Driving the Day
1. FSDC meets again
Yesterday, Liu He chaired the 10th meeting of Financial Stability and Development Committee (FSDC).
Aquick refresher:The FSDC was created in July 2017 to coordinate financial and economic regulators.It’s headed by Xi Jinping’s right-hand man on the economy – Vice Premier Liu He.
The agenda covered two topics near and dear to our hearts:
- The next steps for the financial de-risking campaign
- The next round of financial reform and opening measures
But…the readout didn’t offer any real specifics.
That said, one thing’s for certain:
- Liu and the Co. are still very focused on shoring up troubled small banks across the country.
- And they are looking to recapitalize manyof them.
But financial officialsalso have a new favorite target: Private investment funds.
The FSDC is looking to(Gov.cn):
- “Guide the private fund sector to develop in a regulated and healthy way.”
Get smart: We have seen regulatorszeroing in on the private investment fund space in the past few weeks. The goal is to clean up those that are sheltering or obscuring illegal investments.
What to watch: Beyond the de-risking program, the focus is still on financial opening. And our sense is that regulators may be setto announceyet another round of concrete financial opening measures quite soon.
2.Banks struggle to assessrisk
Yesterday, we highlightedthe State Council’s new policy to boost fixed-asset investment (see yesterday’s Tip Sheet).
In case you forgot: The policy allows more debt financing for infrastructure projects.
That’s making banks nervous.
- The 21st Century Business Heraldreports that lenders say they willpay much closer attentionto the background of shareholders involved in various projects, before coughing up anydough.
But that’s easier said than done.
- Local governments often make use of multiple channels to finance infrastructure projects.
- So banks are only privy to a small portion of a project’s overall financing – making it hard to assess shareholder risk.
Get smart: Beijing is trying to support growth without goosing (bad) debt. But in practice, that’s easier said than done.
21st Cent Biz:资本金比例下调银行审批“压力山大”：看重现金流、股东背景，穿透有难度
3. A renewedglobalization push
On Thursday, the Party Central Committee and the State Council released high-level guidelines dealing withforeign trade procedures.
As usual, regular Tip Sheet readers won’t be surprised by this development – we flagged it back when the Central Committee for Comprehensively Deepening Reform (CCCDR) approved the documentin September (see September 10 Tip Sheet).
The guidelines call for more trade with:
- FTA partners
- Emerging markets
- Developing countries
- Neighboring countries
This is not just about exporting more. The guidelines are explicit in calling for more imports of:
- Advanced technologies, devices, and components
- Resource products
- Healthcare and elderly care devices
- Research, design, environmental protection, and energy saving services
And this is interesting:
- The directive also urges increased tradeforintermediate goods.
Get smart: The push for more tradeinintermediate goods signals that Beijing understands its push to move up the global value chain will take time.
Get smarter: Beijing wants more globalization, not less.
Gov.cn:China issues guideline for high-quality trade development
4.NHSA succeeds in slashing drug prices
Yesterday, the National Healthcare Security Administration (NHSA) announced that the government’s medical insurance plan will begin reimbursing 70 new drugs, after directly negotiating prices with drug makers.
Some context: The NHSA is a new agency born of the MASSIVE Party-state reorganization inMarch 2018. Its primary role is to act as the government’s drug procurer.
The NHSA has been putting the squeeze on drug makers.
In a recording of one negotiation, a pharma representative tried to argue that the NHSA is getting their drugs for less than market price in Korea.
But an NHSA official quickly put her in herplace (The Paper):
- “What’s the population of South Korea?”
- “You are negotiating with the whole of China.”
The NHSA is doingits job pretty well:
- The prices of the 70 new drugs dropped an average of 61%.
- Almost all the imported drugs added to the list are being sold at thelowest global prices.
Get smart: One of the leadership’s top priorities is reducing healthcare costs. That’s putting pressure not just on pharma companies, but on medical device suppliersand healthcare services companies, as well.
Get smarter: China’s healthcare market is, indeed,huge – and set to grow rapidly.
Reuters:Drugmakers slash prices in China to get on reimbursement list
5.China furious over US Hong Kong bill
On Wednesday, US President Donald Trump signed the Hong Kong Human Rights and Democracy Act into law.
Some context: The bill passed with near unanimous support in Congress and equips the US with tools to take action against the erosion of civil liberties in Hong Kong.
China’s foreign ministry (MoFA) was none too pleased (Xinhua):
- “Hong Kong affairs are China’s internal affairs and no foreign government or force shall interfere.”
- “We urge the United States not to continue going down the wrong path, or China will take countermeasures and the U.S. must bear all the consequences.”
The big question: Will this derail the trade negotiations?
We think that’s unlikely.
- Beijing is keen to get a trade deal done.
- And for now, top officials are looking to keep trade negotiations separate from the deeper political and strategic issues.
That said,Trump has muddied the waters by suggestinghe could be persuaded not to implement the law if China offered favorable trade terms.
Get smart: US-China tensions are buildingon many fronts, and it’s increasingly difficult to separate out the various issues.
Our bet: We’re still cautiously optimistic that a “phase one” trade deal gets done this year.
Xinhua:China firmly opposes U.S. signing Hong Kong-related act into law: FM
SCMP:Just bluster? Beijing angered after Trump signs Hong Kong acts, but little sign of trade talks fallout
SCMP:Hands tied by Hong Kong democracy act, Donald Trump sends signal to Beijing on trade