driving the day
1. Li reviews Labor Day holiday containment efforts
This morning, the National Health Commission (NHC) dropped the latest stats on COVID-19.
There’s good news (NHC):
- May 20 saw only two new confirmed cases, down from Tuesday’s five.
- One imported case was diagnosed in Guangdong, and one was domestically transmittedin Shanghai.
But it’s not all good news:
- 31 new asymptomatic cases were identified yesterday, up significantly from an average of around 15 cases per day over the past two weeks.
- Three were imported from abroad, while 28 were domestically transmittedin Hubei.
Fear not. Premier Li Keqiang has a plan.
Here’s Li at the COVID-19 central leading small group meeting on Wednesday(Gov.cn):
- “Effective prevention and control measures … during the [seven-day Labor Day] holiday should be promoted to enhance regular control.”
- “During the holiday, the number of newly-confirmed cases, suspected cases, asymptomatic cases … was lower than the average level before the holiday.”
Get smart: Now that Beijing is confident its epidemic containment measures can handle mass travel, expect more relaxation on restrictions on movement and gatherings.
2. CPPCC spokesman talks deglobalization
After a two month delay, the Two Sessions finally kicked off today.
Wang Yang, chairman of China’s top political advisory body, the Chinese People’s Political Consultative Conference (CPPCC), delivered his work report this afternoon.
There was nothing particularly spicy or unexpected in Wang’s report.
But last night, CPPCC spokesmanGuo Weimindid address a few critical questions, including the looming spectre of deglobalization (People.cn):
- “The occurrence of the COVID-19 epidemic may have aggravated some people’s doubts and worries [about globalization].”
- “However, we believe that the ‘decoupling’is not a good prescription.”
- “Recent surveys by some professional institutions also showed that many multinational companies are reluctant to withdraw from other countries, including China.”
What we are hearing: We’ve spoken to dozens offoreign companies during the past few weeks. COVID-19has not materially changed their outlook on global supply chains.
Get smart: Despite the pandemic, most companies have not seen their China supply chains broken.
3. A pause in the easing cycle
China’s central bank (PBoC) announced the loan prime rate (LPR) for May on Wednesday.
The headline:The rate held steady from the previous month – suggesting a temporary pause in the PBoC’s easing cycle.
- The one-year year LPR stood at 3.85% – the same as in April.
- The five-year year LPR stood at 4.65% – the sameas in April.
These non-moves were in line with market expectations.
Recall:The PBoC doesn’t set the LPR – it is calculated as an average of bids submitted by 18 banks each month. That said, the PBoC influences the LPR by moving the base rate.
Some context: In recent weeks, several central bank officials have pointed out that the LPR transmission mechanism – from the base rate to the published LPR – has markedly improved.
It’s not just a rates pause:The PBoC has not added liquidity over the past several weeks either.
Get smart:Unchanged LPRs in May underscore that the PBoC is taking a pause in its easing cycle.
Get smarter:The PBoC is by no means done easing. But policymakers want to assess the efficacy of previous policy adjustments before making another move, especially now that the pace of credit growth is gradually rising.
4. The CBIRC makes it known that banks are doing their part
China’s banks have answered the call and are working overtime to get cash where it’s needed.
- At least, that’s according to the banking regulator (CBIRC).
In a wide-ranging QA posted on its website, the CBIRC quantified the scale of bank relief efforts during the pandemic.
- As of May 17, banks had provided RMB 3.11 trillion worth of credit to help firms resume production and support companies fighting the pandemic.
- At the end of April, banks had extended interest and principal payments onRMB 1.2 trillion worth of loans to small and medium-sized enterprises (SMEs).
- Banks have provided trillions of yuan worth of credit to large firms to distribute to smaller firms in their supply chains.
- At the end of April, banks had made RMB 12.79 trillion worth of loans to small and micro firms, up 27.34% from a year earlier.
Get smart:The banks aren’t the best vehicle to steer the economy through this crisis – they are ill-disposed to lend to SMEs.
Get smarter:When all you’ve got is a hammer, everything’s a nail – and the CBIRC’s going to keep hammering on banks to help address the economic dislocation, whether it works or not.
5. What the CBIRC does in the shadows
In the same QA (see previous entry), the banking regulator (CBIRC) also took the opportunity to crow about the good job it’s done reining in shadow banking.
Shadow banking is tricky to measure, but the CBIRC estimates that since 2016 the sector has shrunk by RMB 16 trillion (CBIRC):
- “Most of that involved activities with complex structures, regulatory arbitrage, and hidden risks.”
However, there’s no time for resting on laurels. The CBIRC said it plans to:
- Use on-site inspections to ensure regulatory compliance, prevent illegal activity, and prevent the resurgence of shadow banking’s more shady aspects.
- Ensure that shadow banking is visible, manageable, and controllable.
- Improve monitoring of shadow banking to improve transparency and ensure the public has better quality data.
Get smart:The taming of the shadow banking sector is one of the big successes of the financial de-risking campaign. The fact that regulators have stuck with it despite the pandemic shows their resolve.
But, but but:Beijing’s goal isn’t to get rid of shadow banking entirely. It plays a vital role in getting credit to places banks don’t lend.
The upshot: Having reined in shadow banking, the CBIRC wants what’s left to be better regulated.
6. Fat stacks to stave off attacks
This time of year, it seems like everyone has an agenda.
In advance of the Government Work Reportto be deliveredFriday, the top brass at the People’s Liberation Army (PLA) have an important ask for policymakers.
- Money plz
Some context: The government will lay out its budget tomorrow, including planned defense expenditures.
The PLA wants a hefty chunk of change (SCMP):
- “Although the actual size of China’s defence budgets are a matter of dispute, military insiders say the PLA will want to match or exceed last year’s 7.5 per cent growth rate – with one estimating a 9 per cent jump.”
The PLA’s argument:
- China needs the resources to hold its own against the US amidst rising geopolitical tensions.
The problem: Money may be the sinews of war, but it’s also the sinews of helping the economy recover from COVID-19. And the government budget is already tight.
Get smart: The amount of money allocated to the PLA will partially reflect its degree of influence in the halls of Zhongnanhai.
7. Tsai inaugurated for second term
Yesterday, Taiwanese president Tsai Ing-wen was inaugurated for a second – and final – term in office.
Some context: Tsai won the presidential election after beating KMT challenger Han Kuo-yu in a decisive victory on January 11 (see January 13 Tip Sheet).
In her inauguration speech, she had some tough words for Beijing (Straits Times):
- “We will not accept the Beijing authorities’ use of ‘one country, two systems’ to downgrade Taiwan and undermine the cross-strait status quo.”
Unsurprisingly, Beijing was less than enthused.
The mainland’s Taiwan Affairs Office said they have no plans to change tack (Xinhua 2):
- “’Taiwan independence’ goes against the tide of the times and it is a path to nowhere.”
- “[W]e are willing to create vast space for peaceful reunification, but we will definitely not leave any room for separatist activities.”
Get smart: Tensions are rising across the strait. Forget North Korea or the South China Sea – the Taiwan issue is the most dangerous US-China flashpoint in East Asia and the one with the most potential to lead to large-scale conflict between the two superpowers.
Taiwan’s Tsai Ing-wen rejects ‘one country, two systems’; China says reunification a historical necessity
National reunification cannot be stopped by any force: spokesperson