Driving the Day
1. China says it’s on the same page with US
Following the conclusion of trade negotiations with the US on Friday, China has been cautious not to call the informal arrangement with the US a “deal” (see yesterday’s Tip Sheet).
This was in stark contrast to US President Donald Trump, who tweeted on Saturday:
- “The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country.”
This has made many observers – including us – suspect that China and the US had very different understandings of what was agreed on Friday.
But now, China is going all out to stress that they are on the same page with the US.
At his press conference this afternoon, foreign ministry spokesperson Geng Shuang was unequivocal (MoFA):
- “The two sides are in complete agreement on the trade agreement reached.”
- “There is no difference [between the two sides].”
The Taoran Notes social media account – which is known to be close to Chinese negotitators – explained on Tuesday (SCMP 1):
- “China takes a very cautious approach when it comes to official language used in announcements to the public … but we can confirm that both sides essentially share the same stance.”
Get smart: It’s positive that the two sides are eager to show progress. But we remain mightily unimpressed by this “mini deal.”
SCMP:China and US ‘on same page on trade war talks progress’
Bloomberg:China Wants More Talks Before Signing Trade Deal With Trump
SCMP:US-China trade talks to resume next week, eyeing to clinch ‘phase one’ deal during November forum
2. Data dump – inflation
The statsbureau released monthly inflation data for September on Tuesday.
- CPI increased by 3% – up from 2.8% in August.
- PPI contracted by 1.2% – down from -0.8% in August, and the deepest contraction in over three years.
Quick take 1: We say it pretty much every month – despite the African Swine Fever epidemic, consumer price growth remains pretty tame, so the central bank doesn’t need to worry about it.
Quick take 2: The deepening of upstream price contraction is concerning – but don’t buy into all the prevalent “China needs more stimulus” reactions to this data point. We expect authorities to lean on domestic production restrictions to get commodity prices up, rather than juicing infrastructure and investment.
Get smart: China’s economy is struggling, and there is no easy way out.
Reuters:China’s factory prices post steepest fall in three years
3.NBA games back on Chinese screens
That was so last week.
On Monday, without advance notice, Tencent quietly live-streamed two NBA preseason games.
Some context: Tencent has exclusive streaming rights to the NBA in China. It halted broadcasts last week after the general manger of the Houston Rockets tweeted support for the Hong Kong protesters.
But…things are not completely back to normal.
- Wednesday’s game featuring the Houston Rockets is not on Tencent’s steaming schedule.
- CCTV has not reversed its suspension of NBA broadcasts.
Yesterday, foreign ministry spokesperson Geng Shuang refused to comment on Tencent’s “business behaviors.” But he signaled that China wants to de-escalate the situation:
- “Sports exchange has played a positive role in China-US relations and friendship.”
Get smart: Beijing’s decision to dial down the vitriol is proof that, at least under certain circumstances, cooler heads can prevail.
Get smarter: Foreign companies will continue to come under pressure to hew Beijing’s political line.
4.Li Keqiang is worried about the economy
Premier Li Keqiang was on the road in Shaanxi on Monday.
While there, he gathered several economic ministers and provincial governors to discuss the economy.
Li did not sugarcoat the challengesfor the economy (Gov.cn):
- “The domestic economy faces multiple challenges and difficulties.”
- “Downward pressures on the economy exist, including falling domestic demand, rising food prices, and insufficient development momentum in some places.”
Those looking for stimulus will glom on to this statement:
- “More efforts should be taken to keep the economy operating within a proper range.”
But an all-out economic boost still isn’t on the cards.
Instead, Li gave officials a long list of things to do to:
- Implement tax and fee cuts
- Lower financing costs
- Make flexible use of different macro policies
- Make better use of government special bonds
- Support central and western regions in taking over industries transferred from eastern China
- Cultivate new areas of consumption
- Promote innovation
- Promote entrepreneurship
- Support employment
- Ensure stable food prices
And, of course, he also discussed his favorite topic:
- “[We must] make improvements in sorting out the difficulties faced by enterprises.”
Get smart: As the slowdown deepens, anxiety in Beijing is mounting – but top leaders still aren’t pulling the big stimulus levers.
Premier urges fulfillment of economic, social development targets
5.Li tries to reassure foreign business
While in Shaanxi on Monday, Li Keqiang also made a trip to Samsung (China) Semiconductor Co. Ltd., a wholly-owned subsidiary of Samsung Electronics.
Some context: Samsung (China) Semiconductor has already invested over USD 10 billion in its Xi’an facility. And it has said that it could invest a further USD 14 billion to expand the plant.
More context: Not everything has been going well for Samsung in China. In the past 10 months, it has closed two mobile phone factories in the country.
Li wanted to make sure that Samsung knows it is welcome (Gov.cn):
- “China’s door of opening-up will only open wider, Premier Li Keqiang said.”
- “He also said that China welcomes high-tech companies from all over the world, including Samsung, to continue expanding their investment in China.”
- “China will strictly protect intellectual property rights and treat all types of Chinese and foreign enterprises registered in China as equals.”
He was quick to point out that China is a big market:
- “[The] Chinese market is vast and its industries are moving from the low-end to the middle and high-end, which contains huge business opportunities.”
Get smart: Top officials are quite keen to attract foreign investment – that attitude will open the door for plenty of foreign companies.
Gov.cn:Premier Li: High-tech cooperation brings high value-added returns
6.China doesn’t want to import a lot of grain
Yesterday, the government released a white paper on food security.
The paper projected a rise in medium- to long-term grain demand (SCIO 2):
- “Per capita grain consumption and demand will drop slightly, but the consumption… as feed for livestock and… industrial purposes will continue to rise.”
- “Total grain consumption will increase.”
It also enumerated the many challenges facing grain production, including:
- Continuously rising costs
- Poor infrastructure
- Limited resource and environmental carrying capacity (RECC)
- Insufficient capabilities to prevent disaster
The big question: Will China allow more grain imports to meet its supply challenges?
The big answer: Probably not.
That’s according to Zhang Wufeng, head of the National Food and Strategic Reserves Administration (Gov.cn):
- “We must hold the rice bowl firmly in our hands and fill it with even more Chinese grains.”
- “The Chinese government has established a national strategy on food security featuring self-sufficiency based on domestic grain production, guaranteed food production capacity, moderate imports, and technological support.”
Get smart: This white paper is likely not the last word on China’s approach to grain imports. The definition of “moderate imports” will be hotly debated.
7.NPC schedules session for next week
On Monday, the legislature (National People’ Congress Standing Committee) scheduled its next session to run from October 21 to 26.
The meeting will review several draft laws, including:
- A draft of the Encryption Law
- A draft section on marriage and family of the Civil Code
- A draft revision of the Forest Law
- A draft of the Community Corrections Law
- A draft of the Biosecurity Law
They will also deliberate draft revisions to:
- The Minors Protection Law
- The Law on the Prevention of Juvenile Delinquency
- The Archives Law
That’s not all (Xinhua):
- “At the session, a draft decision on the National Supervisory Commission’s formulation of supervision regulations will also be reviewed.”
- “Lawmakers will consider a report on the administration of state assets in 2018, a report of the Supreme People’s Court on strengthening criminal trials and a report of the Supreme People’s Procuratorate on public interest litigation, among others.”
Get smart: This means that the Central Committee’s long-awaited Fourth Plenum, scheduled for this month, will not start until October 27 at the earliest.
CPC People:栗战书主持召开十三届全国人大常委会第四十一次委员长会议 决定十三届全国人大常委会第十四次会议10月21日至26日在京举行
Xinhua:China’s top legislature schedules bi-monthly session