Driving the Day
1. China says that US agreed to roll back tariffs.
We may have a big breakthrough in the trade negotiations (Bloomberg):
- “China and the U.S. have agreed to roll back tariffs on each other’s goods in phases as they work toward a deal between the two sides, a Ministry of Commerce spokesman said.”
- “’In the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,’spokesman Gao Feng said Thursday.”
- “’If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,’Gao said.”
Get smart: If this is true, it represents an important de-escalation.
Get smarter: The US has yet to confirm this. And Gao’s statements are a bit thin on details. So it remains to be seen how meaningful this is.
Bloomberg: China, U.S. Agree to Phased Tariff Rollback if Deal Reached
2.FSDC looks to shore up small banks
The Financial Stability and Development Committee (FSDC) met on Wednesday.
Some context: The FSDC was created in 2017 to help coordinate financial and economic policy. It’s a supra-ministerial body led by Xi Jinping’s right-hand man on the economy, Vice Premier Liu He.
Top of the agenda: The Fourth Plenum Decision, of course.
- “[We shall] take the study and implementation of the spirit of the Plenum as an important political task.”
Liu said that means improving the role of the central bank:
- “[We should attach] great importance to building a modern central bank system.”
What to watch: The Party has yet to define what a “modern central bank system” is. We suspect the ability to maintain financial stability and provide adequate financial infrastructure will be at its heart.
More immediately, Liu wants officials to address the growing number of instances of instability in China’s small banks:
- “At present, we must focus on supporting small and medium-sized banks to replenish capital through multiple channels, optimize capital structure, and enhance the ability to serve the real economy and resist risks.”
Get smart: Regulators are not being passive in the face of mounting problems at China’s small banks.
Further reading: The Bank for International Settlements (BIS) has a good summary of the functions and responsibilities of modern central banks (see link).
3. Xi does business with Macron
Yesterday, Xi Jinping and French President Emmanuel Macron held talks in Beijing.
Xi seemed pleased:
- “Our frank, in-depth and fruitful discussions on many topics of common concern have deepened mutual understanding and trust.”
Xi will have liked this: The two leaders agreed to align China’s Belt and Road Initiative (BRI) with the EU’s Euro-Asian connectivity strategy.
Macron said Chinese investment is welcome:
- “[France and the EU should] open [our] markets to China [and] welcome investment from Chinese enterprises.”
They backed up their words with some deals (Politico):
- “Overall, Paris and Beijing signed 40 bilateral contracts in the fields of aviation, agro-food, energy and sustainable development, tourism, health, finance and digital.”
- “Xi said they amounted to a total of $15 billion, while the Elysée refused to give an overall estimate of the value.”
More importantly: The two sides reiterated their commitment to the “irreversible” Paris climate agreement.
Get smart: China is seeking to position itself as a partner to the EU on those issues where the EU and US are at odds, such as climate, Iran, and WTO reform.
Xinhua: Xi Focus: Xi holds talks with Macron, pledging for enhanced China-France ties
SCMP: French President Emmanuel Macron tells Chinese leader Xi Jinping talks are needed to calm Hong Kong situation
Politico:Macron ends China visit with slew of trade deals and green pact
4.Han Zheng tells Carrie Lam to get things under control
On Wednesday, Executive Vice Premier Han Zheng met with Hong Kong Chief Executive Carrie Lam in Beijing.
Some context: Han is the top official overseeing Hong Kong policy.
More context: Lam was called to Beijing unexpectedly to attend a meeting of the leading small group for the Greater Bay Area Initiative (see next entry).
Top of the agenda: The Hong Kong protests.
Han got straight to the point (NYT):
- “’This extreme violence and destruction would not be tolerated or accepted by any country or society in the world,’ Mr. Han told Mrs. Lam.”
Lam said she’s on it (Xinhua):
- “Lam said the HKSAR government is firmly determined to end violence and chaos, restore social order in Hong Kong as soon as possible.”
Han also had some advice for Lam:
- “The central government firmly supports the HKSAR government in adopting more active and effective measures to address people’s livelihood issues, particularly the housing and employment issues for middle- and low-income families and young people.”
Get smart: Marxism runs deep in China – especially amongst its leaders. That means they tend to see all problems as economic ones.
Get smarter: The Hong Kong protests are about more than economics.
5.Written in the doc of the Bay
On Wednesday, Executive Vice Premier Han Zheng presided over a meeting of the Greater Bay Area Leading Small Group (GBALSG).
Some context: The GBA Initiative seeks to better integrate Guangdong with Hong Kong and Macau. The GBALSG first met in August 2018. Wednesday’s meeting was the group’s third.
Wednesday’s meeting focused on the Fourth Plenum Decision.
Unsurprising development: Beijing is looking to exert stronger control over Hong Kong.
According to the Plenum Decision, the Party wants to:
- “Improve the appointment and removal…mechanism of the central government for the chief executive and key officials.”
- “Improve the legal system…to safeguard national security, and support the Special Administrative Regions to strengthen law enforcement.”
- “Improve the system of responsibility of the chief executive…to the central government.”
The meeting also approved a slew of economic measures designed to tie Hong Kong more closely to the mainland, including:
- Improving financial flows between Hong Kong and the mainland
- Providing cross-border financial products for Hong Kong and mainland residents
- Allowing Hong Kong residents to buy homes in the GBA
Get smart: Beijing’s response to the protests in Hong Kong is to try and speed up the city’s absorption into the mainland.
Get smarter: Efforts to integrate Hong Kong with the mainland may inflame tensions, not reduce them.
6.China kicks off 6G RD
Avid Tip Sheet readers know that the Fourth Plenum decided to continue the state-led approach to the development of core technologies (see yesterday’s Tip Sheet).
What that means: Yesterday, the Ministry of Science and Technology (MoST) announced that they, together with three other ministries, are officially kicking off research and development into 6G.
What the government’s doing:
- Establishing a government task force to coordinate and push forward 6G development
- Establishing an expert group comprised of academics and industry veterans to lead the technical research
That second group seems like a good idea. Especially considering that Vice Minister of Science and Technology Wang Xi admitted that the government doesn’t really know what it’s looking at:
- “At present, global 6G technology research is still in the initial stage of exploration and the technical route is not clear.”
Get smart: For new technology, the government’s role is like that of a project manager – coordinating resources, getting everyone onboard, and making sure things move forward.
7.NDRC revises industry catalogue
On Wednesday, the macroeconomic planner (NDRC) issued the 2019 version of the industrial restructuring catalogue.
The catalogue groups 1,477 items in 48 industries into three categories:
- 821 encouraged items will be supported by preferential policies such as tax breaks, subsidized land, and cheap financing.
- For 215 restricted items, no new capacity will be allowed and existing capacity must be upgraded.
- 441 obsolete items must exit the market in the near future.
Some context: The catalogue was first published in 2005, and later revised in 2011 and 2013.
More context: The newly-released catalogue went through a public commenting period that ended in May (see April 9 Tip Sheet).
Some of the more notable changes:
- 60 items were added to the encouraged list, including human resources, artificial intelligence, elderly and day care, and housekeeping.
- 17 items were added to the obsolete list, including mining.
Get smart: The government sees the catalogue as an important tool to upgrade China’s industrial structure.
8.RCEP to be signed in 2020
Yesterday, the information office of the State Council held a press conference to get everybody up to speed on the Regional Comprehensive Economic Partnership (RCEP) negotiations, which took place in Thailand this weekend.
Some context: RCEP includes the 10 ASEAN countries plus Australia, China, India, Japan, South Korea, and New Zealand. Negotiations began in 2012.
The big news: RCEP is set to be inked in 2020.
With one big caveat: India has dropped out.
Vice Minister of Foreign Affairs Le Yucheng doesn’t think that’s a problem (ST):
- “We are taking an open attitude. Whenever India is ready, it’s welcome to get on board.”
Vice Minister of Commerce Wang Shouwen said that trade with the RCEP countries is a big deal (SCIO):
- “Last year, China’s total trade volume was USD 4.6 trillion, of which the trade volume to these 14 countries exceeded USD 1.3 trillion.”
Wang was also quick to point out that the agreement covers more than just tariffs. It also includes sections on:
- Competition policies
- Government procurement
- Small and medium-sized enterprises
Get smart: RCEP is often derided as a “low-quality” agreement. But it will still facilitate trade and investment among member countries.
Get smarter: China is eager to diversify its trading relationships – and tie other regional economies closer to its own.
Straits Times:India rejects RCEP as 15 other countries look to sign trade pact in 2020