driving the day
1. Remaining vigilant
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
On May 14(NHC):
- There were four new confirmed cases, up from three on May 13.
- All four cases were locally transmitted in Jilin City.
Since May 7 there have been 26 confirmed cases associated with the outbreak in Shulan (see May 8 Tip Sheet).
There were also 11 new asymptomatic cases Thursday, two of which were imported.
Some context:New asymptomatic cases have not risen above 20 per day since May 1.
On Thursday, Xi Jinping put officials from affected areas on notice at the Politburo Standing Committee meeting (Gov.cn):
- “Heilongjiang, Jilin and other regions where cluster infections occurred recently need to strengthen prevention and control measures.”
He also warned against doing a premature victory lap:
- “The task of preventing a domestic recurrence of the epidemic is still arduous.”
- “We must…not let hard-won epidemic control achievements go to waste.”
- “Those who fail to implement the Party center’s decisions and instructions are to be dealt with seriously.”
Get smart: Xi has been regularly reminding officials and the public that the fight against COVID-19 is not over.
Get smarter: The outbreak in Jilin shows why Xi’s reminder is necessary.
2. Data dump – April econ data
The stats bureau dropped monthly econ data for April on Friday morning.
The headline: We are looking at a two-track recovery – industrial companies are up and running, but consumers remain cautious.
- Industrial production grew by 3.9% y/y – well up from a 1.1% contraction in March and a 25.9% contraction in February.
- Investment contracted by 2.2% y/y – also well up from the 10.9% contraction in March and a 25.7% contraction in Jan-Feb.
- Retail sales contracted by 7.5% y/y – up from a 15.8% contraction in March and a 20.5% contraction in Jan-Feb.
Quick take: That’s what you call a V-shaped recovery for industrial production. Not so much for consumption. Investment is somewhere in the middle.
Get smart: It’s relatively easy for the government to juice the industrial supply-side of the economy. It’s much more difficult to force consumers to spend.
The bottom line: Given that consumer demand is now the key sticking point, the imperative for policymakers is to boost consumer sentiment. It won’t be easy.
Go deeper: Despite the challenges, we see some glimmers of hope on the consumer front. Read all about it in our latest macro-policy note.
3. Eye on the fiscal deficit
In yesterday’s Tip Sheet, we highlighted Minister of Finance (MoF) Liu Kun’s recent People’s Daily piece calling for more active fiscal policy.
Quick take: This was a Two Sessions preview if we’ve ever seen one. The annual MoF budgetreport that will be released next weekwill mirror these comments and add detail.
One additional thing to watch is the overall size of the fiscal deficit that MoF is aiming for in 2020.
According to Yicai, it might rise to historic levels:
- “This year, China’s deficit-to-GDP ratio looks set top 3 percent for the first time, reaching about 3.5 percent, according to market expectations.”
- “Last year the target was 2.8 percent.”
Some context: This would be a big deal. 3% has long been considered a hard limit for the deficit among policymakers.
That said, given already-strong fiscal spending, broaching the 3% level wouldn’t add all that much fiscal firepower:
- “If the fiscal debt rate is increased to 3.5 percent, this will make another CNY500 billion (USD70.5 billion) of public funds available.”
Get smart: On-budget central government spending is just part of the picture. Equally important will be the expansion of local government bond issuance announced at the Two Sessions.
4. Voucher fraud in the regulatory crosshairs
Well that was fast…
Regulators are starting to go after a new kind of fraud – busting people for using consumer vouchers illegally.
The latest: The city of Zhengzhou announced on April 30 that cashing consumption vouchers through fake transactions is illegal and that abnormal transactions will be investigated and dealt with.
Here’s how folks have been gaming the system:
- Taking a consumer voucher from the government
- Finding a merchant partner (or registering as a merchant oneself)
- Spending the coupon on a fake purchase at the vendor
- Letting the merchant receive an additional back-end subsidy for the purchase
- Splitting the combined government refund with the merchant
To get around per-person voucher caps, technically savvy fraudsters are even using multiple IP addresses and other methods to create the digital illusion of multiple consumers.
- And if you don’t have the time or know-how to do it yourself – just head on down to the illegal voucher resale market where you can purchase a cashable voucher for 50% its value.
One problem: Aside from giving fraudsters free money, the process is artificially inflating already bad consumption data (see entry #2).
Get smart: Strict government oversight of stimulus spending marks a huge change from previous rounds of government support.
5. New-type economic policy
Thursday’s Politburo Standing Committee meeting focused on the economy.
The terse, two paragraph readout is pretty daggum interesting.
Several phrases caught our eye, such as:
- “[We] must…construct a new development pattern where domestic and international circulation mutually promote each other.”
(It doesn’t sound any better in the Chinese, btw.)
Why that’s interesting: This is new language, and it is not clear exactly what it means. It appears to reflect an acknowledgment that global trade and investment flows are undergoing massive shifts due to decoupling.
We are also intrigued by this:
- “[We] must realize the advantages of our new-type national system.”
Some context: The “new-type national system” is a phrase that was introduced at last year’s Fourth Plenum. It’s clearly important, but what exactly it means has never been explained.
Our take: We believe this refers to the initiative to become the world leader in next-gen technologies. It’s basically an updating of the Made in China 2025 policy.
Get smart: First the trade war with the US, and now the COVID-19 pandemic, have prompted serious thinking about economic policy. We should get more details on the outcomes of this thinking at the upcoming Two Sessions.