Driving the Day
1. Fourth Plenum concludes in Beijing
The four-day Fourth Plenum of the Chinese Communist Party’s Central Committee concluded in Beijing on Thursday.
The official readout dropped just as the Tip Sheet was going to print.
But fear not gentle reader!
We’ll be burning the midnight butter lamps to bring you the hard-hitting analysis that you deserve in tomorrow’s Tip Sheet.
- Until then, you can tide yourself over with the press conference that will bededicated to the Fourth Plenum, scheduled for 10:00 am Beijing time on Friday.
Stay tuned for ourthrilling analysisof the Fourth Plenum coming to an inbox near you!
Driving the Day, cont’d
2.No pain, no grain
Don’t say we didn’t warn you…
Two weeks ago, the US and China claimed to be “on the same page” about a “phase one” trade deal (seeOctober 15 Tip Sheet).
The phase one deal was purposely designed to be inoffensive and mutually agreeable to both sides.
Only one problem…
So far, the two sides have still largelyfailed to agree.
People close to the negotiations have highlighted the massive agricultural purchases mandated by the US as the major sticking point.
- US President Donald Trump has stated that China could buy as much USD 50 billion of American ag products.
- That’s more than twice what China was buying from the US before the trade war began.
Chinese farmers are watching the situation nervously.
- Mass imports from the US could seriously depress local prices.
Get smart: If getting to “yes” on this minideal is proving to be this painful, the outlook for a comprehensive agreement looks essentially non-existent.
Saving grace: Xi and Trump were originally scheduled to sign thedeal at the APEC summit in Chile next month. That summit has now been cancelled, perhaps allowing a little more time to hammer out the details.
Nugget of folksy wisdom: Whether in agriculture or international trade–don’t count your chickens before they hatch.
What to watch: MofCom says the top negotiators will speak again by phone on Friday.
3. PBoC doesn’t follow the Fed, again
China’s central bank (PBoC) was eerily quiet on Thursday.
The PBoC did not:
- Conduct open market operations for the fourth straight day
- Inject bank liquidity via its targeted medium-term lending facility (TMLF)
- Cut rates on any liquidity instruments
Why are we telling you all the things the bank didn’t do?
- Because the US Federal Reserve cut rates for the third time this year on Wednesday.
The Fed’s continued easing would seem to create space for the PBoC to cut market rates as well, but the Chinese central bank has resisted, while also being fairly stingy with liquidity (Reuters):
- “Based on the timing of previous operations and statements from central bank officials, market players widely expected TMLF loans to be issued in late October.”
The debate: We hear a growing number of analysts arguing that the PBoC is making a mistake by keeping policy too tight – and not doing more to support the economy.
But as our regular readers know, financial officials are still highly focused on containing financial risks.
- That will mean slower economic growth. Get used to it.
Oh and by the by: The divergence in policy between the US and China – along with recenttrade optimism– has the CNY on track for its best month since January.
:China central bank surprises with no October TMLF loans despite weak data
4.Financialpersonnel reshuffle continues
The Trivium tally of bankers and financial veterans taking up positions in provincial government is now up to 15.
And that’s just in the past two years.
The latest personnel moves include the October appointments of:
- Wang Fengchao, former chairman of Sichuan Development Holding Co. Ltd. – to vice governor of Sichuan.
- Cai Dong, former vice president of Agricultural Bank of China – to vice governor of Jilin.
According to the SCMP, the recent appointments cover:
- “… at least 15 of China’s 31 provincial level governments.”
So what’s this all about? When financial risks are mounting, the central government traditionally sends senior finance officials to get the provinces’ books under control.
A prominent example of this is our favorite ex-banker and current silver fox Wang Qishan:
- “Then-president of China Construction Bank [Wang was appointed] vice-governor of Guangdong province in late 1997 to deal with a local banking collapse amid the Asian financial crisis.”
Get smart: It’s no coincidence that these appointments coincide with Beijing’s push to de-risk the financial sector and get on top of local government debt.
Get smarter: The fact that nearly half of China’sprovincial governments have gotten a finance expert on-boardedin the past two years speaks to the depth and breadth of thefinancial challenges.
What to watch: The recent issues cropping up at China’s small, local banks aren’t over. Expectmore surprises throughout2020.
5.MoE launches campaign to clean up K-12 books
Ever struggle with setting up parent controls on devices for your young kids?
Worry no more – the Chinese Communist Party is here to help.
With a notice dated October 15, the Ministry of Education (MoE) has launched a nationwide campaign to clean up books, magazines, and digital publications in K-12 libraries.
- Schools are asked to self-inspect their libraries “book by book” and get rid of the ones considered inappropriate or illegal.
- MoE and its local branches will also conduct random inspections.
What books could possibly be considered illegal or inappropriate in the libraries of K-12 schools?
Well, that includes anything that harms:
- National unity, sovereignty, security, or territorial integrity
- Social order and social stability
- The leadership of the Party, or goes against the Party’s policies
- Socialist core values
Get smart: Policies like this blur the line between parent control and Party control.
Get smarter: “Civic education,” for lack of a better term, starts at a very young age for China’s youth.
Public service request: If you have primary or middle school librarian friends in China, give them a hug.