driving the day
1. Government revenues turn positive in June
The Ministry of Finance dropped government revenue numbers for June on Friday.
The headline: Overall government revenues grew for the first time so far in 2020 – up 3.2% y/y compared to a 10% y/y contraction in May.
- Central government revenue grew 1.9% y/y – up from a 14.3% contraction in May.
- Local government revenue grew 4.3% y/y – up from a 5.6% contraction in May.
Going under the hood: While the top-line numbers are solid, the underlying tax revenue data are a mixed bag– with corporate income taxes jumping but VAT continuing to contract.
Our key takeaway: The data underscores the message from the rest of the June econ stats. Things are improving, but the recovery is still not solid.
Go deeper: We’ve got more in today’s China Markets Dispatch.
2. PBSC meets re:floods
Last Friday, Xi Jinping presided over a meeting of the Politburo Standing Committee (PBSC), the country’s top ruling body.
The topic of discussion: Flood management and response.
Some context: Worst-in-decades flooding has been ravaging southern China since June and looks set to continue until August.
Xi highlighted the seriousness of the situation (Xinhua):
- “Flood prevention and rescue work matter to the safety of people’s lives and property, food security, economic security, social stability and State security”.
And he demanded coordinated efforts from officials:
- “Xi urged authorities to shoulder their responsibilities…strengthen coordination and synergies in anti-flood efforts, take more effective measures, do solid work in monitoring and early warning.”
China’s banking and insurance regulator was among the first to answer the call (Reuters):
- “It required financial institutions in the flood-hit areas not to blindly withdraw, delay or cut credit lines to the companies who have good development prospects but whose operations were suspended by the floods.”
Our take: That’s the same approach the government used to contain the economic fallout from COVID-19.
The big picture: The floods will further strain the economy, but policymakers are looking to use the financial system as a buffer.
3. Wang Yi enters roast mode
On Friday, Chinese foreign minister Wang Yi blew off a little steam in a telephone conversation with his Russian counterpart, Sergei Lavrov.
The subject of Wang’s ire?
- The good ol’ US of A
Some context: In recent weeks, the US has announced a barrage of measures designed to vex China and hinder its interests (see July 17 Tip Sheet).
Wang didn’t hold back in his criticism of Washington’s recent behavior (SCMP):
- “The US has bluntly pursued its ‘America first’ policy, pushing egoism, unilateralism and bullying to the limit.”
- “The US, which has…resorted to extreme measures and even created hotspots and confrontations in international relationships, has lost its mind, morals and credibility.”
He also criticized America’s supposedly black-and-white view of the world:
- “The US has retaken the notorious McCarthyism and outdated Cold War mentality and intentionally stirred up ideological opposition.”
After concluding his rant, Wang told Lavrov he wanted to increase strategic coordination with Moscow.
Get smart: It’s rare for a foreign minister to sound off like this…rarer still for the comments to be published.
Get smarter: These comments were released for a reason…we’re just not sure what it is.
The bottom line: Beijing is now firmly convinced that Washington is out to get it.
4. Cui Tiankai comments on US-China ties
As rhetoric on both sides of the Pacific grows increasingly shrill (see previous entry), China’s ambassador to the US, Cui Tiankai, has offered a remarkably big-picture assessment of the future of US-China relations.
On Saturday, during an interview with CNN journalist Fareed Zakaria, Cui said (CGTN):
- “I think the fundamental question for the United States is very simple-is the United States ready or willing to live with another country with very different culture, very different political and economic systems, whether the United States is ready to live with it in peace and cooperate on…global challenges.”
He also offered a China-centered perspective on the challenge Beijing poses to US dominance:
- “We certainly have the legitimate right to build our country into a modernized, strong, prosperous country, like every other country in the world.”
However, Cui still did his part to defend some of the more indefensible parts of the Party line.
- Cui defended the Hong Kong national security law and denied that human rights abuses were taking place in Xinjiang.
Get smart: Washington may not be handling China’s rise particularly gracefully, but Beijing has also been fairly tone-deaf in how it pursues its “legitimate rights.”
5. State Council looks to upgrade high-tech zones
On Friday, the State Council released new guidelines for improving national high-tech industry development zones.
Some context: First rolled outin 1988, national high-tech zones offer tax and other incentives to companies in high-tech industries.
More context: There are currently nearly 170 national high-tech zones across China.
The goals of the new policy:
- Foster a number of internationally competitive companies and industrial clusters by 2025.
- Establish a large number of internationally influential high-tech zones whose industries are at the high end of global value chains by 2035.
The new guidelines seek to bring technology and talent from the rest of the world to China.
- Visa requirements for foreign nationals visiting or working in the zones will be relaxed.
- The guidelines encourage the establishment of hi-tech cooperation centers overseas.
Get smart: One of the biggest fears in Beijing is that the country may be cut off from Western technology. That is prompting efforts to increase domestic capabilities, while also looking for ways to acquire more foreign technology and talent.
6. Security czar race heats up
We are still over two years away from the next National Party Congress, which will be held in the autumn of 2022.
But the race to make it onto the Politburo is already underway.
Chen Yixin, current secretary-general of the Political and Legal Affairs Commission (PLAC), is one to watch.
According to a Peking University-affiliated political analyst (SCMP):
- “Chen would be ‘at the right age and one of the most likely candidates’ to take over the [PLAC] from current security chief Guo Shengkun in 2022.”
- “’He’s an important member of Xi’s leadership team, especially in terms of security matters,’ said the analyst, who requested anonymity because of the sensitivity of the matter.”
We agree: We’ve got Chen as the front-runner to take over the PLAC.
But this is not a done deal.
Chen’s got some competition from:
- Minister of State Security Chen Wenqing
- Hubei Party Secretary Ying Yong
- Xinjiang Party Secretary Chen Quanguo
Get smart: The race for PLAC chief is wide open. Usually, the state councilor in charge of public security would take over the PLAC. But the current state councilor, Zhao Kezhi, is set to retire in 2022.
7. Here we go again…
This morning, the National Health Commission (NHC) released the latest COVID-19 numbers.
On Sunday, China reported 22 new confirmed COVID-19 cases (NHC):
- Five were imported from abroad
- 17 were domestically transmitted in Xinjiang
Over the weekend, Xinjiang claimed the dubious honor of being China’s new coronavirus epicenter.
Between Friday and Sunday, Xinjiang:
- Reported 41 new confirmed cases and 39 new asymptomatic cases.
- Placed 3,016 people under quarantine.
- Designated three “medium-risk” and two “high-risk” districts in Urumqi.
- Banned residents from leaving Urumqi.
- Brought in more than 200 outside medical experts to help.
A (slight) sigh of relief: Most of the confirmed cases in Urumqi were discovered among people already in quarantine.
Contrast this with Beijing, which:
- Confirmed no new confirmed case for two weeks straight.
- Has successfully treated 219 of the total 335 cases confirmed since the Xinfadi outbreak on June 11.
- Discharged 11,229 people from centralized quarantine.
- Cleared all “high-risk” and “medium-risk” neighborhoods.
- Lowered Beijing’s public health emergency response level as of Monday.
Get smart: Urumqi officials have responded to the outbreak quickly.
Get smarter: Urumqi is looking to follow the Beijing model, in which local infections are contained quickly with stringent testing and targeted lockdowns, without jeopardizing economic resumption elsewhere.