driving the day
1. Shulan spreading keeps on and on
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
From May 15-17 (NHC):
- There were 43 new asymptomatic cases, four of which were imported.
Some context: New asymptomatic cases have not risen above 20 per day since May 1.
The last three days also saw:
- 20 new confirmed cases
- Eight of those were locally transmitted – seven in Jilin Province and one in Shanghai.
More context: The Shanghai case was not related to any previous infection. The infected person traveled from Hubei on May 14.
Meanwhile, the outbreak that started in Shulan has resulted in 34 infections in the past 10 days – its origin remains a mystery.
Over the weekend, the government of Jilin City continued to tighten lockdown measures in an effort to keep people indoors.
Get smart: The Shulan outbreak may have a long tail before it’s fully contained, but the spread does not look set to accelerate.
2. Top leaders meet on COVID-19
On Friday, Premier Li Keqiang chaired the Party’s top leading small group on COVID-19 containment.
Top of the agenda: Refining containment measures to support economic resumption.
Testing will be key to these efforts (Gov.cn):
- Premier Li asked officials to continue to scale up testing capacity and develop more accurate and faster test kits.
Case in point, Wuhan (Wuhan.gov):
- The Wuhan government doubled its testing capacity to 222,675 tests per day on Saturday to accommodate its ambitious plan to test close to ten million residents.
Premier Li also hinted that China may soon ease its ban on foreign entry for some commercial travelers (Gov.cn):
- “According to the changes in the overseas epidemic situation, [we will] study measures to further optimize epidemic importation prevention measures [so that]…personnel exchanges and economic cooperation may increase.”
German execs may benefit soon (BJ News):
- The governments of the two countries are working on booking a charter flight to Shanghai on May 25 for German businesspeople.
- Passengers will need to pass a COVID-19 test before taking off and will be tested again after landing.
Get smart: In the near term, booking charter flights to bring foreign execs back in batches may become more common.
3. Politburo discusses Government Work Report
The Politburo held its monthly meeting on May 15.
Top of the agenda: Discussing the Government Work Report (GWR), which will be unveiled Friday at the opening of the National People’s Congress annual session.
Some context: The GWR specifies major economic targets and sets the overall direction of policy for the year.
More context: Given the depth of the slowdown and uncertainty regarding the economic outlook, debate over economic policy has been particularly heated this year.
The readout from the meeting reiterated that times are tough (CPC People):
- “Our country’s development faces challenges never seen before.”
It also signaled that economic support is set to be ramped up:
- “Active fiscal policy should be more active and effective.”
- “Stable monetary policy should be more flexible and appropriate.”
- “Policies prioritizing employment should be comprehensively strengthened.”
But…no details were given as to how these goals will be actualized.
What to watch: Check out entry #4 below.
CPC People:中共中央政治局召开会议 讨论政府工作报告 中共中央总书记习近平主持会议
4. Countdown to the Two Sessions
Happy Two Sessions week, everybody!
ICYMI: China’s long-delayed government meetings will begin when the political advisory body (CPPCC) kicks off its annual plenary session on Thursday, followed by the national legislature (NPC) on Friday.
The big reveal: Premier Li Keqiang will deliver the Government Work Report on Friday morning – it will lay out key government targets and policy priorities for the rest of the year.
What we’ll be watching for:
- GDP growth target
- Will the government set a flexible target, or perhaps even a two-year average target for 2020-2021?
- The size and shape of stimulus
- Fiscal deficit target – will policymakers breach the long-held redline of 3% of GDP?
- Local government bond quota – could it be raised to RMB 4 trillion from the current RMB 2.5 trillion?
- Monetary measures – will policymakers signal a significant increase in credit growth going forward?
- Consumer vouchers – will the central government give policy guidance to this program that has largely been implemented at the city level?
- Property market – any new loosening?
- Policy priorities
- We’ll look at language around new infrastructure spending, poverty alleviation, and environmental protection.
Get smart: We’ll have a full rundown of key outcomes for clients once the report is delivered.
5. To QE or not to QE
Wonk alert: China’s monetary policy debate continues to heat up (see May 7 Tip Sheet).
- Over the past few days, a host of policy advisors have weighed in on whether the central bank (PBoC) should engage in quantitative easing (QE) to monetize the central government budget deficit.
Some context: A couple of weeks ago, president of the Chinese Academy of Fiscal Sciences, Liu Shangxi, argued that the PBoC should directly purchase special treasury bonds, which are being issued to help finance the effort to revive the economy (see May 7 Tip Sheet).
To a (wo)man, the PBoC advisors and former officials have said debt monetization is a bad idea.
Here’s a quick recap:
- Former deputy PBoC governor Wu Xialing argued that QE is not yet necessary since rates haven’t been cut to zero – plus QE hasn’t worked well in other countries.
- Member of the monetary policy committee Ma Jun argued that QE would kill fiscal discipline – exacerbating long-term debt challenges.
- Deputy director of the State Administration of Foreign Exchange Lu Lei said debt monetization would undo all the previous work of financial de-risking.
Get smart: Several other current and former monetary officials also weighed in against direct QE.
The bottom line: Given the strong pushback, we think QE isunlikely to happen.
21st Century Biz:
21st Century Biz
21st Century Biz
SCMP:Coronavirus: China doesn’t need big economic stimulus, advisers and former officials say
6. Western regions get development boost
On Sunday, the CCP Central Committee and the State Council released a document to guide the development of China’s western regions for the next 15 years.
Some context: The emphasis on western regional developmentfirst started in 2000 under then-Premier Zhu Rongji and Vice Premier Wen Jiabao. The designation encompasses Inner Mongolia, Shaanxi, Ningxia, Gansu, Xinjiang, Qinghai, Tibet, Chongqing, Sichuan, Guizhou, Yunnan, and Guangxi.
By 2035, the western regions need to be basically on par with China’s prosperous east in terms of:
- Socialist modernization
- Basic public services
- Infrastructure development
- Living standards
Part of the solution is to leverage foreign investment,by:
- Facilitating land use for foreign-invested projects
- Opening up the agricultural industry toforeign investment
- Ensuring equal market access for foreign investors
- Expanding the encouraged industry list for foreign investment
Concrete support measures are already happening.
- On April 23, a preferential tax policy to encourage investment in the western regions, scheduled to end this year, was extended for another 10 years.
- Under the policy, eligible companies (both foreign and domestic) investing in encouraged industries in the western regions enjoy a corporate tax rate of 15%, instead of the normal 25%.
Get smart: The government has been trying to develop the west for two decades, but success has been lackluster. It’s not clear this new push will be any different.
7. Another day, another caller
Did you get in touch with friends from afar this weekend?
If so, you’re not alone.
On Friday, Xi Jinping continued his international public relations blitz by calling up:
- Hungarian Prime Minister Viktor Orbán
- South African President Cyril Ramaphosa
Some context: In recent weeks, Xi has made dozens of calls to foreign heads of state expressing support and solidarity in their continuing fight against COVID-19.
Xi’s comments to Ramaphosa followed a familiar pattern (Xinhua):
- “China will continue to provide firm support…for South Africa, and strengthen bilateral medical and health cooperation.”
- “China…is willing to maintain regular communication with South Africa, and boost coordination on multilateral platforms such as BRICS, the G20 and the United Nations.”
- “Xi stressed that China and Africa enjoy a profound traditional friendship and trust each other, and that they are good friends, good partners and good brothers.”
More context: If it sounds like Xi is laying it on a bit thick, that may be because of a high-profile diplomatic row involving the mistreatment of African nationals in Guangzhou last month. Chinese officialdom may now be looking to make nice.
Get smart: Xi and co. are deeply invested in shaping the international narrative around China’s COVID-19 response.
Xinhua:Xi calls for more international support for Africa’s COVID-19 fight
CGTN:President Xi says China will continue to support South Africa, Hungary over COVID-19
China Daily: Xi calls for more help in Africa’s struggle with virus
8. Tech war heats up
Bad news, everyone!
The tech war between China and the US escalated again over the weekend.
Last Friday, the US government tightened the screws on Huawei by blocking companies using American-made hardware and software from designing or producing chips for Huawei.
On Saturday, theGlobal Times suggested the Chinese government could retaliate against US companies, including Qualcomm, Cisco, and Apple, citing sources close to the issue.
Having said that, we would not read Global Times’ statement as a sign that the government is ready to pull the trigger.
Yesterday, the Ministry of Commerce minced words in a statement (Gov.cn):
- “China will take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.”
Whether or not direct retaliation is on the cards, policy action is definitely in motion.
Last week, the Politburo Standing Committee debuted a new policy slogan (see May 15 Tip Sheet):
- “A new development pattern where domestic and international circulations mutually promote each other.”
According to Party media, one of the main elements of this formulation is better control of key supply chains (CCTV):
- “[We will] improve the capacity to supply key areas and products.”
- “We will become the stabilizer of the global industrial and supply chain.”
Get smart: The capacity to produce key technology components domestically isa key objective.
:Commerce Addresses Huawei’s Efforts to Undermine Entity List, Restricts Products Designed and Produced with U.S. Technologies
GlobalTimes:China ready to target Apple, Qualcomm, Cisco and Boeing in retaliation against US’ Huawei ban: source