driving the day
1. Delivering COVID
This morning, the National Health Commission (NHC) released the latest nationwide COVID-19 numbers.
On Tuesday, China reported (NHC):
- Nine new domestically transmitted cases – the lowest total in 11 days
- Three imported cases – down from nine the day before
- Three new asymptomatic cases – the lowest in 12 days
But the Beijing outbreak, which started on June 11, continues to spread.
On Tuesday, Beijing reported (Beijing NHC):
- Seven new confirmed cases
- One new asymptomatic case
In addition (Hebei NHC):
- Hebei found two new confirmed cases and one new asymptomatic case related to Beijing on Tuesday.
The latest fear factor:
- On Tuesday, a Beijing food delivery worker was confirmed to have the virus.
- He delivered to 50households per day on average.
- The food delivery company has since started testing all delivery workers.
What to watch: China begins a four-day long weekend to celebrate the Dragon Boat Festival tomorrow. Associated mass travel will serve as yet another test for China’s epidemic control efforts.
2. How to spend a trillion yuan
Yesterday, the Ministry of Finance (MoF) clarified how it plans to use proceeds from its Special Treasury Bonds (STBs).
Some context: At the Two Sessions in May, the government announced that it would issue RMB 1 trillion of STBs to support the economy. This marks the first STB issuance since 2007.
So what will these STBs be used for?
- Rent subsidies
- Loan discounts for key enterprises
- Loan discounts for new businesses
- Subsidies to help businesses stabilize employment
- Basic living allowances for people in need
- Other expenditures to combat the coronavirus
Get smart: The central government has mandated that all RMB 1 trillion of STB money goto cities and counties – rather than provincial governments. This should helpmoney get where it needs to go.
3. Coastal regions keep national pension scheme from going bankrupt
The Ministry of Finance (MoF) recently released stats on the central pension adjustment fund (CPAF).
Some context: The CPAF was established in 2018 to transfer money from provinces with pension fund surpluses to provinces with pension fund deficits.
In 2020, seven provinces are net contributors to the fund:
- Guangdong contributed RMB 65 billion.
- Beijing contributed RMB 46 billion.
- Fujian contributed RMB 17 billion.
- Jiangsu contributed RMB 15 billion.
- Zhejiang contributed RMB 14 billion.
- Shanghai contributed RMB 13 billion.
- Shandong contributed RMB 7 billion.
Those contributions will be redistributed to 20 provinces to keep their retirees paid this year.
The struggling northeastern provinces are the biggest beneficiaries:
- Liaoning, Heilongjiang, and Jilin receive RMB 119 billion, accounting for 67% of the fund.
Get smart: Although details are still being debated, the central government would like to create a more centralized pension system. The CPAF is an important step in that direction.
The bigger picture: While coastal provinces continue to thrive, the northeast continues to struggle.
4. Bank shares fail to find buyers at auction
According to 21st Century Business Herald, there were almost 1,700 auctions of Chinese bank stocks on Alibaba’s online Taobao platform this year.
Investors were unimpressed: 60% of auctions ended without a buyer.
Some context: Shareholders in China’s non-listed banks routinely use their shares as collateral for loans. When they default, courts order the shares sold at auction, which are primarily carried out on Taobao.
A sign of the times:
- Such auctions have surged in volume in recent years as the economy has slowed.
Why is no one buying? Banks have long been unpopular investments.
- Almost all the banks traded on the Hong Kong, Shanghai, and Shenzhen stock exchanges have long traded below their book value per share.
- Non-listed banks lack liquidity, and so are even less popular.
Get smart: China’s banks’ need for fresh capital is mounting. The surfeit of failed auctions suggests that market demand will not be sufficient to meet their recapitalization needs.
21st Century Biz:中小银行股权不香了 近1700笔拍卖六成流拍
5. Water under the bridge
On Tuesday, Chinese foreign minister Wang Yi held a video conference with two of his counterparts:
- Russian foreign minister Sergey Lavrov
- Indian minister of external affairs Subrahmanyam Jaishankar
Some context: Regular Tip Sheet readers may remember Jaishankar from his recent awkward phone call with Wang over the deadly clashes between Chinese and Indian troops in the contested Ladakh region (see June 18 Tip Sheet).
Luckily, Wang didn’t seem to hold a grudge.
He only noted that the countries should “correctly treat and properly handle sensitive factors in bilateral relations” before launching into his favorite topic – win-win cooperation (Xinhua):
- “Wang…[called] on the three countries to send positive signals to the rest of the world by jointly combating COVID-19, promoting economic development and safeguarding international justice.”
- “China, Russia and India should be committed to maintaining the international system with the United Nations (UN) at the core and…upholding multilateralism.”
Wang also called for (Reuters):
- “A ‘fast track’ arrangement for the movement of people and goods with India and Russia.”
Get smart: As we said last week, China is not interested in escalating last week’s border clashes into a major political incident.
What to watch: Chinese minister of defense Wei Fenghe is expected to meet his Indian counterpart in Moscow today