Driving the Day
1. Li Keqiang preps for the CEWC
Top policymakers are debating economic policy ahead of December’s Central Economic Work Conference (CEWC).
Some context: The annual CEWC is the Party’s most importanteconomic policy meeting. It setspolicy priorities for the following year.
On Thursday, Premier Li Keqiang met with top officials from several provinces to hear their views on economic policy.
Li also offered some advice of his own.
He said that the hardest-hit regions need to be preparing contingency plans (Gov.cn):
- “Disparities are growing among different regions, [and] the growth rates of some local industries, investments, and other indicators havedeclined rapidly.”
- “[We must] be more prepared for difficult challenges.”
Li told officials to take advantage of the recent loosening of investment financing restrictions (see yesterday’s Tip Sheet):
- “[Local governments should] seize the opportunity to use the advanced approval of the special bond quota and lowered capital fund ratios.”
- “[They should also] promote effective investment…and promote early commencement [of projects].”
Get smart: Government officials continue to send the clear message that major stimulus is not coming, but to us it looks like a bit of a policy rethink is underway.
What to watch: The December CEWC will be a big deal.
2.Economic anxiety on the rise, redux
Here’s one clear sign that China’s economy remains under pressure – even government-linked think tanks are starting to predict sub 6-percet GDP growth in 2020 (SCMP):
- “The National Institution for Finance and Development (NIFD) on Wednesday said that China’s economic growth rate will slow to 5.8 per cent in 2020 from an estimated 6.1 per cent this year.”
Given the increased nervousness among economic officials, the central bank’s (PBoC) liquidity movements bear close watching.
Of particular note:
- The PBoC injected RMB 200 billion into the banking system on Friday.
- The injection was made via the medium-term lending facility (MLF).
Some details: The interest rate on the one-year MLF contracts remained steady at 3.25% — which officials cut by 5 basis points last week (see November 6 Tip Sheet).
Why it matters: The market was surprised by this injection, since it came so soon after the last one.
Get smart: Interbank interest rates had been rising since last week, so this move is aimed at addressing immediate liquidity pressure. But more frequent injections may soon become the norm.
SCMP:China think tank becomes first government-linked body to predict 2020 growth will drop below 6.0 per cent
CN Stock:央行意外新作2000亿元MLF 叠加定向降准释放400亿元
CNBC:China’s central bank injects 200 billion yuan to boost liquidity, keeps rate unchanged
3. Stats bureau to clean up local stats
On Thursday, National Bureau of Statistics (NBS) spokeswoman Liu Aihua confirmed that provincial governments willchange the way they collect and report economic data.
Some context: Local governments often inflate their growth numbers to score political points.
More context: (In)famously, the combined reporting of provincial GDP levels have far exceeded the NBS-calculated national total since 1985.
Even more context:
- Efforts to instill integrity into government numbers began six years ago, with a crackdown on false data from local officials.
- Last month, the NBS revised the Statistics Law to ramp up punishment for false reporting (see October 10 Tip Sheet).
Get smart: Aligning national and provincial measuring methods will improve consistency, but still won’t alleviate the widespread skepticism about the accuracy of official Chinese stats.
Get smarter: Better data makes for better policy – so Beijing should have a better basis for managing the economy.
4.Hong Kong protests rage, Beijing holds back
This week, the Hong Kong protests took a turn for the violent.
- On Tuesday, a running battle took place between police and protestors at the Chinese University of Hong Kong.
- On Wednesday, a 15-year-old boy was in critical condition after being hit in the head by tear gas canisters.
- On Thursday, a 70-year-old man died after being hit in the head with a brick thrown by a protester during a clash with police.
As the violence mounts, everyone wants to know – will Beijing send in the troops?
The answer: Not yet.
Speaking during at the BRICS Summit in Brazilon Thursday, Xi Jinping laid out the official line on the Hong Kong protests.Xi expressed support for (SCMP):
- The Hong Kong government in handling the situation
- The police in their use of force
- The judiciary in punishing violent protestors
He also condemned protestors for “trampling Hong Kong’s rule of law.”
Get smart: Xi’s rhetoric still frames the protests as a local problem. This suggests that Beijing isn’t planning to put boots on the ground.
Get smarter: Chinese leadership understands that direct intervention would cause more problems than it would solve.
Xinhua:Xi says HK’s most pressing task is to end violence, chaos and restore order
SCMP:Xi Jinping again backs Hong Kong police use of force in stopping unrest
SCMP:Hong Kong protests: elderly man hit on head by brick during clash in Sheung Shui dies while two others hurt in separate incidents remain in critical condition
SCMP:Chinese University: how a scenic seafront campus in northern Hong Kong became a fiery battlefield, scarred by petrol bombs and tear gas
5.Your semi-weekly painful trade war update
Friday marks a full month since the US and China said they were on the same page about a “phase one” trade deal.
So where’s the deal?
Two weeks ago, we highlighted US insistence that China make massive agricultural purchases as a potential stumbling block(see October 31 Tip Sheet).
Indeed, the scale of the deal is proving tough for Chinese negotiators to swallow:
- The Chinese side is hesitant to commit to a concrete dollar value on ag purchases.
But the US-side has also been holding up progress with some world-class dithering of its own:
- The American side has reportedly refused to confirm whether or by how much it will roll back existing tariffs on Chinese goods.
Luckily, US president Donald Trump took decisive action on Tuesday, saying that he would raise tariffs “very substantially” if the two sides didn’t reach a deal.
Thank God someone’s taking charge!
Get smart: We still think it’s likely that a phase one deal will happen, but it might be a while in the making.
6.NDRC intensifies national security review
In August, the National Development and Reform Commission (NDRC) started a security review of the acquisition of a Chinese retailer by foreign-invested Yonghui Supermarket (see August 23 Tip Sheet).
Why it matters: It’s the first national security review ofa foreign investment. Moreover, it’s in retail – a sector seemingly low on the national-security-threatscale.
On Wednesday, things got switched up a notch:
- Yonghui issued a statement saying that the NDRC had opened a special 60-day investigation into the acquisition, starting on November 8.
What it means: The NDRC has reached an initial conclusion that the deal could in fact pose a national security threat and are settling in for a more thorough investigation.
Get smart: Looking at all the public security review rules for foreign investment, we are still not clear on what the basis for this investigation is. But we have heard that since 2013, the government has developed an internal list of 57 sectors which could invite such reviews – and retail is on that list.
Get smarter: Suddenly starting to enforce a six-year-old,never publicly announced,list is a good way to scare off foreign investment.
7.Xi at BRICS
Yesterday, Xi Jinping spoke at the 11th BRICS Summit in Brasilia, Brazil, urging friends and frenemies alike to make BRICS countries the torchbearers of multilateralism.
Some context: BRICS brings together five of the world’s largest emerging economies in one handy forum – Brazil, Russia, India, China, and South Africa. So far, though, the group has struggled to find itsraison d’être.
The theme of this year’s summit was strengthening economic growth. Xi had both a positive take… (Xinhua 2):
- “The world is facing a new round of technology revolution and industrial changes, which gives a strong boost to productivity and socioeconomic development.”
…and a somewhat more ominous outlook:
- “At the same time, protectionism, unilateralism and hegemony are on the rise, striking a blow to international trade and pushing down the global economy.”
To handle this new and precarious international situation, Xi wants BRICS countries to work together.
He proposed increased efforts to:
- Create a peaceful and stable security environment
- Pursue greater development prospects through openness and innovation
- Promote mutual learning through cultural and people-to-people exchanges
Get smart: Heightened tensions with the US and Europe have made Beijing eager to deepen ties with other large emerging markets, giving increasing weight to forums like this.
Xinhua:Xi urges BRICS countries to champion multilateralism