Driving the Day
1. Suifenhe lockdown continues
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
On April 12 (NHC):
- There were 108 new cases of which 98 were imported, up from 42 cases of which 38 were imported on Friday.
- That also means that 10 of the infections were not imported, representing the highest domestic transmission figure in a month.
That’s a worrying spike.
Heilongjiang province has become the new frontline in China’s war against COVID-19, with a particular focus on the city of Suifenhe on the border with Russia where at least 45 infected people crossed into China last week (see Friday’s Tip Sheet).
In response, Suifenhe has (SCMP):
- Tightened restrictions on commercial traffic coming from Russia
- Suspended train services to Harbin, the provincial capital
- Converted an office building into a 600-bed makeshift hospital
Additionally, Heilongjiang has planned to dispatch 300 medical workers to Suifenhe and top medical experts, previously tasked with fighting coronavirus in Wuhan, have been sent to oversee efforts.
Get smart: For the foreseeable future, public health officials will be engaged in a high-stakes game of whack-a-mole to ensure there isn’t another major outbreak.
China’s Suifenhe city, bordering Russia, strengthens controls to prevent imported cases
China tightens controls on Russia border as number of imported coronavirus cases continues to rise
ICU directors head to NE China’s Suifenhe to battle infections
2.The slow road to normalization
It’s been a back-and-forth week for virus containment and economic normalization.
The good news: A number of provinces and municipalities have moved to partially reopen schools in late April or early May, including:
The bad news: Some cities have seen renewed restrictions on movement in recent days:
- The border cityof Suifenhe is underlockdown(see previous entry).
- The northeastern city of Harbin, also near Russia, has extended quarantine periods for some visitors to 28 days.
- Most cities throughout China – especially Beijing – have major restrictions on anyone traveling from Wuhan.
Get smart: The school openings are a big deal. Local authorities wouldn’t take the chance to reopen, unless they were confident in containment’s progress. That said, the openings are also cautious – and in most cases only for third-year high school and third-year middle school students.
Get smarter: Meanwhile, the renewed lockdowns underscore that the threat of a second wave of infections will loom in the background for a long time to come.
The bottom line: Normalization will proceed on a “two steps forward, one step back” basis for many more months.
Caixin: 北京初三、高三开学时间定了 全国仅湖北尚无时间表（更新）
21st Century Biz: 扩散周知，各地陆续公布开学时间
Bloomberg: China’s Harbin Tightens Quarantine Measures Against Covid-19
3. Data dump – credit
The central bank (PBoC) dropped March credit data late on Friday.
The headline: Bank lending ramped way up in the month, as policymakers leaned on banks to get money out the door, and businesses took on emergency loans to get through the crisis.
The details (Reuters):
- Total financing grew by 11.5% y/y – up from 10.7% in February and the highest growth since August 2018.
- RMB-denominated bank lending grew by 12.7% y/y – up from 12.1% in February and highest growth since September 2019.
- Foreign exchange loans grew by 7.7% y/y – up from 1.3% in February and the highest growth since December 2013.
- Corporate and local government bonds both saw accelerated issuance in the month.
- The major forms of shadow banking remained deep in contractionary territory.
Get smart: The acceleration in bank lending is welcome – and shows that economic support policies were working last month.
- That said, much of the increase was likely one-off as companies sought bridge loans to get through the crisis.
Get smarter: Companies will still need emergency loans in April, but we’d expect the pace of overall credit growth to decelerate a bit this month.
In other words, this isn’t the start of a massive new credit binge.
Reuters: China March loans surge to $405 billion as coronavirus stimulus kicks in
4.Data dump – inflation
The stats bureau dropped March inflation data on Friday morning.
The headline: Weak demand for fresh produce, logistics, and transport dampened consumer price growth, while the global oil rout whacked producer prices.
The details (NBS 12):
- Consumer prices increased 4.3% y/y – down from 5.2% growth in February.
- Producer prices contracted by 1.5% y/y – down from a 0.4% contraction in February.
Quick take 1: On a m/m basis, consumer prices contracted by 1.2%, after increasing 0.8% in February. This was thanks primarily to logistics and transport providers slashing prices throughout the month, as the economy reopened.
Quick take 2: The deepening of the PPI contraction was almost exclusively thanks to falling oil prices – as the pandemic hit global growth and Saudi Arabia ramped up production as part of a feud with Russia.
Get smart: All of these dynamics look to have extended into the first part of April.
- Still, the current driving forces behind weak price growth are temporary – and if anything, the central bank is concerned about rising consumer inflation as the economy normalizes.
5.Another bank bailout
For those of you playing Bailout Bingo at home, time to mark Bank of Gansu on your cards.
Caixin scoops that the Gansu provincial government approved a bailout of the Hong Kong-listed bank this weekend:
- “The plan involves a massive capital injection through the sale of new equity to existing shareholders, including the provincial government.”
One problem: The Gansu government isn’t in great financial shape itself, so:
- “…the People’s Bank of China…will offer special loans to help fund the bailout.”
The plan also involves disposing of RMB 10 billion worth of nonperforming loans.
There’s no clear overall price tag on the bailout, but private placement plans disclosed by the bank suggest it could be upward of RMB 14 billion at current market prices.
Some context: Since May 2019, the Bank of Jinzhou and Hengfeng Bank have been bailed out, and Baoshang Bank taken into receivership. It had previously been 20 years since Beijing bailed out a major financial institution.
Get smart: The plan has been in the works since September, so Bank of Gansu isn’t a coronavirus casualty. Still, expect more bailouts to come as banks negotiate fallout from the pandemic.
Caixin: Bank of Gansu Is Next in Line for State Bailout
6.China’s fancy new energy law
Last Friday, the National Energy Administration (NEA) published the draft of the Energy Law of the People’s Republic of China for public commenting.
Some context: This law has been a long time coming. It took the government 14 years to draft and revise.
Why it matters: The law will become the most important and authoritative legal document on energy sector development.
The draft confirmed that the government wants to phase out fossil energy (NEA).
- “[We will] promote non-fossil energy to replace fossil energy, low-carbon energy to replace high-carbon energy, and support the development and application of new fuels and industrial raw materials that replace oil and natural gas.”
But that doesn’t spell imminent doom for oil and gas.
That’s because the law calls for:
- A reasonable degree of on-shore fossil fuel exploitation
- Continuing to increase natural gas’s share of the primary energy source mix
That said, renewables are the future:
- The law makes targets for renewables’ share of the energy mix binding at all levels of government.
- The government will have a legal basis to support renewables through favorable policies.
Get smart: The law is better understood as an institutionalization of existing energy policies. Even in its current form, it won’t dramatically expedite China’s shift away from traditional energy.