Driving the Day
1.Hubei relaxes travel restrictions
The coronavirus continues to look under control.
On Wednesday, China reported:
- No new locally transmitted cases
- 47 new imported cases
In most cities, things are gradually getting back to normal.
As of today, even Hubei is loosening restrictions (WSJ):
- “Hubei authorities will end restrictions on outbound traffic starting Wednesday, with the exception of its capital city of Wuhan, which will block departures for two more weeks, according to a provincial government notice issued Tuesday.”
There are some caveats:
- “Only people deemed free from contagion risk will be allowed to leave.”
- “Those leaving Hubei must possess a ‘green code’ issued by provincial authorities to certify their health status.”
- “Wuhan, a city of 11 million people, will end its controls on outbound traffic starting April 8, according to the notice, and those departing must also possess the green code attesting to their health.”
Get smart: The government is keen to get life back to normal and the economy restarted. But preventing a second wave of the virus is still the authorities’ top concern.
Get smarter: As long as the pandemic continues to spread beyond China’s borders, achieving true normalcy will be impossible.
Reuters: Mainland China reports drop in new confirmed cases of coronavirus
WSJ:China’s Hubei Province to Ease Coronavirus Lockdown This Week; Wuhan to Follow in April
2.Deep fiscal stress in Q1
In case you still aren’t convinced that China’s economy has gone through a deep contraction in Q1, we give you the latest fiscal data (Bloomberg):
- “The income of central and local governments contracted 9.9% in the first two months of the year compared to a year ago.”
- “That was the deepest fall since February 2009.”
The declines came across the board:
- “Tax revenue declined more than 11%, with drops in value-added taxes, corporate income taxes and car purchase taxes undercutting the government’s coffers just as it needs to find extra money to stimulate the economy.”
One big problem: Those sharp declines are also hurting the public sector’s ability to spend:
- “Spending also dropped, but a surge in outlays on health-care and social security kept the decline to 2.9% from a year ago.”
Get smart: China’s economy was rocked in Q1. The data are increasingly clear on that point. The only question is just how deep the economic contraction has been.
Get smarter: A weak fiscal position won’t help officials kickstart the economy out of the doldrums.
What to watch: Business activity throughout Q2 will be crucial in determining China’s growth path over the next two years. We’ll have more on this tomorrow.
Bloomberg: China’s Government Faces Worst Fiscal Stress Since 2009
3.China to set up new holding company for AMCs
At a presser on Sunday, Zhou Liang, vice chairman of China Banking and Insurance Regulatory Commission (CBIRC), signaled that regulators are mulling reforms to China’s four national asset management companies (AMCs) (see yesterday’s Tip Sheet).
Some context: China’s four AMCs were set up over 20 years ago to dispose of state-owned banks’ distressed assets. The Ministry of Finance (MoF) is their majority shareholder.
On Wednesday, Caixin scooped that the reform in question will be the establishment of a new holding company:
- The holding company will be accorded vice-ministerial rank and will serve as an extra layer between the MoF and theAMCs.
- The COVID-19 outbreak has delayed the rollout of the plan, which was originally scheduled for the middle of March.
More context: Plans to better manage the AMCs have been in the works since Lai Xiaomin, former chairman of Huarong AMC, was investigated for corruption in 2018 after he exposed the sector to significant risk (see April 24, 2018 Tip Sheet).
Get smart: The MoF is the majority shareholder of China’s AMCs, but it takes a fairly hands-off approach to overseeing them. The new holding company may be more hands-on.
4.Telecoms plan big 5G capex
China’s state telecom firms have announced big investments in 5G infrastructure for 2020.
- China Unicom has earmarked about RMB 35 billion, two and half times more than in 2019.
- China Telecom expects to spend RMB 43.5 billion.
- China Mobile said it could spend as much at RMB 100 billion.
Some context: China Unicom and China Telecom have teamed up to build a joint network, while China Mobile is going it alone (Caixin):
- “Building a shared network will allow the partners to each reduce their capital expenditure budgets by 40% this year, China Unicom Chairman and CEO Wang Xiaochu said.”
This is new:Unlike in the past, the three carriers don’t plan on subsidizing their users’ mobile phone purchases.
But there’s a problem. it looks like the Ministry of Industry and Information Technology (MIIT) didn’t get the memo. In a statement Tuesday it said that (China Daily):
- “[I]t will encourage telecom carriers to give consumers more incentives for buying 5G-enabled devices.”
Get smart: Beijing is in a hurry to become a world leader in 5G. Those ambitions may trump telecoms’ business considerations.
5.State Council meets on global supply chain
Yesterday, the State Council had its weekly executive meeting.
Surprise, surprise: Work resumption was at the top of the agenda.
To get people back to work, the State Council is looking to:
- Promote online services, including online retail, catering, medical services, and education
- Encourage big companies to pay advance payments to upstream and downstream SMEs
That’s not all. The meeting also focused on how to ensure that exports of key products in the global supply chain get where they need to go.
Specifically, Premier Li weighed in on China’s insufficient international cargo freight capacity (Gov.2):
- “We must … keep up our international air freight capacity to avert potential shocks to the supply chains and facilitate the restart of business operations”
- “Air freight carriers will be supported in expanding their fleets by bringing in more cargo jets through lease or purchase.”
- “All air freight companies will receive equal support regardless of their types of ownership.”
- “The merger and reorganization of air freight and logistics firms will be encouraged”
- “Express delivery companies will be supported in expanding air services and overseas operations.”
Get smart: In a world where China is supplying the globe and logistical disruptions are the new normal, China wants to beef up its international cargo fleet.
6.How to win friends and disinfect people
Xi Jinping kept the international sympathy train a rollin’ with yet another round of calls to foreign leaders, pledging support and solidarity in the fight against COVID-19.
On Tuesday, Xi hopped on the horn with:
- Brazilian President Jair Bolsonaro
- Kazakh President Kassym-Jomart Tokayev
- Polish President Andrzej Duda
Some context: With the coronavirus mostly under control in China, Beijing has looked to burnish its international image with expressions of support and donations of medical supplies to countries still wrestling with the virus.
By now, Xi’s comments to world leaders on COVID-19 follow a familiar template, as exemplified by an excerpt of his call with Tokayev (Xinhua 1):
- “Viruses recognize no national borders and epidemics do not discriminate between races.”
- “In the battle against the current global public health crisis, the urgency and significance of building a community with a shared future for mankind have become even greater.”
Get smart: As a public relations strategy, providing moral and material support to other countries in the face of COVID-19 is a slam dunk. Expect Xi to continue phone-banking in the weeks to come.
Xinhua: Xi says COVID-19 fight adds urgency to building community with shared future for mankind
Xinhua:Xi says China ready to help Brazil fight COVID-19
Xinhua:Xi says China firmly supports Poland’s fight against COVID-19