Driving the Day
1. Local infections persist
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
On April 14 (NHC):
- There were 46 new COVID-19 cases, of which 36 were imported.
- Eight local transmissions were recorded in Heilongjiang and two were recorded in Guangdong.
- There were 57 new asymptomatic cases, of which three were imported.
This is concerning: Local transmissions in Heilongjiang and Guangdong are still small in scale, but persistent.
That has forced local governments to change tack:
- Two cities in Heilongjiang, includingcapital Harbin, postponed school openings again.
Meanwhile, the government is preparing for the next phase of containment.
- Nine provinces and cities, including Wuhan, started a sero-epidemiological survey to collect data for the next stage of their containment strategy.
The sample size in the Wuhan study is 11,000 people, around 0.1% of the city’s population.
The purpose of the survey (Yicai):
- “Investigate the state of infection among healthy people, the level of asymptomatic infections, and current level of immunity [among people].”
Get smart: With COVID-19 largely under control, the government now has more bandwidth to conduct important research to understand the virus – knowledge that could aid the rest of the world.
2.Data dump – trade
The customs bureau dropped March trade stats on Tuesday.
The headline: Exports and imports both contracted again last month – but things looked much better than expected.
- Exports contracted by 6.6% y/y – up from the 17.2% contraction in Jan-Feb.
- Imports contracted by 0.9% y/y – up from the 4%contraction in Jan-Feb.
Quick take: Those aren’t great numbers, but given the circumstances, we’ll call them a win.
The regional breakdown for exports wasn’t terribly surprising:
- Exports to the US contracted 20.8% y/y – an improvement from the 27.4% contraction in Jan-Feb.
- Exports to the EU contracted 24.2% y/y – an improvement from the 29.9% contraction in Jan-Feb.
- Exports to Japan contracted 1.4% y/y – a vast improvement from the 24.4% contraction in Jan-Feb.
Get smart: Exports to the US and EU won’t get better any time soon – but it’s hard to see how they can get much worse.
Get smarter: The relatively solid import number is hard to square with other domestic demand data – especially as weak public spending would typical suggest subparpurchases of infrastructure-related commodities.
Still, at this point we’ll take any good news we can get.
SCMP: Coronavirus: China’s imports and exports dropped again in March
3. Exporters get creative
China’s exporters had a better month than they expected in March (see previous entry), but that doesn’t mean they are out of the woods.
In order to cope with the deepening crash in external demand, companies are increasingly getting creative by looking to sell goods meant for export into China’s domestic market.
Companies in the exporting powerhouse of Guangdong provinces appear to be leading the charge:
- Businesses in Dongguan are looking to leverage local government policies that support the sale of goods domestically.
- They not only provide promotional support for companies’ goods, but they also help companies that aren’t used to tapping the domestic market to tap into local e-commerce channels.
The customs bureau is also lowering taxes for companies that would otherwise be paying export duties, to send finished or semi-finished goods to homegrown consumers.
Get smart: This shift makes sense, and while it might not be a panacea for exporters’ challenges, it will certainly help.
Get smarter: This dynamic makes a resurgence in domestic demand even more important than it already was.
4.PBoC does some housekeeping
China’s central bank (PBoC) cut interest rates on the medium-term lending facility (MLF) by 20 basis points on Wednesday morning.
Why that’s a big deal: The MLF provides the benchmark for banks’ loan prime rate (LPR) – which means market rates for end-borrowers should fall when the April LPR is announce on Monday.
Why that’s not a big deal: The cut to MLF rates came on the back of a 20-basis-point cut on open market operations (OMOs) – i.e. the key instruments through which the PBoC provides market liquidity on a day-to-day basis. That cut took place on March 30.
Get smart: As we wrote shortly after rates were cut on OMOs, the PBoC was all but certain to cut MLF rates to keep the interest rate corridor aligned and intact (see April 7 Tip Sheet).
The bottom line: Today’s cut doesn’t represent additional easing, it’s just housekeeping.
- But it’s all with an eye toward making funds cheaper for private companies.
5.Businesses struggle to get back to normal
Business activity in China continues to make baby steps forward, according to theTrivium Business Activity Index.
Here are our estimates as of April 15:
- TheTrivium National Business Activity Indexindicates that China’s economy is operating at 82.6% of typical output, up from 81.8% on April 10.
- TheTrivium National Large Enterprise Activity Indexindicates that China’s large enterprises are operating at 82.4% of typical output, up from 81.9% on April 10.
- TheTrivium National SME Activity Indexindicates that China’s small businesses are operating at 82.4% of typical output, up from 81.7% on April 10.
Get smart: Companies are in survival mode. Nobody should expect to see a surge in business activity when companies are cutting expenses and jobs.
Get smarter: Don’t expect a full recovery before other countries have gotten COVID-19 under control.
Trivium China: Trivium Business Activity Index
6.State Council stays the course
On Tuesday, the State Council held its weekly executive meeting.
Top of the agenda: Getting the economy back on track.
Spoiler alert: Those looking for more massive stimulus will be disappointed.
Premier Li Keqiang explained (Gov.cn 2):
- “The support measures we have rolled out since the start of this year are adequate and robust.”
- “What is crucial is to ensure their full delivery.”
In case you’ve forgotten, those measures are:
- Value-added tax (VAT) relief for small and micro-sized enterprises
- An increase in export tax rebates rate for selected products
- An extension of the loss carry-forward period for transportation and hospitality companies
- A reduction in social insurance contributions for employers
- A deferral of payments to the housing provident fund for employers
- Abolition of tolls on roads and expressways
- Reduced electricity and gas rates for companies
Add it all up: The government expects that these measures will save companies a total of RMB 1.6 trillion.
That’s not all. The meeting also promised to:
- Boost employment for college graduates
- Renovate 39,000 urban residential areas
- Extend preferential tax policies for companies in western China
Our take: All of this is nice, but it’s nowhere near enough to combat the slowdown. We expect to see more supportive measures soon.
7.You, me, and ASEAN + 3
On Tuesday, Premier Li Keqiang attended a video summit on COVID-19 for members of the ASEAN + 3 bloc.
In case you forgot: “ASEAN + 3” refers to the 10 ASEAN nations plus China, Japan, and South Korea.
As the assembled leaders discussed various measures for addressing the challenges posed by the pandemic, Li looked to position China as an ally in the fight against coronavirus (MoFA):
- “The battle against COVID-19 has made us more aware that we are in a community with a shared future.”
- “We need to send a message of partnership, solidarity and mutual assistance among East Asian countries to boost confidence in our region and beyond.”
To this end, Li put forward three proposals:
- Enhance all-around cooperation and build up public health capacity
- Revitalize economic growth and strengthen regional integration
- Strengthen policy coordination
Li also said China would earmark USD 10 million to support outbreak control programs in ASEAN countries.
Get smart: China has sought to step into a leadership role in the fight against COVID-19 and burnish its reputation.
The big question: Will Beijing be able to reshape perceptions in ASEAN, a region where Chinese influence is a polarizing topic?
MoFA: Speech by H.E. Li Keqiang Premier of the State Council of the People’s Republic of China At Special ASEAN Plus Three Summit on COVID-19
SCMP: Asean holds special coronavirus summit, but will the bloc’s plans come to fruition?
Bangkok Post: Asean+3 declares war on virus
8.Are you there, world? It’s me, Xi.
You know what time it is…
Time for another Xi Jinping-calls-the-world telethon round-up!
Some context: As regular (or even irregular) Tip Sheet readers know by now, Xi Jinping has embarked on a telephonic COVID-19 sympathy tour in the last few weeks, calling world leaders with expressions of support on a near daily basis.
On Tuesday, Xi called up:
- Finnish President Sauli Niinistö
- Kyrgyz President Sooronbai Jeenbekov
- Serbian President Aleksandar Vučić
At this point, Xi’s comments to world leaders have been refined into fill-in-the-blank expressions of goodwill, as exemplified by his comments to Niinistö (Xinhua 1):
- “Pointing out that humankind is a community with a shared future that shares weal and woe, Xi said that only with concerted efforts can the international community overcome the current challenge and prevail over the epidemic.”
Get smart: The fact that Xi has spent so much time communicating with world leaders during COVID-19 shows the importance that Beijing places on this opportunity to present China as a global leader.
Get smarter: This contrasts sharplywith the underwhelming international performance of the United States during the same period.
Xinhua: Xi says China to help Finland address shortage of anti-epidemic supplies
Xinhua: Xi says China to continue helping Kyrgyzstan fight COVID-19
Xinhua: Xi says joint COVID-19 fight shows China-Serbia brotherhood
9.Party pushes people pleasing
The general office of the CCP Central Committee just issued a new notice to cut cadres some slack.
Some context: This is a follow up to last year’s campaign to alleviate burdens on grassroots officials(see March 12, 2019 Tip Sheet).
Predicting a rough year ahead for promoting social and economic development – the Party center wants to free cadres up to get theirjob done.
To achieve this, the Party will continue to monitor how many meetings government at all levels are having with an eye to cutting the number.
The notice also requirescadres to be accountable both their bosses and the masses – somethingeasier said than done.
Get smart: Bureaucratism and inaction are still rampant within the system.
Our thought: Issues of formalism could be better addressed if people and business were given more say in whether their officials are doing a good job or not.
The bottom line: It’s hard to get rid of formalism in a top-down system – it’s pretty much a built-in feature.