Driving the Day
1. Border patrols
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
On April 27 (NHC):
- There were six new confirmed cases, three of which were imported – up from three cases with one imported on April 26.
- All three local cases were from Heilongjiang province.
- There were 40 new asymptomatic infections of which three were imported– up from 25 asymptomatic cases with one imported on April 26.
So, in summation: Not great, not terrible.
Heilongjiang’s imported infections have Chinese officials worried about their borders…all 22,000 kilometers of them.
- In particular, officials are concerned about the importation of cases from South and Southeast Asia where national boundaries are relatively porous.
To check the potential spread of the virus, inspector general of the NHC’s Disease Control Bureau, Wang Bin, announced that the NHC had (Beijing News):
- “Sent a working group of 16 experts to Yunnan, Guangxi and Tibet to provide on-site guidance on prevention and control of border areas and help formulate implementation plans.”
Get smart: China’s ban on foreign visitors is much harder to enforce in the sparsely populated southern border regions.
Driving the Day, Cont’d
2.Top policymaking body discusses epidemic response
On Monday, Xi Jinping chaired a meeting of the Central Commission for Comprehensively Deepening Reform (CCCDR).
Some context: The CCCDR was established as part of the MASSIVE Party-state restructuring in March 2018. It is the most important policymaking body in the country.
Dealing with the coronavirus epidemic was top of the agenda.
The meeting passed:
- A plan for securing public health emergency supplies
- Guidelines on reforming the system for regulating medical insurance funds
The meeting also discussed the economic policy response to the epidemic:
- “We need to focus our efforts on promoting reform initiatives that are conducive to the resumption of work and production; the employment of residents; investment and consumption; the development of small, medium-sized, and micro enterprises; the basic livelihood of the people; and poverty alleviation.”
But top leaders also want officials to focus on these medium-and long-term goals:
- Improving the market-oriented allocation of factors
- Transforming government functions
- Optimizing the business environment
- Expanding domestic demand
- Stabilizing supply chains
- Promoting urban-rural integration
- Accelerating scientific and technological innovation
- Expanding opening up
- Promoting environmental sustainability
Get smart: The top leadership is determined to not let the coronavirus derail long-standing structural reforms.
Driving the Day, Cont’d
3. ChiNext to move to registration-based IPO system
Monday’s CCCDR meeting did more than discuss the coronavirus epidemic (see previous entry).
It also passed four documents on larger structural issues:
- A plan for reforming the ChiNext stock exchange
- A plan for protecting and restoring major national ecosystems (2021-2035)
- Guidelines for promoting the healthy growth of young people through deeper integration of sports and education
- An implementation plan of major reform measures from the October 2019 Fourth Plenum (2020-2021)
The ChiNext reforms will make it easier for companies to IPO (Shine):
- “Under the new listing mechanism, companies seeking an IPO no longer need approval from the China Securities Regulatory Commission, greatly shortening the waiting period.
- “Once the reforms take effect, there will be no up and down limit for the first five days after a company lists on the stock exchange. After that, the up and down limit will be adjusted to 20 percent from the current 10 percent level.”
- “Experts predict that ChiNext could see its first initial public offering under the registration-based system later this year.
Get smart: If registration-based IPOs work well on ChiNext, they will be adopted by China’s other exchanges.
What to watch: What the CCCDR discusses today becomes policy tomorrow. Stay tuned.
Shine: Xi backs reforms of ChiNext’s IPO system
4.Who vouches the voucher?
As regular Tip Sheet readers know, city-level consumer voucher programs have been a huge part of the policy response to get growth back up and running.
The big question: How effective are these programs?
- Unsurprisingly city-level governments have been touting the efficacy of their voucher programs, as they would.
- But others have called them into question.
Now the nerds over at Peking Universityhave backed up the claim that the program is paying off (The Paper):
- “The latest research report from the Guanghua School of management at Peking University gives the answer: in Hangzhou, a government subsidy of 1 yuan drives new consumption of 3.5 to 5.8 yuan.”
That’s a pretty solid result – although we’re reluctant to consider the study as definitive.
Some context: The results of the study, pithily titled “Consumption Restart Under the Epidemic: Research on the Application and Effect of China’s Urban Digital Consumption Coupons” were jointly released on April 27 by Liu Qiao, Dean of the Guanghua School of Management, and the Ant Financial Services Research Institute.
Our take: On balance, it seems like these programs are effective, but we want to wait for more evidence.
The bigger picture: Governments throughout the world would be well advised to keep tabs on this program – similar measures could help to kickstart the global recovery.
The Paper: 杭州消费券1元补贴拉动3.5元消费，学者呼吁全国大范围发
5.Dr. MoF’s special purpose miracle bonds
The Ministry of Finance (MoF) has officially approved the latest round of advance local government special purpose bond (SPB) issuance – and the provinces are wasting no time raising cash through the program.
Here’s the deets:
- This year’s third batch of special purpose bonds was valued at RMB 1 trillion.
- Local governments will need to determine what projects to spend the money on by the end of May.
- 15 regions have already determined how they willspend thecash.
- Most are looking to fund new infrastructure, old infrastructure, and healthcare facilities.
Some context: The full annual SPB quota will be announced at the Two Sessions, once it takes place. Until then, piecemeal advance quotas will come through.
- The last two rounds of advance SPB bonds totaled 1.3 trillion RMB.
- Last year’s annual quota for SPB debt was RMB 2.15 trillion.
- At 2.3 trillion RMB for 2020, we’re already well past that benchmark.
- Most analysts expect the full annual quota to be well above RMB 3.5 trillion.
Get smart: Markets are getting excited that this means major stimulus is on the way. While policy support is clearly being ramped up, the scale of total stimulus may still disappoint (see yesterday’s Tip Sheet).
6.Block around the clock
Yesterday, the Cyberspace Administration of China (CAC) and 11 other ministries jointly released an upgraded set of regulations for reviewing network security.
The new regs don’t significantly alter the content of the draft version released in May last year (see May 29 Tip Sheet).
Operators of critical information infrastructure (CII) need to submit their procurement deals for government security review to determine if they constitute a security risk based on government guidelines.
It could affect procurement for a wide range of products and services including:
- Core network equipment
- High-capability computers and servers
- High-capacity data storage
- Large databases and applications
- Network security equipment
- Cloud computing services
An important element of the review is supply chain security:
- Regulators will assess risks of supply disruption due to political, diplomatic, or trade factors.
Another notable change is that Xi Jinping seems to want to keep the power to block procurement deals for himself.
- The Central Cybersecurity and Informatization Commission, headed by Xi, will need to sign off on any recommendations stemming from government investigations.
Get smart: Chinese authorities are likely going to be reluctant to enforce these rules. They don’t want to give foreign governments more excuses to bar Chinese technology.