Driving the Day
1. Central Economic Work Conference kicks off
It’s happening folks!
According to Bloomberg, the Central Economic Work Conference (CEWC) kicked off yesterday.
Seems about right.
- Senior leaders have all gone off the radar since Monday.
- Party media have been running high-profile editorials summarizing thepast twelvemonths of”economic management work.”
Yesterday, Wang Yiming, deputy director of the Development Research Center – the State Council’s in-house think tank – weighed in.
In a People’s Daily commentary, Wang said that the 6% growth target is not all that important (People’s Daily 2):
- “6% is not a special watershed.”
- “A slightly higher or lower growth rate is not the main issue.”
- “The crux is still the quality and efficiency of economic growth.”
That doesn’t meant that growth is unimportant:
- “[If] the growth rate is too low, employment will be difficult to guarantee, structural adjustment will be difficult to advance, and macro leverage will be difficult to stabilize.”
Get smart: It looks increasingly likely that the government will let growth slip below 6% next year.
Bloomberg: China’s Leaders Gather to Set Economic Targets for 2020
CCTV: 疾风知劲草 中国经济坚定前行
People’s Daily: 二〇一九：沧海横流 浩荡前行–以习近平同志为核心的党中央引领中国经济高质量发展述评
2.Data dump – credit
The central bank (PBoC) dropped monthly credit data for November late on Tuesday.
The bottom line: Credit growth continues to decelerate. And that’s. Not. Good.
- Headline total social financing grew by 10.7% y/y – down a smidge from 10.73% in October.
- That is the fifth consecutive deceleration – at a time when authorities are trying to gently boost credit growth.
Like we said – not good.
- Growth in traditional bank loans also eased a bit to 12.5% y/y – down from 12.53% in October.
- That’s the lowest growth rate IN YEARS, if not ever (we’re still checking the historical data).
Such weak loan growth is particularly vexing, as authorities have been focused on supporting traditional bank lending – while tamping down shadow bank lending (see next entry).
Get smart: There is a heated debateamong policymakers and policy advisors about whether authorities need to lean more on monetary stimulus (see previous entry).
But key financial officials don’t want to ramp things up, because the measures to date have not been translating into stronger loan growth or improved financing for corporates.
The bottom line: Monetary stimulus still looks unlikely.
3. Data dump – credit, cont’d
Even as traditional bank lending is struggling, the November credit data show that the crackdown on shadow lending continues unabated.
- Trust lending contracted by 3.7% y/y – compared to a 3.38% contraction in October.
- Entrusted lending contracted by 8.2% y/y – compared to 8.38% in October.
- Bankers’ acceptances contracted by 12.6% y/y – compared to 14.48% in October.
- Each type of lending has contracted for fourteen consecutive months or more.
Get smart: In case you hadn’t noticed, authorities are not letting up on the shadow banking crackdown.
Get smarter: That crackdown is a key driver behind tight financing conditions for companies in China – especially smaller ones.
On one hand: This dynamicis undercutting other economic support measures.
On the other hand: Authorities think it is necessary in order to contain financial volatility.
What it all means: Even slower nominal GDP growth in H1 2020.
4.Tariff deadline looms
Back in October, Chinese and American negotiators said they were “on the same page” about a phase-one trade deal.
Now, as the December 15 tariff deadline looms, there’s still no deal in sight.
The big question: Will the Trump administration follow through on its threat to impose further tariffs on Chinese goods on December 15?
The big answer: Still unclear…but probably not.
- Some White House officials have predicted that the US side will back off on its tariff threat so that negotiations can continue.
- Others have maintained a poker face, saying the final decision lies with President Trump.
Meanwhile in Beijing (WSJ):
- “The leadership under President Xi Jinping appears to be showing concern about losing control of the fast-deteriorating bilateral relationship.”
- “Some Chinese officials are saying privately that trade, the issue over which bilateral relations first began to crumble, could now help to put a floor under worsening ties.”
Get smart: A tariff hike on December 15 would hurt both economies. Neither side wants that.
Get smarter: Having said that, there is still a significant chance that the US follows through on raising tariffs. That’s because the ultimate decision will come down to US President Donald Trump – the self-described “Tariff Man.”
What’s insane: The deadline is just four days away and no one knowswhat will happen.
WSJ: U.S. and Chinese Trade Negotiators Planning for Delay of December Tariffs
Bloomberg: China Sees U.S. Delaying Dec. 15 Tariff Hike as Talks Drag
NYT:Signs Point to China Tariff Delay, but Decision Rests With Trump
5.China gets a new climate negotiator
China has a new top climate negotiator: Vice Minister of Ecology and Environment Zhao Yingmin.
Zhao has some big shoes to fill.
- He replaces Xie Zhenhua, who held the position for over a decade.
- Xie was instrumental in shaping China’s approach to climate change, and was well-respected both within China and internationally.
But Zhao looks up to the task.
- Zhao is a protégé of Xie Zhenhua.
- He has spent his entire career working on environmental regulation and was an early advocate for tougher regulation of fine particulate matter (PM 2.5).
Zhao will get his first chance to prove his mettle this week at the UN Climate Change Conference (COP 25), which began Tuesday in Madrid, Spain.
Zhao’s focus (SCMP):
- “The biggest impasse facing the negotiators is the highly contentious Article 6 of the Paris Agreement, designed to put in place a global carbon market.”
- “Zhao said that disagreements on this article were the top focus.”
- “A source close to Zhao singled out Brazil, saying that the current government [of Brazil] ‘has a lot of ideas contradicting most countries, even China.’”
Get smart: As growth slows, it will be harder for officials like Zhao to push an aggressive agenda on climate change and air pollution.