driving the day
1. US to restrict visas for Chinese tech execs
In the past week, simmering US-China tensions have been cranked up to a rolling boil.
On Wednesday, US Secretary of State Mike Pompeo announced that the US government planned to impose visa restrictions on certain employees of the Chinese tech giant Huawei for their supposed role in enabling human rights abuses.
Pompeo did not mince words (State Department):
- “Huawei [is] an arm of the CCP’s surveillance state that censors political dissidents and enables mass internment camps in Xinjiang.”
- “Telecommunications companies around the world should consider themselves on notice: If they are doing business with Huawei, they are doing business with human rights abusers.”
Pompeo also hinted that employees of other Chinese tech companies couldbe on the chopping block, pending further review.
Chinese state tabloid Global Times has already criticized the decision:
- “The move…demonstrates how the US is politicizing business issues on fabricated reasoning in an aim to contain the rise of Chinese tech firms like Huawei.”
Get smart: The US-China relationship is suffering a death by a thousand cuts. Washington’s decision will only antagonize Beijing without altering China’s behavior.
Get smarter: Washington knows that.
What to watch for: Expect a formal (and angry) Chinese response imminently.
2. We call (N)BS
Get this, y’all: China’s stats bureau dropped Q2 GDP data on Thursday – claiming the real economy grew at 3.2% y/y last quarter.
- The print was in line with the expectations set in domestic media, which said growth would be in the 1-3.4% range, in the run up to release.
That said, this growth number is at the very top of that range.
Our take: We hate to rain on the parade, but we are just going to say it.
- There is NO WAY this economy grew 3.2% last quarter.
To see our reasoning, and the details behind the numbers,check out today’s China Markets Dispatch.
And while you’re at it: Go ahead and sign up for the CMD.
3. State Council promotes mass entrepreneurship
On Wednesday, the State Council did its thing, holding its weekly executive meeting.
Top of the agenda: Promoting mass entrepreneurship and innovation.
Premier Li Keqiang wants everyone and theiraunt to start a business (Gov.cn 2):
- ”The nationwide initiative spurring entrepreneurship and innovation is a crucial underpinning for sustaining and expanding employment, and nurturing and strengthening new drivers of growth.”
Li thinks some groups merit extra support:
- “We need to provide proper guidance for college graduates in their expectations for jobs, and encourage them to start their own businesses.”
Here’s how the government will help:
- Financial support for innovators will be increased, with funds allocated to boost the construction of demonstration bases for mass entrepreneurship and innovation.
- Financial institutions will be encouraged to offer equipment leasing and entrepreneurship-related insurance.
- Entrepreneurship programs that drive employment will be promoted, especially in nursing, elderly care, domestic services, tourism, and e-commerce.
Get smart: Employment is the name of the game.
Get smarter: Li has been trying to boost entrepreneurship since he came into office – and he’s been pretty successful. The days of joining a big company for stability are long gone. For many young Chinese, it’s now all about starting your own business or joining a start-up.
4. Li exhorts localities to borrow more, spend more
Premier Li Keqiang had more to say at Wednesday’s State Council meeting (see previous entry).
- Specifically, he told local governments to speed up the issuance and use of special purpose bonds (SPB), but that the funds must be used wisely.
According to the meeting read-out:
- The funds are strictly prohibited from being used to pay off existing debt.
- The funds can’t be used for vanity projects.
That’s not new. But it’s clear local governments are finding it hard to meet Li’s demands.
In June, the National Audit Office found that in the 18 provinces it reviewed, more than RMB 50 billion raised from special bonds hadn’t been deployed.
That only accounts for a small portion of the total volume of funds raised by the bonds.
- As of mid-July, local governments had issued RMB 2.24 trillion worth of the RMB 3.75 trillion SPBs the National People’s Congress had approved.
Still, it’s no secret that China’s localities are finding it hard to find shovel-ready projects. Moreover, local officials are wary of being held responsible for the debt that could result from funding dud projects.
Get smart: Stimulating the economy was far easier after the Global Financial Crisis. Throwing money at the problem isn’t proving as effective this time around.
Daily Economic News:
5. State Council passes revisions to Budget Law
Hey! Where are you going?
- There’s even more State Council executive meeting fun to be had (see previous two entries)!
On Wednesday, the State Council also passed the draft revision to the implementing rules for the Budget Law.
Why it matters: Without detailed implementing rules, it’s difficult to put the law into practice.
The revision codifies recent fiscal reforms and changes to government budget practices, which aim to make fiscal spending more transparent to the public.
The implementing rules look to bring transparency to:
- General transfer payments
- Special purpose transfer payments
- Budget and actual expenditures
- Government debt
- Government procurement
So far, so good.
But this struck us as a little odd:
- It’s taken more than five years to pass the draft revision. It’s been open for public comment since June 2015.
- The fact that the government didn’t give an explanation as to why it took so long to pass the draft isn’t very transparent.
Get smart: Things are slowlyimproving on the transparency front, but the level of detail inpublic budgets still leaves much to be desired.
6. The good, the bad, and the ugly
This morning, the National Health Commission (NHC) dropped the latest official numbers on COVID-19.
On Wednesday (NHC):
- China confirmed only one new COVID-19 case – and it was imported from abroad.
- Beijing reported no new confirmed, asymptomatic, or suspected cases.
- That means Beijing hasn’t seen a single new domestically-transmitted case in 10 days.
- On Thursday, the China Film Administration announced that movie theaters in low-risk regions can reopen as soon as next Monday, after 175 days of shutdown, but warned that audience attendance should be capped at 30% of maximum capacity.
- On Wednesday, Zhejiang reported one new domestically-infected asymptomatic case, who flew in from Xinjiang on July 10.
- Between today and yesterday, both Yunnan and Chongqing found positive environmental samples – COVID-19 was found on the packaging of shrimp imported from Ecuador.
The asymptomatic case found in Zhejiang on Wednesday does not seem like an isolated case (Xinhua):
- On Thursday, after the official NHC numbers were released, Xinjiang said it had confirmed one new domestically transmittedcase on Wednesday and found three associated asymptomatic cases through contact tracing.
Get smart: The virus situation in China is still evolving, but officials aredoingtheir darnedestto track down every single lastcase –to avoid another large-scale shutdown.