Driving the Day
1. State Council looks to boost investment spending
Top officials are increasingly anxious about the economy – you know that, because you read yesterday’s Tip Sheet.
So itcomes as no surprise that Wednesday’s State Council meeting focused on boosting investment spending.
The government will allow more debt financing for infrastructureprojects (Gov.cn):
- “[We will] reduce the minimum capital ratio of projects related to ports and other shipping projects from 25% to 20%.”
- “[We will] reduce the minimum capital ratio of infrastructure projects investing in roads, railways, urban construction, logistics, and environmental protection…[but]by no more than 5 percentage points.”
Why that matters (Reuters):
- “Typically, infrastructure projects are financed by both equity and debt, but they need to meet a minimum equity ratio requirement prior to leveraging up through borrowing.”
There’s more (Xinhua):
- “For…projects [with government backing],…funds can be raised through the issuance of financial instruments, with their proportion being no more than 50 percent of the total amount.”
It’s no wonder the government is trying to boost infrastructure spending (Caixin):
- For H1 2019, infrastructure investment grew just 4.1% y/y – down from 7.3% growth in H1 2018, and21.1% in H1 2017.
Get smart: The government is still reluctant to unleash huge fiscal stimulus. But officials are clearlyfeeling that they should do more to cushion the slowdown.
Gov.cn: 李克强主持召开国务院常务会议 听取江苏响水天嘉宜化工有限公司“3·21”特别重大爆炸事故调查情况汇报和责任追究审查调查工作情况通报等
Xinhua: China to improve capital fund management of fixed-asset investment projects
Reuters:China lowers capital ratio requirement for some infrastructure projects
Caixin:In Depth: The Inconvenient Truth About China’s Investment Funk
2.Data dump – monthly econ numbers
Another day, another terrible data print.
On Thursday, it was the monthly econ data for October that disappointed (Straits Times):
- “Industrial production rose 4.7 per cent year-on-year in October…below the median forecast of 5.4 per cent growth.”
- “Retail sales rose 7.2 per cent year-on-year in October, missing expected growth of 7.9 per cent and matching the more than 16 year low hit in April.”
Oof. That’s not good.
And things weren’t any better on the investment side:
- Overall fixed asset investment (FAI) slowed to 3.4% y/y growth – down from 4.7% in September, and the slowest pace this year.
- Property FAI eased to 8.8% y/y growth – down from 10.5% in September, and the second slowest rate this year.
- Infrastructure FAI dropped to 2% y/y growth – down from 6.3% in September and the slowest rate this year.
In case it’s not obvious: Those are pretty terrible numbers.
Get smart: No wonder the State Council is looking to juice investment (see previous entry).
Get smarter: It will be several more months before we see any tangible improvement in FAI spending.
Straits Times:China’s economy grinds lower as October indicators miss forecasts
3. Regulators set to ease up on SME loan targets
Financial regulators are set to give banks a break.
Some context: For the past 18 months, officials have been pressing banks hard to channel funds to small private businesses.
Regular Tip Sheet readers are well aware of that policy. Bloomberg has the latest numbers:
- “Chinese regulators on Tuesday revealed that its big five state-owned banks…have increased lending to small business by 48% in the first nine months of the year.”
That might seem like a whole lot of lending to SMEs. But while the growth rates are big, they are coming off of a very small base.
What’s more, those rates aren’t sustainable, so regulators are looking for a more nuanced approach:
- “’Going forward, we want to shift away from growth targets to more comprehensive measures for evaluating banks and have differentiated requirements for different banks,’ said Li Junfeng, the director of the inclusive finance department at the China Banking and Insurance Regulatory Commission.”
Why the change?
- “The shift signals an effort to ease the burden on banks as they navigate slowing economic growth.”
That’s certainly one reason, as banks are running into plenty of their own problems.
Get smart: Another reason is that the policy hasn’t done much to help small businesses or the broader economy.
Bloomberg:China Moves Away From Hard Lending Targets at Biggest Banks
4.Tales from the Crypto
Halloween may be behind us, but that hasn’t stopped China’s crypto czar from using spooky imagery to highlight the need for tighterregulation.
Speaking at a summit in Beijing on Sunday, Mu Changchun, director-general of the central bank’s Digital Currency Research Institute, said that a suitable regulatory framework should be put in place prior to the bank’s planned cryptocurrencyrollout.
Mu said that dealing with crypto was like handling “a monster” (Caixin):
- “We need to ‘dismantle’ the monster with the same rules or regulations, but we also need to strike a balance between financial regulation and innovation protection.”
We think you’ll agree he nailed the metaphor.
Mu doubled down on his call for oversight at an event in Singapore on Tuesday, using the term “controllable anonymity” to characterize China’s approach to cryptocurrency.
- Mu said the central bank wanted to respect user privacy while also keeping tabs on possible illegal transactions.
Get smart: Unlike mostenthusiasts, China wants a cyrptocurrencythat is well regulated and centrally controlled.
Related: Over the past two days, the central bank has been shooting down rumors that its cryptocurrency is already commercially available for some banks. Such premature rumors will only reinforce officials’ desire fortight control.
5.More winter curtailment plans released
On Tuesday, the Ministry of Ecology and Environment (MEE), together with other central government agencies and provincial governments, released action plans for fighting air pollution in the Yangtze River Delta andFenwei Plain regions this winter.
- The Yangtze River Delta (YRD) encompasses cities in eastern China like Shanghai, Wuxi, and Hangzhou.
- The Fenwei Plain (FP) is China’s coal and coking heartland that includes Shanxi, Shaanxi, and Henan provinces.
The big goal:
- The YRD region needs to reduce fine particle matter (PM 2.5) concentrations by 2% from the same period last year.
- The FP’s target is a 3% reduction.
Get smart: Those targets are less ambitious than the 4% reduction targets set for northern China (see October 18 Tip Sheet).
Get smarter: After the botched coal-to-gas switch in the winter of 2017-2018, officials are trying to be more geographically targeted with this policy.
6.Long Time, No Xi
Xi Jinping touched down in Brazil on Tuesday for the 11th BRICS summit in Brasilia.
He made time for a one-on-one meeting with his frenemy, Brazilian president Jair Bolsonaro.
Some context: Xi and Bolsonaro last saw each other just over two weeks ago during the latter’s visit to Beijing.
The two agreed to deepen cooperation, but Bolsonaro steadfastly refused to sign on to China’s Belt and Road Initiative (see October 28 Tip Sheet).
More context: As a candidate, Bolsonaro was a vocal critic of China and even committed the cardinal sin of visiting Taiwan in February 2018.
This time, Bolsonaro sounded downright conciliatory(SCMP):
- “China is becoming more and more part of Brazil’s future.”
He also said he hopes that China and Brazil can expand and diversify trade relations.
Xi matched Bolsonaro’s diplomatic tone, expressing hope that Brazil and China would:
- “strengthen multilateralism and build an open world economy”
Then the two leaders signed a bunch of non-binding deals related to transport and investment.
Get smart: As demonstrated by the meeting, the allure of Chinese trade and investment is causing even erstwhile anti-China populists to play nice.
SCMP: China part of Brazil’s future, Jair Bolsonaro says as he and Xi Jinping sign transport and investment agreements
SCMP:China-basher or bridge builder? What can we expect when Brazilian President Jair Bolsonaro visits Beijing?
7.The Party gets serious about slandering heroes
On Tuesday, the Beijing office of the Cyberspace Administration of China (CAC) reprimanded news aggregator app Jinri Toutiao, which is owned by tech giant ByteDance.
The issue: Jinri Toutiao had allowed information that “slandered” comrade Fang Zhimin.
Some context: Fang is a revolutionary and military figure who led peasant uprisings in Jiangxi and Fujian in the 1920s and 1930s. He was executed by the Nationalists in 1935.
Some more context: The Heroes and Martyrs Protection Law came into effect on May 1, 2018, making it forbidden to engage in any “activities that defame heroes and martyrs or distort and diminish their deeds” (see May 2, 2018 Tip Sheet).
Regulators are not joking around(Caixin):
- “[CAC]ordered the company to scrub the information and punish those responsible.”
Moreover, officials want this episode to be a warning to others:
- “Other websites should learn from the incident, and strictly adhere to China’s Heroes and Martyrs Protection Law, as well as ‘guide correct public opinion and build a positive internet.’”
Get smart: National heroes and martyrs are an important part of the Party’s sanctioned history and a great source of its confidence and legitimacy. Xi Jinping is serious about having them respected.
Caixin: Bytedance’s News App Disciplined for ‘Slandering’ Communist Hero