driving the day
1. Shulan lockdown expanding
This morning, the National Health Commission (NHC) dropped the latest COVID-19numbers.
On May 12, China saw (NHC):
- Seven new confirmed cases, one of which was imported
The new domestically-trasnmitted cases were allrecorded in Jilin City, the larger conurbation of which Shulan– where several cases have been recorded lately – is a part.
- There were also eight new asymptomatic cases, one of which was imported.
Some context: New confirmed cases are up from one on Monday (imported), but down from 17 on Sunday.
The spread of the virus from Shulan to downtown Jilin City forced the local government to expand its previous lockdown to include the entire urban area (Chinanews.com).
- Only people who have tested negative for the virus within the past 48 hours may leave the city.
Meanwhile, the Ministry of Commerce is doing its part to support economic normalization (Bloomberg):
- The ministry has reportedly told several foreign companies that they could apply for exemptions to China’s foreign entry ban for key personnel needed to resume essential work.
Get smart: Authorities are doing all that they can tocontain outbreaks in Jilin, while simultaneously moving forward with normalization measures in the rest of the country.
National Health Commission:
Bloomberg:China Is Exempting Some Foreign Executives From Travel Ban
2.SMEs get more policy support
Vice Premier Liu He has been traveling with Xi Jinping in Shanxi for the past two days (see entry #5).
But before he hit the road, Liu chaired a meeting of the State Council’s leading small group on promoting SME development.
The readout of the meeting came out yesterday.
According to the folks at the meeting, things still do not look good for SMEs (Gov.cn):
- “There has been marginal improvement in the business performance of SMEs.”
- “That said, full economic recovery takes time.”
- “The development of SMEs still faces a complex and severe situation.”
Liu and co. had two prescriptions:
- Expand demand by ramping up both government and private investment..
- Continue financial support of SMEs using policy tools including policy loans, loan interest subsidies, accounts receivable financing, and supply chain financing.
Buuuut….implementing policy goals has always been a challenge for officials when it comes to SMEs.
Don’t take our word for it, here’s governor of Gansu Tang Renjian (gansu.gov.cn).
- “Many (small and medium-sized) enterprises complained that they can see policy aid, but cannot reach it.”
Get smart: Getting SMEs the policy help they need was a challenge for the government even before COVID-19. Now, the lack of implementation is really going to hurt.
3. PBoC adds more color to April credit data
On Tuesday, the central bank (PBoC) published a QA with the head of its investigation and statistics department.
The topic: The drivers behind the solid April credit data.
Some context: Over the past couple of years, the PBoC has taken to publishing pieces like this in conjunction with high-profile policy moves or data releases.
Below we highlight items of particular note.
Q: Why such strong bank deposit growth recently?
- “On the one hand, due to the impact of the epidemic, household consumption decreased; on the other hand, the state increased support for people’s livelihood, and the nominal income of residents maintained a positive growth.”
Q: Why such strong credit growth in April?
- Financial institutions increased support for the real economy in response to policymakers’ urging.
- Direct financing has increased, especially forbonds. From January to April, net financing of corporate bonds was RMB 2.68 trillion, equivalent to 80% of the net financing of corporate bonds in all of last year.
- Financial institutions helped to support a substantial increase in government bond financingby purchasing those bonds.
Get smart: We’ll say it again, this pace of corporate bond issuance isn’t sustainable – that will put a brake on credit growth in coming months.
People’s Bank of China:
4. PBoC adds more color to April credit data, cont’d.
The PBoC QA (see previous entry) had some additional juicy nuggets.
In response to a question about where, exactly, new loans are going,the PBoC official highlighted various parts of the service sector, including:
- The healthcare and social work industries
- Wholesale and retail trade
- Transportation, warehousing, and postal services
Finally, the official was asked about how the overall macro-leverage ratio evolved in Q1.
He basically dodged the question (PBoC):
- “In the first quarter of this year, affected by the impact of the epidemic, China’s macro leverage ratio increased significantly.”
He went on to say:
- “At present, we should allow the macro leverage rate to rise periodically and expand credit support to the real economy.”
- “This is mainly to effectively promote the resumption of production, which in fact creates conditions for better maintaining a reasonable macro leverage level in the future.”
That’s a clever answer – mostly because it is spot on.
Our take: Officials don’t need to be wringing their hands about the macro-leverage ratio right now. They need to be supporting the economy.
The big question: Will policymakers resume the tough work of containing and reducing leverage once the economy stabilizes? We think the answer is yes, but time will tell.
5. Xi tells cadres to think long-term
On Tuesday, Xi Jinping continued his tour of Shanxi, taking in the sights in the provincial capital Taiyuan.
His itinerary (Xinhua 1):
- In the morning, Xi visited a subsidiary of state-owned Taiyuan Iron and Steel Group.
- At noon, Xi visited the Fen River waterfront.
- In the afternoon, Xi met with top provincial officials.
What does it all mean?
Xinhua says that Xi’s Shanxi sojourn has three “clear” signals (Xinhua 2):
- “Signal 1: Time waits for no man! Win the difficult war against poverty.”
- “Signal 2: Plan for the long-term! Strengthen strategic focus.”
- “Signal 3: March towards high quality! Unswervingly do well our own tasks.”
Get smart: Those messages should be well familiar to cadres. Xi has consistently stated that responding to the COVID-19 pandemic should not come at the cost of long-term goals such as eradicating poverty and improving the environment.
Get smarter: On the economic front, this means that economic support measures should not come at the cost of the broader effort to de-risk the financial system and upgrade the economy. That’s why stimulus measures thus far have been targeted, instead of a 2008-09-style free-for-all.
6. China still committed to trade deal with US
The phase one trade deal signed with the US in January has looked to be on shaky ground in the past few days.
- On Friday, Chinese trade negotiators seemed to hedge on whether or not they would fulfill their commitments (see Friday’s Tip Sheet).
- Hours after the Friday trade talks, US President Donald Trump said, “Look, I’m having a very hard time with China.” (NYT)
- Then, on Monday, the Global Times ran an article saying that some within China are arguing for shelving the deal (Reuters).
Doesn’t look good, right?
But actions speak louder than words.
China is upping soybean purchases from the US (Bloomberg):
- “State-run buyers have purchased more than 20 cargoes, or over 1 million metric tons, of American soybeans in the past two weeks, said the people, who asked not to be identified because the information is private.”
And China is also reducing tariffs on US goods (Reuters):
- “China announced on Tuesday a new list of 79 U.S. products eligible for waivers from retaliatory tariffs imposed at the height of the bilateral trade war.”
What we are hearing: China is still intent – and working hard – to fulfill its obligations under the deal.
Trump Says He’s ‘Torn’ on China Deal as Advisers Signal Harmony on Trade
China announces new tariff waivers for some U.S. imports
Bloomberg:China Steps Up U.S. Soybean Buying With Million-Ton Purchase