driving the day
1. Shulan outbreak spreads to Shenyang
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
On May 13, China saw (NHC):
- Three new confirmed cases, down from six on May 12
All three cases were locally-transmitted and associated with the recent outbreak in Shulan (The Paper):
- One case was recorded inJilin City, of which Shulan is a part.
- Two were recorded in Shenyang, in neighboring Liaoning province.
The two Shenyang cases are not a good sign.
- That means the Shulan infections have spread.
There were also 12 new asymptomatic cases, one of which was imported.
Some context: Asymptomatic cases haven’t risen above 20 since May 1.
Meanwhile, Wuhan kicked off its ambitious campaign to test all residents yesterday (see May 12 Tip Sheet).
The plan will cost the city government a pretty penny (Hubei Daily via Hubei Gov):
- The government estimates the bill at around RMB 1 billion.
Even local state media outletHubei Dailyadmitted that performing ten million tests within 10 days is nigh on impossible (Hubei Daily via Hubei.gov).
- The government puts Wuhan’s testing capacity at 100,000 per day, way below the target.
Get smart: Testing all of Wuhan’s ten million people will be a Herculean feat. We’ll cut the local government some slack even if they don’t finish within 10 days.
2. Guangdong goes big on local government bonds
As regular Tip Sheet readers know, China’s provinces are strapped for cash.
So the central government is allowing them to borrow more to support the economy (see April 21 Tip Sheet).
One province is ahead of the game: Guangdong.
On Tuesday, the province issued a record number of local government bonds (Yicai):
- “The southern province issued 33 government bonds yesterday to fund infrastructure construction in the wake of the coronavirus pandemic.”
- “That set a record on the Shenzhen bourse for the number and amount of local government bonds issued and was also the first on-site new debt issuance since the outbreak.”
Some more details:
- “The terms range from seven years to 30 years, covering multiple innovative varieties, including a new infrastructure special bond that is a first in China and a water resources special bond.”
Domestic bond buyers were all over it:
- “The interest rates for the bids of various maturities were 25 basis points higher than the benchmark.”
- “The total bid size reached CNY1.71 trillion, with a subscription multiple of 16.55 times.”
Get smart: Moves like this will help to stabilize local government infrastructure spending – but they won’t send it skyrocketing.
The bottom line: A V-shaped economy recovery is off the table.
3. Two Sessions for the COVID era
This year’s Two Sessions could be pretty weird.
Although we don’t know how many, some delegates will be attending the meetings virtually.
- On Wednesday, the State Council held an executive meeting to talk about how to address this strange state of affairs.
Here’s what officials decided Wednesday (Gov.cn 2):
- “Given the need for continued COVID-19 containment, the meeting called for adopting new ways for taking in views and suggestions from NPC deputies and CPPCC members, including via video-link, phone calls and the internet.”
Premier Li Keqiang explained why hearing from delegates is so important:
- “NPC deputies and CPPCC members are broadly representative as they come from across the country and all walks of life.”
- “They provide an important channel for the government to learn more about the conditions of the people and their expectations.”
Get smart: The Party-state has become good at holding virtual meetings in recent years. But those meetings were not dialogues, but rather top officials reading pronouncements one at a time.
We shudder to think: This year’s Two Sessions could be one of those nightmare Zoom calls where everybody is talking at once – and nobody is heard.
4. State Council reiterates commitment to six ensures
Wednesday’s State Council meeting also discussed economic policy.
The headline (Gov.cn):
- “The country will use a combination of fiscal, monetary, social insurance and pro-employment policies to ensure the six ensures and the stability in six areas, according to the meeting chaired by Premier Li Keqiang.”
Some context: The “six stabilities” were introduced in July 2018 as the overarching goals of economic policy. They are:
- Stable employment
- Stable finance
- Stable foreign trade
- Stable foreign investment
- Stable domestic investment
- Stable market expectations
More context: The “six priorities” (also referred to as the “six ensures”) were introduced at the April 17 Politburo meeting to supplement the six stabilities (see April 21 Tip Sheet). They are:
- Ensure employment
- Ensure people’s basic livelihood
- Ensure companies’ survival
- Ensure food and energy security
- Ensure stability of production and supply chains
- Ensure the operation of grassroots governments and public institutions
Unfortunately, Wednesday’s meeting did not offer any specifics on how, exactly, the government intends to achieve these goals.
Get smart: There is a heated debate about economic policy going on at the moment. We should get more clarity on the government’s approach when Premier Li Keqiang delivers the Government Work Report on May 22.
5. Xi calls South Korea and Sri Lanka
Xi Jinping’s telephonic world tour continued on Wednesday when he got on the horn with:
- South Korean President Moon Jae-in
- Sri Lankan President Gotabaya Rajapaksa
Some context: As frequent Tip Sheet readers know, Xi and other top Chinese leaders have made dozens of calls to foreign heads of state in recent weeks, expressing support and solidarity as the world continues to battle COVID-19.
Xi’s comments to Moon were representative of his standard message (Xinhua):
- “China is willing to work with South Korea to continuously push forward bilateral and international cooperation on fighting against the COVID-19 pandemic.”
Xi also hailed the success of the “fast track” system, exempting certain South Korean execs from China’s entry ban on foreigners:
- “While maintaining effective COVID-19 prevention and control, the two sides also took the lead in opening a “fast-track lane” for essential personnel on urgent visits to ensure the smooth operation of industrial chains, supply chains and logistics chains in the region.”
Get smart: Xi and other Chinese leaders are trying their darndest to position China as a responsible global power and counter the narrative that China has done more harm than good in managing the COVID-19 pandemic.
6. Let’s get fis-i-cal, fis-i-cal
On Thursday morning, Minister of Finance Liu Kun published an editorial in People’s Daily signaling a more proactive fiscal policy (People’s Daily):
- “[We will] widen the deficit and send a clearly positive signal…to stabilize and boost market confidence.”
Liu promised more tax cuts:
- “[We will] focus on reducing the tax burden on small and medium-sized enterprises…and industries which have encountered difficulties.”
- “[We will] continue to implement the policy of lowering the value-added tax rate and enterprise’s pension insurance rates and appropriately extend some temporary tax and fee reduction policies.”
The government will also ramp up investment, but in a targeted way.
- Key investment areas include advanced manufacturing, facilities that improve people’s livelihood (e.g. hospitals), and weak links in existing infrastructure.
That said, Liu wants local governments to maintain fiscal discipline:
- “[We will continue to] prevent and mitigate hidden risks of government debt, improve the regular monitoring mechanism of local government debt, and strengthen supervision of local governments.”
Get smart: The government will ramp up fiscal support – but is loath to throw away hard-won gains made in imposing fiscal discipline.
What to watch: A lot of these policies will show up in the Government Work Report next week.