There's no money - China Tip Sheet March 6, 2020 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1. Hubei turns the corner

After a hellacious six weeks under lockdown, Hubei province, the epicenter of the coronavirus outbreak, has seen a drop off in new infections.

Of 143 new cases reported nationwide on Thursday, 126 were in Hubei.
All of the new Hubei cases were in Wuhan.

Additionally, in the latest government assessment, 39 of Hubei’s 76 counties were deemed low or medium risk.

Experts concur that the risk is receding:

Zhang Boli, an expert advising the coronavirus central steering group, said that cities in Hubei besides Wuhan could achieve a new infection rate of zero by mid-March.
Zhang also said that it would be possible for Wuhan to reach the same milestone by the end of the month.

This is excellent news, but the people of Hubei won’t have much time to celebrate.

The government wants them getting back to work, stat.

Hubei officials are developing a timeline to get people back to work depending on local conditions.

Get smart: As infections across Hubei decline, Wuhan remains the coronavirus’s last bastion in mainland China.

Get smarter: Getting Hubei back to work will make a big difference for many a supply chain throughout the country.

Finance Economics

2.Will they or won’t they?

Here we go again.

The “China is about to roll out a massive investment stimulus” speculation is ramping up.

Expectations are building after Wednesday’s Politburo Standing Committee meeting, which did indeed focus on the need to keep up investment – to an extent (see yesterday’s Tip Sheet).
Folks also increasingly think authorities will juice growth to hit politically-driven GDP targets and other development goals.

But we see the readout of the Politburo meeting as being balanced – indicating support to get already-approved investment projects unstuck, not to fire an investment bazooka.

The stimulus crowd glommed onto comments like these:

“We will strive to move the economic and social development of the whole country onto a normal track as soon as possible.”
“It is necessary to combine the resumption of work and production with the expansion of domestic demand.”
“We should focus on mobilizing private investment activity.”

Our take: The call for private investment is a clear sign that the government doesn’t want to open its own coffers.

Equally important,the meeting was clear that “targeted” remains the operative word:

“The meeting stressed that targeted work should be carried out to assist enterprises.”

And as we told you yesterday, new infrastructure investment will be in already-approved projects– not new ones.

The bottom line: Markets want China stimulus, but top leaders still are still favoring targeted support.

Finance Economics

3. Old money for new infrastructure investment

On Wednesday, we told you that local government’s big investment headline numbers buoyed the market (see Wednesday’s Tip Sheet).

Our question: Where will the money come from?

To find out, the folks at 21st Century Biz talked to local officials and bankers.

The simple answer:There isn’tany new money.

Local governments are still facing fiscal revenue constraints as the economy continues to suffer.
That leaves the government’s special bonds, but not all of them will be used for infrastructure and there is a cap on special bond issuance.

Some context: The central government already front-loaded close to RMB 1.3 trillion worth of special bonds this year. There is probably RMB 2 trillion more in the pipeline.

What about the banks?According to a provincial policy bank loan officer, banks are only interested in projects with positive cashflow as they are still under instructions not to increase off-balance sheet debt.

“We only do projects whose return can cover the principal and interest…; otherwise, hidden debt may increase and we will be accountable in the future.”
“This is a huge risk.”

Get smart: Big investment plans are more talk than walk.

Finance Economics

4.Economy struggling to get going

With the coronavirus epidemic looking increasingly under control, the big question is: How fast can China’s economy get going again?

There are increasing signs of life, but the economy remains severely depressed (The Paper):

“Big data from Baidu searches shows that, at present, over 50% of offline [businesses] have resumed work nationally.”
“The percentage of offline [businesses] that have resumed work exceeds 63% in Xining, Dalian, and Changchun, which lead the country in this respect.”

And less than half of small and medium enterprises are back at it (Xinhua):

“Around 45 percent of China’s small and medium-sized enterprises (SMEs) had resumed work by Monday.”
“[That was up] from 32.8 percent as of Feb. 26, according to the Ministry of Industry and Information Technology (MIIT).”

Stats for the coal industry are bit better (MySteel):

“The capacity utilization rate as of March 3 [of coal mines was] 83.4%, according to official data from China’s National Energy Administration.”
“The rate was 6.9 percentage points higher from the previous level of 76.5% on February 22 and marked a two-fold increase on that recorded on February 1.”

Get smart: Any way you slice it, the economy is in a parlous state.

Politics Policy

5.Li stresses support for the affected

On Thursday, Premier Li Keqiang chaired another meeting of the Central Leading Small Group (CLSG) for the Work to Counter the Novel Coronavirus Pneumonia Epidemic.

Some context: The CLSG, created on January 25, reports directly to the Politburo Standing Committee.

On the agenda:

Taking care of the people most affected by the virus.

Here’s how the government wants to do that.

For frontline medical workers:

Temporary stipends and bonuses should be paid on time.
Payments to frontline medical workers directly involved in fighting the virus should be prioritized.
Payments should not be based on administrative rank.
Sufficient rest, diets, and nutrition should be ensured.

For people in need:

Social welfare checks should be paid in full and on time.
Temporary financial aid should be provided to people impoverished by the epidemic.
Accommodationand meals should be provided to migrants stranded due to traffic controls.
Dependents of quarantined people should be taken care of.

Get smart: Beijing realizes that a lot of people have had their lives upended by the outbreak of COVID-19. It wants to make sure these people have their basic needs met.

Politics Policy

6.The quest for affordable healthcare

Yesterday, the Party center and the State Council jointly released a document aimed at reforming China’s health insurance system.

Some context: China’s most important policymaking body, the Central Committee for Comprehensively Deepening Reform (CCCDR), approved the document last November (see November 27, 2019 Tip Sheet).

The ultimate goal has not changed: Spending health insurance funds efficiently in order to provide better coverage to the public.

The government’s public health insurance program will remain the only dominant payor in the market.

The public health insurance fund will play the role of “strategic purchaser” to control healthcare costs.

But this particular detail could be a bombshell.

The government will continue to explore direct payment settlement between the public health insurance fund and healthcare companies.

Get smart: Direct payments could really weaken the clout of public hospitals left out of the loop.

To prevent local governments from twisting public health insurance policies to their advantage, the central government will strip local governments of their power to revise the coverage of public health insurance programs.

Get smarter: Many of the reform measures in the document have been in motionsince the establishment of the National Healthcare Security Administration in March 2018.

There’s no money — China Tip Sheet March 6, 2020

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