Driving the Day
1. The new normal
This morning, the National Health Commission (NHC) dropped the latest numbers for domestic COVID-19 cases.
On May 7 (NHC):
- There was only one new confirmed case.
- The case was a local transmission in Shulan,Jilin, breaking the five-day “no local transmissions” streak.
This is tricky: Local health authorities have not yet been able to identify the origin of the transmission. That makes it harder to contain the possible spread.
There were also 16 new asymptomatic infections, all local – up from six cases on May 6.
Meanwhile, the government is exploring ways to get people’s lives back to normal.
Yesterday, Premier Li Keqiang chaired a meeting of the top leading small group on COVID-19 containment work (Gov.cn 1).
- The meeting pledged to assess the effectiveness of containment measures during the Labor Day holiday and formulate relaxed guidelines to allow freer movement of people and small gatherings.
And this is big (The Paper):
- The Beijing and Shanghai city governments have advised people to stop wearing masks except in certain indoor areas.
Get smart: Instructing people not to wear masks unless necessary sends a strong single that life is getting closer to normal.
What to watch: In the next couple of weeks, we’ll know if there was any fallout from the mass movement of people during the Labor Day holiday.
Gov.cn: 李克强主持召开中央应对新冠肺炎疫情工作领导小组会议 要求总结推广有效做法精准做好常态化防控 有序推动学校复学复课 加快提升快速检测能力
2.The long march to resumption
You’ve had a long week. Reward yourself with a cool glass of business activity resumption data courtesy of the Trivium Business Activity Index.
Here are our estimates as of May 8:
- The Trivium National Business Activity Index indicates that China’s economy is operating at 86.4% of typical output, up from 86.2% on May 7.
- The Trivium National Large Enterprise Activity Index indicates that China’s large enterprises are operating at 85.4% of typical output, up from 85.3% on May 7.
- The Trivium National SME Activity Index indicates that China’s small businesses are operating at 87.0% of typical output, up from 86.7% on May 7.
Let’s dissect those numbers a bit:
- Nearly all large industrial enterprises have turned their lights back on.
- That said, many of these large companies are still operating at around 85% of normal levels.
- SMEs are also seeing signs of life as Chinese consumers feel reasonably comfortable with getting out and about.
Get smart: Good signs notwithstanding, it’s going to be long, agonizing slog to get back to full resumption.
Trivium China: Trivium Business Activity Index
3. The scale of employment pressure revealed…sort of
New data from the Ministry of Human Resources and Social Security (MoHRSS) sheds some light on the employment pressures brought on by COVID-19.
- MoHRSS says that so far in 2020, it has refunded RMB 42.3 billion worth of unemployment insurance payments to 3.2 million companies.
Some context: Authorities are reimbursing companies for up to 50% of their 2019 contributions – if they promise not to lay off workers.
- On average,companies receiving the refunds have 27 workers.
- According to our math – that’s 86 million peoplewhose salaries are now being subsidized by the government.
For a sense of scale: MoHRSS said the 3.2 million companies receiving benefits is more than three times the number that received help in all of 2019.
- The continued pressure on small companies prodded tax authorities to extend VAT reductions for small business to the end of the year.
- The cut had previously been set to expire on June 30.
Get smart:The government has been using targeted measures like these to support the economy– instead of large-scale stimulus.
The big question: As the slowdown deepens, will policymakers change tack?
4.Auto market pain temporarily relieved
While China’s economy is still trying to find its feet, at least one industry looks like it might be on the road to stabilization.
Aprily/y auto sales increased for the first time in almost two years (Yahoo):
- “Carmakers shipped 2 million vehicles to dealerships and stores in April, up 0.9% from a year earlier, the China Association of Automobile Manufacturers said in a statement Thursday.”
- “That’s the first increase since June 2018.”
It was a solid performance, but the fact that this was the first increase since mid-2018 underscores that the auto sector’s challenges aren’t coronavirus specific.
What’s more: While the sector eked out positive performance in April, the year-to-date has still been a disaster:
- “Deliveries dropped about 32% in the first four months to 5.67 million units.”
Get smart: The auto sector is critical because it helps to illuminate trends for consumer purchases of durable goods, manufacturing output, and even finance. So any positivity in the sector is welcome.
Get smarter: We’ll need to see a string of consistently improving auto sales data before we’ll be comfortable that the auto market – and broader economy – has genuinely stabilized.
Yahoo:China Car Sales Rebound With First Monthly Gain Since 2018
5.Liu He talks to US counterparts
On Friday morning, Vice Premier Liu He got on the phone with US Trade Representative Robert Lighthizer and US Treasury Secretary Steve Mnuchin.
Some context: The three men led negotiations for the phase one trade deal signed in January.
More context: The economic slowdown is making it difficult for China to meet its pledge to boost imports of US goods.
Even more context (WSJ):
- “The call came after President Trump threatened to ‘terminate’ the trade deal if China failed to buy promised goods and services from the U.S.”
According to the US readout, China will meet its obligations (USTR):
- “Both countries fully expect to meet their obligations under the agreement in a timely manner.”
The Chinese statement was more equivocal (Xinhua):
- “The two sides said that they should… strive to create a favorable atmosphere and conditions for the implementation of the phase one economic and trade agreement.”
Get smart: Sino-US relations are in a downward spiral, and the usual diplomatic channels for communication are not being used. It is positive that the two sides are now talking through established economic channels.
Get smarter: Bilateral relations are still on a downward trajectory.
6.Xi urges solidarity with Portugal and Uzbekistan
You know what time it is…
Time for another edition of the Xi Jinping ‘Round the World COVID-19 Public Relations Telethon Extravaganza.
Some context: In recent weeks, senior Chinese leaders have placed dozens of calls to foreign leaders with messages of support in their fight against COVID-19.
On Thursday, Xi called:
- Portuguese President Marcelo Rebelo de Sousa
- Uzbek President Shavkat Mirziyoyev
Xi’s message follows a now familiar pattern as exemplified by his comments to Mirziyoyev (CGTN):
- “Solidarity and cooperation are the ‘most powerful weapon’ against the COVID-19 pandemic.”
- “The pandemic has demonstrated…that building a community with a shared future for mankind is the only choice for the world.”
But there was also a new undertone in Xi’s remarks:
- “Xi called on countries across the world to…erase prejudice with rationality and fight the pandemic together.”
More context: As global opinion turns against China, a growing number of countries are demanding answers about the initial spread of COVID-19 and the government’s role in covering it up.
Xi’s message: Keep your eyes on the common enemy.
Get smart:Xi’s concerted diplomatic efforts have been undermined by the aggressive statements of Chinese diplomats such as foreign ministry spokesperson Zhao Lijian.
CGTN: Xi Jinping hails solidarity as ‘most powerful weapon’ against COVID-19
Xinhua: Xi calls for global synergy against COVID-19
Xinhua:Xi urges global solidarity, cooperation against grave challenges
7.Local governments dig deep
Last month, we told you that top leaders were preparing for a fiscal worst-case scenario at the April Politburo meeting (see April 21 Tip Sheet).
The problem: Governments atthe county level and below are facing possible shutdowns due to lack of fiscal resources.
The risk is real according to a study done by Outlook Weekly, a state media outlet which also provides intelligence to Zhongnanhai.
- Local officials in central China are saying they do not have enough to cover the payroll of civil servants for one more month.
Ministry of Finance official Liu Jinyun shed some light on the situation (China Economic Net):
- “Some county-level governments have relatively tight fiscal resources and have run into difficulties in ensuring…[government] operations.”
Avid Tip Sheet readers know that some local governments had run into fiscal difficulties long before the outbreak of COVID-19 (see September 4, 2018 Tip Sheet). But the pandemic has exacerbated the situation.
In Q1, out of 28 provinces that released fiscal stats (The Paper):
- 19 saw a y/y drop in fiscal revenue of more than 10%.
- Five saw a y/y drop of more than 20%.
Get smart: We don’t see local government shutdowns as likely. The higher-ups will step in before that happens.
Get smarter: We don’t envy local governments. They have all the same outlays as before with many fewer revenue streams.