driving the day
1. I don’t know but I been told, this COVID thing is getting old
This morning, the National Health Commission (NHC) reported the latest COVID-19 numbers.
There’s good news (NHC):
- On May 26, China only reported one confirmed COVID-19 case, imported from abroad into Shanghai.
- China has not had any domestically-transmitted cases for three consecutive days.
- Only four domestically-transmitted cases have been found in the past week.
However, asymptomatic cases still pose a risk:
- On May 26, China reported 28 new asymptomatic cases.
Xi Jinping seems to think the only hope to stop the spread once and for all lies with vaccines.
On Tuesday, he told National Peoples Congress delegates from the People’s Liberation Army and People’s Armed Police to (Xinhua):
- Accelerateresearch and development of COVID-19 drugs and vaccines
Get smart: Even with the world’s largest military on the case, noone expects a vaccine anytime soon.
2. PBoC to get updated marching orders
China’s central bank (PBoC) law is about to get an update.
- On Monday, the National People’s Congress (NPC) announced the law is on the agenda for this year.
It’s about time:The law was last revised in 2003 – a lot has changed since then.
- For those that don’t know, the law was first passed in 1995. So it was just 25 years ago that arguably the world’s second most important central bank got its current marching orders.
- To this day, the PBoC’s top mandate is simple: currency stability.
The NPC will likely codify existing roles that the PBoC has taken on recently, like:
- Credit management
- Financial consumer protection
- Coordinating financial supervision
- Macroprudential policy and assessment
And there may be others, but one thing that is unlikely to change:
- Removing the PBoC’s prohibition on monetizing the fiscal deficit
Get smart:One key goal of the PBoC right now is to transform itself into a “modern central bank.” Over the last two months, it published a plan to achieve this goal.
What to watch:We are keen to see if the PBoC’s top mandate is changed from currency stability to something more akin to the US Fed’s dual mandate – maximum employment and stable prices.
21st Century Biz
Bloomberg:China Plans to Revise Law Governing the Central Bank This Year
3. A capital idea
This one has been a long time coming:
- On Tuesday, People’s Bank of China Governor, Yi Gang, said that the central bank (PBoC) will help China’s banks recapitalize.
In a wide-ranging interview posted on the PBoC’s website, Yi re-trod well-worn territory, focusing on what the central bank is doing to help small firms and to support China’s economic recovery.
- You know – the greatest hits.
But what caught our attention were his comments about bank recapitalization.
He said the PBoC will(PBoC):
- “[H]elp banks, especially small and medium-sized banks, replenish their capital through multiple channels…and strengthen their ability to dispose of bad loans.”
Regular China Market Dispatch readers will be aware that small banks face significant challenges in raising capital. Specifically:
- They aren’t allowed to sell new shares below their book-value-per-share.
That’s a problem because most listed banks are trading well below that level.
In fairness, the central bank already does a bit to help.
- It supports demand for banks’ perpetual bonds by swapping them for central bank bills.
- And last month, the PBoC supported a bailout for the Bank of Gansu by providing special loans to the Gansu provincial government.
Get smart: The pressure on bank capital is going to mount. This could well be an area where the PBoC gets creative – and hands on.
4. Xi tells PLA to get ready
On Tuesday, Xi sat down with the People’s Liberation Army delegation to the National People’s Congress.
Xi’s message: The world is an increasingly dangerous place (Xinhua).
- “The epidemic has brought a profound impact on the global landscape and on China’s security and development as well.”
Xi told soldiers they need to up their game:
- “He ordered the military to think about worst-case scenarios, scale up training and battle preparedness, promptly and effectively deal with all sorts of complex situations and resolutely safeguard national sovereignty, security and development interests.”
The PLA should feel loved: Even though government finances are tight, the central government will still increase defense spending by 6.6% this year (see Monday’s Tip Sheet).
Xi told officers not to take the money for granted:
- “Every penny must be well spent to produce maximum results.”
Get smart: Making the PLA a world-class military has been one of Xi’s top priorities since coming to power in late 2012. But the PLA has not seen substantial combat for over 40 years, and there are considerable doubts about just how it would fair in actual operations.
5. Airlinesthrown some love
On Monday, the Ministry of Finance and the Civil Aviation Administration issued a notice to compensate airlines for costs associated with international cargo shipping.
- Between April 1 to June 30, Chinese airlines will be compensated for 80% of their costs to convert passenger airplanes into cargo flights – up to RMB 800,000 or RMB 1,450,000 per plane, depending on the model.
During the same period, all airlines (both foreign and Chinese):
- Will be compensated up to RMB 60,000 per flight for international trips made by passenger aircrafts that only carry cargo – depending on the flight’s carried weight and distance.
Some context: This is not the first help theairlineshave received(see March 5 Tip Sheet).
More context: In late March, Premier Li Keqiang’s promisd to stabilize global supply chains by boosting international air freight capacity (see March 25 Tip Sheet).
Get smart: This move takes down two planes with one stone – supporting both airlines and global supply chains.