Driving the Day
1. Wuhan reopens, cautiously
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
The risk of cases being imported from abroad remains high.
On April 7 (NHC):
- There were 62 new confirmed cases of which 59 were imported.
- There were also 137 new confirmed asymptomatic cases, of which 102 were imported.
But throughout China, normalization marches on.
Today was a big day in Wuhan:
- Starting at 12am on April 8, the city government lifted the lockdown which had been in place since January 23.
Now, the city is experiencing a mass exodus (National Business Daily):
- Over 55,000 people are expected to leave the city by train today.
- Over 6,000 people are expected to depart Wuhan by air.
But not everyone can leave Wuhan.
- People need to test negative for COVID-19 before they can leave.
- Additionally, most people will be required to take another test in seven days at their destination city.
And the Wuhan government has continued to urge people to stay at home (Wuhan Gov):
- “Don’t leave your residential compound, the city, or the province if you don’t have to.”
Get smart: Government officials are concerned about reigniting a second wave of domestic infections. Wuhan is one of the regions most susceptible to a COVID-19 comeback.
2.Business resumption update
Business activity in China continues its slow, upward grind, according to theTrivium Business Activity Index.
Here are our calculations as of April 8:
- TheTrivium National Business Activity Indexindicates that China’s economy is operating at 80.6% of typical output, up from 79.0% on April 3.
- TheTrivium National Large Enterprise Activity Indexindicates that China’s large enterprises are operating at 81.8% of typical output, up from 80.7% on April 3.
- TheTrivium National SME Activity Indexindicates that China’s small businesses are operating at 79.7% of typical output, up from 77.8% on April 3.
Get smart:We haven’t seen a meaningful uptick in business activity levels for a few weeks.
Get smarter: Companies are focusing on survival rather than expansion.
Trivium China: Trivium Business Activity Index
3. Cuz I’m all about that trade, ‘bout that trade (no COVID)
On Tuesday, Premier Li Keqiang chaired the weekly State Council executive meeting.
Top of the agenda: Stabilizing foreign trade and investment.
Li pointed out that foreign trade and investment is taking a huge hit from the COVID-19 pandemic (Gov.cn 2):
- “With the tight containment measures introduced across countries, foreign trade and investment is persistently going downward.”
To stabilize the situation, the meeting focused on e-commerce and the processing trade.
The meeting resolved to:
- Set up 46 new integrated pilot zones for cross-border e-commerce, in addition to the 59 existing ones
- Extend preferential value-added, excise, and corporate income tax policies to the new pilot zones
- Support companies to build and share warehouses overseas
- Waive the interest on deferred taxes for bonded materials or finished products in the processing trade sold domestically until the end of this year
- Extend preferential tax policies for processing trade companies to all integrated bonded zones
- Expand the list of encouraged industries for foreign investment
- Shorten the list of prohibited goods in the processing trade for foreign investment
- Host the 127th China Import and Export Fair (Canton Fair) online in June
Get smart:The dire outlook for global trade is one more headwind for China’s economy.
4.Li incentivizes microfinance companies to support small businesses
Tuesday’s State Council executive meeting also focused on helping small businesses(see previous entry).
In particular, the government will seek to improvefinancing for:
- Small and micro-sized enterprises
- Household businesses
- Agricultural households
One big thing: The meeting decided to extend preferential tax policies benefiting these small businesses to the end of 2023. The policies had expired at the end of 2019.
These preferential tax policies include:
- Waiving value-added tax on interest payments to financial institutions who extend loans of RMB 1 million or less to the three categories of businesses listed above
- Offering a 10% discount on the tax collected from financial institutions who extend loans of RMB 100,000 or less to agricultural households or those who provide agricultural households with insurance services
- Offering a 10% discount on tax collected from small loan companies who extend loans of RMB 100,000 or less to agricultural households
Get smart:It will take a lot more to convince banks to lend more liberally to small businesses, especially in the current economic downturn.
Gov.cn: 李克强主持召开国务院常务会 推出增设跨境电商综合试验区、支持加工贸易、广交会网上举办系列举措等
5.Government steps in to support EV producers
The government will give more support to China’s struggling electric vehicle (EV) industry.
Some context (Economic Daily):
- Over the first two months of the year, EV production dropped 63.8% y/y while sales dropped 59.5% y/y.
Vice Minister of Industry and Information Technology Xin Guobin acknowledged on Tuesday that the industry is facing some major headwinds (The Paper):
- “The combined impacts of the [COVID-19] epidemic and the fall in global oil prices have served to increase downward pressure on the [EV] market.”
Xin said his ministry is on the case:
- “The next step is for the Ministry of Industry and Information Technology…to improve supportive policies, and actively stabilize and expand the consumption of new energy vehicles.”
The ministry is already taking steps to support the industry.
- On Tuesday, it released draft measures that would make it easier for EV producers to enter the market.
Our take: Bad move MIIT! You need fewer EV producers, not more. The current market downturn should be leveraged to consolidate the industry.
What to watch: Xin’s statements imply that further purchase subsidies may be rolled out soon.