Driving the Day
1. New economic mantra, same policy
Get excited – the Central Economic Work Conference (CEWC) is expected to wrapup today.
Some context: The CEWC is the Party’s most important annual economic policy meeting. It convenes each December to set economic policy priorities for the next year.
There have been no official announcements about the meeting, buthere’s what we are hearing.
There appears to be a new policy mantra:
- “Broad money, tight credit, loose fiscal.”
What the heck does that mean? We interpret it as an effort to:
- Keep liquidity abundant to help struggling banks
- Keep an overall lid on credit growth (and debt)
- Keep the fiscal firepower coming
Get smart: That’s the exact same mix of policies we saw in 2019.
Get smarter: The Partyis doubling down on its new approach to economic management – that’s bad news for short-term growth, but good news for China’s medium-term growth stability.
2.Unintended consequences of economic policy
Regular Tip Sheet readers know thatsupporting the private sectoris a key element of the current economic policy approach.
The problem: Those policies are not working so well.
Another problem –the policies are also having unintended consequences (Caixin):
- “More loans have been made to the country’s underserved private companies…but the achievement has come at the cost of lost business for smaller lenders.”
- “Local authorities pledged to bail out private businesses in the face of a sharp decline in domestic equity markets last year, but the efforts have raised concerns that any rescue might end up encouraging more irresponsible corporate borrowing.”
- “These side effects have cast a shadow on the government’s achievements in shoring up the private sector.”
Our take:Pretty much all government policy has unintended consequences. The key is to fully understand how and why policy is being designed, so we can then analyze the intended and unintended outcomes.
Good news: That’s what the Tip Sheet helps you do!
The big question: Willpolicymakers benimble enough to tweak and improve policy over time?
Go deeper: Click on the full Caixin piece below.
Caixin: In Depth: China’s Private Sector Support Comes at a Cost
3. MoF looks to keep tabs on its equity
The Ministry of Finance (MoF) is look to make ownership changes for state-owned financial institutions more difficult – especially when it could lead to diminished government control.
At least, that’s according to a document released by the ministry on Wednesday.
Some context: In July 2018, MoF streamlined state ownership of financial SOEs – designating itself as the only central government entity that can officially take ownership in those institutions. The result? Tighter control (see March 7 Tip Sheet).
The latest: Starting on December 20, any changes in ownership of SOE financial companies will require government approval (Reuters):
- “[Any] capital increase or share sales…that could cause the government to lose its controlling stake would need final approvals by local bureaus of the finance ministry and local governments.”
And any potential buyers will be thoroughly scrutinized:
- “The qualification of potential buyers of stakes in the state-owned financial firms will be screened.”
Get smart: It’s tempting to read this as the government tightening its grip over certain financial institutions. But in reality, this is just the MoF doing its job.
Get smarter: As the major shareholder in these companies, the ministry has a responsibility to keep up to date on major changes to ownership – especially when they might dilute the state’s equity stake.
Reuters: China tightens rules to prevent government losing control of state financial firms
4.Auld Lang Sign?
Like a terrible advent calendar, each day in December has seen financial media feverishly checking for any morsel of information on the progress of the US-China trade talks.
The latest: With three days left to go, it’s still not clear whether President Trump will follow through on his promise to slap additional tariffs on Chinese goods on December 15.
White House officials have done nothing to clarify the situation.
Here’s director of the White House’s National Economic Council Larry Kudlow (Reuters):
- “Tariffs are still on the table.”
- “The president has indicated if the short strokes remaining in negotiations do not pan out to his liking that those tariffs could go back into place.”
The more interesting quote came from an anonymous Chinese official with knowledge of the negotiations:
- “Even if there is a [phase one] deal, I am afraid that it may have to wait until next year.”
So in conclusion: ¯\_(ツ)_/¯
Get smart: The chaotic and personality-driven style of the Trump White House is adding volatility and uncertainty to a delicate and hugely important negotiation.
Get smarter: If negotiations don’t implode in the next three days, you can (probably) expect a phase one deal in 2020.
Reuters:Focus squarely on Trump as Dec 15 tariffs loom in US-China trade war
5.The Party has an HR problem
The Party has a problem: It’s getting harder and harder to recruit qualified people.
One reason: Civil servants make measly salaries compared to their peers in the private sector.
But the Party also has a (partial) solution (Sixth Tone):
- “To compensate for the increased cost of living, the party often grants housing stipends that completely cover or even exceed an individual’s monthly housing payments.”
- “In addition, a certain number of public kindergartens as well as primary and middle schools have been set up to recruit or give preference to the children of civil servants — although this fact is not usually publicly advertised.”
- “And civil servants are given free or nearly free meals three times a day at restaurants and canteens run by the government.”
Still, other problems are tougher to solve:
- It’s difficult to find cadres willing to be posted to rural areas.
A striking example:
- Nankai University professor Zhou Wang found that in one county in Yunnan, over 80% of local officials actually lived in a city over an hour away.
Get smart: If the Party stops attracting talented officials, its governing capacity will be weakened significantly.
Get smarter: Xi Jinping’s anti-corruption campaign is having a negative impact on Party recruitment.
Sixth Tone:Why the CPC’s Urbanized Cadres Are Turning Down Rural Postings