Body slam - China Tip Sheet March 5, 2020 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1.Xi wants officials to stay vigilant

On Wednesday, Xi Jinping chaired a meeting of the Politburo Standing Committee.

The agenda was a familiar one. It focused on two things:

Preventing and controlling the novel coronavirus
Stabilizing the economy

Things continue to look good on the first front.

On Wednesday, new confirmed cases of COVID-19 ticked up a bit, but remain relatively low (Straits Times):

“China reported 139 new confirmed cases of the coronavirus.”
“That was a slight rise from [119 cases on] Tuesday, which had been the lowest number in almost six weeks.”

The new cases were almost all in Wuhan:

“The uptick on Wednesday was driven by an increase in cases in Wuhan… where new infections climbed to 131 from 114 a day earlier.”
“But the number of new confirmed cases in Hubei, excluding Wuhan, has remained in single digits for seven consecutive days, with just three new infections recorded on Wednesday.”
“In the rest of mainland China, outside Hubei, there were only five new confirmed cases.”

Still, Xi doesn’t want officials in other regions to get too comfortable (CPC People):

“The risk of the epidemic spreading in other regions is rising as more people move about and gather.”
“We must not slacken efforts in [epidemic] control and prevention.”

Get smart: It will be weeks, if not months, before a return to anything resembling normalcy.

Driving the Day, Cont’d

2.Xi urges infrastructure investment

The economy remains severely depressed (see next entry).

During its meeting on Wednesday, the Politburo Standing Committee acknowledged that a new approach is needed.

So far, the focus has been on getting companies up and running.

But that’s not enough (CPC People):

“The meeting stressed that it is necessary that the resumption of work and production is combined with the expansion of domestic demand.”
“Consumption that has been suppressed or frozen must be unleashed.”

The government will rely on its favorite tool to boost demand:

“We should select investment projects; strengthen policy support for land use, energy use, and capital; and accelerate the construction of major projects and infrastructure that have been clearly identified in the national plan.”
“We need to increase investment in public health services and emergency supplies.”
“[We must] accelerate construction of 5G networks, data centers, and other new types of infrastructure.”

Get smart: The economy still seems to be operating at about half capacity – or less. That’s because local officials would rather err on the side of caution when it comes to epidemic prevention and control.

Finance Economics

3. Economy is in the dumps

We already knew that China’s economy would take a hit as a result of the coronavirus, but new indicators suggest that the hit was actually more of a body slam.

The service sector is in freefall.

The Caixin/Markit services purchasing managers’ index (PMI), which measures China’s service sector activity, fell by half last month from 51.8 in January to 26.5 in February (SCMP).

Some context: A PMI over 50 represents expansion in the sector, while anything under 50 represents contraction.

It’s hard to overstate how bad that reading is.

This is the first time the index has registered contraction since it was first set up in 2005.

Fresh stats from the auto sector were similarly grim (Yahoo Finance).

According to the China Passenger Car Association, passenger car sales fell by a catastrophic 80% in February.

So, in summary…ouch.

Get smart: Despite vigorous government efforts (see previous entry), the full resumption of economic activity will be a long and painful process.

Get smarter: Despite the bleak outlook, financial regulators are not yet clamoring for a return to large-scale stimulus (see next entry).

Politics Policy

4.Financial regulators meet, decide to stay the course

Financial regulators continue to inch up support for the economy – led by the central bank (PBoC).

Officials from the PBoC, finance ministry, and banking regulator held a meeting on Tuesday to discuss what more could be done.

Then, on Wednesday, the PBoC issued a press release about the meeting – saying the top goal is to ensure the “six stabilities,” as per State Council instructions (see yesterday’s Tip Sheet).

As always, reducing business costs and getting requisite financing to the right companies is paramount (Securities Daily):

“The financial sector should put support for the recovery and development of the real economy in a more prominent position, increase the amount of credit, and take effective measures to tap the potential…of enterprises.”

But as ever, increased support doesn’t mean policymakers will overdo it. One key policy lever remains squarely off the table (Yicai):

“Financial policies governing the property market will remain consistent and stable and will not be relaxed to give a short-term stimulus to China’s economy.”

Stop us if you’ve heard this one before: Policymakers are looking to keep support measures targeted.

Get smart: Anyone expecting a property-led stimulus isn’t listening to what regulators are saying.

Politics Policy

5.State Council streamlines resumption approvals

On Wednesday, the general office of the State Council released anotice onstreamliningadministrative approval procedures for businesses looking to resume operations.

Some context: Although the central government has banned local governments from imposing restrictions on business resumption, businesses still need to get informalapprovals from several agencies in manylocalities.

The newnotice is aimed at solving this problem.

In low-risk counties:

The policy forbids using administrative approvals or even filings to delay business resumption.

In medium and high-risk counties:

The policy permits provincial governments to impose consistent and unified business resumption requirements that are necessary and minimal.
Such requirements need to be clearly listed in a provincial catalogue.
No additional approvals or certificates may be imposed outside of those listed in the catalogue.
No security deposits may be collected.
Only one government agency should receive applications for business resumption and should respond within two working days.
Online submission of resumption applications is encouraged.

Get smart: The all-out epidemic containment campaign is turning into an all-out effort to revive normal businesses operations.

Politics Policy

6.Government to subsidize international flights

Last month, we told you airlines were having trouble staying airborne amid the COVID-19 crisis (see February 20 Tip Sheet).

Some context: Some industry experts have estimated that China’s civil aviation sector sustained close to RMB 37 billion in revenue losses in February and may take another RMB 35 billion hit in March.

Yesterday, the government reached into its pockets to lend a hand.

Both domestic and foreign airlines will receive subsidies for their China inbound and outbound international flights based on flight millage and passenger capacity.
The subsidies will be available between January 23 and June 30 of this year.

Get smart: We are closely tracking the government’s policy efforts aimed at helping various sectors to weather the outbreak. This is the government’s first industry-specific relief plan to be backed with actual money.

Get smarter: It’s not just about keeping the aviation sector afloat. It’s clear that government also cares about maintaining China’s connections to the outside world.

Body slam — China Tip Sheet March 5, 2020

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