Driving the Day
1. Harbin continues to see local cases
This morning, the NHC dropped the latest numbers for domestic COVID-19 cases.
On April 21, there were (NHC):
- 30 new confirmed COVID-19 cases, of which 23 were imported
- 42 new asymptomatic cases
Local transmissions continued in Harbin, the capital of Heilongjiang province (Gov.cn):
- All seven new domestically transmitted cases were recorded in Harbin.
- Harbin now has 52 active confirmed cases.
These numbers will go up: Authorities have not yet finished conducting screenings in the city.
In the rest of the country, the virus still looks under control (The Paper):
- According to the Ministry of Education, there were over 35 million studentsback atschoolas of April 17.
To keep students safe, local governments are widening tests.
- Beijing and Guangzhou are testing all teachers and students.
Many local governments are gradually widening testing coverage. The priority is people whose occupation involves contact with the public, like cab drivers, doctors, and restaurant servers.
Get smart: The central government wants to“normalize” epidemic prevention and control measures, but China’s still a long way from normalcy.
2.Money to burn
Good news! Chinese consumers havemoney to spend.
But… they don’t want to spend it.
That’s the finding of a survey of household finances done jointly by Southwestern University of Finance and Economics and Ant Financial.
The report found that during the first three months of the year, when most people were under lockdown (NBD):
- 50.2% of households increased savings and reduced consumption.
- 9.4% of households reduced savings and increased consumption.
- 40.4% experienced no change.
The survey also found that consumers were holding back from spending those savings over concerns that:
- A return to public spaces might expose them to a new outbreak.
- Their jobs and incomes might not be secure.
- Price inflation may emerge.
- Housing prices might fall (affecting household wealth).
- Housing prices might surge (pricing buyers out of the market).
One quick thought: That housing piece seems like a real conundrum – there is no clear expectation on which way the market will go.
Get smart: Boosting consumption is key to getting the Chinese economy back on track. But it’s going to be tough to boost consumer confidence.
NBD: 一季度储蓄增加很正常 激活消费需多管齐下
3. Paying old mortgages with new mortgages – what could go wrong?
Good news! Shenzhen’s property market is skyrocketing.
Buuut there’s also bad news – the rebound is thanks to companies illegally spending stimulus money.
- To pay for mortgages due in March, small companies are mortgaging new properties.
- Banks are unwittingly financing these loans using funds meant to support SMEs to get back to work after the COVID-19 outbreak (with correspondingly low interest rates.)
That’s not good.
Now, Shenzhen regulators are getting involved:
- The local branch of the central bank issued a notice to all banks in the jurisdiction to undertake self-inspections for illegal housing loans.
- The local branch of the bank regulator will conduct individual bank inspections.
- The local branch of the Ministry of Industry and Information Technology issued a notice explicitly stating that discounted loans can’t be used for MA, personal consumption, legally prohibited projects, or…you get the picture.
Get smart: Even amid the economic turmoil people still see property as a safe haven.
Get smarter: One challenge of stimulus is ensuring companies use their new cash towards value creation. Keep an eye out for more “creative bookkeeping” creeping up from the COVID-19 SME stimulus.
4.More support for small firms
On Tuesday, the State Council held its weekly executive meeting.
The governmentrolled out yet more measures to help small companies:
- Banks’ loan loss provision coverage ratio for small and medium-sized lenders – that is the reserves they must set aside to cover bad loans – will be cut by 20 percentage points.
- The Macropruduential Assessment (MPA) framework will be reweighted to encourage banks to make loans to small companies.
- Small businesses that rent from state firms are entitled to a three-month rent exemption.
How does cutting provisions help?
- Banks don’t like making loans to small firms because the default rate is high.
- Provisions are costly to banks as they eat into profits and capital, so they act as an incentive to avoid bad loans.
- Cutting the provision ratio will allow banks to carry more bad loans at a lower cost than was previously possible.
Some context: Regulators last cut the provision ratio in March 2018.
Meanwhile, the changes to the MPA framework will allow officials to overlook weaknesses elsewhere in banks’ operations as long as they lend more to small firms.
Get smarter: Even before the pandemic, Beijing was struggling to convince banks to ramp up lending to small firms. Rejigging a couple of regulatory metrics isn’t going to fundamentally change bank culture.
Gov.cn: 李克强主持召开国务院常务会议 部署加大对贫困人口、低保人员和失业人员的帮扶保障力度等
5.Li cares for the vulnerable
On Tuesday, the State Council also talked about ways to enhance financial assistance to economically vulnerable groups of people.
Premier Li Keqiang knows more people are being put at risk because of the COVID-19 pandemic (Gov.cn 2):
- “Impacted by this epidemic, our existing population living in poverty, living on minimum subsistence allowances, especially those who are unemployed, will likely experience a sizable change.”
All levels of government are asked to get a clear picture of who has been affected, and (Gov.cn 3):
- “[Expand] the access of both minimum subsistence allowances and unemployment insurance, to cover all those eligible.”
In addition to expanding the scope of social welfare coverage, the meeting also decided to:
- Provide micro loans with discounted interest rates to vulnerable sections of the labor force and extend the repayment period to the end of this year
- Provide skills training for the unemployed
- Prioritize the use of poverty-stricken sections of the labor force for major construction projects owned by the state
Get smart: The larger goal here is maintaining social stability.
Gov.cn: 李克强主持召开国务院常务会议 部署加大对贫困人口、低保人员和失业人员的帮扶保障力度等
Gov.cn: China to enhance assistance to people in need, small firms
6.Discipline officials focus on policy implementation
The Party’s discipline chief Zhao Leji was on the road in Gansu from Saturday through Tuesday.
While there, Zhao called together top discipline officials from seven provinces.
- Discipline officials should focus on making sure that central policies are implemented.
Zhao specified three types of policies that need special attention:
- Epidemic prevention and control policies
- Policies to revive the economy
- Poverty alleviation policies
Get smart: That’s a pretty clear (if unsurprising) rundown of the Party’s policy priorities.
Get smarter: Under Xi Jinping, the Party’s discipline body (CCDI) has expanded its remit. It used to focus on punishing corruption and other bad behavior. Now it focuses just as much on supervising policy implementation.
CPC People: 赵乐际在甘肃调研时强调 紧紧围绕统筹疫情防控和经济社会发展决策部署跟进监督保障落实
7.Party sets up new group to keep the peace
Get excited. The Party has established a new high-level coordination group – the Safe China Construction Coordinating Small Group.
The group met for the first time on Tuesday.
Some context: The Politburo met on Friday (see Monday’s Tip Sheet) and likely decided to establish the group then.
The new group is a clear sign that the Party is worried about social stability.
Check out thegroup’s top priority(Xinhua):
- “Prevent and crack down on activities that endanger the political security of the country.”
The group consists of the country’s top law enforcement officials, including:
- Secretary of the Party’s Political and Legal Affairs Commission (PLAC) Guo Shengkun, who chairs the new group
- State Councilor and Minister of Public Security Zhao Kezhi
- President of the Supreme People’s Court Zhou Qiang
- President of the Supreme People’s Procuratorate Zhang Jun
- Secretary-general of the PLAC Chen Yixin
- Minister of State Security Chen Wenqing
- Soon-to-be Minister of Justice Tang Yijun (see next entry)
- Commander of the People’s Armed Police Wang Ning
- Secretary of the Central Military Commission’s PLAC Wang Renhua
Get smart: The economic outlook is grim, and top leaders are worried that could lead to widespread discontent – or even unrest.
8.Tang Yijun to take over at MoJ
Tang Yijun, former governor of Liaoning, is the new Minister of Justice.
- Ministerial appointments have to be approved by the legislature (NPCSC), which won’t meet until Saturday.
- But it’s all but certain that Tang will be appointed to head the ministry when the NPCSC concludes its session on April 29.
How we know:
- Minister of Justice Fu Zhenghua stepped down from his Party position at the ministry recently.
- Tang – and not Fu – attended the first meeting of the Safe China Construction Coordinating Small Group Tuesday (see previous entry).
A little about Tang:
- Tang spent the first 40 years of his career in Zhejiang, eventually serving as deputy Party secretary of the province.
- He has been governor of Liaoning since October 2017.
Get smart: Zhejiang is one Xi Jinping’s key power bases. That’s led many to speculate that Tang is a Xi ally.
What to watch: Two promotions in two and a half years indicate that Tang may be being groomed for bigger and better things.
Beijing News: 平安中国建设协调小组第一次会议召开，有新面孔亮相