1. China’s pig problems go global
China’s pig problem is starting to have global ramifications – that are potentially set to last for years.
That’s according to an excellent piece of reporting from the New York Times.
Some context: Tip Sheet readersknow that a recent outbreak of African Swine Fever has decimated China’s pig population.
The central government has been intensely focused on addressing the issue, but as the Times points out, local-level implementation has left plenty to be desired:
- “To halt African swine fever…the authorities must persuade farmers to kill infected pigs and dispose of them properly.”
- “But in China, officials have been frugal to the point of stingy, requiring farmers to jump through hoops to seek compensation from often cash-poor local governments.”
- “As a result, culling has been slow.”
- “Official data show…less than 0.3 percent of the country’s herds have been culled.”
- “It is not clear where the rest of the country’s vanished herds went, but food experts say many were likely butchered and turned into food.”
- “That would worsen the spread, because the disease can lurk in meat for months.”
Get smart: China’s pig problem is the world’s pig problem.
Go deeper: Do yourself a favor and click through to the full article below.
2.Shandong defaults in focus
The hits just keep on coming for defaults in China’s corporate bond market.
The latest area of concern isn’t a specific company or industry, but a geography. Namely, Shandong province (Bloomberg):
- “Six privately owned companies in one of China’s wealthiest provinces have defaulted on their debt or come perilously close in the last three months.”
- “With 68.1 billion yuan ($9.7 billion) in outstanding debt among those six companies alone, the distress in Shandong has rattled even seasoned investors.”
The apparent driver of elevated default risk in the province is the unusually large number of cross-guarantees that companies provide for each other’s debt:
- “Firms don’t have to make public these liabilities, leaving investors to wonder who’s on the hook and for how much.”
The practice isn’t unique to Shandong, but it is unusually prevalent there. And it means that two otherwise unrelated companies can be linked to the same credit risk.
Get smart: That raises the question of contagion. These cross guarantees are often undertaken at a city-level. Would a credit blow-up in one city – or even one province – be confined to the local area? Or would the ripple effects quickly spread?
What to watch: With ongoing stress in the corporate bond market, we may soon find out.
3. State Council wants feedback
On Tuesday, the general office of the State Council issued some thrilling new guidelines outlining the plan to build a government service assessment system by the end of 2020.
The government will (Gov.cn 1):
- “Establish a ‘good and bad evaluation’ system in which the performance of government services is judged by enterprises and the masses.”
The new system will be comprehensive – and online (Gov.cn 2):
- “A complete list of government service items should be formulated and managed by the national integrated online government service platform.”
But how will the government collect assessments, you ask?
Well, the people’s pulse will be felt via QR code – and through other lower-tech options:
- “Government service institutions should place evaluation machines or QR codes at service windows.”
- “Those in remote areas or grass-roots levels should offer evaluation papers if other methods are not in place.”
And don’t worry, everyone can safely offer their honest opinions:
- “Citizens’ freedom to evaluate should be protected, and forced actions or interference are forbidden.”
Get smart: Party and state leaders need good intel on what people are thinking in order to respond to society’s complaints and stay on top of the legitimacy game.
That said, we have our doubts about how honest the feedback will be.
Gov.cn:Instructions to build government service assessment system
4.State of divergence
Over the weekend, the Party’s most important theoretical journal, Qiushi, published an excerpt of a recent speech by Xi Jinping.
- Xi delivered the speech at a meeting of the Party’s Central Financial and Economic Affairs Committee in August (see August 27 Tip Sheet).
Xi outlined some key trends driving regional development – and divergence:
- “The nation’s economic center of gravity has moved further south.”
- “The development of the Northeast and Northwest regions still lags behind.”
The solution? Let different regions seek different paths:
- “[We] cannot simply require all regions to reach the same level of economic development.”
- “Instead, we will take the path of…optimized development according to the conditions of each region.”
Xi also wants better market allocation of labor:
- “Industry and population are concentrated in economically advantageous areas…which…drives the overall efficiency of the economy.”
- “This is an economic law.”
Get smart: Xi’s vision of regional development is a big break from the past. Rather than seeking economic convergence, he sees each region as playing a unique economic role.
Get smarter: If Xi is serious about unlocking the free movement of labor – it would be a huge boon for China’s growth.
The rub: A plan like this means some regions will be in danger of being left behind.
5.Sailing the seas depends on the Helmsman
On Monday, Xi Jinping was in Sanya to make sure everything was shipshape at the launch of China’s new aircraft carrier, the Shandong.
Some context: The Shandong is China’s second commissioned aircraft carrier and the first to be manufactured domestically.
More context: The launch was certainly a proud moment for Xi, who has made the upgrading of China’s military a top policy priority.
The achievement was marked with much pomp and circumstance as 5,000 members of the People’s Liberation Army Navy strutted their stuff.
But getting to this milestone has not been smooth sailing for China.
- During its first sea trials in 2018, the Shandong was reported to have suffered technical difficulties which delayed its commissioning.
- In July, Sun Bo, the former general manager of China Shipbuilding Industry Corporation, which oversaw the Shandong’s construction, was sentenced to 12 years in prison for corruption.
Get smart: Shandong’s debut was designed to send a message, especially to Taiwan and rival South China Sea claimants, that China’s navy is a force to be reckoned with.
Get smarter: China’s two relatively low-end carriers are still a long way from being able to challenge America’s ten nuclear-powered behemoths.
Xinhua: 我国第一艘国产航空母舰交付海军 习近平出席交接入列仪式
China Daily: New aircraft carrier enters service
NYT: China Commissions 2nd Aircraft Carrier, Challenging U.S. Dominance
SCMP: First made-in-China aircraft carrier, the Shandong, officially enters service
SCMP:12 years behind bars for corrupt former boss of Chinese warship builder CSIC