End times - China Tip Sheet March 18, 2020 - Trivium China - Policy insights driving brilliant China strategies

Driving the Day

1.Beijing boots American journalists

This is bad.

On Wednesday, the Chinese government announced that it is kicking out all US journalists working at the New York Times, Washington Post, and Wall Street Journal in China – including Hong Kong and Macau.

Get smart: Barring journalists from Hong Kong is particularly aggressive and contravenes the city’s Basic Law.

China’s stated reason (Xinhua):

“In February 2020, [the US government] designated five Chinese media entities in the United States as ‘foreign missions’and imposed a cap on the number of their employees, in effect expelling Chinese journalists from the United States.”

It looks like there could be more restrictions to come:

“In response to the discriminatory restrictions the United States has imposed on Chinese journalists…, China will take reciprocal measures against American journalists.”

Why this is particularly troubling: The two countries’ top diplomats, Yang Jiechi and Mike Pompeo, spoke yesterday (see yesterday’s Tip Sheet). That call should have been used to dial down bilateral tensions; instead it seems to have escalated them.

What it means:

Sino-US relations will deteriorate further.
It will be even more difficult to get objective information about what is going on in China.
China’s image in the West will suffer.

Finance Economics

2.Demanding supply and supplying demand

As the immediate threat of COVID-19 recedes in China and amid a flurry of government support measures, resumption rates continue to creep skyward.

For more we turn to our brand spankin’ new proprietary resumption tracker, the Trivium Business Activity Index.

According to our calculations, as of March 18:

The Trivium National Business Activity Index indicates that China’s economy is operating at 71.5% of typical output. That’s up from 69.5% on March 16.
The Trivium National Large Enterprise Activity Index indicates that China’s large enterprises are operating at 74.8% of typical output. That’s up from 74.6% on March 16.
The Trivium National SME Activity Index indicates that China’s economy is operating at 69.4% of typical output. That’s up from 66.0% on March 16.

These numbers are not bad and suggest to us that the government has done a good job of clearing supply-side hurdles to resumption.

The real challenge now lies in boosting flagging demand (Trivium 2):

“Companies will not normalize output until they are confident that consumer and business demand will return.

Get smart: No matter how adroitly policymakers manage it, China’s economy will continue to face significant headwinds from the COVID-19 pandemic.

Finance Economics

3.More efforts to boost consumption

Over the past several days, we’ve been highlighting a key shift in focus – by both businesses and policymakers – from supply-side constraints on production to the demand outlook.

Some context: On Friday, the National Developmet and Reform Commission (NDRC) and a host of other regulators put out a guiding document to boost consumer spending (see March 13 Tip Sheet).

Local governments have wasted no time in responding (SCMP):

“Over the weekend, Nanjing City gave out e-vouchers worth 318 million yuan to residents as well as non-residents…that can be used in restaurants, gyms as well as to shop [for] books [and] electronics.”

Companies are also getting in on the action:

“Retailing giant Suning.com…handed out coupons worth 500 million yuan (US$71.4 million) to boost shopping on its online and mobile platforms.”

And government officials are leading by example:

“Government heads in various jurisdictions, including Nanjing city, Shandong, Hunan, Guangdong and Hainan, have…appeared in public and dined at restaurants and gone shopping.”

But some folks argue we have a chicken and the egg problem:

“‘Only when employment is ensured could we have more consumption,’said Xu Hongcai, deputy director of the Economic Policy Commission at the China Association of Policy Science.”

Get smart: China’s economy is recovering, but the outlook remains highly uncertain.

Politics Policy

4.Fifth national AMC is born

On Monday, the China Banking and Insurance Regulatory Commission (CBIRC) officially approved the establishment of the country’s fifth national state-owned asset management company (AMC), China Galaxy (see January 6 Tip Sheet).

Central Huijin Investment, a central government holding company for many state-owned financial institutions, is the major shareholder of the new AMC.

Some context: This is the firstnational AMC to be established in more than 20 years since Beijing set up four AMCs to dispose of distressed assets for big state-owned banks in 1999.

According to Xiao Yuanqi, the CBIRC’s chief risk officer, China Galaxy will have the same business scope as its four big brothers.

What it means: Like China’s other AMCs, China Galaxy could eventually grow into another financial behemoth with sizeable footprints in various financial subsectors.

According Xiao, there are more AMCs, including foreign ones and joint-ventures in the works. Several of them will open for business in 2020.

Get smart: Financial regulators are making efforts to safely tackle trillions of RMB of distressed assets.

READ MORE

21st Century Biz: 银保监会肖远企：外资、合资AMC也会陆续落地

Politics Policy

5.Seeking a friend for the end of the world

Pakistani President Arif Alvi was in Beijing on Tuesday to enjoy some bro time with President Xi Jinping and Premier Li Keqiang.

Some context: China and Pakistan have a historically friendly bilateral relationship, bolstered recently by Belt and Road investment.

Alvi’s meetings with Xi and Li were suitably convivial, with both Chinese leaders hailing the “iron core” of Sino-Pakistani friendship (Xinhua 1):

Xi thanked Alvi for Islamabad’s support in the early days of the COVID-19 outbreak and pledged continuing medical assistance to Pakistan as it worked to contain the virus.
Then, just to emphasize that the world is indeed going through the end times, Xi said China would “continue to provide support to Pakistan in controlling the locust plague” currently wreaking havoc on the country’s agriculture.

Alvi responded in kind and even took an oblique swipe at the US:

“It is believed that after the epidemic, China will become even stronger.”
“The attempts by some forces to use the epidemic to stigmatize and isolate China run against the will of the people and are doomed to fail.”

The two parties then signed a joint statement pledging to deepen their strategic partnership.

Get smart: China is increasingly seeing coronavirus solidarity as a way to cement international friendships.

Politics Policy

6.State Council meets on employment

On Tuesday, Premier Li chaired the State Council’s weekly executive meeting.

Employment was at the top of the agenda.

Li made it crystal clear that stabilizing employment is the top priority and that the government should let people get back to work as soon as possible. (Xinhua 1):

“Unreasonable restrictions that hinder the resumption of work should be lifted to let more workers get back to work and make money as soon as possible.”

To that end, Li called for central and local governments to cut the red tape that Chinese industry was festooned with during the height of the COVID-19 outbreak.

“Temporary control measures that are no longer necessary [as well as] arbitrary certification and fee requirements must be removed.”

Li also wants to provide more support to SMEs given their indispensable role in providing jobs. (Xinhua 2)

“[Li] also called for more support to small and micro enterprises, such as easing their financing difficulties, cutting rent for collectively owned housing, ensuring [the] supply of power and water, and waiving overdue fines.”

Get smart: Getting people back to their posts is not only key to the government’s employment goals, but also key to businesses’ work resumption.

End times — China Tip Sheet March 18, 2020

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