Driving the Day
1. China declares national public health emergency
Yesterday we warned you that the spread of coronavirus across the country reminds us of the SARS crisis of 2002-2003 (see yesterday’s Tip Sheet).
Some context: SARS caused more than 600 deaths in mainland China and Hong Kong. Big cities were basically on lockdown.
Top leaders are now explicitly addressing the issue.
President Xi sent instructions from Yunnan (Xinhua):
- “Party committees and government at all levels … should resolutely curb the spread of the epidemic.”
Premier Li called a State Council executive meeting to discuss battle plans (Gov.cn 2):
- “All prevention and control measures needed must be duly delivered, and inter-agency efforts enhanced to ensure [the] earliest possible detection, reporting, quarantine and treatment of the disease, and to keep the fatality rate at the minimal possible level.”
Yesterday was a critical point in changing policymakers’ thinking about the disease.
Here’s why: Zhong Nanshan, one of the top scientists who responded to the SARS outbreak in 2003, said that the disease can spread between humans.
What it means: That raises the likelihood that infection rates will accelerate.
Get smart: The outbreak has the potential to become a SARS redux if government officials don’t get it under control quickly. It’s a huge test of governance capacity in the Xi era.
Xinhua: 习近平对新型冠状病毒感染的肺炎疫情作出重要指示 强调要把人民群众生命安全和身体健康放在第一位 坚决遏制疫情蔓延势头 李克强作出批示
Gov.cn: 李克强主持召开国务院常务会议 进一步部署新型冠状病毒感染的肺炎疫情防控工作等
Gov.cn: China to curb spread of new coronavirus-related pneumonia
2.Central bank says it won’t liberalize deposit rates
On Thursday, the central bank (PBoC) said that China will keep its current benchmark deposit rate without any changes for the foreseeable future.
That’s according to Sun Guofeng, director of the PBOC’s monetary policy department (PBoC):
- “The benchmark deposit rate will remain the cornerstone of China’s system for steering the amount of interest that banks pay deposit holders.”
- “The People’s Bank of China (PBOC) will adjust it as needed.”
Why that’s a big fat bummer: The PBoC has been liberalizing lending rates (see next entry), raising expectations that deposit ratesmight also be liberalized.
Some context: The deposit benchmark rate has been unchanged since October 2015. The current benchmark rate for one-year lump-sum deposits is 1.5% and 2.75% for three-year deposits.
Get smart: The banking system is looking fragile these days, and liberalizing deposit rates could exacerbate that fragility if banksraised rates to attract depositors. So the authorities look to be doing what they have always done – relying on China’s legions of savers to subsidize the banks.
Caixin:Central Bank Official Dashes Hope for Deposit Rate Reform
3. Lending benchmark rate keepin’ steady
Yesterday, the central bank (PBoC) kept its lending benchmark rate steady for the second consecutive month.
Some context: In August 2019, the central bank released a new loan pricing mechanism, replacing the old benchmark lending rates with two national loan prime rates (LPRs). The LPRs are set monthly by 18 banks and meant to make loans to businesses more reflective of actual market dynamics (see August 19, 2019 Tip Sheet).
- The one-year LPR is unchanged at 4.15% – where it has been since November 2019.
- The five-year LPR also remains the same at 4.80%.
This (non) development follows last week’s move by the PBoC to leave borrowing costs for medium-term loans unchanged.
Get smart: This shows that recent targeted easing measures are not having an effect in the market.
4.Xi tours Yunnan
Following his visit to Myanmar (see yesterday’s Tip Sheet), Xi Jinping traveled to neighboring Yunnan to check out the situation.
Xi spent Sunday through Tuesday in the province. Here is what he got up to:
- He visited Simola Wa Village in Tengchong City, where he stressed the necessity of eradicating poverty and revitalizing the countryside.
- He visited Dianchi Lake in Kunming, where he stressed the importance of environmental protection.
- He visited the former site of the National Southwest Associated University, where he stressed that the goal of education is to nurture good socialists.
- He inspected troops stationed in Yunnan, where he urged them to implement the Party’s thinking on military strategy.
- He visited Heshun, a town on the ancient Southern Silk Road, where he promoted his own Belt and Road Initiative.
- He visited a Spring Festival shopping fair in Kunming to wish everybody a Happy Chinese New Year.
Get smart: With these visits, Xi is signaling his policy priorities.
Our observation: Xi does not appear focused on the economy.
Our question: Is that because he is leaving economic management to Liu He and the technocrats?
CPC People:习近平春节前夕赴云南看望慰问各族干部群众 向全国各族人民致以美好的新春祝福 祝各族人民生活越来越好祝祖国欣欣向荣
5.2020 will be a big year for Sino-EU relations
On Sunday, China’s top foreign affairs official, Yang Jiechi, was in Berlin to attend an international conference on the civil war in Libya.
While there, Yang met with two of Europe’s most important officials:
- German Chancellor Angela Merkel
- European Council President Charles Michel
In his meeting with Michel, Yang was all positivity (SCMP):
- “Strengthening communication, coordination, and cooperation between China and the EU, and jointly safeguarding multilateralism, to ensure the stable development of the comprehensive strategic partnership between China and the EU, is not only in the common interest of both parties, but also brings more stability, certainty and positive energy to the world.”
European Trade Commissioner-designate Phil Hogan was unimpressed. Speaking at a business forum on Monday, Hogan said that a proposed bilateral investment treaty is by no means a done deal (Reuters):
- “Hogan said the EU and China were making progress in the negotiations, although he was not satisfied with the latest offer from Beijing.”
- “’It’s up to China to level the playing field for our companies operating in their country,’ he said.”
Get smart: This is a critical year for China-EU relations. If they can conclude the treaty, it could serve to reverse deteriorating relations.
And if they don’t…it will be a fillip to decoupling.
SCMP: China tries to reassure European Union on trade amid discontent over US deal
Reuters:EU won’t meet China halfway in investment talks: EU trade chief