Driving the Day
1. Liu He focuses on the coming tech war
On Monday, Vice Premier Liu He attended the annual awards ceremony for the Ho Leung Ho Lee Foundation.
Some context: The Ho Leung Ho Lee Foundation is a Hong Kong NGO, founded in 1994. It grants awards to Chinese scientists.
This year’s big winner: Wu Weiren, chief scientist for China’s lunar exploration program.
Liu used the occasion to stress China’s need for technological breakthroughs (Gov.cn):
- “China’s economic and social development is at a critical historical stage.”
- “The role of science and technology as the number one productive force is particularly prominent.”
Liu urged his government colleagues to do more to support scientists:
- “The people in charge at the Ministry of Science and Technology should act as the rear-service commanders of scientists, to create a good environment for scientific and technological innovation.”
Get smart: It’s no coincidence that Liu used military language to describe government efforts to develop technology. The country’s leaders increasingly see themselves as fighting a “tech war” with the United States.
Get smarter: The US-China trade war is peanuts compared to the developing tech war.
2.Officials mull new cuts to steel capacity
On Monday, local financial media published reports on a government notice – issued by the industrial planners (NDRC and MIIT) and the National Bureau of Statistics (NBS) – to survey steel production in the nation’s steel mills.
Dated November 4, the survey is meant to collect stats over the past three years for steel companies’:
- Production capacity
- Production output
- Fixed-asset investments
The survey results need to be in by November 29, and random on-site inspections may ensue as a follow-up.
The survey’s purpose is to “reinforce efforts at curbing steel overcapacity and provide a basis for scientific decision-making.”
Some context: According to official stats, more than 150 million tons of steel capacity has been removed since the government instituted its Supply-Side Structural Reform program in 2016 – with the biggest crackdown on outdated and illegal production.
More context: Despite the capacity reduction, the first ten months of 2019 saw steel output grow by 7.4% y/y.
Get smart: The output growth this year is astonishing considering weak domestic demand from a slowing economy and slumping infrastructure and real estate sectors.
What to watch: After the survey is in, we suspect industrial planners may soon start another round of illegal capacity reduction – in an effort to boost upstream prices.
3. MofCom’s silver linings outlook
On Monday, the Ministry of Commerce (MofCom) held a press conference to review foreign direct investment (FDI) data from January to October.
Here’s the latest:
- China saw the establishment of 33,407 new foreign-invested enterprises
- FDI reached RMB 752 billion in the first ten months of the year, up 6.6% y/y
- FDI for October reached RMB 69 billion, up 7.2% y/y
There were also some interesting regional stats:
- FDI in the Yangtze River Economic Belt rose to RMB 368 billion, up 8% y/y
- FDI in China’s pilot free trade zones reached RMB 108 billion, an increase of 23.9% y/y
MofCom also took the opportunity to allay the nagging fear that foreign investors are starting to look for greener pastures:
- “Generally speaking, there is no large-scale withdrawal of foreign capital in China.”
While MofCom did acknowledge that some foreign companies are shifting supply chains, the phenomenon was explained away as a natural byproduct of China’s shift to higher-value-added goods and services.
Get smart: As evidenced by the recent flurry of renewed market opening promises, Chinese leaders are acutely concerned about the withdrawal of overseas investment.
Our take: That reality makes right now a particularly good time for foreign companies to score good investment deals in China.
SCIO:China’s FDI inflow up 6.6% in January-October period
4.Li Keqiang urges investment in water infrastructure
On Monday, Premier Li Keqiang sat down with other top officials to discuss one of China’s most pressing challenges – water scarcity.
Li was blunt that this is a big problem (Gov.cn):
- “Water resource shortages and uneven distribution in time and space make up one of the major bottlenecks that hinder China’s economic and social development, especially in northern and western regions.”
He then rattled off some of the major concerns:
- “Water ecological restoration is very challenging in North China due to serious groundwater overdraft and loss.”
- “Persistent drought in some southern provinces also makes urgent demands to intensify water conservancy construction to solve water shortages.”
The government’s solution?
You guessed it – build more infrastructure.
In particular, Li urged colleagues to speed up work on projects related to the country’s South-to-North Water Diversion Project that brings water from the Yangtze River to northern China.
And there’s one more reason Li is pushing water conservancy projects:
- “[They] will assist in coping with downward economic pressure, drive effective investment, maintain steady economic growth and create jobs, the Premier said.”
Get smart: As the economy slows, the government is eager to boost infrastructure investment. But officials are trying to keep those investments confined to productive projects.
5.Hong Kong’s constitutional conundrum
Hong Kong may be headed for a constitutional crisis to match its deepening socialturmoil.
On Monday, the Hong Kong High Court ruled that the government’s imposition of an anti-mask law was a violation of the Hong Kong Basic Law, the city’s mini-constitution.
Some context: The anti-mask law was implemented on October 4 and made the wearing of masks during a protest punishable by up to a year in jail and a fine of HKD 25,000.
Beijing was not psyched about the court’s decision:
- Mainland commentators criticized the ruling as a tacit endorsement of violent protests.
Then Zang Tiewei, a spokesman for the Standing Committee of the National People’s Congress (NPCSC), dropped a legal bombshell (Xinhua):
- “Whether the laws of [Hong Kong] conform to the Basic Law…can only be judged and decided by the [NPCSC].”
- “[N]o other organ has the right to make such a judgment and decision.”
What it means:The Hong Kong government is expected to appeal the court’s decision, but if things don’t work out to Beijing’s satisfaction, theNPCSC may look to conduct a new interpretation of the Basic Law.
The bottom line:Legally speaking, the NPCSC does have the right to interpret the Basic Law.But legal or not, protesters are still going to see such a stepas mainland interference in Hong Kong judicial affairs.