driving the day
1. Li talks economy with economists
On Monday, Premier Li Keqiang sat down with top officials to discuss the state of the economy.
- To liven up the discussion, heinvited economists and business leaders to give their thoughts on the current economic trajectory.
Some context: Li holds these symposiums every year before the big mid-year economic policy review.
The chosen few:
- Ma Jun, director of the Tsinghua University Finance and Development Research Center
- Jiang Chao, economist at Haitong Securities
- An executive from appliance maker Haier
- A representative from the China Association of Small and Medium Enterprises
- An executive from e-commerce giant Pinduoduo
Li reminded everyone that Things. Are. Not. Good. (Gov.cn):
- “Uncertainty in the international environment continues to increase.”
- “The situation is still grim.”
- “The domestic economy faces many difficulties and challenges, especially pressures on employment.”
- “We must prepare to continue to fight a difficult battle.”
This is promising: Li continues to stress that further liberalizing reforms are the key to overcoming the current challenges.
Get smart: The Politburo will hold its mid-year economic review atthe end of the month. The meeting will set the course for economic policy in Q2.
Get smarter: We don’t expect many changes to the current policy trajectory– i.e. active but limited stimulus, with a focus on SMEs.
2. Data dump – trade
The customs bureaudropped the latest monthly trade data on Tuesday.
- Exports grew by 0.5% y/y – up from a 3.3% decline in May.
- Imports grew by 2.7% y/y – up significantly from a 16.7% decline in May.
Quick take 1: That’s the first time imports have expanded y/ysince December 2019, aka pre-pandemic times.
For H1 2020 as a whole:
- Exportsdeclined 6.2%from H1 2019.
- Imports fell by 6.4%from H1 2019.
Quick take 2: Those are actually pretty solid numbers, given the pandemic.
What it all means: The economy isrecovering, and improved tradedata will only help it along further – but things are far from stable.
Go deeper: For more, check out today’s China Markets Daily.
3. China imposes “reciprocal” sanctions on US officials
That’ll show ‘em!
On Monday, foreign ministry (MoFA) spokeswoman Hua Chunying announced that China would impose sanctions on several US politicians for their outspoken criticism of Beijing’s human rights abuses against minority groups in Xinjiang.
Some context: Last week, the US State Department announced sanctions against Chinese officials believed to be responsible for the ongoing repression, barring them from entering the United States.
- Now it seems two canplaythat game.
In particular, MoFA singled out:
- Senator Ted Cruz
- Senator Marco Rubio
- Representative Chris Smith
- Special envoy for religious freedom Sam Brownback
MoFA also targeted the Congressional-Executive Commission on China (CECC) which advises lawmakers and the administration on human rights issues in China.
Beijing has not specified what exactly the sanctions entail, except to say that they’ll be “reciprocal” to the ones imposed by the US.
Hua also took the opportunity to lecture Washington (Xinhua):
- “We urge the United States to immediately withdraw its wrong decision, and cease any remarks or attempts of meddling in China’s internal affairs and damaging China’s interests.”
Get smart: Despite the bluster, China is not interested in escalating tensions with the US. We see Beijing’s sanctions as a largely pro-forma response.
China to impose sanctions on U.S. officials, institution for “acting viciously” on Xinjiang-related issues
The United States Imposes Sanctions and Visa Restrictions in Response to the Ongoing Human Rights Violations and Abuses in Xinjiang
US officials targeted by Beijing shrug off sanctions but vow to keep pressing on human rights
4. If nautical nonsense be something you wish
Today’s Tip Sheet contains a double dose of Sino-American finger pointing (see previous entry).
On Monday, the US State Department issued a statement rejecting China’s expansive and contentious territorial claims in the South China Sea (State Department):
- “Beijing’s claims to offshore resources across most of the South China Sea are completely unlawful, as is its campaign of bullying to control them.”
- “Beijing has offered no coherent legal basis for its “Nine-Dashed Line” claim in the South China Sea since formally announcing it in 2009.”
Predictably, Beijing did not take these comments lying down.
The Chinese embassy in Washington published a fiery counter-salvo (The Paper):
- “The United States is not a party to the dispute over the South China Sea, but frequently intervenes in the South China Sea issue, flaunting force, exaggerating tension, and encouraging confrontation in the region under the pretext of maintaining the stability of the South China Sea.”
- “China urges the US side to…respect the efforts of regional countries to maintain peace and stability in the South China Sea, and stop being a disruptor, saboteur, and spoiler of regional peace and stability.”
Get smart: Add it to a growing list of potential flashpoints in the already brittle US-China bilateral relationship.
5. China embraces Iran
Chinese investment is increasingly unwelcome in much of the West.
But Chinese cash is certainlywelcome in Iran (NYT):
- “Iran and China have quietly drafted a sweeping economic and security partnership that would clear the way for billions of dollars of Chinese investments in energy and other sectors.”
- “The partnership, detailed in an 18-page proposed agreement obtained by The New York Times, would vastly expand Chinese presence in banking, telecommunications, ports, railways and dozens of other projects.”
- “In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years.”
There is clearly a strategic component to all this as well:
- “The document also describes deepening military cooperation.”
- “It calls for joint training and exercises, joint research and weapons development and intelligence sharing.”
And this could be big:
- The document also proposes two new Chinese-constructed port facilities on the strategically important Sea of Oman.
Get smart: As relations with the West fray, China will look to strengthen relations with “friendlier” countries like Iran.
What to watch: The proposal has not yet been submitted to Iran’s parliament, so this is not yet a done deal.
6. China tightens screws over industrial espionage
Beijing is looking to protect Chinese businesses against industrial espionage by foreign countries.
How will the do it? By beefing up penalties for the theft of trade secrets– viaa proposed revision to thecriminal code.
Some context: The revisionisa part of a wider set of amendments to the criminal code which will be open for public review until August 16.
South China Morning Post has the details:
- “If passed, the punishment for stealing Chinese trade secrets to benefit a foreign entity will be much more severe than the current three-year jail sentence for general trade secret theft.”
- “The new clause will target any person or company that ‘steals, spies, buys, or illegally provides trade secrets to foreign institutions, organisations, and personnel.’”
Why is this happening now?
- One theory is that it’s (yet another) bit of retaliation against the US which has ramped up its prosecution of Chinese entities for industrial espionage.
- Beijing may be trying to create a reciprocal framework to give it some leverage in trade disputes with Washington.
Our take: That’s certainly possible, but China also has a lot more in the way of innovative technology and enviable trade secrets than it used to. This could be a genuine attempt to protect Chinese IP.
In conclusion: Why not both?
7. Beijing lowers epidemic risk levels
This morning, the National Health Commission (NHC) released the latest stats on COVID-19.
On Monday (NHC):
- China reported three new confirmed COVID-19 cases and five new asymptomatic cases – all imported from abroad.
- Beijing reported zero new confirmed, asymptomatic, or suspected cases.
What that means: Beijing – and China – have reported zero domestically-transmitted COVID-19 cases over the pasteight days.
Since the first case linked to the Xinfadi wholesale food market was identified on June 11, Beijing has (Beijing NHC):
- Confirmed a total of 335 cases
- 130 of these have been successfully treated and discharged from hospitals.
- The remaining 205 remain hospitalized.
- An additional 18 asymptomatic cases are still under isolated medical observation.
And there was more good news out of Beijing:
- On Monday, the last remaining high-risk neighborhood downgraded its designation to medium-risk.
- Beijing now has seven medium-risk neighborhoods, down from nine the day before.
Get smart: The epidemic situation is now stable in China, but as Beijing residents know all too well, that could change at any moment.