Driving the Day
1. From Russia with COV(ID)
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
On April 9 (NHC):
- There were 42 new COVID-19 cases of which 38 were imported.
- There were 47 new asymptomatic cases of which 14 were imported.
Now, in a strange turn of events, the national spotlight is focused on the small city of Suifenhe, located in Heilongjiang province, just across the border from Russia (Sixth Tone).
- “The provincial government…sealed off the city’s border with Russia after 45 new COVID-19 cases among returning Chinese nationals were reported on Monday and Tuesday.”
- “From March 21 to April 7, over 2,400 people passed through the Suifenhe border alone.”
City officials wasted no time locking things down:
- “[O]n Wednesday [Suifenhe] ordered its 70,000 residents to remain indoors, with each household allowed to send one person out to buy essential items once every three days.”
- “[O]n Monday [the city] began building a 600-bed quarantine hospital that is scheduled to begin receiving patients on April 11.”
Get smart: The virus has looked under control in China for several weeks, but as Suifenhe shows, lockdowns can be reimposed at any time as necessity dictates.
Get smarter: The price of public health is eternal vigilance.
Suifenhe Building China’s First Pop-Up Hospital Outside Wuhan
As the week comes to a close, business activity in China is struggling to get further liftoff, according to theTrivium Business Activity Index.
Here are our calculations as of April 10:
- TheTrivium National Business Activity Indexindicates that China’s economy is operating at 81.8% of typical output, up from 81.2% yesterday.
- TheTrivium National Large Enterprise Activity Indexindicates that China’s large enterprises are operating at 81.9% of typical output, up from 81.8% yesterday.
- TheTrivium National SME Activity Indexindicates that China’s small businesses are operating at 81.7% of typical output, up from 80.7% yesterday.
Over the past three weeks our headline index has increased just 10.4 percentage points – from 71.4% on March 20 to 81.8% today.
- Uh oh: The previous three-week period (February 28 to March 20) saw a 26.9 percentage point increase.
- Even more uh oh: The two-week period before that (February 14 to February 28) saw a 39.8 percentage point increase.
Get smarter: This slowdown makes sense. In the days immediately after COVID-19 was brough under control in China, there was a kickstart as firms got back to business.
Get smarter: Getting a base level of operations was relatively easy – getting back to full production from here, not so much.
3. Living in a material world
As regular Tip Sheet readers know, local governments are looking to stimulate consumption through retail vouchers.
Good news: It’s working (see yesterday’s Tip Sheet).
Now, more regions are releasing numbers on their voucher programs:
- The city of Zhengzhou says it issued RMB 50 million of vouchers on April 3 – leading to consumption of RMB 187 million over the holiday weekend.
- The city of Jiaxing issued RMB 30 million of vouchers recently – and within four days it led to consumption of RMB 230 million.
- Six days after Shenzhen issued a spate of vouchers – consumption in the city grew 30 times the vouchers’ original value.
A quick caveat: Governments can’t definitively prove that vouchers caused the spending boom.
- But the correlation is strong.
There’s more: As a spokesman for the Ministry of Commerce told the press (21st Century Biz 2):
- Thanks to widespread voucher issuance, nationwide retail, delivery, and e-commerce are up to 95 percent of ‘normal’ purchases.
Get smart: Vouchers are primarily being distributed via WeChat and Alipay. In this case, private-public partnerships are proving to be symbiotic.
Our thinking: Policymakers in other countries would be wise to track the efficacy of this program.
21st Century Biz: 郑州5000万元消费券拉动消费1.87亿 拉动效应13倍
21st Century Biz: 商务部：7省20余市发放消费券，乘数效应近11倍带动作用明显
China Daily: China issues coupons to stimulate consumption
The Beijing News: 踏准两大风口，疫情期间二手奢侈品交易逆势生长
4.Auto market woes are uneven
File this under the least surprising thing of the year: Chinese auto sales continued to struggle in March.
- The latest official data indicates that passenger car sales fell 40.8% y/y last month.
But look on the bright side – that is a vast improvement from the 79% y/y plunge seen in February.
Actually, for some companies, the month was downright peachy (Caixin):
- “Wholesale shipments by Tesla climbed to 10,160 units in China last month, more than doubling February numbers, Cui Dongshu, secretary general of the China Passenger Car Association, said in an online briefing Thursday on overall industry figures.”
- “The figures suggest Tesla has been gaining traction at the new Shanghai facility.’
Policymakers are also looking to give automakers a break (MofCom):
- The environmental regulator, MEE, is considering postponing the implementation of stricter emission standards for passenger vehicles in some provinces.
Get smart: Just as the economic shutdown hit different industries and companies in different ways – so too shall the economy recovery be uneven.
The bottom line: The main task for policymakers will be to figure out exactly who’s thriving, who’s surviving, and who’s dying – and allocate resources accordingly.
Reuters: China’s March passenger car sales down 40.8% year-on-year: industry association
Caixin: Tesla’s China Shipments Surge as Shanghai Plant Ramps Up
5.Mo’ money, mo’problems
Who could have guessed?
Turns out, some companies are abusing funds earmarked for fighting the pandemic.
- At the end of March, 5,881 companies had obtained RMB 228.9 billion worth of low-cost loans earmarked for making or transporting medical supplies and daily necessities.
- But apparently not all of the borrowers were on the up and up.
That’s why on Wednesday, the Ministry of Finance (MoF) said it would review how companies used the funds, targeting firms that:
- Let the money sit idle
- Deliberately drove up the price of key goods
Some context: The cheap loans were a good deal for borrowers (Caixin):
- “Average financing cost came in at 1.26%…well below China’s benchmark one-year loan prime rate of 4.05%.”
One loan to processed meat producer Henan Shuanghui Investment Development Co. stands out:
- “Shuanghui…was not short on cash and even used large sums of spare funds to purchase investment products.”
The MoF is now saying it will pay special attention to companies that received:
- More than RMB 500 million
- Loans from multiple financial institutions
- Loans after March 15, when the epidemic started to stabilize
Get smart: Beijing has spent four years reining in the financial excesses that followed the last major stimulus. Policymakers are not about to give up those hard-won gains now.
Caixin: Finance Ministry to Review Low-Cost Epidemic Loan Recipients
6.Factoring in the market
Yesterday, the CCP’s central committee and the State Council jointly issued a set of guidelines on improving the market-based allocation of production factors.
Some context: Top leaders agreed to this reform at the Fourth Plenum last October.
More context: China’s most important policymaking body, the Central Commission for Comprehensively Deepening Reforms (CCCDR), approved the document last November (see November 27 Tip Sheet).
Econ 101: What are factors of production you ask?
- They include land, labor, capital, technology, and, for the first time in China, data.
Some of the key reforms include:
- Increasing industrial land supply by introducing more flexible supply mechanisms
- Allowing more people to live and work in cities by significantly relaxing household registration (hukou) restrictions in most Chinese cities
- Building a more rigorous capital market which is more accessible to both financial product providers and customers
- Developing a market for data exchange and setting up data privacy and security review mechanisms
Why it matters: The allocation of factors of production is critical to all businesses…duh.
Get smart: Better marketizing allocation of production factors in China could unleash huge amounts of economic efficiency. But given the large swaths of the economy still dominated by the state, this is easier said than done.
7.Shandong gets a new governor
On Thursday, it was announced that Minister of Ecology and Environment (MEE) Li Ganjie will be taking over as deputy Party secretary of Shandong.
What that means: Li will soon be appointed Shandong governor – the province’s number two position. At age 55, Li will become one of the youngest provincial governors in the country.
Some context: Li is replacing Gong Zheng, who was appointed mayor of Shanghai three weeks ago (see March 20 Tip Sheet).
A little about Li:
- A nuclear engineer by training, Li is a technocrat par excellence.
- He has spent much of his career dealing with nuclear issues, including as head of the National Nuclear Safety Administrationfor 10 years, from 2006-2016.
- Li is a high-flyer. At 52, he was China’s youngest minister when appointed to head the Ministry of Environmental Protection (now the Ministry of Ecology and Environment) in June 2017. He is one of the youngest officials currently serving on the Party Central Committee.
Get smart: Li is a doer and was one of the main enforcers behind Xi Jinping’s fierce environmental protection campaign. With his current career trajectory, he has at least 10 years ahead of him to keep climbing the greasy pole of China’s political elite.
CPC People: 李干杰任山东省委副书记(图/简历)