driving the day
1. Even more US-China drama
Recently, China’s foreign ministry (MoFA) has had its hands full responding to American “provocations.”
On Tuesday, MoFA announced that it would sanction US aerospace and defense company Lockheed Martin, the principal contractor in a USD 620 million arms deal to Taiwan.
- MoFA did not say what specifically the sanctions would entail.
Some context: The US State Department approved the deal last week, which would allow Taiwan to upgrade its American-supplied Patriot missiles – a key line of defense in any hypothetical invasion of Taiwan by mainland forces.
Then on Wednesday, MoFA issued a statement on the Hong Kong Autonomy Act, which was signed into law by US President Donald Trump the day before.
More context: The Hong Kong Autonomy Act promises to sanction Chinese officials believed to be involved with the erosion of Hong Kong’s autonomy and civil liberties.
Needless to say, MoFA was not amused (MoFA):
- “The US bill maliciously slandered Hong Kong’s national security legislation…and was a gross interference in Hong Kong affairs and China’s internal affairs.”
Get smart: A pattern is emerging in which the US deliberately pushes China’s buttons.
Get smarter: Beijing is still being measured in its responses, but the potential for miscalculation and overaction increases daily.
2. State Council helps SMEs get paid by state customers
For almost three years, Li Keqiang has been prodding and niggling state firms and government agencies to pay what they owe to small, private firms.
Progress has been, um,mixed.
So, on Tuesday, the State Council signed off on new regulations formalizing payment conditions for small- and medium-sized (SME) suppliers and contractors (Gov.cn).
- Government agencies and institutions have 30 days from the date of delivery of goods and services to pay up.
- Large firms should agree to reasonable payment terms that align with industry norms, and then pay on time.
- The rules also bar government bodies from defaulting on SMEs.
Some context:One of the biggest pressures weighing on private firms is that they routinely don’t get paid on time. Some of the biggest offenders are state firms, either because they’re cash-strapped (lookin’ at you, local governments), or because they’re so big that their suppliers can’t afford to take their business elsewhere.
The rules take effect on September 1.
Get smart:In a slowing economy, delaying payments is one of the best ways for struggling firms—or governments—to preserve cash. While we don’t doubt the State Council’s sincerity, the problem will persist until economic conditions change for the better.
3. Xi calls Southeast Asian leaders
You know what time it is.
Time for another installment of Xi Jinping: International Man of Diplomacy.
On Tuesday, Xi got on the phone with:
- Thai Prime Minister Prayut Chan-o-cha
- Singaporean Prime Minister Lee Hsien Loong
Xi had some warm words for Prayut (Xinhua 1):
- “[T]he two countries have overcome the impact of the COVID-19 epidemic and continuously advanced practical cooperation.”
- “The two sides…should better synergize the Belt and Road Initiative (BRI) and Thailand’s development strategies such as Thailand 4.0 and the Eastern Economic Corridor, promote cooperation in such innovative fields as e-commerce, and push for new development of their comprehensive strategic cooperative partnership.”
Xi struck a similar tone with Lee (Xinhua 2):
- “China stands ready to work with Singapore to…jointly safeguard regional peace and stability.”
Get smart: At a time when China’s international cred is diminishing, Xi is looking to make nice with regional neighbors.
Get smarter: Thanks to acrimonious disputes over the South China Sea, Beijing doesn’t have a lot of friends in this neck of the woods, either.
Required reading: Back in June, Lee wrote a piece in Foreign Affairs saying that Asian countries do not want to be forced to choose between China and the US. Check it out here.
Xinhua:Xi pledges cooperation with Thailand for regional solidarity, prosperity
Xinhua:Xi says anti-epidemic cooperation becomes new highlight of China-Singapore ties
Foreign Affairs:The Endangered Asian Century
4. Han Zheng demands demand
On Tuesday, Executive Vice Premier Han Zheng traipsed over to the country’s macro planning supra-ministry, the National Development and Reform Commission (NDRC).
Han’s mission: To make sure everyone is on the same page with respect to economic policy.
Some context: Han made a similar trip to the Ministry of Finance on Friday (see Monday’s Tip Sheet).
Han identified, what is, in our opinion, the biggest macro issue facing the economy:
- “We must pay more attention to the ‘difference in temperature’ between supply and demand, join up the long term and the short term, and expand domestic demand.”
But Han was also clear that indiscriminate stimulus is not the answer:
- “[We must] refine our tasks and targets, more precisely implement policy, and coordinate well all aspects of our work.”
Get smart: China’s economy is experiencing a two-track recovery. The supply side is up and running, but demand is still stuck in a rut. Han’s statement shows that authorities are aware of this.
What to watch: So what will authorities do to stoke demand?
5. Cities getsupply chain chiefs
Get excited folks.
Municipal governments have created some new jobs!
On Monday, the government of Nanjing, Jiangsuannounced that it will appoint eight Supply Chain Chiefs.
Chiefs of what now? Much like it sounds, thesechiefs will each oversee the supply chain of one of the following industries (The Paper):
- Software and information services
- New energy vehicles
- Integrated circuits
- Artificial intelligence
- Smart grids
- Rail transportation
- Smart manufacturing equipment
And Nanjing is not alone. Tech hub Shenzhen is also planning its own Supply Chain Chief program.
- Shenzhen has its eye on a few industries, including integrated circuits and artificial intelligence.
- It’s set to pour money into the core companies of those supply chains.
Get smart: In China, one sure way to show the political significance of an issue is by assigning a senior official to it.
Get smarter: Local governments are rightfully nervous about supply chain disruptions. But planning this on the city, instead of the national, level runs the risk of fragmenting supply chains rather than securing them.
6. Holiday time
This morning, the National Health Commission (NHC) dropped the latest stats on the COVID-19 situation.
On Tuesday (NHC):
- China reported six new confirmed COVID-19 cases and four new asymptomatic cases – all were imported from abroad.
- Beijing reported zero new confirmed, asymptomatic, or suspected cases.
What that means:
- China has not had a single domestically-infected COVID-19 case over the past nine days.
- The country also reported zero domestically-transmitted asymptomatic cases over the past four days.
Officials took that as a sign to ease mass travel restrictions.
- Late Tuesday night, the Ministry of Culture and Tourism issued a notice that cross-provincialtourgroups can get their groove back on– after being suspendedfor 172 days.
The resumption came with a few caveats:
- Interprovincial group tours can only travel between “low-risk” areas.
- Tourist sites need to cap traffic at50% of maximum capacity – up from 30% previously.
The news stirred a group tour craze we haven’t seen since our last visit to Badaling (The Paper):
- After the news broke last night, some travel booking platforms saw a 500% increase in vacation, hotel, and airfare searches.
Get smart: Beijing is keen on getting the tourism industry, hit hard by the pandemic, back on track. But touring crowds increase the risk of a new outbreak. Any sign of a new outbreak in China and restrictions will go right back up again.