driving the day
1. US order shut down of Chinese consulate in Houston
Just when you thought Sino-US relations couldn’t get any worse…
On Tuesday, the US government ordered China to shut down its Houston consulate and vacate the premises within 72 hours.
Officials immediately started getting rid of documents (Bloomberg):
- “The first signs of trouble came when Houston police and firefighters descended on the consulate following witness reports that papers were being burned outside in open containers, the Houston Chronicle and two local TV stations reported on Tuesday night, citing local police.”
The foreign ministry is NOT HAPPY (Xinhua):
- “It is a political provocation unilaterally launched by the US side, which seriously violates international law, basic norms governing international relations and the bilateral consular agreement between China and the US.”
- “China strongly condemns such an outrageous and unjustified move which will sabotage China-US relations.”
China told the US to take it back:
- “We urge the US to immediately revoke this erroneous decision. Should it insist on going down this wrong path, China will react with firm countermeasures.”
Get smart: This represents a step change in the US’s more confrontational approach to China.
Get smarter: The Chinese are keen to dial down bilateral tensions. But this is already huge news in China and the government will be forced to react. They will try to do so proportionately, but in a way that does not escalate tensions further.
The most likely outcome: Beijing shuts the US consulate in Wuhan or Shenyang.
2. Xi’s all about business
On Tuesday, Xi Jinping sat down with companies to get their thoughts on economic policy.
Xi brought along some friends. Also in attendance were:
- Three Politburo Standing Committee members
- Five additional Politburo members
- Four state-level leaders
What that means: This meeting was a big deal.
Flashback: Xi held a similar meeting with private businesses in November 2018 (see November 1, 2018 Tip Sheet). That kicked off a major push to support the private sector.
Tuesday’s meeting was different.
- In addition to private businesses, state-owned enterprises, sole proprietors, Hong Kong businesses, and foreign companies were asked to participate.
Xi’s message: He is pro-business (Xinhua):
- “[Companies] are the main participants in our country’s economic activities, the main providers of employment opportunities, and the main promoters of technological progress.”
- “They play an extremely important role in national development.”
Xi promised to give businesses a helping hand:
- “We must continue to reduce taxes and fees, reduce rent and interest rates, and ensure that all relief measures…directly benefit market players.”
Get smart: We’ve been saying this for years, but there has been a sea change in economic policymaking. Instead of expanding credit and investment, officials are focusing their economic support measures on helping firms.
3. Xi talks tech
Part of the reason that Xi met with businesses on Tuesday (see previous entry) was to get their advice on economic policy.
Some context: The Politburo is set to hold its mid-year economic review in the coming week. That meeting will map out the economic policy roadmap for the rest of the year.
Executives from seven businesses were asked to present suggestions.
The chosen few:
- Hikvision, a video surveillance company
- Sinochem, a state-owned chemicals conglomerate
- Wuhan Guide Infrared, a producer of infrared thermal imaging devices
- Goertek, a manufacturer of smart electronics
- Shanghai Pinhai Restaurant, a, um, restaurant in Shanghai
- Microsoft, creator of endless updates
- Panasonic, a Japanese consumer electronics company
A further 18 companies were invited to attend including, not one, not two, but three that are core to China’s push into semiconductors:
- Advanced Micro-Fabrication Equipment
- Semiconductor Manufacturing International Corporation
- Cambricon Technologies
Xi asked companies to take a big picture view.
- The discussion on Tuesday wasn’t just on what China should do to support the economy now.
- It was also about how policymakers should be approaching the next five-year plan, which will run from 2021-2025.
Get smart: It’s pretty clear from the list of attendees that supporting high-tech companies is a top priority.
4. Things that make you go “hmmm”
Yesterday, Vice Premier Liu He got down to some important business.
- Liu ordered the State Council General Office to lead an investigation into the resignation of more than 90 researchers at the Institute of Nuclear Energy Safety Technology (INEST) of the Chinese Academy of Sciences, a research unit affiliated with the Hefei Institute of Physical Science (CASHIPS).
Some context: Science and technology (ST) is part of Liu’s portfolio.
But, that still doesn’t explain Liu’s unusual order.
So what’s the deal?
- Liu is leading the effort to reform China’s ST ecosystem in order to boost Beijing’s technical capabilities amid a tech war with the US.
- In that context, the mass resignation of dozens of scientists is pretty embarrassing.
It is still unclear why so many researchers quit at the same time. Some say it’s all about getting higher pay, while others say they felt frustrated by internal restructuring.
- Liu’s investigation seeks to find out what really happened.
Our take: There are many problems with China’s rigid and uninspiring ST system. But Liu is a pragmatic problem solver. And now he’s on the case. That means we are likely to see changes.
National Business Daily:
Global Times:90 CAS nuclear scientists who resigned were allegedly ‘poached’
5. Data privacy, Chinese style
On Monday, the Ministry of Industry and Information Technology (MIIT) said it will take a good hard look at50 apps that were exposed by CCTV last week for illegally collecting user data.
Some context:The MIIT started an investigationintodata privacy infringements by mobile apps in November 2019 (see December 20, 2019 Tip Sheet). So far, it has ordered 478 companies to straighten up their data collection practices.
The ministry is not playing around.
- Should any of the appsbe found to violatedata privacy, theywill be taken down from app stores immediately.
What do these apps have in common you ask?
- 40 of the 50 apps are finance-related.
The MIIT is not the only central agency concerned with financial data security (21st Century Biz) :
- The central bank initiated a sweeping six-month investigation in May over fintech apps with a particular focus on data security of mobile finance apps.
- The investigation included issues around individual data protection, transaction safety, and identity authentication.
Get smart:While there is not yet a clear consensus on what counts as “violating user data privacy” in China, financial regulators are well and truly fed up with tech companies running the show.
Get smarter:The days of fintech apps aggressively collecting user data without consequences are numbered.
6. Governments jump on the business environment bandwagon
The State Council is doing its part to help out companies.
Yesterday, its general office released“Implementating Opinions on Further Optimizing the Business Environmentto Better Serve Market Entities.”
The opinions call on ministries to devise measures that will make it easier to do business, including:
- Lowering market access barriers for construction, education, healthcare, and sports
- Delegating the power to grant important industrial production permits to provincial authorities
- Establishing an ongoing communication mechanism between enterprises and the government
- Further simplifying customs clearances
Law enforcement will also play its part (Xinhua):
- “According to a statement issued Tuesday by the Commission for Political and Legal Affairs of the Communist Party of China Central Committee, authorities will crack down on crimes such as contract fraud, illegal business operations and other acts that disrupt normal business order, as well as those violating personal or property rights of business owners.”
Get smart:These don’t represent new policies, just attempts to better implement policies already announced.
People’s Daily: 国务院办公厅印发《关于进一步优化营商环境更好服务市场主体的实施意见》
Xinhua: China to strengthen law enforcement for better business environment
7. China looks to relax ban on international travelers (maybe)
This morning, the National Health Commission (NHC) released the latest COVID-19 numbers.
On Tuesday, China reported 14 newly confirmed cases – up from 11 the day before (NHC):
- Five of the new cases were imported from abroad.
- The remaining nine were all domestically transmitted in Urumqi, Xinjiang – up from eight on Monday.
In addition, Xinjiang reported 14 new asymptomatic cases in Urumqi on Tuesday – up from five on Monday.
And this is interesting:
- On Tuesday, Chinese aviation, customs, and foreign affairs authorities jointly released a public notice to require nucleic acid test results from incoming international travelers.
- Incoming travelers to China must test negative for COVID-19 within five days before boarding in-bound flights.
- Foreign travelers must also submit health information and negative test results to Chinese embassies and consulates for health certification before boarding planes.
In case you forgot: China has banned most foreign nationals from entering the country since March.
One caveat: There is no enforcement date set for the new policy.
What to watch: Requiring foreign nationals to be tested before coming to China implies Beijing might be ready to relax its entry ban on foreign nationals…but nothing’s for certain yet.