Driving the Day
1. Securingthe perimeter
The coronavirus continues to look largely under control within China.
- On Thursday, China reported one locally transmitted case.
But imported cases are a concern:
- On Thursday, there were 55 new cases, down from 67 on Wednesday.
That’s got top leaders worried.
On Thursday, Premier Li Keqiang aired his concern at a meeting of Central Leading Small Group (CLSG) for the Work to Counter the Novel Coronavirus Pneumonia Epidemic (Gov.cn):
- “The epidemic situation overseas is rapidly accelerating.
- “The pressure is mounting on our country’s [efforts] to defend against imports [of the virus].”
Not long after the meeting the government announced it will severely limit entry into the country (see entry 2).
But within China’s borders, there are steps towards normalcy.
- Four western provinces have re-opened some schools.
- Nine provinces, including coastal Jiangsu province, will start to re-open schools in the next two weeks.
Get smart: Re-opening schools is a strong signal that governments are confident that the virus is under control.
李克强主持召开中央应对新冠肺炎疫情工作领导小组会议 要求严格落实防止境内疫情反弹各项措施 进一步做好境外疫情经陆路水路输入风险防控工作
Driving the Day, Cont’d
2.China shuts its borders
Life comes at you fast.
On Thursday evening, Chinese authorities announced that they will shut the borders to almost all foreign nationals – just two months after decrying other countries’ immigration restrictions on Chinese citizens.
Bloomberg has the details:
- “Foreigners won’t be allowed to enter even with valid visas and work permits, the foreign ministry said in a statement late Thursday, in what it called a ‘necessary and temporary’ step.”
- “Diplomats aren’t included in the order, and neither are people coming to China ‘to engage in necessary economic, trade, scientific and technological activities, and for urgent humanitarian needs,’ it said.”
- “In recent days, China had imposed greater restrictions on foreigners entering the country, including 14-day quarantines on people arriving from countries hit hard by the pandemic.”
Get smart: As policymakers have become increasingly concerned about importing the virus from abroad, this move was all but inevitable.
Get smarter: This can’t be good for further normalization of the economy.
Our question: Will this further complicate China’s efforts to be seen as a global leader in the virus response?
Bloomberg: China Seals Borders to Most Foreigners Starting Saturday
21st Century Biz: 外交部、国家移民管理局：暂时停止持有效中国签证、居留许可的外国人入境
3. Economyoperating at 3/4 normal
Based on newly released data, we have revised and updated theTriviumBusinessActivityIndex.
Here are our latest calculations as of March 27:
- TheTriviumNationalBusinessActivityIndexindicates that China’s economy is operating at 74.9% of typical output.
- TheTriviumNational Large EnterpriseActivityIndexindicates that China’s large enterprises are operating at 80.1% of typical output.
- TheTriviumNational SMEActivityIndexindicates that China’s small businesses are operating at 71.4% of typical output.
Get smart: China’s economy is now highly dependent on the demand side of the equation.
Get smarter: This means policymakers are going all-in on boosting domestic consumption since there’s not much they can do about depressed foreign demand.
Trivium: Trivium Business Activity Index
4.Industrial profits slump
This morning, the National Bureau of Statistics (NBS) dropped industrial profits for January and February.
It was pretty bad (Reuters):
- “Profits earned by Chinese industrial firms [with annual revenue of more than RMB 20 million] in the first two months dropped 38.3% from a year earlier to 410.7 billion yuan ($58.15 billion), worsening from a 6.3% fall seen in December last year.”
- “It marked the steepest decline in data going back to 2010.”
These sectors got particularly hammered:
- Profits for the electrical equipment industry were down 87%.
- Profits for the auto sector were down 79.6%.
- Profits for the electronics industry were down 68.2%.
- Profits for the chemicals industry were down 66.4%.
Some sectors still saw growth:
- Tobacco companies saw profits increase by 31.5%.
- Non-ferrous metals companies saw profits rise by 28.3%.
- Oil and gas producers saw profits grow by 23.7%.
Get smart: These numbers come as no surprise. If anything they could have been worse given that most of the economy was shut down during February.
Reuters: China’s industrial firms post steepest fall in profits in a decade
5.COVID-19’s impact on employment
China’s COVID-19 response killed the economyin Q1 (see our most recent macro note for more details) – and the full impact on employment markets is just now coming into view.
Caixin highlights a recent survey, which showed employers shelved hiring plans in the first two months of the year – with job openings dropping by 30% y/y.
- “A joint project between Peking University’s Guanghua School of Management and Zhaopin, one of China’s largest hiring platforms, the survey covered about 1 million companies.”
- “While the results have not yet been officially published, survey organizer Lu Hai…discussed the findings in an online seminar held Wednesday.”
- “Lu…said the hardest-hit sectors included media, entertainment, sports and services, which all saw job openings fall more than 40% year-on-year in the first two months of 2020.”
You’ll never guess who saw the most pain:
- “Smaller firms have been hit much harder than big companies. Firms…with less than 20 staff [saw a 40% drop, with] 30% for companies with staff between 20 and 99 employees.”
Get smart: This is why policymakers are so focused on shoring up employment in the wake of the virus outbreak.
Caixin: Job Openings in China Fall Over 30% Amid Coronavirus
6.G20 convenes emergencymeeting
On Thursday, the G20 met via video link to discuss the mounting COVID-19 crisis.
During the meeting, China’s Xi Jinping made liberal use of his soapbox.
Some context: As COVID-19 is brought under control in China, Beijing has embarked on a large-scale international outreach campaign providing both material aid and moral support for countries still battling the virus (see yesterday’s Tip Sheet).
In his speech, Xi put forward four broad proposals for dealing with the pandemic (Xinhua):
- Developing international cooperation mechanisms including a G20 health ministers’ meeting and G20-led information sharing platform
- Initiating a collective approach to testing, drug research and development, and the establishment of regional emergency liaison mechanisms
- Enhancing the sharing of anti-epidemic information with the support of the WHO and other multilateral organizations
- Enhancing international macroeconomic policy coordination to counteract the economic fallout from the virus
Xi also called on G20 leaders to (Xinhua 1)
- “cut tariffs, remove barriers, and facilitate the unfettered flow of trade.”
Get smart: Xi’s calls for more globalization are likely to fall on deaf ears. As countries around the world face a shortage of medical equipment, many governments will look to reshore supply chains.
Full text of Xi’s remarks at Extraordinary G20 Leaders’ Summit
Xinhua Headlines-Xi Focus: Xi calls for all-out global war against COVID-19 at extraordinary G20 summit
G20 leaders to inject $5 trillion into global economy in fight against coronavirus
7.Xi calls Trump
After several weeks of placing near daily calls to world leaders, Xi Jinping finally got on the phone with US President Donald Trump today.
Some context: The outbreak of COVID-19 had led to fresh round of angry recriminations between the two countries, further damaging already tense Sino-US relations.
Xi expressed concern over the spread of the virus in the US, saying (Xinhua):
- “China and the United States should unite to fight against the epidemic.”
- “China is willing to continue to share information and experience with the United States without reservation.”
Trump replied that:
- “[He was] glad to see that China has made positive progress in fighting the epidemic.”
- Trump also said he found China’s experience “inspiring”.
Following the call, Trump took to Twitter to express his satisfaction (Twitter):
- “Just finished a very good conversation with President Xi of China…China has been through much has developed a strong understanding of the Virus. We are working closely together. Much respect!”
Get smart: While it’s certainly a good sign that Xi and Trump had a friendly conversation, we don’t expect this is the beginning of a larger thaw. Sino-US relations have whipsawed wildly in recent years and will most likely continue to do so.
SCMP: Coronavirus: China calls for ‘concrete steps’ from US to cooperate in fight
Twitter: Donald Trump Twitter
8.Government looks to boost fiscal support
In case you haven’t heard…China’s economy is in dire straits.
That’s why on March 26, Executive Vice Premier Han Zheng chaired a meeting on stabilizing investment.
Han’s plan (Gov.cn 1):
- “Han said financial support such as local special bonds should prioritize key areas and major projects.”
- “The construction of “new infrastructure” projects such as 5G networks should be strongly encouraged to ramp up new business modes such as the digital economy.”
But Han also wants to avoid unproductive investment (Gov.cn 2):
- “[We] must persist with the principle of “capital follows the projects.’”
What that means: Viable projects should be identified, and only then will capital be allocated.
The government has already allocated over RMB 2 trillion to combat the slowdown (Reuters):
- “China is implementing $344 billion of mainly fiscal measures in its fight against the coronavirus outbreak, a Foreign Ministry official said on Thursday.”
- “The money already spent includes 1 trillion yuan ($141 billion) in tax reductions, as well as liquidity released through targeted tools, Wang Xiaolong, director-general of international economic affairs at the ministry, told reporters.”
Get smart: China’s fiscal support measures remain relatively restrained, especially when compared to their response to the global financial crisis in 2008/2009.
Gov.cn: Vice-premier stresses major projects construction, stabilizing investment
Reuters: China implementing $344 billion of mainly fiscal measures in coronavirus fight