Driving the Day
1. Fourth Plenum shows how Party sees its job
The Fourth Plenum concluded on Thursday with the adoption of the “Decisions on Some Major Issues Concerning How to Uphold and Improve the System of Socialism with Chinese Characteristics and Advance the Modernization of China’s System and Capacity for Governance.”
Pro Tip: Those in the know are already referring to it by its acronym – DoSMICHtUaItSoSwCChaAtMoCSaCfG.
The full text of the decisions has not been released yet, but a communiqué released Thursday evening gives the outline of the document.
The document discussed 13 aspects of governance. We’ve done you a favor and translated them from Party-speak:
- Upholding the leadership of the Party
- Ensuring that the people have a say in governance
- Ensuring that governance is law-based
- Improving the government’s structure
- Promoting economic development
- Promoting socialist culture
- Ensuring that the basic needs of the people are met
- Ensuring social stability
- Improving environmental protection
- Strengthening the armed forces
- Improving “One Country, Two Systems”
- Improving foreign policy
- Improvingthe systems for policing the Party and government
Watch out: The English version of the communiqué released by Xinhua does not accurately reflect the Chinese version.
Get smart: If you want to understand how the Party conceives of its job, this is a pretty good outline.
Get smarter: The communiqué offers few specifics on any of the above. But the text of the final decisions likely will have important details about how the Party will seek to achieve these goals in practice.
Driving the Day, Cont’d
2.Fourth Plenum offers nothing new on economy
One of the many items on the agenda at the Fourth Plenum was the Party’s approach to economic policy.
The brief discussion of economic development in the communiqué does notsignal any change of direction. Instead it reiterates the core tenants of economic policy under Xi, including:
- The state-owned economy will continue to remain a key pillar.
- But the private sector will also be “encouraged, supported, and guided.”
- Markets will play a “decisive” role in allocating resources.
- Supply-side Structural Reform is the dominant economic policy framework.
What does that all mean? You can expect the following:
- Continued efforts to create mammoth SOEs in key industries
- More incremental, market-oriented reforms
- A sustained focus on de-risking the financial system and controlling leverage
- Significant government support for “strategic” industries
Get smart: As we said in entry #1, without seeing the full text of the decisions, it’s too early to know exactly how policy may evolve coming out of the plenum. Stay tuned.
Driving the Day, Cont’d
3. Meet your new Central Committee members
In the lead-up to the plenum, there was a lot of chatter about a possible leadership reshuffle.
We told you not to believe the hype (seeOctober 28 Tip Sheet).
In the end, no big changes came to pass.
However, two alternate members of the Central Committee were promoted to full members.
- Ma Zhengwu, chairman of China Chengtong Holdings Group Ltd.
- Ma Weiming, director of the Institute of Power Electronics Technology at the Naval University of Engineering
They take the place of:
- Liu Shiyu, former chairman of the China Securities Regulatory Commission, who was removed from due to corruption
- Zheng Xiaosong, former director of the Macau Liaison Office, who died in October 2018
Get smart: The Mas’ promotions were no surprise. Alternates are ranked in order of how many votes they received during the elections for the Central Committee at the Party Congress. Alternates with the highest number of votes are first in line for promotion to the Central Committee.
Fun fact: Xi Jinping received the FEWEST number of votes of all Central Committee alternates at the 15th Party Congress in 1997.
4.The fog of (trade) war
We are back on the trade war rollercoaster.
A Bloomberg piece on Thursday made waves bysuggesting that Chinese officials think that a long-term trade deal can’t get done (see link).
We agree that the really thorny issues are being mostly punted on.
But the Chinese side is by no means backing away from negotiations.
Here’s where things stand, according to what we are hearing and reading:
First, the phase one deal is close to being done – it’s going to happen.
While we don’t always put stock in US President Donald Trump’s tweets, this one seems to hold water:
- “Trump said the search is ongoing for a new location for Xi and him to sign the deal.”
Secondly, there also appears to be appetite on both sides for a subsequent deal – but it won’t be a true “phase 2” that moves on to additional, more difficult agenda items.
- We call it a “phase 1.5” deal.
- It will be primarily focused on deepening and extending the agreements in phase 1, not tackling hard new stuff.
But agenuinely robust phase 2 deal looks dead in the water.
What to watch: The chief negotiators are set to have another call on Friday.
Bloomberg:China Doubts Long-Term Trade Deal Possible With Trump
5.Another small bank is in trouble
Customes of Henan’s Yichuan Rural Commercial Bank are worried.
That’s because their are rumors that the bank’s chairman hadrun away.
Some context: The bank’schairman – and biggest shareholder – was recently put under investigation by the Party’s local discipline inspectors for alleged corruption.
- Long lines started to form on Tuesday as customers sought to withdrawtheir deposits.
That prompted local branches of the central bank (PBoC) and banking regulator (CBIRC) to tell depositors that the government had their backs.
Get smart:Thechallenges for China’s small banks won’t go away any time soon.
Get smarter: Authorities will go all out to address each instance of bank trouble – and as long as they stay isolated it will be manageable. But if lots of small banks blow up at the same time….that’s what’s called a financial crisis.
6.P2P lending dealt another blow
On Thursday, Bloomberg scooped that financial regulators in Shanghai have ordered more than 40 peer-to-peer (P2P) lenders to cease operations.
- “Some of the nation’s biggest platforms including Ping An-backed Lufax and Dianrong.com have been told in recent meetings with Shanghai’s financial services bureau to stop issuing new products and to wind down existing peer-to-peer lending services.”
Shanghai’s P2P lenders were given verbal orders (Bloomberg):
- “Shanghai’s Internet finance industry body on Wednesday denied a media report saying the city’s P2P platforms signed an agreement to terminate their businesses.”
- “The regulator verbally communicated with the platforms without giving a deadline.”
Some context: Nationwide, more than 1,200 P2P platforms have ceased to exist so far this year alone.
More context: The regulatory crackdown on P2P lending started in 2017 when strict registration requirements were introduced.
The bottom line: Stop us if you’ve heard this one before –financial de-risking is still a top priority.
Bloomberg:China’s Financial Hub Moves to Shut Down P2P Lending
7.China rolls out5G
Yesterday, Vice Minister of Industry and Information Technology Chen Zhaoxiong announced the official rollout of 5G.
At the launch ceremony, Chen promised that by the end of the year China will:
- Have 130,000 5G base stations up and running
- Provide full coverage in major cities, including Beijing, Shanghai, Hangzhou, and Guangzhou
Attending the ceremony were senior executives from the three big mobile operators – China Mobile, China Unicom, and China Telecom.
- They touted their brand new 5G service packages, which will go for as low as RMB 128/month for 30 GB.
- China Mobile also promised to offer it’s 5G services in over 50 cities this year.
China Telecom President Ke Ruiwen said this will be huge (WaPo):
- “This 5G technology is part of an overall, far-reaching revolution, and it will bring brand-new changes to the economic society.”
What’s so great about 5G?
- “To describe the difference in speeds, analysts say that 4G is like a skateboard while 5G is like a rocket ship.”
Our thought: Fly us to the moon!
Get smart:5Gwill enable development of other key technologies– including digital finance, intelligent manufacturing, the internet of things, artificial intelligence, and big data.
Washington Post:China launches 5G service, showing that the U.S. won’t hold it back
Caixin:China Launches 5G with Monthly Plans as Low as $18
China debuting 5G service 2 months ahead of schedule
8.Close, but no sitar on RCEP negotiations
China’s having a tough time finalizing trade deals.
Problems with the US and EU are well documented. ButBeijing is now encounteringresistance on what was meant to be a slam dunk:
- The Regional Comprehensive Economic Partnership (RCEP)
Some context: The RCEP is a proposed free trade agreement between ASEAN, China, Japan, South Korea, Australia, New Zealand, and (the antagonist of our story) India.
Member countries were expected to announce a preliminary agreement at the East Asia Summit on November 4 in Bangkok.
- But New Delhi has raised last minute concernsand demanded a number of revisions to the original terms.
Analysts predict that progress will still be made at the Bangkok summit, but that final details will need to be hammered out in the coming months.
So that’s annoying.
Get smart: As the US continues to throw up tariffs, China has become more focused on expandingtrade in its own backyard.
Bloomberg:Last-Minute India Demands Jeopardize 16-Nation Asian Trade Pact