Driving the Day
1.Central steering group tries to get Wuhan back to work
On Monday, the Central Steering Group for Epidemic Control in Hubei and Other Key Areas urged work and production resumption in Wuhan for the first time.
Some context: The central steering group was created at the Politburo Standing Committee meeting on January 25 and sent to Hubei shortly thereafter.
- The committee is chaired by Vice Premier Sun Chunlan.
Sun led the steering group to survey the progress of work resumption and spring farming in Wuhan, visiting:
- An automobile manufacturing plant
- A food processing company
- A vegetable production base
Besides continuing to prevent and control the spread of the coronavirus, Sun stressed that:
- Efforts must be made to promote the orderly resumption of work and production.
To that end, Sun called for efforts to:
- Provide point-to-point transportation services for workers to return to their posts
- Guarantee smooth logistics and transportation
- Solve resumption-related problems in taxation, financing, supply chains, and employment
Get smart: We keep close tabs on all readouts released by the central steering group. This is the first time the group has focused on business resumption rather than epidemic prevention and control.
Get smarter: This is a clear sign that Beijing believes the epidemic is near its end, even at its epicenter.
Gov.cn: 中央指导组：疫情防控不能松劲 复工复产要精准施策
2.Liquidity on liquidity
China’s central bank (PBoC) injected RMB 100 billion into the banking system on Monday via the medium-term lending facility (MLF).
- The PBoC kept interest rates on the instruments unchanged – at 3.15% for the one-year MLF loans – despite the large interest rate cut from the US Federal Reserve on Sunday (see next entry).
Some context: The move came after comments on Sunday from Sun Guofeng, head of the PBoC’s monetary policy department, that the bank will use a “variety of measures” to make sure liquidity is ample and loans for business are affordable.
More context: The move came on top of the cut to reserve requirement ratios (RRRs) that was enacted on Monday (see yesterday’s Tip Sheet) and injected RMB 550 billion into the banking system.
Get smart: The RRR cut and the MLF injection are both long-term injections, meaning the PBoC is upping its liquidity game. But as we wrote yesterday, flush liquidity is about relieving some of the pain that banks are feeling as they offer loan forbearance to companies.
Get smarter: We are likely to see more injections in the coming weeks and months as Chinese authorities continue to assess the fallout from their virus containment measures.
3.PBoC still not following the fed
While China’s central bank (PBoC) is working to ensure that the banking system has plenty of liquidity (see previous entry), it’s not following its developed world counterparts in slashing rates.
- Some context: On Sunday the US Federal Reserve undertook its second virus-related emergency interest rate cut, lowering the benchmark rate by 100 basis point to zero.
- More context: The move wasn’t enough to reassure US markets which were down by 12% on Monday – the worst day in over 30 years.
Even more context: The PBoC didn’t follow the Fed when the latter cut rates on March 3 (see March 4 Tip Sheet), which we argued was a sign that Chinese authorities are looking to use more nimble tools – as opposed to a blunt, broad-based cut.
Get smart: Despite the terrible economic data that Chinese authorities reported on Monday (see yesterday’s Tip Sheet), China’s economy has moved past the bottom – so cutting rates and adding massive economic support now could overheat the economy as it moves toward normalization.
What to watch: Hopefully China’s swift economic normalization will be a harbinger of where the rest of the world will be in two months or so.
Beijing Daily: 没降！央行开展1000亿元MLF操作，利率与之前持平
4.More on China’s terrible Q1 economic data
Yesterday, we told you that China’s January and February econ data was appalling.
Today, we’ve got more of the gory details.
Property data was particularly bad in the beginning of 2020.
- Property investment contracted by 16.3% y/y in Jan-Feb – down from 7.4% growth in December.
- New housing starts cratered by 44.9% y/y in Jan-Feb – down from 7.4% growth in December.
- Housing sales contracted by 40% y/y in Jan-Feb – down from a 1.7% contraction in December.
Those data points are grim. Real grim.
Why it matters: The overall outlook for the economy depends heavily on the property outlook. Right now, it’s not lookin’ good.
What to watch: The big question for the property sector, as with other sectors, is when will consumers/purchasers come back to the market?
5.2020 growth target uncertain
The annual meeting of the legislature (NPC) may be held in the next two months (Reuters):
- “China tentatively plans to hold its delayed annual gathering of parliament in late April or early May, two people involved in preparations told Reuters.”
Some context: The meeting is usually held at the beginning of March, but has been delayed because of the coronavirus epidemic (see February 17 Tip Sheet).
Nothing is set in stone:
- “The NPC’s timing is not finalised, and one of the people said the number of attendees may be reduced.”
- “’We still have to play it by ear, as the coronavirus rapidly spreads across the world,’ said the person.”
Why we’re eager for the meeting: It’s at the NPC that the government unveils its GDP growth target for the year.
Yesterday, reporters repeatedly asked National Bureau of Statistics official Mao Shengyong about the growth target.
Mao didn’t give up much (NBS):
- “As for the national development goals for the year, we still have to see how they areset by the Government Work Report at the [NPC].”
Our take: The government is still trying to wrap its head around the impact of the COVID-19 pandemic. They are not certain how much they need to adjust policy.
6.Amici a Pechino
Yesterday, we told you that China had racked up some serious brownie points with the Italian public after sending medical teams and desperately needed supplies to help Italy fight its COVID-19 crisis (see yesterday’s Tip Sheet).
On Monday, Xi Jinping looked to compound the warm fuzzies by calling up Italian Prime Minister Giuseppe Conte.
Xi complimented Rome’s “resolute prevention and control measures” and pledged to dispatch more medical personnel and supplies to Italy.
Xi also said China was willing to work with Italy to create a “Health Silk Road” built on cooperation on epidemic prevention and response issues.
- We think you’ll agree it was a great metaphor given the Silk Road’s storied history of…preventing epidemics?
Conte reciprocated Xi’s amiable tone, thanking China for its assistance saying that Beijing’s successful virus control measures served as a great encouragement to Italy and the rest of Europe.
Get smart: Beijing’s assistance to other COVID-19 stricken countries has been a public relations coup at a time when China’s global image has been on the wane.
Get smarter: How effective the aid campaign will be in winning over increasingly China-sceptic European politicians remains to be seen.
The Paper: 习近平同意大利总理孔特通电话
7.Shut up and cooperate
On Monday, China’s top diplomat, Yang Jiechi got on the phonewithUS Secretary of State Mike Pompeo.
On the agenda: A frank but productive exchange of views on containing the spread of COVID-19.
Yang had a few bones to pick (The Paper):
- “Some U.S. politicians continue to slander…China’s prevention and control efforts, stigmatize China and arouse strong indignation of the Chinese people, which China…strongly condemns.”
Some context: US President Donald Trump, Pompeo, and other top US officials have been pointedly referring to COVID-19 as the “Chinese virus.”
Pompeo had his own complaints (US DoS):
- “[The US has] strong objections to PRC efforts to shift blame for COVID-19 to the United States.”
- “The Secretary stressed that this is not the time to spread disinformation and outlandish rumors.”
Some context: Pompeo was referencing statements last week by deputy director of the Foreign Ministry Information Department Zhao Lijian, who suggested that COVID-19 was unleashed on Wuhan by the US military.
Get smart: Those who hoped the outbreak of COVID-19 would cause the US and China to put aside their differences will be disappointed. The pandemic has only deepened mistrust.
US DoS: Secretary Pompeo’s Call with People’s Republic of China Politburo Member Yang Jiechi
Bloomberg:Chinese Official Pushes Conspiracy Theory U.S. Spread Virus