Driving the Day
1. Xi doesn’t want the trade war
On Friday, Xi Jinping sat down with prominent foreign guests in Beijing for the Bloomberg New Economy Forum.
His message (Bloomberg):
- “We did not initiate this trade war, and this is not something we want.”
But he was also defiant:
- “When necessary we will fight back.”
- “We are just trying to restore our place and role in the world rather than reliving the humiliating days of [the] semi-colonial and semi-feudal era…we will not relive those days again.”
Get smart: Referencing the century of humiliation in the context of the trade war does not exactly bode well for negotiations.
But as Xi said, the Chinese side has always wanted an agreement so that the trade war will stop.
Xi also met with former US Secretary of State Henry Kissinger and explained his view of US-China relations (CPC People):
- “China-U.S. relations are at a critical juncture, and face some difficulties and challenges.”
- “Chinese traditional culture…[says that] if you concentrate on the important issues, the smaller issues will sort themselves out.”
Get smarter: Relations between China and the US have changed fundamentally. The two sides need to clearly define interests and red lines – and then figure out a modus vivendi.
Bloomberg:Trump, Xi Talk Past Each Other on Need for Win-Win Trade Deal
2.Nominal GDP data gets a boost
Guess what grew significantly overnight?
That’s right – the Chinese economy.
On Friday, the National Bureau of Statistics (NBS) revised the figure for last year’s nominal GDP growth upwards by 2.1% – to RMB 91.93 trillion.
Why that’s important: The revision puts China on track to reach its target of doubling the size of the economy between 2010 and 2020.
According toNBS Vice Director Li Xiaochao the revision was mainly due to (Reuters):
- “The services sector [contributing] more to GDP in 2018 than the original data had indicated.”
But it does come at an opportune time:
- China now needs to hit a growth rate of just about 6.2% for all of 2019 and 2020 to reach the GDP goal.
- But even that won’t be easy: In Q3 2019, growth came in at 6.0% – the weakest pace since 1992.
Get smart: It’s not unusual for Chinese authorities – or any country’s authorities – to revise annual GDP data, so we would not read too much into this change. That said, the timing is conspicuously convenient.
Get smarter:This dims further the2020 economic outlook, since leadership “needs” less growth to achieve their political targets.
3. Regulators crack down on latest speculative investment channels
Financial regulators in Shanghai are cracking down on the latest speculative bubble – sneakers.
Yep – you read that right (see the Shenzhen Special Zone Daily link below).
Not to be outdone, the Shenzhen Municipal Financial Regulatory Bureau has also reportedly been trying to stamp out several other– umm…unique types – of financial speculation in recent weeks.
Official scrutiny has been focused most closely on speculative bets on:
- Blind boxes
- Gashapon capsules – “a variety of vending machine-dispensed capsule toys popular in Japan” (Wikipedia)
- Claw cranes
This all seems innocent, so why are regulators so concerned?
A bulletin from the Shanghai branch of the PBoC lays out the problems:
- Sneakers are being securitized
- Large numbers of speculators and high transaction volumes are causing huge price fluctuations
- Such “investments” are often associated with illegal fund raising and/or pyramid schemes (go figure!)
- Some third-party payment companies are feeding into financial risk by offering payment installments and lines of credit for this activity
Get smart: These innovative speculative bubbles largely seem to reflect a lack of high-risk/high-return investment channels – now that the peer-to-peer (P2P) lending crackdown has gone full bore.
The bottom line: The ongoing financial de-risking campaign notwithstanding – speculators gonna speculate.
4.Liu He explains SOE reforms
On Friday, Vice Premier Liu He published a long article in the People’s Daily.
Why it matters: Liu explained the implications of the Fourth Plenum for economic policy.
He emphasized that China’s approach to the economy is constantly evolving:
- “The basic socialist economic system must be continuously improved based…on practice.”
Liu also reiterated that the current goal is to give markets the “decisive role” in allocating resources.
This will be disruptive:
- “Allowing the market to play the decisive role in resource allocation will most direcctly affect economic system reforms.”
- “But it will also influence politics, culture, society,…and Party-building.”
Liu then gave an overview of everybody’s favorite topic – SOE reform.The government will take a four-pronged approach:
- Encourage mixed ownership
- Have SOEs focus on strategic sectors (while presumably withdrawing from “competitive” sectors)
- Improve corporate governance
- Have the government’s role be that of an investor – not a company manager
Get smart: Liu is pushing a largely pro-market agenda, albeit one steeped in Party-speak.
Get smarter: There is still considerable pushback against meaningful SOE reform.
5.IPR protection gets some love
On Sunday, the Central Committee and the State Council published new guidelines on enhancing the protection of intellectual property rights (IPR).
Some context: The Party’s top policymaking body, the Central Commission on Comprehensively Deepening Reform, approved this document in July (see the July 25 Tip Sheet).
The regs really harp on the importance of IPR (Gov.cn):
- “[IPR is] the biggest spur to boosting China’s economic competitiveness”
And they aim to make it easier for businesses to protect their IPR claims.
- “By 2022, [we should] substantially improve the situation wherein [IPR] holders face difficulty in proving (ownership)…[as well as] high costs and low compensation in their efforts to safeguard IPR.”
To that end, the government is implementing several new measures, including:
- Conducting a feasibility study on a new basic law for IPR, which could consolidate existing IPR-related legislation
- Introducing punitive compensation in patent infringement cases
- Enhancing effective protection of trade secrets and source codes
- Lowering the barrier of criminal penalty for IPR infringement
Get smart: Foreign pressure on IPR issues has helped to speed up this process, but China increasingly needs better IPR protection to protect its own innovative companies.
China.org.cn:China issues guideline for enhancing IPR protection
6.Pan-democrats crush pro-establishment camp in HK elections
On Sunday, record numbers of voters turned out to cast their ballot in Hong Kong’s district council elections.
The result: A landslide victory for the pro-democracy camp which stormed 17 of the city’s 18 districts, all of which had previously been controlled by pro-Beijing parities.
- The pan-democrats now occupy 344 of Hong Kong’s 452 district seats.
The record turnout suggested the depth of political feeling roiling the city:
- Some 2.9 million of Hong Kong’s 4.1 million registered voters cast a ballot.
- That’s a turnout rate of 71% – compared with 47% in 2015.
Despite fears of violence, election day saw no protests or clashes anywhere in the city.
Chief Executive Carrie Lam acknowledged the election results in a statement on Monday:
- “[M]any analyses of the elections note [that] the results reflect residents’ dissatisfaction with current social issues and structural problems.”
Uhhh…yeah. You can say that again.
The news also caused Hong Kong stocks to surge on Monday, with the Hang Seng Index rising 1.5%.
Get smart: Hong Kong’s district councilors mainly deal with local issues. The election results are unlikely to alter the relationship between Hong Kong and Beijing.
What to watch: Will the electoral thumping leadLam and the city’s leadership to be more proactive in addressing citizens’ grievances?
SCMP:Hong Kong elections: tsunami of disaffection washes over city as pro-Beijing camp left reeling by record turnout and overwhelming defeat
BBC:Hong Kong elections: Pro-democracy groups makes big gains
Straits Times:Hong Kong stocks rally after pro-democracy groups score huge win