Driving the Day
1. Central government completes first round of corporate social credit scoring
Yesterday, China’s main macroeconomic planning ministry (NDRC) announced the completion of the first social credit evaluation of 33 million Chinese businesses.
Some context: Recent policy documents have made mention of a “Comprehensive Public Credit Rating” (公共信用综合评价) – a national corporate credit evaluation, which would determine how companies will be treated depending on their social credit scores. But exactly what the rating willlook like, and how much it will matter, has been unclear.
Now we know: Companies will be issued one of four grades:
- Excellent (优)
- Good (良)
- Medium (中)
- Poor (差)
But the national-level ratings aren’t the final word on a company’s credit (NDRC):
- “[Social credit regulators] at all levels should … take the national-level results as the basis for the classification in various industries and fields, [and also consider] the results of industry credit evaluations, local credit evaluations, and market-based credit evaluations.”
- “The national-level results are only used as a basis for basic evaluation, and do not replace credit evaluations at the local and industry levels.”
Get smart: The idea here is to combine evaluations from multiple credit rating parties – national governments, local governments, industry bodies, and private third-party ratings agencies – to get a comprehensive read on a company’s financial soundness and regulatory compliance.
Trivium Social Credit Watch: Big news: Central government completes first round of corporate social credit ratings
2.Questioning a rate cut
In case you missed it: Data released on Monday showed that China’s economy did not perform so well in August (see yesterday’s Tip Sheet).
As we pointedout, the weak data has ramped up expectations of further easing from China’s central bank (PBoC).
The growing consensusis that the PBoC will cut rates later this week – following the US Federal Reserve, which is widely expected to cut rates on Wednesday.
Some context: If the PBoC cuts rates, it will cut the reference rate, which is the one-year medium-term lending facility.
But we are starting to question the consensus. The PBoC has been pretty clear in recent months that its main concern is not the price of credit – but access to credit for private businesses.
- Lowering reference rates won’t change that dynamic.
Instead we think policymakers will continue to rely on fiscal spending:
- A spokesman for the stats bureau recently indicated that according to the legislature’s ruling last December, up to RMB 129 billion worth of local government special bonds earmarked for 2020 can actually be issued this year.
Get smart: Whether the PBoC adjusts rates or not, policy support will remain targeted.
Bloomberg: BofAML’s Qiao: China Policy Makers ‘Behind the Curve’
21st Century Biz: 定了！明年部分新增专项债额度今年提前发行
3. Preparation for next US-China talks start Friday
It’s official: Preparation for the next round of high-level trade talks is set to get underway this week.
Chinese media has confirmed that a vice-ministerial delegation will head to DC Wednesday to do prep work (CNBC):
- “State-controlled broadcaster CCTV reported on Tuesday that Vice Minister of the Finance Ministry Liao Min [will] lead a vice-ministerial delegation to discuss trade and economic issues.”
That will make markets happy as optimism builds in the wake of a spate of goodwill gestures between the two sides:
- The US is delaying some tariffs from October 1 to October 15 (see September 12 Tip Sheet).
- And the Chinese have reportedly started buying US soybeans again.
But we remain highly cautious here. Beyond US President Trump, the one person that matters most on the US side is US Trade Representative Robert Lighthizer.
And he recently told a US business group that inking a deal remains “an extraordinary challenge” (see Bloomberg link).
That sounds right to us. Investors and executives would be wise to keep expectations in check.
4.Taiwan cuts ties with Solomon Islands
Yep – you read that right.
Yesterday, in a “you can’t fire me, I quit!” moment, Taiwan officially ended diplomatic relations with the Solomon Islands after the latter’s cabinet voted to switch its recognition to Beijing.
Taiwan’s Foreign Minister Joseph Wu offered his resignation over the switch, but not before aiming a parting shot at Solomon Islands Prime Minister Manasseh Sogavare (SCMP):
- “Prime Minister Sogavare has not only broken his own public promise, but also disregarded the fruits of the 36 years of cooperation between Taiwan and the Solomon Islands.”
Wu said Beijing’s to blame:
- “It is absolutely evident that China, through this case, deliberately seeks to influence Taiwan’s upcoming presidential and legislative elections.”
Unsurprisingly, officials in Beijing were a tad more upbeat about the development.
Here’s foreign ministry spokeswoman Hua Chunying, laying it on a bit thick (Xinhua):
- “We support this important decision which the Solomon Islands has made by itself as an independent sovereign state.”
Get smart: Economic considerations were almost certainly the main driver behind the Solomon Islands’ decision.
What to watch: Will any of Taiwan’s remaining 16 allies be looking to cash out soon?
5.Xi invokes revolution – again
Xi Jinping took to the road on Monday, visiting Xin County in Henan.
- He made a beeline for the local revolutionary martyrs’ monument, where he paid his respects.
- He then visited the local revolutionary museum before paying a visit to members of martyrs’ families.
Xi’s also been in the countryside inspecting povery alleviation efforts.
That’s about all we know for now.The propaganda machine around Xi’s trips often ramps up after the fact.
Get smart: The Party is always keen to remind Chinese citizens of its revolutionary past. But in recent months, Xi has been upping the revolutionary references.
Get smarter: That’s because, with a slowing economy and rising tensions with the US, Xi sees tough times ahead.
CPC People: 习近平在河南考察调研