Driving the Day
1.Li urges work resumption…again
The spread of COVID-19 continues to slow in China.
- China confirmed 15 new cases on Wednesday – down from 24 on Tuesday.
- Of these, eight were reported in Wuhan, and six were imported from abroad.
The continuous decline of new cases explains why Premier Li Keqiang is increasingly focused on getting the economy back to work.
Tuesday’s State Council’s executive meeting was all about revitalizing the economy.
To this end, the State Council will set up a coordinating mechanism for ministries to help businesses address bottlenecks in the supply chain.
Key companies along the supply chain will also get government support.
The logic:If these companies are up and running, many more suppliers in the same supply chain will soon be able to follow suit.
Policymakers are thinking beyond China’s borders.
- In order to maintain the operation of the global supply chain, China will increase the number of international cargo flights.
Get smart: After getting Hubei under control, Beijing is going all out to clear roadblocks on the way to economic recovery.
2.Data dump – credit
The central bank (PBoC) dropped February credit data on Wednesday.
The headline: The numbers weren’t as bad as we had feared. Credit growth continued to hobble along.
- Aggregate credit grew by 10.7% y/y – the same print as in January.
- Growth of RMB-denominated bank loans grew by 12.1% y/y – in line with January’s 12.2%.
- All major forms of shadow banking stayed deep in contractionary territory – with bankers’acceptances contracting by 20.6% y/y, the lowest print in three years.
Quick take: On the plus side, aggregate credit growth isn’t decelerating. But on the negative side, it isn’t accelerating either. It came in at 10.7% y/y in six out of the last seven months.
Get smart: Policy support remains highly targeted even in the face of the COVID-19 outbreak, so banks aren’t ramping up lending in response to government directives.
- And given the negative demand shock to the economy, banks will likely remain cautious over the next few months.
What to watch: Credit growth is unlikely to accelerate and become a major driver of economic recovery. But if banks and other institutions don’t keep credit creation at least at current levels, then the lack of financing will be a major inhibitor to recovery.
3.Government wants more foreign investment
At Tuesday’s State Council executive meeting (see entry 1), Premier Li Keqiang also called for more efforts to stabilize foreign investment.
According to Li, things are not looking good(Gov.cn 2):
- “[W]e must implement targeted policies to arrest the slide in foreign trade and foreign investment.”
To this end, the State Council decided to:
- Shortenthe negative list of sectors restricting foreign investment and expandthe list encouraging foreign investment
- Refundall export tax rebates in full and on time, except for those for energy intensive, polluting, and natural resource-related products
- Encouragefinancial institutions to increase foreign trade loans by deferring principal and interest payments
Wasting no time, the NDRC, China’s macro planner, published a policy focusing on stabilizing foreign investment on Wednesday.
The policy makes helping foreign companies in China get back to work the NDRC’s top priority.
The NDRC also wants to boost foreign investment. Big investments will get some TLC:
- The NDRC willcoordinate with other ministries to resolve thorny issues for investments of over USD 1 billion in the manufacturing and high-tech sectors.
Get smart: If COVID-19 causes other economies to shut down, it could make China appear a more appealing place for foreign investment.
4.State Council looks to boost financing to hard-hit businesses
In February, we told you the State Council was looking to shepherd micro, small, and medium-sized businesses through the coronavirus outbreak with a massive RMB 800 billion re-lending push (see February 26 Tip Sheet).
At Tuesday’s State Council executive meeting, Premier Li Keqiangand company were looking to make sure the money is getting where it needs to go (Gov.cn):
- “We need to put additional policies in place to speed up the progress of loan deliveryand better meet the funding needs of [industries involved in] production of epidemic prevention materials, spring farming, the international supply chain, labor-intensive industries, as well as micro, small, and medium-sized enterprises.”
The meeting also called for:
- “Appropriate delegation of loan approval authority.”
- “[Strengthening of] audit supervision in order to prevent leakage.”
Finally, the State Council pledged to make targeted RRR cuts for joint-stock banks in order to boost loans to small enterprises.
Get smart: The key word here is “targeted” – these measures are serving a specific purpose.
Get smarter: The immediate risk of the coronavirus may be waning in China, but business is going to be hurting for a long time to come. The government is searching for ways to soften the blow.
Gov.cn: 李克强主持召开国务院常务会议 确定应对疫情影响稳外贸稳外资的新举措等
Reuters:China to make targeted RRR cuts, stabilise foreign trade amid virus
5.Policy advisors caution against investment mania
Several policy advisors recently tried to bevoices of reason amid market frenzies overprovincial investment plans (see March 4 Tip Sheet).
Zhu Baoliang, chief economist at theState Information Center, said the reports of trillions of RMB of infrastructure investment are overblown (Caixin 1).
- “The new infrastructure is related [only] to 5G and Industrial Internet.”
- “According to the initial plan, the total investment is about RMB 1.2 trillion to 1.5 trillion, and it will be completed within three to five years.”
Some context: Markets and local governments have been classifying a wide range of projects, from rail lines to charging stations, as “new infrastructure.”
But even when it comes to true “new infrastructure,” Liu Shijin, former deputy head of the State Council’s in-house think tank, says it’s hard for the government to invest (Caixin 2).
- “The essence of new infrastructure such as artificial intelligence, data centers, and the industrial Internet is technology, which should basically be led by corporate investment.”
Ma Jun, a member of the central bank’s monetary policy committee, thinks policymakers should continue to focus on employment and SMEs rather than infrastructure investment.
Our take:We sense there is another high-level policy debate ongoing about whether China should stimulate the economy through infrastructure investment.