Driving the Day
1. Politburo stays the course on econ policy
On Friday, the Politburo met to discuss economic priorities ahead of the Central Economic Work Conference (CEWC).
Some context: The CEWC is the Party’s most important economic policy meeting of the year. It will set the economic priorities for 2020.
The meeting readout was terse, but itacknowledged that the economy is facingdifficulties(Xinhua):
- “Since the beginning of this year, [we] have faced a complex situation with a marked increase in both internal and external risks and challenges.”
But that doesn’t meana drastic change in policy is needed:
- “Our country’s basic trend towards medium- and long-term economic stability has not changed.”
- “We must strengthen our confidence in our certain victory.”
Instead,officials should utilize the challenges to push throughreforms:
- “[We must] be adept at transforming external pressure into a strong driving force for deepening reform and expanding opening up, and concentrate our energies on doing our own business well.”
Get smart: Given the lack of details in the readout, it’s hard to make firm conclusions about where economic policy is headed. Butthere were no indications of any significantpolicy shift on the horizon.
Xinhua:中共中央政治局召开会议 分析研究2020年经济工作 研究部署党风廉政建设和反腐败工作 中共中央总书记习近平主持会议
2.Data dump – trade
The customs bureau released monthly trade stats for November over the weekend.
On the export side – things did not look good.
- Exports contracted by 1.1% y/y – down from a 0.8% contraction in October and missing expectations of 1% growth.
- That’s the fourth consecutive monthly decline for total exports.
- Exports to the US contracted by 23% y/y – down from a 16.2% decline in October.
- That’s the eighth consecutive monthly decline for exports to the US.
- Exports to the EU and Japan contracted by 3.8% and 7.8% y/y, respectively.
Get smart 1: The US-China trade war continues to be a headwind for the economy, but the export sector’stroubles go far beyond shipments to the US.
Meanwhile, on the import side – things looked okay.
The key stats:
- Imports were up a smidge, growing by 0.3% y/y – up from a 6.2% contraction in October and beating expectations of a 1.8% decline.
- That’s the first positive print in eight months.
Get smart 2: The improved import data comport with the recently improved manufacturing PMIs (see December 5 Tip Sheet), but we are still far from convinced that the manufacturing or industrial parts of China’s economy are stabilizing.
3. Foreign equity caps for insurers will be scrapped in January
On Friday, China’s banking and insurance regulator (CBIRC), released a set of revised regulations governing foreign-invested insurers.
Some context: The CBIRCdocument serves as an implementation blueprint for the State Council’s recent revision toregulations forforeign insurers (see October 16Tip Sheet).
The new CBIRC revisions included an important change:
- Equity caps for foreign owners oflife insurance companies wereraised from 50% to 51%.
- The new rules authorizethe CBIRC to adjust the cap at a later date.
As it turnsout, that“later date” came very quickly.
- Hours after releasing the first revisions, the CBIRC released another notice saying that foreign companies can own100% equity in life insurance companies starting on January 1, 2020.
That means the 51% equity cap will be the law of the land for just 20 days…
Get smart: Financial sector opening is happening. And fast.
4.Party aims to get rid of foreign computers within three years
The FT reports that an internal Party directive, issuedearlier this year, has orderedall Party-state institutions to ditchforeign computer equipment and software in the next three years.
We are talking tens of millions of pieces of hardware:
- “Analysts at China Securities, a broker, estimate that 20m-30m pieces of hardware will need to be swapped out.”
The specific timeline:
- “Substitutions would take place at a pace of 30 per cent in 2020, 50 per cent in 2021, and 20 per cent the year after, earning the policy the nickname ‘3-5-2.’”
But it’s not clear that the policy can be carried out:
- “It will be difficult to replace software with domestic alternatives, since most software vendors develop products for popular US-made operating systems such as Microsoft’s Windows and Apple’s macOS.”
- “China’s homemade operating systems, such as Kylin OS, have a much smaller ecosystem of developers producing compatible software.”
- “Defining ‘domestically made’ is also challenging. Even though Lenovo is a Chinese-owned company that assembles many products in China, its computer processor chips are made by Intel and its hard drives by Samsung.”
Get smart: In case you hadn’t heard,Chinese leaders see technological self-sufficiency as a top strategic imperative.
5.Hardand softon Hong Kong
On Saturday, newly appointed Hong Kong Police Commissioner Chris Tang Ping-keung was in Beijing to meet with the upper echelons of Chinese officialdom.
Some context: Tang accepted Hong Kong law enforcement’s most prestigious poisoned chalice last month, after the quiet retirement of predecessor Stephen Lo Wai-chung.
Tang advocates the use of “hard and soft” tactics to deal with the ongoing protests (Reuters):
- “We will be stringent on illegal violent actions such as throwing of petrol bombs, acid.”
- “For other issues, if possible, we will adopt a more flexible approach.”
He also had a sit-down with Minister of Public Security Zhao Kezhi.
More context: Zhao was added to the Party’s Hong Kong and Macau Leading Small Group this summer, signaling that PRC law enforcement will be more active in managing Hong Kong affairs.
- Zhao called for greater coordination between Hong Kong and mainland law enforcement to safeguard the security and stability of the city.
Get smart: Beijing still doesn’t have a plan for dealing with the Hong Kong chaos, but that doesn’t mean they’re going to sit on their hands.
China Daily:Beijing vows ‘unfailing support’ for HK police
Reuters:Hong Kong police chief promises flexibility ahead of rally
SCMP:New Hong Kong police chief Chris Tang tells top Beijing officials that ‘hard and soft’ tactics will be used to thwart protest crisis