Driving the Day
1. Trade talks look uncertain
Vice Premier Liu He resumes trade negotiations with the US in DC today.
Bloomberg reports that an interim deal is possible:
- “China would accept a limited deal…as long as no more tariffs are imposed by President Donald Trump.”
- “In return, Beijing would offer non-core concessions like purchases of agricultural products without giving in on major sticking points.”
The FT also reports that China is prepared to give the US what it wants on agriculture:
- “Mr Liu’s team is offering to boost annual purchases of soy beans to 30m tonnes compared with 20m at present.”
- “China would also make a raft of changes to non-tariff barriers that have long frustrated the US Department of Agriculture and American farmers.”
But…reports from Reuters are less upbeat:
- “Chinese officials…told Reuters that Beijing had lowered expectations for significant progress from the talks.”
And the SCMP says that deputy-level talks this week have been fruitless:
- “Deputy-level trade talks between the US and China aimed at laying the groundwork for high-level negotiations later this week failed to yield any progress on critical issues, according to two sources with knowledge of the meetings.”
Our take: The best outcome looks like a tariff freeze and more ag purchases. That is pretty unimpressive.
The bottom line: We are a looooong way away from a more comprehensive deal.
Bloomberg: China Open to Small Trade Deal If Trump Eases Tariff Threats
Financial Times: China offers to buy extra US goods to ease trade war
Reuters: Top-level U.S.-China trade talks resume as irritants sour atmosphere
SCMP: US and China make no progress on key trade issues in two days of deputy-level talks, sources say
2.Xi welcomes Solomon Islands PM to Beijing
Yesterday, Solomon Islands Prime Minister Manasseh Sogavare was in Beijing to mark the official establishment of relations between his country and China.
Some context: Last month, the Solomon Islands severed 36 years of diplomatic ties with Taiwan and shifted recognition to Beijing (see September 17 Tip Sheet).
Both Xi Jinping and Li Keqiang met with Sogavare.
Sogavare told Beijing what it wanted to hear.
- He said that he was “pleased to recognize the one China policy” and “to be on the right side of history.”
- He also officially signed on to the Belt and Road Initiative.
Xi promised great things to come (Xinhua):
- “We are willing to work with the Solomon Islands to…open up a bright future for the development of the bilateral relationship.”
Beijing ensured that Sogavare didn’t leave empty-handed. In addition to signing a slew of economic cooperation deals, China pledged to:
- Make the Solomons an “official destination” for Chinese tourism
- Help the island nation build facilities for the 2023 Pacific Games
Get smart: China is keen to show Taiwan’sremaining allies that shifting recognition to Beijing will be worth their while.
SCMP: Prospects are bright, China tells new Pacific partner Solomon Islands
Xinhua: Chinese president meets Solomon Islands PM, pledging closer cooperation
Reuters: China, Solomon Islands sign deals under new diplomatic ties
3. State Council adjusts consumption tax
Yesterday, the State Council released a circular to adjusttax revenue sharing between central and local governments.
Some context: Local governments are facing significant fiscal shortfalls due to tax cuts, a slowing economy, and pressure to pay back debt.
Never fear! The central government is here! (Gov.cn):
First, the central government will continue to split value-added tax (VAT) revenues 50-50 with local governments.
Why that matters: VAT is collected by the central government and is the single biggest source of tax revenue. When it was introduced in 2016, it replaced local business taxes, removing a major source of local revenues.
But more importantly:
- “The circular decided to transfer consumption taxes on goods from production or import to wholesale or retail sectors to expand tax sources for local governments.”
What that means: Local governments with higher levels of consumption will earn more tax revenue.
Get smart: This will encourage local governments to focus onunleashingconsumer spending.
What to watch: The circular also implied that stabilizing local governmentrevenueis a precursor for new tax cuts –so don’t expect a slew of new fiscal support measures to come soon.
Gov.cn: Circular: Distribution of tax revenue to be adjusted
4.Appleremoves app after pressure from Beijing
Apple has come under fire in China for allowing an appthat uses crowd-sourced data to track police movements in Hong Kong to be downloaded from its app store (see yesterday’sTip Sheet).
On Thursday, Apple removed the app from its app store, calling it a “public safety” issue (Reuters):
- “The app has been used to target and ambush police, threaten public safety, and … victimize residents…”
Apple was at pains to say that it did not fold to the Chinese government. Instead, it made the move “after many concerned customers in Hong Kong contacted [the company].”
Get smart: Apple will likely face criticism for removing the app. The company’spredicament highlightshow it is increasingly difficult for MNCs in China tosatisfy both Beijing and stakeholders in other countries.
People’s Daily: 最新！苹果下架“香港暴徒好帮手APP”
Reuters: Apple pulls police-tracking app used in Hong Kong protests after consulting authorities
5.NBS looks to crack down on fake data
On Tuesday, the National Bureau of Statistics released a draft revision of the Statistics Law.
The big change: The revision increases the punishments for false reporting of statistics.
Some context: Statistical fraud by lower-level officials has been rampant in China for a long time, as officials attempt to win promotion by delivering economic growth. The NBS has been taking measures to correct the problem for years (see June 20, 2017 Tip Sheet).
The revised law puts pressure on higher-level officials to get the problem under control (Xinhua):
- “Those who fabricate data, as well as their superiors, should be held accountable if fudged figures are found in their departments or regions.”
Better stats through technology: The new law also aims to make use of big data, cloud computing, and artificial intelligence to improve statistical authenticity.
Get smart: Poor –or outright false –data is detrimental for policymakers. Getting data correct is anessential first step for top leaders to prescribe effective macroeconomic policies.
Xinhua:Draft revision to statistics law to better ensure data authenticity: newspaper