driving the day
1. Wuhan testing continues
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
On May 19, China reported five new confirmed cases, down from six on May 18.
- One of the new cases in Inner Mongolia was imported.
- The other four were locally transmitted, and all were found in Jilin City.
In addition, 16 new asymptomatic cases were discovered.
- Only one of them was imported from abroad.
The Big Question: How do you find COVID-19 carriers when they have no symptoms?
By testing of course!
On Tuesday, the Wuhan Health Commission unveiled the scale of its recent testing.
Some context: Wuhan is five days into a campaign to test all residents within 10 days.
The headline: Between May 14-18, Wuhan conducted nucleic acid tests on 1.21 million residents and found one confirmed case and 58 asymptomatic cases.
- Nine asymptomatic cases were found on May 14 by testing 72,791 people.
- Nine asymptomatic cases were found on May 15 by testing 113,609 people.
- 10 asymptomatic cases were found on May 16 by testing 222,675 people.
- 14 asymptomatic cases were found on May 17 by testing 335,887 people.
- 16 asymptomatic cases were found on May 18 by testing 467,847 people.
Get smart: Wuhan’s testing should give a very accurate picture of how prevalent asymptomatic cases are.
2. CBIRC to extend loan forbearance
China’s SMEs are about to get another lifeline.
- The banking regulator is considering extending loan relief that is set to expire at the end of next month.
Bloomberg has the scoop:
- “The regulator and some lenders have discussed extending loan relief beyond a June 30 deadline for corporates hurt by the pandemic.”
- “The guidance from Beijing is to offer flexibility on principal and interest payments.”
Regulators have little choice, unless they want to bring on an NPL apocalypse:
- “Banks would see a surge in bad loans in the second half without such measures, weakening their ability to keep credit flowing.”
Just one example:
- “Zhang Ming…[took] a 1 million yuan loan…in February [to help]…resume production at his Zhejiang-based company, which makes and exports wooden frames and Christmas ornaments.”
- “But as the virus became a pandemic, international clients such as Walmart Inc. and Costco Wholesale Corp. canceled orders, cutting business by 70%.”
- “Zhang now has another 3 million yuan of debt coming due this month, not covered by the crisis measures.”
Get smart:We have yet to see the financial fallout from COVID-19 in China. That will come in H2, after the economy has recovered.
What to watch:This policy may be announced at the Two Sessions.
The challenge of making sure SMEs get paid
It’s the time of year when Chinese People’s Political Consultative Conference (CPPCC) delegates start making policy proposals.
One that caught our eye was from Liu Yonghao, chairman of the private agribusiness, New Hope Group.
Liu proposes that (Caixin):
- Local government arrears to suppliers should be included in calculations of their outstanding debt.
- Authorities with bad credit shouldn’t be able to pursue development projects.
- Private firms should have channels through which they can file complaints about not getting paid.
- Local governments should not be allowed to start projects without sufficient funds in place.
Will the proposal be adopted?Probably not. The reason we think it’s worth flagging is that it speaks to a long-standing, intractable problem.
- Discussion about SMEs’ difficulties typically centers on their lack of access to credit.
- But an equally pressing problem is that they routinely don’t get paid on time, particularly by state customers.
The government has been trying to solve the problem:
- In early 2019, Premier Li Keqiang told government agencies and large state firms to clear their backlog of arrears by early 2020.
Central authorities said great progress was made.
- But Mr. Liu clearly doesn’t agree.
Get smart: SMEs face numerous obstacles. The government says it wants to help, but has made only marginal progress in addressing the structural impediments hampering SMEs.
Why it matters:When SMEs don’t get paid, they don’t pay back their loans – and that puts pressure on the financial system
What to watch:How the government responds to proposals like Liu will be a good indication of how serious they are about helping SMEs.
4. Li is sweet on Honeywell
On Tuesday, American industrial conglomerate Honeywell opened its new emerging market headquarters and innovation center in Wuhan.
Premier Li Keqiang sent a congratulatory letter to Honeywell on the opening.
Li’s words were amiable, if a little perfunctory (Gov.cn):
- “With importance attached to the Chinese market and production base, Honeywell maintains long-term cooperation with China, leading to mutual development.”
Then Li got to the point:
- “In the face of economic downward pressures at home and aboard, the Chinese government’s determination to deepen reform and opening-up will remain firm, and the promise of encouraging foreign companies to increase investment in and cooperation with China will not change.”
- “The government will continue efforts to build a market-oriented, law-based and international business environment, where enterprises of different ownerships, both domestic and foreign, will be treated equally.”
Get smart: Li’s letter is interesting because medium-sized investments by foreign companies don’t usually merit personal messages from top leaders. Li is being very clear about his intention to support FDI and foreign business.
Get smarter: With US-China tensions spilling over into the economic sphere, Li is signaling that American firms are still welcome in China.
5. On target
The government delivers.
- That’s the message that Premier Li Keqiang wants to convey on the eve of the Two Sessions and the unveiling of the 2020 Government Work Report (GWR).
Yesterday, Xinhua published an assessment of the government’s performance in all 38 quantitative targets set in the 2019 GWR.
Some context: Xinhua has published assessments of the previous year’s GWR since 2016. They come out just ahead of the Two Sessions.
- The government achieved all 38 targets.
Some highlights from 2019 (Xinhua):
- GDP grew at 6.1% – within the 6% to 6.5% target range
- New jobs clocked in at 13.5 million – well above the 11 million target
- Tax and fee cuts totalled RMB 2.3 trillion against a target of RMB 2 trillion
- 11 million people were lifted out of poverty against a target of 10 million people
You get the picture…
More context: In the past four years, the government has only failed to achieve one target – falling short on its goal forforeign trade growth in 2015.
Get smart:Delivering on targetsenhances government legitimacy.
What that means: The government doesn’t set targets they don’t think they can hit.
Get smarter: That’s why there is so much anticpation over where the government’s will set its GDP growth target this year.