Driving the Day
1. Government to tackle asymptomatic cases
On Monday, mainland China saw 48 new cases of COVID-19. All were imported.
- That’s up from 31 the previous day.
There are increasing concerns about asymptomatic cases.
Some context: China recorded and quarantined all cases where patients showed no symptoms but still tested positive. But those asymptomatic cases are not currently counted in the official tally and the number of these cases is not public.
On Monday, Premier Li Keqiang called for greater efforts to identify and isolate asymptomatic cases at a government meeting on containing the virus (Gov.cn).
- “[We will] increase the targeted effort to screen asymptomatic infections.”
- “Once an asymptomatic infection is found, [we must] strictly implement centralized isolation and medical management, openly and transparently release information, resolutely prevent delayed reports and omissions, identify the source as soon as possible, and quarantine close contacts for medical observation.”
Changes are afoot: On Tuesday, the National Health Commission (NHC) announced that it would start to report asymptomatic cases beginning on Wednesday.
Get smart: Reporting asymptomatic cases will be a jarring but effective reminder to the public not to let its guard down.
Get smarter: It could also further undermine the country’s fragile economic recovery.
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 要求抓好巩固防控成效各项工作 突出做好无症状感染者防控
2.PBoC upping its game
“A stage of strengthening counter-cyclical adjustment.”
That’s how pundits and financial media are characterizing the current state of monetary policy after the central bank (PBoC) cut rates on open market operations (OMOs) on Monday (see yesterday’s Tip Sheet).
What to watch: Now that OMO rates have been cut by 20 basis points, expect rates on the medium-term lending facility (MLF) to be similarly lowered in April.
What it means: The cut to MLF rates won’t signify additional easing – it will simply be a move to bring those facilities in line with broader money market rates.
Why it matters: The key goal of all of these measures is to further incentivize banks to reduce borrowing costs for companies.
The rub: The transmission of monetary policy – from the PBoC, to banks, to companies – hasn’t exactly been working smoothly over the past…um…decade or so. So officials may yet have to take bolder action.
- That’s why there’s a brewing debate about whether the PBoC should cut benchmark savings rates at banks.
Get smart: Authorities are aware they need to do more to support the economy, and to cushion the impact on banks. But they remainreticent to overdo it on the policy front.
3. A better than expected PMI
With the economy in such a deep trench, the market is looking for a sign (any sign) that might presage either an improvement ineconomic conditions.
Those hoping for an omen have focused attention on China’s Purchasing Managers’ Index (PMI) this morning.
The official PMI for March came in well above expectations:
- The official manufacturing PMI registered 52 – up from 35.7 in February.
- The official services PMI registered 51.8 – up from 30.1 in February.
Get smart: As a month-on-month indicator, the surprise rebound of PMIs is mainly attributable to a record low base coming out of February.
Get smarter: Even so, this is a sign of improvement compared to February, though it’s too early to say what this means for the strength of the rebound.
4.Rules on infrastructure project funding relaxed
Yesterday, 21st Century Biz scoped a relaxation of the rules governing local government special project bonds.
- The change raises from 20% to 25% the proportion of money raised through special project bonds that local governments may use as capital contributions for infrastructure projects.
What it means: Local governments can fund more infrastructure with borrowed money.
Some context: Last June, the central government relaxed rules to allow local governments to borrow through special project bonds to cover part of their capital contributions for certain projects (see June 11, 2019 Tip Sheet).
Get smart: This is part of broader efforts to shore up investment.
Get smarter: In terms of boosting investment, the impact of this relaxation may be limited. Given the stringent fiscal rules put in place to control government debt, most governments haven’t used up the original 20% quota.
21st Century Biz: 每省专项债作资本金比例提高至25%
It’s no secret that China’s quarantine efforts are having unanticipated knock-on effects.
- For instance, it’s making it difficult to distribute Chinese-made pharmaceuticals globally.
Here’s Chris Ewer, the head of Asia-Pacific supply chain for Belgian drugmaker Janssen (SCMP 1):
- “With rising air freight demand, and much reduced supply even with the deployment of more cargo-only planes, freight rates have doubled.”
- “It is going to get worse.”
Some context: On Sunday, Chinese airlines were restricted to making one trip weekly to any given country. Given that passenger flights also carry a lot of cargo, that’s causing problems for companies that rely on fast delivery.
Quarantines and lockdowns are also affecting the availability of crews to sail cargo vessels. This and similar problems have prompted the UN Committee and Food Security to warn that (SCMP 2):
- “[D]isruptions at borders and in supply chains may cause an echo in the food system with potentially disastrous effects.”
Get smart: Concerns about supply-side economic effects of the coronavirus have thus far focused on production. But distribution poses challenges as well.
Get smarter:The Chinese government see this as an opportunity window to narrow its cargo fleet capacity gap with countries like the US (see March 25 Tip Sheet).
SCMP: Coronavirus: with most flights grounded globally, freight capacity is a life and death matter for Johnson Johnson-owned drugmaker
SCMP: Coronavirus may cause global food shortages as panic buying and export curbs hit supply
SCMP: Troubles mount for global shipping lines as seafarers are in short supply amid coronavirus travel and quarantine restrictions
6.Xi sees mountains of gold in Zhejiang
On Monday, Xi continued to tour his old stomping ground of Zhejiang (see yesterday’s Tip Sheet).
As part of his visit, he visited Yucun Village in Anji County.
Some context: Xi visited Yucun in 2005 and said that “crystal clear waters and green hills are as valuable as mountains of gold and silver.” He has since used the phrase to promote environmental protection and sustainable development.
Xi repeated his message on Monday (Xinhua):
- “Protecting mountains and waters here well will provide people a unique advantage for further economic development, Xi said.”
- “’Ecological environment itself is the economy. All the ecological protection efforts will be rewarded,’ he said.”
Get smart: Xi’s trip is a signal that officials should not forget the Party’s broader goals as they seek to respond to the COVID-19 epidemic.
CPC People: 时隔15年，习近平再到安吉县余村考察
Xinhua: Xi stresses ecological protection in Zhejiang tour