Driving the Day
1. Don’t panic…yet
Yesterday, for the first time, the National Health Commission (NHC) revealed some details about China’s asymptomatic COVID-19 cases.
- 6, 764 asymptomatic cases have been reported so far nationwide.
- Since first being identified, 1,297 asymptomatic cases, about one-fifth of the total, had developed symptoms and been re-classified as confirmed cases.
- 4,444 have been discharged from the hospital.
- 1,023 remain under medical observation.
This morning, the NHC also dropped the latest numbers for domestic COVID-19 cases.
On April 15 (NHC):
- There were 46 new COVID-19 cases of which 34 were imported.
- Five local transmissions were recorded in Guangdong, four in Heilongjiang, and three in Beijing.
- There were 64 new asymptomatic cases, of which three were imported.
Some context:Yesterday’s 12 new locally transmitted cases represents the largest one-day increase in the past three weeks.
More context: Guangdong and Heilongjiang collectively accountfor 54 of the 64 domestic transmissions in the past three weeks.
Get smart: Guangdong and Heilongjiang are not in the danger zone yet – but officials are watching closely to make sure they don’t relapse.
The bottom line: Occasional local transmissions are to be expected – but they’re more than occasional in Heilongjiang and Guangdong.
2.Hubei struggles to get back to work
Business activity in China continues its slow, upward grind, according to theTrivium Business Activity Index.
Here are our estimates as of April 16:
- TheTrivium National Business Activity Indexindicates that China’s economy is operating at 82.8% of typical output, up from 82.6% on April 15.
- TheTrivium National Large Enterprise Activity Indexindicates that China’s large enterprises are operating at 83.0% of typical output, up from 82.4% on April 15.
- TheTrivium National SME Activity Indexindicates that China’s small businesses are operating at 82.6% of typical output, up from 82.4% on April 15.
Nearly all large companies have re-opened across China, with the exception of two provinces:
The two laggards are operating at less than 60% of their typical capacities.
Get smart: The economic recovery curve in China is flattening out at around 80%. That last 20% is going to be harder than all the progress made so far.
Trivium China: Trivium Business Activity Index
3. Waiting for GDP Day
Tomorrow is the day we’ve all been waiting for – Q1 GDP day.
That’s right, the stats bureau will drop the top-line econ stats for Q1 2020 on Friday, alongside monthly data for March.
As anyone who read our March 26 macro note will know:
- We expect the Q1 numbers to be bad – real bad.
- Our estimate is that the economy shrunk 20% y/y on a real basis.
The key question: Will Beijing release credible numbers?
Some context: Everyone knows that China’s real GDP data isn’t exactly trustworthy. That’s because real GDP growth is a political target, which according toGoodhart’s law, means it’s not a good measure of economic performance.
The thing to keep in mind for Friday, though, is that if markets don’t find the data print at least somewhat credible, they will assume the absolute worst.
- Anything above -5% y/y won’t be credible.
- A positive number would be laughable.
A friendly reminder: While the real GDP number will be important, as always, we urge readers to look at the nominal GDP number – which tracks economic cycles much better.
The bottom line: If China’s statisticians don’t come clean on the extent of Q1 weakness, no one will believe them when they say the economy is recovering.
4.FSDC calls for more policy support (again)
On Wednesday, Vice Premier Liu He chaired a meeting of the Financial Stability and Development Committee (FSDC).
Some context: The FSDC was created in July 2017 to help coordinate financial and economic policy among various government agencies.
More context: The FSDC has held meetings on a near weekly basis since the beginning of the COVID-19 outbreak. That marks a step change from its pre-outbreak schedule of meetingevery two months.
On the agenda: How to address rising economic risks – especially external macro risks (Gov.cn).
- “External risk is greater than internal risk, and macro risk is greater than micro risk.”
The answer? Step up policy support:
- “The key lies in strengthening counter-cyclical adjustment.”
Get smart: We’ll say it again, more economic support measures are imminent.
Liu and co. also discussed investor protection in light of several recent high-profile financial fraud cases, including that of Luckin Coffee.
- “The meeting agreed to step up investor protection, improve the quality of listed companies, and ensure the accurate and timely disclosure of information … and increase penalties for fraud.”
Get smart: Officials aren’t ignoring long-term questions of capital market health just because there’s a pandemic on.
5.Policymakers up the urgency
Financial Stability and Development Committee (FSDC) officials aren’t the only ones calling for enhanced economic policy support (see previous entry).
- We’ve noticed a marked uptick in urgency in policymakers’ attitudes toward getting the economy up and running since the end of March.
While we’ve documented that increased urgency in the Tip Sheet, it can be hard to see the totality of it on a daily basis.
Enter our most recent macro-policy note, where we round up the key policy themes, meetings, and actions of the past week (Trivium):
- “Over the first two weeks of April, China’s central leaders continued to grapple with the twin (and contradictory) challenges of economic resuscitation and COVID-19 suppression.”
- “Both projects came upon unwanted plateaus, as China’s previously strong momentum towards business resumption showed signs of stagnating, while the country’s rapidly declining rate of new cases of Coronavirus unfortunately leveled off, and now seems to be stuck at several dozen per day on average.”
- “The Politburo Standing Committee, the Central Leading Small Group for COVID-19, the Financial Stability and Development Committee, and the State Council all held meetings over the past week, and each convening focused on those same dueling priorities.”
Want the gory details?Read the whole piece.
These aren’t the plateaus you’re looking for
6.Things we said today
On Wednesday, China’s top diplomat, Yang Jiechi, got on the phone with US Secretary of State Mike Pompeo.
Some context: The two last talked about a month ago in a phone call that was, shall we say, a bit tense (see March 17 Tip Sheet).
What was on the agenda you ask? Exchanging sick burns that they’d been working on since last time?
The call could best be described as cordial,with frosty undertones.
Pompeo acknowledged China’s contributions of medical aid, but pushed Yang on transparency (State Department):
- “The Secretary stressed the need for full transparency and information sharing to combat the COVID-19 pandemic and prevent future outbreaks.”
Yang’s response was outwardly positive, but ever-so-slightly condescending (People’s Daily):
- “The Chinese side is willing to continue to share information and experience in epidemic control and prevention with the American side.”
- “[The Chinese side] hopes that the American side will meet us halfway…and focus on cooperation.”
Get smart: The call changes nothing. US-China relations are still at a dismal low.
U.S Department of State: Secretary Michael R. Pompeo’s Call with Chinese Politburo Member Yang Jiechi
CPC People: 杨洁篪应约同美国国务卿蓬佩奥通电话
SCMP: Coronavirus: Mike Pompeo urges China for ‘full transparency’ in call with top diplomat Yang Jiechi
7.The storm after the storm
Wednesday was National Security Day in China.
To mark the occasion, director of the Hong Kong Liaison Office Luo Huining, released a speech.
Some context: Luo is the mainland’s top official in Hong Kong. He was appointed in January to get control of the city after half a year of disruptive protests (see January 6 Tip Sheet).
Luo said it’s time for the city to adopt a national security law (Reuters):
- “There’s a need to put effort into maintaining the national security legal system and enforcement system as soon as possible.”
Why that’s a big deal:
- National security legislation has long been controversial in Hong Kong; attempts to pass a National Security Law in 2003 led to massive protests.
- A National Security Law would give authorities broad powers and further erode rule of law and the city’s autonomy.
Get smart: Luo’s speech was a clear signal that Beijing has no intention of relaxing its drive to assert more control over Hong Kong.
The bigger picture: COVID-19 is dominating everyone’s attention at the moment. But underlying tensions in Hong Kong are still there, ready to erupt into the open once the virus is under control.
Reuters: Top China official to Hong Kong urges national security law “as soon as possible”