Driving the Day
1. PMI readings are noise, not signal
Good news! China’s economy is finally out of the woods.
At least that’s what you might be led to believe by the string of recent purchasing manager indices (PMIs) for November.
- On Saturday, the official manufacturing PMI came in at 50.2 – up from 49.3 previously and marking the highest print since March.
Some context: 50 is the demarcation line – a PMI reading above it means expansion, anything below means contraction.
That’s not all:
- On Monday, the Caixin-Markit manufacturing PMI came in at 51.8 – up from 51.7 previously and marking the highest point since December 2016.
- Then on Wednesday, the Caixin-Markit services PMI came in at 53.5 – up from 51.1 previously and marking the fastest expansion since April.
Break out the champagne!
Get smart: We are pretty sure we are laying the sarcasm on thick enough that readers realize what we are doing – but just to bring it home:
- Don’t read too much into these numbers.
- They simply don’t align with the broader trends we are seeing in the economy.
Get smarter: In general, we don’t put a lot of stock in the PMIs. That’s especially true when the readings are hovering around the 50-point line where its hard to get a genuine signal from the index.
Caixin: China Services Growth Surges: Caixin PMI
FT: Chinese manufacturing expands at fastest pace in three years
Reuters:China Nov factory activity unexpectedly returns to growth – official PMI
2.404: Sympathy not found
Not long ago, Huawei was the darling of the Chinese internet.
Fighting against crippling US sanctions, the national tech champion enjoyed vociferous support from China’s digital masses – who showed it through increased smart phone purchases.
The story of Li Hongyuan, a former Huawei employee who ended up in jail for daring to demand severance pay, has soured the Chinese public on the tech behemoth.
Here’s what (allegedly) happened:
- Li left Huawei in January 2018.
- Li and Huawei got in a spat about Li’s RMB 300,000 severance payment.
- In November 2018, Li sued Huawei.
- In December, he was detained for “leaking commercial secrets.”
- In January, he was charged with extortion and spent the next 251 days in jail.
- In August, he was released with no charges.
- Last week, Li received USD 15,000 in compensation from the government for wrongful detentionand shared his story online.
People were PO’ed.
Netizens have been venting their fury against Huawei, calling it a “cold-blooded company” and ruminating on what such an egregious abuse of corporate power could mean for the future of the Chinese dream.
Get smart: Chinese netizens can turn on you quickly. Even national champions are not immune to many of the same public relations issues that foreign companies in China face.
Reference News: 华为昨夜回应后，被羁押251天的前员工再发声：“我听全国人民的”
NYT: How Huawei Lost the Heart of the Chinese Public
Reuters:Huawei faces online storm in China over employee treatment
3. State Council tackles unemployment (again)
Yesterday, the State Council held its weekly executive meeting.
Top of the agenda: Stabilizing employment.
Officials agreed that while this year’s employment situation has been “generally stable,” dark clouds are gathering (Gov.cn):
- “At present, there are growing risks and challenges at home and abroad, and the pressure to stabilize employment is increasing.”
Premier Li Keqiang argued for developing a robust employment plan:
- “We must take multi-pronged measures to ensure that employment remains stable.”
So here’s what the government will do:
- Increase support for flexible employment
- Gradually reduce the cost of buying unemployment and work injuryinsurance
- Promote vocational training
- Improve support for people looking for employment
- Boost job opportunities for people with disabilities
- Tackle the issue of unpaid wages for migrant workers
To this end, the meeting adopted new draft regulations on ensuring wage payments to migrant workers.
Get smart: Beijing can tolerate lower growth. What they cannot tolerate is high, or even quickly increasing, unemployment.
4.Xinjiang officials increasingly unhappy
On Tuesday, the US House of Representatives passed the Uyghur Act, which calls for sanctions against Beijing for its policies in Xinjiang.
The Chinese authorities did not like that. Vice Foreign Minister Qin Gang summoned the US deputy chief of mission in Beijing to give him an earful(Xinhua):
- “[Qin] said Xinjiang is a part of China, and Xinjiang-related affairs are purely China’s internal affairs, which brook no foreign interference.”
Apparently, it’s not just American congressmen who don’t like what’s going on in Xinjiang (SCMP):
- “The measures targeting Muslim ethnic minorities in Xinjiang have triggered ‘widespread discontent among Han Chinese officials and citizens’, a source close to the central government told the South China Morning Post.”
Don’t forget: A few weeks ago, disgruntled officials leaked policy documents to foreign media (see November 18 Tip Sheet).
Top officials are aware of the issue:
- “The source said Chinese President Xi Jinping was aware of the problem because he had been briefed by the country’s chief Xinjiang policy coordinator, Wang Yang.”
- “’[Wang has] said in his briefings that even the Han people are deeply dissatisfied,’ the source said, speaking on the condition of anonymity.”
Get smart: Beijing’s hardline Xinjiang policy looks increasingly unsustainable.
Xinhua: China summons U.S. embassy official, protests against U.S. House approval of Xinjiang-related bill
SCMP:Wanted: Chinese cadres to hold Beijing’s line in Xinjiang as Han Chinese head for the exits amid international furore over Uygur internment camps
5.Government scrapping affirmative action for minorities
The SCMP reports that the government is rolling back preferential education and tax policies for ethnic minorities.
- “[For years] Han Chinese have increasingly complained about what they see as unfair benefits and subsidies handed out to minorities.”
An example of Han resentment:
- “The existing policies amount to ‘reverse discrimination’ on Han Chinese, said Mei Xinyu, a researcher at the Ministry of Commerce.”
- “’[The ethnic minorities] receive bonus points in all national exams for entering high school, colleges, civil service and higher level education. From birth to death, they have so many privileges,’ he said on Weibo.”
Beijing has been researching the issue for years:
- [The SCMP]has learned that Beijing ran studies in the past two years to assess the impact and repercussions of the policy changes.
Some changes are already taking place, according to an anonymous researcher on ethnic affairs:
- “In college entrance exams, a number of provinces this year scrapped the practice of adding extra marks for students from ethnic minority backgrounds, while other places reduced the additional marks by half.”
Get smart: The government’s more assimilationist approach to ethnic affairs could breed further resentment among ethnic minorities.
6.Meet the new Five-Year Plan for cadre development
Yesterday, Xinhua reported that the General Office of the Party Central Committee hasissued an outline of the 2019-2023 national plan for the construction of leadership groups in Party and state organs.
Guess what the top priority is. Yep – you got it.
- Ensuring that leading cadres are “firm believers and faithful practitioners” of Xi Jinping Thought.
How to do that, you ask? During inspections, leaders will be tested on how well they have carried out central policies and instructions by Xi.
The plan also gives some guidance on methods to ensure the next generation of cadres is highly qualified:
- Cadres working their way up from the bottom should be highly valued.
- Leadership teams should be composed of cadres with different backgrounds, ensuring that those with more experience can deal with the more sophisticated issues.
- Leadership groups in all Party and state bodies will be required to have a certain number of young cadres.
Get smart: This plan lays the groundwork for identifying who will be in key Party and state positions in 2023 – when the next government reshuffle will get underway (on the heels of the 20th Party Congress in late 2022).