Labor pains - China Tip Sheet February 26, 2020 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1.Coronavirus update: the end is nigh?

On Tuesday, China recorded 406 new cases of coronavirus. Of these, only five were recorded outside Hubei.

That’s a big improvement from 10 days ago:

That’s down from 1,933 Hubei and 118 non-Hubei cases on February 16. (See February 17 Tip Sheet)

We hate to speak too soon – especially as cases trend up elsewhere in the world – but it seems that the situation in China is being steadily brought under control.

The big question throughout the outbreak has been:

How effective hasthe government’s response been?

Not bad, according to WHO Chief Tedros Adhanom Ghebreyesus:

“The measures taken in China have averted a significant number of cases.”

The bigger question:

Have the peculiarities of China’s political system helped or hindered its response to the virus?

The answer: Both.

Tight information controls hindered the initial response to the outbreak.
On the other hand, once the Party-state got itself mobilized, the result was a massiveall-of-society response to containing the virus’s spread.

The big question: What will Chinese citizens remember more – the botched initial response? Or the ability to contain the outbreak once the seriousness of the situation was understood?

Politics Policy

2.Xi on spring farming

Yesterday, both Xi Jinping and Premier Li Keqiang sent instructions on spring farming work for 2020.

It’s unusual for Xi to weigh in on this issue.Heexplained why he took a personal interest this year (Xinhua):

“The more risks and challenges we face, the more we need to stabilize agriculture and ensure the safety of grain and major non-staple foods.”

Xi wants the ag sector back to work.

“Xi highlighted organizing timely spring farming in an all-out effort to secure a bumper summer grain harvest.”

Xi promised policy support to keep grain output stable.

Get smart: As with other sectors, COVID-19 control measures have seriously disrupted crucial supplies of products and services that famers need to start farming in the spring.

Get smarter: Unlike other sectors, there’s no hope of recovery if the spring farming season is missed. If the ag industry isn’t ready to go in time, it misses its window, plain and simple. That will put China’s food security at risk.

Politics Policy

3.Xi calls UAE and Ethiopia

Yesterday, Xi Jinping’s international reassurance tour continued with calls to Abu Dhabi Crown Prince Mohammed bin Zayed Al Nahyan and Ethiopian Prime Minister Abiy Ahmed.

His message:Don’t worry, everything will be back to normal soon.

Xi thanked the UAE for its support (Xinwen Lianbo 1):

“The UAE has assisted China with medical materials many times.”
“This fully reflects the profound friendship… between our two countries.”

And offered reassurances:

“China is fully confident in our capabilities to overcome the epidemic.”

Mohammed bin Zayed could not agree more:

“I believe that under the firm leadership of President Xi Jinping, the Chinese people will be able to overcome the epidemic at an early date.”

Xi’s call with Abiy followed a similar template.

He told Abiy not to worry about the long-term impact of the virus (Xinwen Lianbo 2):

“We will not only overcome, but also minimize the impact of the epidemic and achieve our set economic and social development goals.”

And Abiy expressed his trust in the Chinese government’s handling of the outbreak:

“Ethiopia is proud of China’s performance.”

Get smart: Xi continues to insist that China will meet its economic targets. But as the epidemic drags on, that will become increasingly difficult.

Politics Policy

4.State Council looks to support the economy

Yesterday, the State Council did its thing – holding its weekly executive meeting.

Top of the agenda: Minimizing the economic fallout from the coronavirus.

The meeting decided on measures to:

Facilitate employment of college graduates and migrant workers
Offer financial support to micro, small, and medium-sized enterprises
Increase support for household businesses

To help micro, small, and medium-sized firms facing liquidity issues (Gov.cn 2):

“[F]inancial institutions will be encouraged to provisionally defer their principal loan repayments…until June 30.”

They also recognized the original RMB 300 billion re-lending program is not enough (see yesterday’s Tip Sheet):

The re-lending and re-discount quota will be increased by RMB 500 billion.

Big lenders are being asked to spearhead efforts:

“State-owned large banks are urged to increase the balance of their inclusive loans to micro and small businesses by no less than 30 percent year-on-year in the first half of this year.”
“National commercial banks will be encouraged to offer more loans to micro and small firms, and work toward meaningfully lowering the lending rates from last year’s level.”

Get smart: The economic situation continues to look pretty dire.

What to watch: The big danger is that the ailing economy will lead to solvency issues at China’s already struggling small banks.

Politics Policy

5.MIIT gets a new daily task

Earlier this week, Xi made it clear to officials that supply chain bottlenecks are one of his top concerns (see February 24 Tip Sheet).

Yesterday, officials from the Ministry of Industry and Information Technology (MIIT), the regulator overseeing the manufacturing sector, said they are on it.

The ministry has mapped out 938 suppliers for 51 big manufacturers in 25 subsectors.
Those suppliers are distributed across 25 provinces.
MIIT has been monitoring these companies’ resumption progress on a daily basis.
And it’s been working directly with local governments to address the challenges those companies are facing.

These subsectors include:

Medical equipment
Fertilizer
Daily consumables
Autos
Shipping
Machinery
Electronics

Get smart: MIIT believes getting big manufacturers and their suppliers moving will help the whole manufacturing sector spring back to life.

Get smarter: This raises the question of which companies are on the ministry’s list.

Politics Policy

6.Labor pains

Guangdong firms are having a tough time getting back to work (see yesterday’s Tip Sheet).

The reason: A lack of labor.

Some context: The province’s companies rely on 10 million migrant workers, many of whom cannot – or will not – return because of the virus.

Guangdong authorities are keen to address the issue (SCMP):

“Chen Zhusheng, a deputy director of Guangdong’s health commission, said the government would soon issue guidelines to businesses directing them on how to coordinate the return of hundreds of thousands of employees from other provinces.”
“Areas with lower risks should move faster in lifting the restrictions…but then areas of medium and higher risks will need to balance carefully controlling the disease and returning to normal production.”

But, overall, officials remain cautious. Another provincial health official explains:

“We want to tell people from high-risk areas that they should not rush to return to Guangdong.”
“If they must come back, then they should first stay under quarantine for 14 days.”
“All conferences and sporting activities should be cancelled to prevent people from gathering.”

Get smart: Officials are under enormous pressure to get the economy up and running again – while simultaneously preventing any spread of the virus. That is a difficult circle to square.

Labor pains — China Tip Sheet February 26, 2020

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