Driving the Day
1. Fourth Plenum starts Monday
Get excited comrades.
The Politburo met yesterday and announced the dates for the Fourth Plenum.
The big meeting will happen Monday to Thursday, October 28-31.
The venue – as always – will be the Jingxi Hotel in Beijing.
What’s so special about the Jingxi? Apart from being famous for its home-made yoghurt, it is managed by the PLA, and is considered Beijing’s most secure hotel (SCMP).
The agenda: As regular Tip Sheet readers know, the plenum will be on modernizing China’s governance system and capacity for governance (see October 23 Tip Sheet).
Other than that, there are no real details.
We’ll put money on this: The meeting will reemphasize the centrality of the Party in government – and society.
2.Property developers cut prices as pain deepens
Chinese property developers are struggling.
That’s been evident for some time, as policymakers refuse to relax tight restrictions on property purchases and developer financing.
Some context: Chinese leaders often use the property market to goose growth. But with high prices becoming a social issue, officials have stood their ground on tight policy – with the Politburo explicitly stating in July that it will not use real estate as a tool to boost growth.
As aresult, developers are slashing prices (Caixin):
- “Sunac China Holdings Ltd…has reduced prices for properties in a development in Tianjin…by 30% in the past two months, according to one homeowner who bought his apartment in September.”
- “Other developers including China Evergrande Group, China Vanke Co. Ltd. and Country Garden Holdings Co. Ltd., are also offering big discounts in some cities to clear unsold stock.”
Property companies are getting squeezed on both sides:
- “Developers’ growing thirst for price cuts is a result of tighter cash flow.”
- “On the other side, builders are being squeezed by continued controls on their ability to finance and refinance their borrowings.”
Get smart: Instead of acting as a traditional economist ballast, the property market will continue to drag on growth.
Caixin:More Property Developers Cut Prices to Raise Cash as Demand Flags
3. PBoC ups liquidity, we yawn
China’s central bank(PBoC) is upping liquidity to stave off a cash crunch as Q3 tax payments loom (Bloomberg 1):
- “The People’s Bank of China net injected 560 billion yuan ($79 billion) through reverse repurchase contracts in the four sessions through Thursday, exceeding the amount it granted during tax season last year.”
Our take: These are technical moves to get through the quarter-end hump – not stepped up economic support.
It’s not just the PBoC (Bloomberg 2):
- “The Federal Reserve increased the sizes of both its overnight and term repurchase agreement operations to smooth out potential volatility in the funding markets at the end of the month, with signs of pressure already emerging.”
- “The New York Fed will offer at least $120 billion of financing at its overnight repo operation as of Thursday, up from $75 billion, according to its website.”
The bottom line: Central banks have to make small technical adjustments all the time. Investors would be wise not to overread the PBoC’s moves, especially at seasonal choke points.
Bloomberg:China Adds Most Cash Since January This Week Amid Tax Season
Bloomberg:New York Fed Boosts Repo Operations to Quell Month-End Pressures
4.The EU plays hard to get
On Thursday, a delegation led by EU diplomatic chief Federica Mogherini sat down to talk turkey with high-ranking Chinese officials.
First thing on the docket: The EU-China Comprehensive Agreement on Investment (CAI).
Some context: In 2012, the EU and China agreed to work toward a trade agreement covering, among other things, greater market access for EU companies in China. The two sides are aiming to ink the deal by the end of next year.
But things have not gone well:
- Progress has been painfully slow.
- Chinese trade and investment practices have increasingly ruffled European feathers.
Premier Li Keqiang was eager to emphasize China’s commitment to opening (SCMP):
- “We hope [the EU] will continue to support multilateralism and free trade, and [the EU and China will] treat each other with mutual respect”
But Brussels is going to make Beijing sing for its supper.
William Fingleton, the delegation’s spokesman, summed up the EU position:
- “There certainly seems [to be] political ambition on both sides to get it done.”
- “But we have always maintained that we are not interested in a rushed agreement but in a good agreement.”
Get smart: The EU, like many others, is suffering from promise fatigue. The onus is on China to prove that it’s turned the corner on trade and investment.
SCMP:European Union ‘won’t rush into trade deal’ with China
5.World Bank gives China the thumbs up
On Wednesday, the World Bank released Doing Business 2020 – its annual assessment of the business environment in 190 economies.
Some context: The report documents reforms implemented and evaluates regulations enhancing or constraining business activity for small and medium-sized enterprises.
The study has been all the rage in Beijing.
Why’s that? Because China killed it:
- China moved up from #46 to #31 in the rankings.
Just like last year, China is among the 10 economies whose business climates improved the most.
And it beat its neighbors:
- “With eight reforms, China improved regulation in most areas measured by the study and implemented the most reforms in the East Asia and Pacific Region.”
Specifically, China saw:
- “a notable improvement in the areas of dealing with construction permits, getting electricity, and resolving insolvency.”
Get smart: The government’s efforts in improving the business environment are slowly but surely making a difference.
6.Ping An and CNOOC get new bosses
As we highlighted yesterday, senior financial folks in China are playing a game of musical chairs.
Today, Caixin highlights two more important moves – in finance and beyond.
- “Ping An Insurance (Group) Co. of China Ltd. promoted Senior Vice President Xie Yonglin to president at a board meeting on Thursday.”
- “Xie will officially replace Ren Huichuan upon approval from the country’s top insurance regulator…the conglomerate said in the filings, adding that Ren has been appointed its vice chairman.”
And turning to the energy sector:
- “Wang Dongjin, vice chairman at [China National Offshore Oil Corp. (CNOOC)], is being promoted to chairman, filling a position that has remained vacant for nearly two months.”
- “Wang is to replace Yang Hua, who resigned as CNOOC’s chairman in early September when he was made chairman at…Sinochem Group.”
Why are we telling you this?
Simple. In China, personnel is policy – so we stay on top of these moves.
Get smart: If you need to keep tabs on the stakeholders in your industry give us a buzz. We’ll keep you up to the minute on who matters.
7.Trade negotiations with US remain murky
It’s your favorite time of the day – the latest trade war update.
As reporting around negotiations continues to roll in, one thing is clear:
- There is still a lot of confusion about what exactly China will commit to.
Here’s what it seems China is willing to do in the short-term:
- “China aims to buy at least $20 billion of agricultural products in a year if it signs a partial trade deal with the U.S.”
- “That would take China’s imports of U.S. farm goods back to around 2017 levels, before Trump began a tit-for-tat tariff feud with Beijing.”
Getting back to the 2017 level isn’t anything to write home about. And here’s the kicker:
- “In the second year of a potential final deal, purchases could rise to $40 billion to $50 billion. But that would depend on Trump removing remaining punitive tariffs.”
Industry folks don’t see a lot of clarity:
- “’We are still in the same position we were in …when news of the partial agreement was first announced, where we need confirmed details to adequately respond,’ said Wendy Brannen, a spokeswoman for the American Soybean Association.”
What to watch: Negotiations continue via phone on Friday.
Bloomberg:U.S. Farm Sales to China May Hit Pre-Trade War Level by Election
8.More on US-China
US Vice President Mike Pence gave another (sort of) tough China speech on Thursday in Washington.
We say “sort of” because Pence dialed back the intensity a bit from a similar speech he delivered last year.
Here’s the Cliffs Notes of the address:
- President Trump has remade the US-China relationship in the most amazing, perfect way.
- The phase one trade deal is likely to get done – both sides are keen to make it happen.
- The US still has a laundry list of complaints – from IP theft to increased military activity – and China isn’t making progress on addressing these issues.
- The US administration supports the Hong Kong protesters.
- Nike and the NBA should be ashamed of themselves for kowtowing to the Communists – as should other MNCs.
- All that said, the administration doesn’t want to decouple from China– it actually wants more engagement (!).
The view from China: Thus far the official response has been muted (Xinhua).
Get smart: Chinese authorities might take short-term solace in Pence’s somewhat dialed-back rhetoric – as the most forceful language was aimed at US companies, not China.
Get smarter: Longer term, Chinese leaders are under no illusions that we have entered a new era of strategic competition.
Bloomberg:Pence Faults China Over Hong Kong But Urges Trade Engagement
White House:Remarks by Vice President Pence at the Frederic V. Malek Memorial Lecture