1. Data dump – monthly econ stats
The stats bureau released monthly econ data for August on Monday morning.
And the numbers weren’t pretty:
- Industrial production grew by 4.4% y/y – down from 4.8% in July and the lowest print in 17 years. Oof.
- That’s especially disappointing since markets had expected an acceleration to 5.2% y/y growth.
- On the consumer side, retail sales decelerated a touch to 7.5% y/y growth – from 7.6% in July.
- Again, expectations were for an improvement to 7.9% y/y growth.
Get smart: After theweak economic data from July, investors were looking for a rebound in August – even if it was temporary.
Get smarter: But this data print underscores that July wasn’t a seasonal blip – the economy continues to struggle.
Our take: The bad numbers are once again ramping up calls for stimulus. But a big policy jolt for the economy still ain’t on the cards (see next entry).
The bottom line: China’s economy won’t bottom out until 2020.
Gov.cn: 8月份国民经济保持总体平稳 稳中有进发展态势
2.Data dump – monthly econ stats, cont’d
It wasn’t just industrial companies and consumers that struggled in August.
Investment was also weak.
The key stats:
- Headline fixed asset investment (FAI) grew at 4.2% y/y – down from 5.1% in July, and marking the slowest growth this year.
- Manufacturing FAI contracted for the second time in 2019, falling 1.6% y/y – after seeing 4.7% growth in July.
- Property FAI was stable at 10.6% y/y – in line with the 10.8% average in the first seven months of the year.
The one bright spot: Infrastructure investment increased 6.7% y/y – up from a measly 2.3% in July.
Get smart: That was the strongest growth for infrastructure spending so far in 2019. But it was more than offset by the slump in manufacturing investment.
Get smarter: The jump in infrastructure spending doesn’t look sustainable. So enjoy it while it lasts.
What to watch: Chinese officials are revising down their growth expectations – and trying to manage public expectations in the process.
In an interview published over the weekend, Premier Li Keqiang put it straight:
- “For China to maintain growth of 6% or more is very difficult.”
That doesn’t sound like someone who is getting ready to hit the stimulus button.
Reuters: ‘Very difficult’ for China’s economy to grow 6% or faster: Premier Li
3. Xi goes to Xiangshan
On Thursday, Xi Jinping went to the Fragrant Hills (aka Xiangshan) on the western edge of Beijing.
Some context: The Fragrant Hills were the seat of Party headquarters for the last stretch of the civil war against the Nationalists.
Xi’s itinerary: He visited the former living quarters of Mao Zedong and other Party luminaries. He also visited an exhibition on the history of the Central Committee.
Xi gave his version of a rousing speech (China Daily):
- “Xi called on the whole Party and nation to be brave, to engage in the great struggle and fight against all difficulties and obstacles to push forward the progress of China.”
- “Xi urged more efforts to inherit and develop the spirit of the elder generation of revolutionaries to work for the people, keep close relations with the people, and regard the people’s aspiration for a better life as the goal.”
- “History has proved that the CPC and the Chinese people are capable of both breaking an old world and building a new world, Xi said, adding that the future of China is very promising.”
Get smart: Pressures from a slowing economy and increasing tensions with the US are mounting. As they do, Xi is increasingly evoking the Party’s history of “struggle” in order to gird cadres – and citizens – for tough times ahead.
CPC People: 习近平视察北京香山革命纪念地
China Daily: Xi urges all to unite, work for national rejuvenation
4.Party releases a slew of new rules
On Sunday, the Party Central Committee released three new rules to govern official behavior:
- Regulations on Formulating Party Rules
- Rules for Registering and Examining Party Regulations and Normative Documents
- (Temporary) Rules for the System of Accountability for Implementation of Party Rules
Some context: The first two are revisions of regulations issued in May 2012. They specify which Party organizations have the authority to issue what kind of rules. Together, they are often referred to as the Party’s “Legislative Law.”
But the third rule is more interesting, as it seeks to address a perennial challenge that the Party faces – the fact that lower-level officials often don’t implement Party rules.
Still, it’s not clear that the new accountability rules will do much. The provisions on enforcement are vague – and so are the punishments.
Get smart: The Party likes to keep rules vague so that it has wide scope to interpret them. But that undermines the rules’ ability to shape behavior.
5.Government looks to stop interfering in markets
On Thursday, the State Council released new guidelinesmeant to change the way that the government regulates the economy.
The big goal: Instead of intervening in markets through approvals, the government should lower barriers to market entry – while tightening oversight of market players.
Some context: Since taking over the premiership in 2013, Li Keqiang has been pushing for a “transformation of government functions” that seeks to reduce government intervention in the economy.
The goal is to create a more efficient business environment (Gov.cn):
- “Departments are required to establish unified and clear supervision rules and standards in different fields to reduce compliance and supervision costs.”
The new corporate social credit system will be key:
- “[The guidelines] called on…linking the national credit information sharing platform, national enterprise credit information publicity system and other supervision information platforms.”
- “Considering credit records are different between enterprises, supervision methods, ratios and frequencies of spot checks should be adjusted accordingly.”
Get smart: The social credit system is going to be a game changer for how the government regulates the economy.
Get smarter: Read our social credit primer.
Get super smart: Get briefed.
6.SASAC tells SOEs to help out in Hong Kong
Last week, China’s main SOE regulator (SASAC) convened a meeting in Shenzhen with some of China’s biggest companies.
The message: Do your part to help out in Hong Kong.
Reuters has the details:
- “At the meeting, the SOEs pledged to invest more in key Hong Kong industries including real estate and tourism in a bid to create jobs for local citizens and stabilize financial markets.”
- “Instead of simply holding stakes in Hong Kong companies, the Chinese SOEs were also urged to look to control companies and have decision-making power in them, one of the people familiar with the meeting said.”
Get smart: Beijing is scrambling to figure out a way to stabilize Hong Kong – especially as the 70th anniversary of the PRC nears on October 1. Mainland authorities will look to use any point of leverage they can.