Chinese government… in safeguarding national sovereignty, security and development interests.”
Xi also brought up Xinjiang.
Why that’s awkward: Some Kazakh nationals have been interned in Xinjiang’s re-education camps.
Not to worry: Mr. T said that the two countries should fight terrorism together.
Get smart: Central Asian dictators aren’t troubled by extra-judicial internments.
Is this what Xi means by “building a common destiny for humankind?”