Driving the Day
1. Mr. Liu heads to Washington (again)
It’s official. Vice Premier Liu He is headed to DC next week to sign the phase one trade deal.
- On Tuesday afternoon Commerce Ministry Spokesman Gao Feng offered the first official government confirmation that the trip is taking place.
It’s a good thing, because everyone – markets, businesses, diplomats – have now fully baked the phase one deal into their expectations for Chinese, US, and global growth in the next few quarters.
For our part: We are in line with those expectations, but we won’t pop the bubbly until the ink is dry.
Get smart: Phase two is still dead in the water, but right now no one seems to care.
Bloomberg:China Says Liu He to Travel to U.S. for Trade Deal Signing
2.More Baoshang drama
The Baoshang bank saga continues – and as Caixin scoops it looks like there’s a new white knight:
- “Hong Kong-listed Huishang Bank Corp. Ltd. has disclosed a plan to purchase part of the assets and liabilities of a banking institution — an institution that Caixin has learned is Baoshang Bank, which regulators took the rare step of taking over in May.”
Some context: Huishang bank lost billions of RMB in it’s previous investments in Baoshang, so this is an, ummm, interesting move to say the least.
But the plot thickens:
- “Huishang Bank also announced that it plans to invest in a new provincial-level commercial bank.”
- “The city commercial bank, which is based in East China’s Anhui province, said that it will make a one-off capital contribution of no more than 3.6 billion yuan ($518.5 million), giving it a stake up to 15% in the new bank.”
What does that have to do with Baoshang?
- “Just like how regulators restructured scandal-plagued Anbang Insurance Group Co. Ltd., the authorities plan to set up a new entity — in this case a new commercial bank — to take over part of Baoshang Bank’s problematic assets.”
Get smart: Watch this closely – it may provide the blueprint for a wider banking sector restructuring.
3. Data dump – inflation
Monthly inflation data for December dropped on Thursday morning.
- Producer prices contracted by 0.5% – an improvement from the 1.4% contraction in November, but slightly under expectations of a 0.4% contraction.
- Consumer price growth stayed flat from November at 4.5% –coming in under expectations of 4.7%.
Quick take 1: PPI should head into positive territory soon – maybe even next month. The question is, how long willit stay there? Policymakers are rightly concerned about another sustained bout of upstream deflation.
Quick take 2: Pork is still the culprit behind high consumer prices, so monetary authorities still aren’t overly concerned about broad-based consumer price inflation.
Get smart: Overall, the inflation picture isn’t having much impact on macro policy choices right now.
Bloomberg:China’s Steadying Inflation Leaves Door Open for Monetary Easing
4.Back to basics – credit reporting edition
On Wednesday, central bank official Mu Changchun published an important op-ed urging checks on the expansion of the social credit system (SCS).
Mu reminded everyone of the system’s original purpose (Caixin):
- “[A] credit reporting system helps satisfy lenders’ need for accurate, credible information that reduces the risk of lending and the cost of loan losses.”
He expressed concern about the scope of the system:
- “Credit reporting…shouldn’t control people’s private lives or be used to select a social moral model.”
Mu thinks there should be stronger limits:
- “Data collection, storing, and processing should be carried out in line with the principle of ‘minimum and necessary.’”
He also highlighted that the SCS is set to get at least some checks and balances.
- Some context: On December 22, the Party center released a document requiring better regulation of unified punishments for untrustworthy subjects, a key component of the SCS, to better protect private businesses.
Get smart: The central bank has always struck us as one of the more rational co-leaders of theSCS project, so Mu’s call for balance is unsurprising.
Get smarter: But the National Development and Reform Commission (NDRC) is in the SCS driver’s seat – and it isn’t so restrained.
We’ll be watching to see which perspective wins out.
5.Political study campaign wraps up
On Wednesday, Party officials held a meeting to mark the end of Xi’s “staying true to the Party’s founding mission”study campaign.
This meeting was a big deal: The entire Politburo Standing Committee (PBSC) attended – as did honorary PBSC member Wang Qishan.
Some context: The study campaignhas been all the rage in Party circles since its launch at the May 2019 Politburo meeting (seeJune 3 Tip Sheet).
Xi seems happy(Gov.cn 1):
- “It has promoted the ideological, political, and operational unity of the whole Party.”
He reminded cadres at all levels to look at problems and challenges with fresh eyes (Gov.cn 2):
- “We can’t go into a new era when our thoughts are still in the past.”
- “We [still] see problems [and] make decisions… with old ideas, old routines, and old methods.”
But how will such issues get fixed without the study campaign up and running?
No need to fret, devoted cadres!
While the campaign may be over, Xi plans to make the idea a fixture in the Party getup:
- “We will promote the implementation of a system that stays true to the Party’s founding mission.”
Get smart: The study campaign has concluded, but Xi’s taste for Party-building has not.
6.State Council urges local governments and SOEs to pay their dues
Yesterday, the State Council did its thing – holding its weekly executive meeting.
Top of the agenda: Making sure that government departments and state-owned enterprises (SOEs) clear their overdue payments to private firms and SMEs.
Everyone agreed that this is of utmost importance (Gov.cn 2):
- “Clearing payment arrears owed to private and small businesses bears on the market economic order, business environment, and market expectations.”
- “[The] government’s credibility is also at stake.”
Substantial progress on the issue was made last year:
- “Some 75 percent of the more than 890 billion yuan in such arrears identified nationwide had been paid up.”
This year, the State Council aims higher:
- “It is necessary to… ensure that all debts without differences are cleared before the end of 2020.”
- “Those with large sums in arrears will be subject to oversight and scrutiny by dedicated task forces.”
Get smart: Governments and SOEs are no small economic force in China – so their arrears could have multiple knock-on effects in the private sector.
A walk down memory lane: This is the second time the central government has focused on this issue. The last time was in the 1990s, a time of great economic turmoil.
Gov.cn:Government departments and State-owned enterprises to meet overdue payments to smaller private companies as much as possible before the end of 2020