Driving the Day
1. Open and shut
Chinese officials are on the horns of a dilemma, forced to choose between:
- Relaxing epidemic-related restrictions and risk a resurgence of COVID-19 cases, or
- Keeping stringent restrictions in place and accepting drags on economic recovery
After due consideration, they’ve chosen:
- All of the above
The national numbers show the virus under control.
On April 20, there were (NHC):
- 11 new confirmed COVID-19 cases, down from 12 on April 19.
- 4 new imported cases, down from 8 on April 19.
- 7 new domestically transmitted cases, up from 4 on April 19.
- 37 new asymptomatic cases, down from 49 on April 19.
- 0 new deaths, no change from 0 on April 19.
But in Heilongjiang, a spike of new cases has authorities concerned (FT):
- “As of Sunday, including non-symptomatic cases, Heilongjiang said it had 61 active cases of Covid-19 from local transmission, 54 of which were in Harbin, the provincial capital.”
That number looks likely to increase: The Harbin authorities are screening over 4,000 people who have come in contact with confirmed cases.
In the meantime, Beijing has looked into the possibility of relaxing restrictions on some foreign visitors, in a bid to boost economic activity.
- “[Chinese] officials have…proposed efforts to facilitate essential travel with foreign counterparts from more than a dozen countries across the Asia-Pacific region.”
Get smart: Efforts to prevent a resurgence of COVID-19 and efforts to restart the economy are working at cross-purposes. Officials will be hard-pressed to find a workable balance.
Harbin outbreak threatens China’s coronavirus recovery
Wall Street Journal:
China Raises Easing Coronavirus Border Controls With Other Countries
2.The new bottom line
COVID-19 has brought unprecedented challenges to the economy and forced the Party to change their policy priorities.
Case in point: Top leaders updated their economic mantra at the Politburo meeting last Friday (see yesterday’s Tip Sheet).
Besides reiterating the six stabilities as policy goals, the Politburo debuted the “six ensures”:
- Ensure employment
- Ensure people’s basic livelihood
- Ensure companies’ survival
- Ensure food and energy security
- Ensure stability of the production chain and supply chain
- Ensure the operation of grassroots governments and public institutions (i.e. enough fiscal resources to keep them running)
Some context: The six stabilities have guided economic governance since late July 2018. They target employment, finance, foreign trade, foreign investment, domestic investment, and economic expectations.
Get smart:Government thinking on the economy has shifted radically.
- The questionpolicymakers are asking is no longer “How do we cushion the slowdown?”
- Instead it is “How do we ensure against total collapse?”
Xinhua: 中共中央政治局召开会议 习近平主持
3. MoF ups local government bond quota
Well that didn’t take long.
The Ministry of Finance (MoF) is heeding the Politburo’s call to step up policy support.
Some context: Friday’s Politburo meeting was the most decisive signal yet that policymakers will re-up on measures to boost the economy (see yesterday’sTip Sheetand previous entry).
The latest: On Monday, the MoF announced it will allow local governments to issue another RMB 1 trillion worth of bonds under an “advance” quota.
- The official annual quota is announced at annual government meetings (aka the Two Sessions) that have been postponed thanks to the COVID-19 outbreak.
- Until then, officials can issue advance bond quotas.
- As of April 15, local governments had issued RMB 1.57 trillion worth of bonds, or 85% of the previously announced advance quota.
Why the surge you ask? Because local government coffers are absolutely depleted (Reuters):
- “China’s fiscal revenue tumbled 26.1% in March from a year earlier…extending the previous month’s slump as the coronavirus pandemic ravaged the economy.”
- “Fiscal revenues fell 14.3% in the first quarter from a year earlier.”
Get smart: As this move shows, policymakers aredoublingdown on existing policy programs – not introducing a spate of new policy tools.
Reuters: China’s fiscal revenue plunges 26.1% as virus ravages economy
21st Century Biz: 财政部拟再下达1万亿地方专项债，提前批额度已超去年全年
Reuters: China plans to issue another 1 trln yuan in advance local government special bonds quota
China Security Journal: 财政部：近期拟再提前下达1万亿元地方政府专项债券额度
4.Defining “new infrastructure”
On Monday, National Development and Reform Commission (NDRC) officialsdiscussed the scope of “new infrastructure” investments that they are looking to ramp up.
Some context: New infrastructure investment was first touted by the Politburo as a key economic support measure at its meeting on March 27.But until now, it hasn’t been a clearly defined concept.
The NDRC says it will involve:
- Information infrastructure– including communication network infrastructure such as 5G, internet of things, industrial and satellite internet; new technology infrastructure like artificial intelligence, cloud computing, and blockchain; computing infrastructure like data centers and intelligent computing centers
- Integration infrastructure – including intelligent transportation infrastructure and intelligent energy infrastructure
- Innovative infrastructure–including major science and technology infrastructure and industrial technology innovation infrastructure
The upside: By investing in new infrastructure policymakers are looking to support the economy now, while also increasing long-term economic competitiveness.
The downside: Investments like these take much longer to get returns than…say…building a bunch of new apartment buildings or highways.
The bottom line: This marks a critical difference between this year’s mini-stimulus and 2009’s mega-stimulus.
21st Century Biz: 官方首次界定“新基建”范围：不止七大领域，纳入区块链、物联网、科创等内容，将出台顶层设计
On Monday, the central bank (PBoC) announced the loan prime rate (LPR) for April.
The headline: Market interest rates are down this month compared to March.
The details (Reuters):
- “The one-year loan prime rate was lowered…to 3.85% from 4.05% previously.”
- “The five-year LPR was cut by 10 bps to 4.65% from 4.75%.”
A quick refresher: In August 2019, the central bank established the new LPR as the benchmark lending rate (see August 29 Tip Sheet). The PBoC doesn’t set the LPR outright. It’s based on monthly submissions from 18 commercial banks.
The cut was widely expected.
- The PBoC had previously cut the rates on the LPR base rate – i.e the medium-term lending facility (MLF) – by 20 basis points on Wednesday.
Get smart: The fact that banks passed on the full extent of the MLF cut to their customers suggests that the PBoC is leaning on them more heavily – to make sure rate cuts get passed through to the real economy.
Get smarter: Compared to measures elsewhere in the world, a 20-basis-point cut in lending rates isn’t much to write home about. Beijing knows that and is already signaling that more easing measures are on the way.
6.Xi heads to Shaanxi
On Monday, Xi Jinping headed down to Shaanxi to see what’s going on.
This trip, like Xi’s recent trip to Zhejiang (see April 1 Tip Sheet), was an important signal that the country is no longer under lockdown.
Xi’s Monday itinerary also showed that officials need to be focused on more than just containing COVID-19.
- He visited the Niubeiliang National Nature Reserve in the Qinling Mountains, where he stressed the importance of environmental protection.
- He visited Jinmi village, where he stressed the importance of eradicating poverty.
There was also a political message behind Xi’s visit.
- The Qinling Mountains are the scene of the one of the largest political scandals during Xi’s tenure as Party secretary (see November 21 Tip Sheet).
- Despite explicit prohibitions from Xi, local officials allowed the construction of over 1,000 villas in what was supposed to be a protected nature reserve.
- It took several years, but the central authorities eventually clamped down hard, purging numerous high-level officials, including former Shaanxi Party Secretary Zhao Zhengyong.
Xi’s message to officials: “If you cross me, I will come after you.”
Xinhua: Xi Focus: Xi urges officials to be guardians of Qinling Mountains ecological environment
7.Beijing looks to assert more control over Hong Kong
Beijing has been looking to assert more authority over Hong Kong over the past week.
The Hong Kong Free Press recaps what’s been going on:
- “On Tuesday, Beijing’s Hong Kong and Macau Affairs Office (HKMAO) and the China Liaison Office in Hong Kong launched a rare attack against the city’s opposition lawmakers, accusing them of ‘malicious filibustering’ in an attempt to stall the election of the chairperson of the Legislative Council’s House Committee.”
- “On Friday, the China Liaison Office declared that it was not restricted by Article 22 of the Basic Law…[which] forbids any ‘departments of the Central People’s Government’to interfere in the internal affairs of Hong Kong.”
- “On Saturday, Hong Kong police arrested 15 high-profile pro-democracy politicians, advocates and activists on suspicion of organising and participating in a series of unauthorised assemblies that took place between August and October last year.”
Get smart: Beijing looks intent on further eroding Hong Kong’s autonomy.
Get smarter: That will undermine its attractiveness as an international finance and business center.
Hong Kong Free Press: Explainer: Beijing’s 5-day crackdown on Hong Kong’s opposition during covid-19
SCMP: Hong Kong in midst of tussle over ‘tricky’ relationship between liaison office, Basic Law, and daily running of the city