Driving the Day
1. A new lockdown
On Thursday afternoon, the National Health Commission released new numbers for domestic COVID-19 cases.
On April 1 (NHC):
- There were 35 new confirmed cases, all of which were imported.
- There were also 55 new confirmed asymptomatic cases, of which 17 were imported.
Do the math: That means that they confirmed 38 asymptomatic cases within the country.
Why that is worrying: Asymptomatic carriers can still transmit the disease.
Case in point (Bloomberg):
- “Testing conducted by a Jia county [Henan] hospital on March 25 of medical workers who treat Covid-19 patients revealed infections in three doctors who showed no symptoms.”
- “The three doctors’ infections came to light only when a 59-year-old woman who developed a fever and a headache in a nearby city was found to have contracted the virus on March 28, after visiting one of the doctors.”
Now the county is on lockdown:
- “Jia county, whose population numbers around 640,000, issued a directive on Wednesday asking all residential compounds to be sealed off and those visiting and leaving homes to produce identity cards, wear masks and submit to temperature checks.”
Get smart: As restrictions on travel and commerce are lifted, the risk of more virus transmission increases.
Chinese County Back Under Lockdown After Coronavirus Cases Re-Emerge
2.Work resumption update
On Thursday, resumption stats continued to gradually inch their way skyward.
Here are our latest calculations as of April 2:
- The Trivium National Business Activity Index indicates that China’s economy is operating at 78.3% of typical output.
- The Trivium National Large Enterprise Activity Index indicates that China’s large enterprises are operating at 80.6% of typical output.
- The Trivium National SME Activity Index indicates that China’s small businesses are operating at 76.8% of typical output.
Get smart: Companies seem to be getting stuck at around 80% of typical output. That’s because demand is so severely depressed.
Trivium:Trivium Business ActivityIndex
3. SMEs still struggling
Looks like we’ll have to keep the bubbly on ice.
After the National Bureau of Statistics reported a huge jump in manufacturing PMI for March (see March 31 Tip Sheet), the Caixin-Markit manufacturing PMI reported Wednesday showed a much less rosy picture.
Just to remind you:
- The official NBS rose to 52.0 in March from a record low of 35.7 in February.
This is less impressive (Marketwatch):
- The Caixin manufacturing PMI rose to 50.1 in March from 40.3 in February.
What that means: Anything above 50 represents an expected improvement. A reading of 50.1 means that surveyed firms feel the same in March as they did in February.
Some context: The two PMIs survey different companies. The Caixin PMI tilts toward small, private manufacturers. The NBS sample size is far larger.
Get smart: China’s SMEs have been hit hard – and have yet to recover.
Marketwatch: Caixin China manufacturing PMI rebounds in March
4.Wuhan drops economic data
On Monday, the Wuhan Bureau of Statistics published its first set of economic data since the beginning of the COVID-19 epidemic.
Here’s the data for Jan-Feb:
- Industrial value-added fromlargeenterprisescontracted by 32.6% y/y.
- Retail consumption contracted by 42.1% y/y.
- Total imports and exports contracted by 12.8% y/y.
Investment got walloped:
- Fixed asset investments contracted by 72.9% y/y.
- Industrial investments contracted by 83.2% y/y.
Qin Zunwen, a policy advisor for the Hubei government said (21st Century Biz):
- “[I] expect Wuhan’s Q1 and H1 GDP growth to be negative.”
Get smart: Given what Wuhan has been through, the terrible numbers come as no surprise.
What to watch: Lockdown measures will be officially lifted on April 8, but it is unclear how quickly the city can get back to work.
21st Century Biz: 武汉疫情攻坚期经济数据发布：消费为去年六成，投资下降72%
5.The financial sector opens further
Financial sector opening keeps on keepin’ on.
The latest examples:
- “The China Securities Regulatory Commission said [Wednesday] it had accepted applications fromBlackRock and US investment manager Neuberger Berman…to set up mutual fund [businesses] in China.” (FT)
- “It…follows China’s approval [last week] to Goldman Sachs and Morgan Stanley to take majority stakes in their China securities ventures.” (Reuters)
Some context: The opening of the securities and mutual fund industries are part of the round of financial sector opening that began in April 2018.
More context: As part of the phase one trade deal signed with the US in January, China committed to fully open up both industries by April 1, 2020.
Get smart: Having to team up with a local partner as a condition of operating in China has been a long-standing gripe among foreign financial firms.Having complete control doesn’t ensure success, but it presents a new opportunity for those firms to build their businesses in China.
Financial Times: BlackRock applies to set up China mutual fund business
Reuters: BlackRock, Neuberger Berman apply for China fund business as Beijing steps up deregulation
6.Cold comfort forSMEs
Xi Jinping concluded his trip to Zhejiang yesterday.
According to Xi, he came to Zhejiang for the SMEs (People’s Daily):
- “Zhejiang is an economy where SMEs are the main body. I came to Zhejiang to study them.”
He levelled with them about the difficulties the economy was facing:
- “Now the difficulties are here. Different industries and enterprises will all be affected to some extent.”
The hit to business would probably be especially acute on the demand side.
- “We will do our best in the domestic market, but the international market will still be affected [by external factors]. We will work to minimize losses.”
Xi tried to sound a hopeful message:
- “I know from my previous work experience in Zhejiang that SMEs play a strategically important role in industrial development.”
- “We will stick to…the economic development path by which the public sector and private sector develop in tandem.”
- “As the situation changes…[we will] introduce more targeted measures to…prevent SMEs from being severely hurt.”
Our take: We read this as Xi telling SMEs to brace for tough times. The government will do what it can, but it can’t save everybody.
7.Old guard vs. young bucks
On Thursday, The Paper published an article by veteran diplomat and former vice minister of foreign affairsFu Ying.
Fu argued that China should be more sophisticated in its international diplomacy (People’s Daily):
- “To counter others’ prejudices, we cannot simply criticize them and get defensive.”
- “We must put forth a true, three-dimensional, and comprehensive [portrait of] China to international society.”
Why it matters: Fu’s article looks like a rebuke of some of China’s more aggressive diplomats.
- “[A] new generation of diplomatic hawks in China [has been] challenging the restraint that long characterized the country’s engagement with the world.”
Ministry of Foreign Affairs spokesman Zhao Lijian is the archetype of the “you wanna go, bro?” model of international relations:
- Zhao is a prolific Twitter user who promoted the conspiracy theory that COVID-19 was unleashed on Wuhan by the US military.
Get smart: Aggressive foreign policy pronouncements are popular domestically, but they aren’t winning China many friends abroad. This, essentially, is Fu’s point.
Get smarter: Though China’s policy establishment may seem monolithic, there are heated debates roiling just beneath the surface.
Reuters: In China, a young diplomat rises as aggressive foreign policy takes root