Driving the Day
1. How now, gaokao?
On Tuesday, mainland China reported 36 new cases of COVID-19, down from 48 a day earlier.
- 35 of them were imported.
- One wasa local infection in Guangdong.
The National Health Commission also reported the number of asymptomatic cases for the first time (see yesterday’s Tip Sheet).
- Tuesday saw 130 new asymptomatic cases.
- There were a total of 1,367 asymptomatic cases under medical observation as of March 31.
In general, Chinese experts are not particularly worried about asymptomatic cases.
According to Zhang Wenhong, the leading expert on COVID-19 containment in Shanghai:
- “The number of asymptomatic infections must correspond with the number of symptomatic cases”
- “[The fact that] the number of newly diagnosed cases of COVID-19 in China not only has not increased, but has been declining, indicates that China has not yet had a large number of asymptomatic infections.”
Meanwhile, the Ministry of Education (MoE) announced yesterday that China will delay its college entrance exam, the gaokao, by a month, until July 7-8.
Some context: More than 10 million students will take the gaokao this year.
Get smart: The delay of the college entrance exam came as no surprise given the disruption to studies caused by COVID-19.
2.Whither the growth target?
China’s economy is recovering from its February depths, but the outlook is still unclear.
The economic uncertainty is so high, in fact, that it appears a robust debate is starting to emerge as to how low this year’s growth target should be set – or if it should be scrapped altogether.
Some context: The growth target is announced annually during the “Two Sessions” meeting of the National People’s Congress. That usually happens in March, but it was delayed this year thanks to the COVID-19 outbreak. It could take place as soon as mid-April.
In the runup to the meetings, at least one central bank advisor is arguing to drop the target (SCMP):
- “’China can hardly achieve the 6 per cent target because of the coronavirus pandemic,’ Ma Jun, an academic member of the People’s Bank of China’s monetary policy committee, told the state-owned Economic Daily.”
- “It is also hard to maintain 4-5 per cent growth … because it will largely depend on how the pandemic develops in Europe and the United States.”
Ma goes on to say that a growth target will force authorities into stimulus – which they want to avoid.
The bottom line: It would be hugely positive if authorities took advantage of the COVID-19 crisis to step back from aggressive macro management.
3. Economic normalization continues edging up
Businesses throughout China continue to get back to work – a welcome development on the first day of the second quarter of 2020.
Here are our latest calculations as of April 1:
- The Trivium National Business Activity Index indicates that China’s economy is operating at 77.7% of typical output, up from 74.7% on March 27.
- The Trivium National Large Enterprise Activity Index indicates that China’s large enterprises are operating at 80.5% of typical output, up from 80.2% on March 27.
- The Trivium National SME Activity Index indicates that China’s small businesses are operating at 75.9% of typical output, up from 71.0% on March 27.
Get smart: 25 out of 31 provinces have seen full resumption of their large companies – at 99% or higher. These provinces account for 89.2% of GDP.
- Inner Mongolia
Get smarter: Simply resuming operations does not mean all companies are operating at normal capacity. We estimate that China’s big companies are operating at about 83% of their normal capacity – putting the index at 80.5% of normal output (as listed above).
The rub: Getting from 80% to 100% may be harder than getting from 0% to 80%.
Trivium: Trivium Business Activity Index
4.Huawei falls into line
Angry recriminations between China and the US over the COVID-19 outbreak have taken center stage in the pastfew weeks.
But that is hardly the only point of friction in the bilateral relationship. A budding tech war is also roiling the waters.
Some context: Last week, Reuters reported that the US government was moving forward with new restrictions to cut off Huawei’s access to Taiwan Semiconductor Manufacturing Co., the world’s largest chip manufacturer.
Yesterday, Xu Zhicai, Chairman of Huawei, fired a warning shot duringa conference tolaunch the company’s annual report(The Paper).
- “I think the Chinese government will not just stand by andwatchHuawei be slaughtered.”
- “I believe the Chinese government may also take some countermeasures.”
- “Why can’t [we] ban the use of American companies’ 5G chips, base stations and smartphones containing 5G chips, and various smart terminals in China based on the same network security reasons?”
Get smart: This will further politicize the tech war between Washington and Beijing. For the past two years, Huawei had been publicly distancing itself from the Chinese government and its countermeasures. No longer.
The big picture: The slow, painful deterioration of US-China relations will outlast COVID-19.
The Paper: 美国对芯片商供货限制升级？华为轮值董事长：相信中国会反制
WSJ: Huawei Warns U.S. of Retaliation by Beijing; Profit Growth Slows
5.This is not the stimulus you’re looking for
The State Council held its weekly executive meeting on Tuesday.
Top of the agenda: Supporting the economy.
Here’s the plan (Gov.cn):
- The PBOC will up its relending and rediscounting quota by RMB 1 trillion.
- Further targeted RRR cuts to help SMEs are also coming.
- Additional local government bond approvals will be “expeditiously allocated.”
Responsibility for realizing many of the targets will fall to the banks and the market.
- An RMB 1 trillion increase in net financing from bonds backed by corporate credit.
- RMB 800 billion in financing for loans backed by accounts receivable to help SMEs.
- RMB 300 billion in financial bonds to be issued by financial institutions to raise funds for small firms.
The government also wants to spur consumption:
- 67 million low-income citizens will see an increase in government assistance programs.
- Purchase subsidies for electric vehicles set to expire at the end of 2020 will be extended for a further two years.
Get smart: The government is increasing support. But it is attempting to do so in a measured, stepwise fashion.
Our take: This is likely just the beginning of more supportive measures.
6.Xi at Xixi
On Tuesday, Xi Jinping continued his tour of Zhejiang.
First, he went to the Xixi National Wetland Park in Hangzhou.
Some context: The park was established in 2005 when Xi was Zhejiang Party secretary. It was the first national wildlife park in the country.
Xi then headed over to the Hangzhou City Brain Operation Command Center.
Some context (Alibaba Cloud):
- “Utilizing comprehensive real-time city data, City Brain holistically optimizes urban public resources by instantly correcting defects in urban operations.”
What that means in Hangzhou: The city government gathers GPS data and information from surveillance cameras to monitor traffic. They then use this data to adjust traffic signals.
It’s been a big success (CNN):
- “The metropolis of 7 million people once ranked fifth among China’s most congested cities, but it has now dropped to 57th on the list.”
The program is increasingly popular: According to Alibaba, City Brain is now used in 23 cities across Asia (Alibaba Cloud 2).
The bigger picture: Xi’s visits on Tuesday were pointedly not about COVID-19. That is because he wants to send a message to officials – and society – that they need to start resuming normal activities.
Alibaba Cloud: City Brain
CNN: Alibaba’s ‘City Brain’ is slashing congestion in its hometown
Alibaba Cloud: City Brain Now in 23 Cities in Asia