Driving the Day
1. Economic anxiety growing in Beijing
On Tuesday, Premier Li Keqiang, along with other top officials, sat down with economists and businessmen to discuss the economy.
Li acknowledged that things don’t look good (Gov.cn):
- “The current external environment [has become] more complex and severe, with increasing downward pressure on the domestic economy, rapidly rising prices of pork and other products, and increasing difficulties in the business operations of companies.”
Li hinted that the government could do more to stabilize growth:
- “[We must] make better use of counter-cyclical adjustment tools for macro policies.”
- “[We must] improve fiscal, monetary, employment, regional, and other policies and adjust them appropriately in a timely manner.”
But Li’s main focus remains on helping small businesses:
- “[We must] strengthen support for the real economy, especially for small and micro-enterprises and private enterprises, and boost market confidence.”
- “[We must] break the hidden barriers for enterprises’ investments and development.”
Get smart: Officials in Beijing are increasingly worried about the economic slowdown.
Get smarter: For now, we still don’t see any major shift in policy.
What to watch: The annual Central Economic Work Conference is about a month away. If we are going to see a policy shift, it will be communicated then.
2.CBIRC tells everyone to chill
On Tuesday, three top-ranking officials from the China Banking and Insurance Regulatory Commission (CBIRC) said that the agency will tighten liquidity risk management for small banks.
The comment was prompted by runs at two small regional banks in the space of two weeks:
- Yichuan Rural Bank in Henan
- Yingkou Coastal Bank in Liaoning
Some context: The government takeover of Baoshang Bank in May, followed by liquidity crunches at a number of regional banks, have triggered fears about the health of China’s small- and medium-sized lenders.
Liu Rong, deputy head of the CBIRC’s city commercial banking department, explained (Reuters):
- “The banking industry is a very sensitive industry, which requires us to improve the mechanism of liquidity risk management, and fend off systematic financial risks.”
Liu urged at-risk banks to get their houses in order by:
- Raising funds through capital replenishment
- Strengthening corporate governance
Liu also hinted at more drastic measures like:
- Mergers and acquisitions
Get smart: China’s banking sector is going through a painful, but necessary transition. When it’s over the wheat will (hopefully) be separated from the chaff.
3. Liu He pushes for further SOE reform
On Tuesday, Vice Premier Liu He chaired the third meeting of the State Council Leading Group on State-Owned Enterprise (SOE) Reform.
Liu started by praising officials for the improvements made in recent years.
But then he got down to business:
- Liu tasked policymakers with drafting a three-year action plan for SOE reform with “clear targets, timelines, and road maps.”
Some context: This course of action was decided at last month’s Fourth Plenum.
The goal is to make SOEs more:
Get smart: Progress on SOE reform has been sloooooow under Xi Jinping. That’s because to really reform SOEs, the Party needs to let go of control – something not in the Party’s DNA.
Get smarter: What Liu He means by SOE reform is not whatWestern economists mean by SOE reform.
4. Prosecutorspromise to levelplaying field for private enterprises
On Monday, the Supreme People’s Procuratorate (SPP), China’s top prosecutorial body, held an open house of sorts for representatives of private enterprises.
The mission: To get feedback on how the state can make life easier for private business.
According to Procurator-General Zhang Jun(Yicai):
- “[The SPP is aiming to] comprehensively clean up the judicial interpretation, and abolish all the unequal provisions concerning private enterprises according to law.”
Some context: Currently, state-owned enterprises (SOEs) enjoy certain privileges that private enterprises do not. For instance, private firms are much more likely to be prosecuted by the SPP – which can entail pre-trial imprisonment and property confiscation.
Now the SPP is looking to even the odds.
According to Zhang, soliciting opinions from private industry representatives and entrepreneurs is key to the process. That’s why the SPP is looking to:
- “Seriously study and solve the problems raised by entrepreneurs, and…promote the transformation of practical problem-solving into procuratorial policies, normative documents, and judicial interpretations”
Get smart: China is desperate to find non-stimulus-based means of boosting growth and supporting private enterprises. Revamping overly onerous legal practices is a good way to do that.
Get smarter: SOEs still enjoy lots of unfair advantages.
5.SAMR promises safer food
On Tuesday, Sun Meijun, deputy director of the State Administration for Market Regulation (SAMR) briefed reporters on the the newly-revised implementation rules for the Food Safety Law (FSL).
Some context: The revised rules take effect on December 1. This is their first update since the FSL was passed in 2009.
Sun said that the new rules will increase punishments for food safety violations.
- Legal representatives and senior executives at non-compliant companies could face fines equal to ten times their annual salaries.
- A blacklist will be established for both individual and institutional violators.
- Violators will be penalized through the corporate Social Credit System’s unified punishment mechanism.
Sun also addressed the current pork crisis. SAMR will step up efforts to crack down on:
- Unsafe pork entering the market
- Business behaviors that artificially inflate the price of pork
Get smart: SAMR is not only in charge of ensuring pork products are safe but also responsible for keeping them affordable.
Gov.cn: China to strengthen punishments for food safety violators
6.Party updates patriotic education for the internet age
Patriots get your boots on.
Yesterday, the Central Committee and the State Council dropped anoutline forimplementing “patriotic education.”
At its core, patriotic education aims to equate the Party with the country (Xinhua):
- “The essence of patriotism is to adhere to the high unity of patriotism, love for the Party, and love for socialism.”
The goal: To instill the Party’s brand of patriotism in China’s youth.
There are some hip new measures to get the kids on board:
- “We will vigorously develop and actively promote online literature, animation, audiobooks, online games, mobile games, short videos, etc., which embody the essence of Chinese culture and are full of patriotism.”
The internet is a particular focus:
- “We should strengthen the construction of patriotic network content… so as to make patriotism fillcyberspace.”
Get smart: Patriotic education, begun in the early 1990s, has been incredibly effective in bolstering Party legitimacy.
7.Liberal economists have the premier’s ear
It’s an important time of the year for economic policymaking:
- Officials are debating economic policy in the run up to the Central Economic Work Conference, which will be held next month.
That is why Premier Li Keqiang is soliciting the opinions of economists and businessmen (see entry #1).
On Tuesday, Li invited three economists to give policy suggestions:
- Cai Fang – Vice president of the Chinese Academy of Social Sciences
- Liu Qiao – Dean of the Guanghua School of Management at Peking University
- Lu Ting – Chief China Economist at Nomura
What these three have in common 1: They are strong advocates for market-oriented reforms.
What these three have in common 2: They all got their PhDs in the US.
Get smart: Despite the conservative tilt of the Xi administration, on some key issues, it’s still liberal, Western-educated economists that have the ear of top economic policymakers.