1. Prepping for financial war
Former and current Chinese officials are increasingly bracing for a “financial war” with the US.
The latest: State-owned Bank of China’s chief economist Guan Tao issued a report earlier in the week encouraging Chinese regulators and financial institutions to seriously explore options to protect China’s financial system against the worst-case scenario.
Some context: Guan is a former official at the forex regulator (SAFE)..
He is advocating for Chinese banks to start executing more cross-border payments through their own financial infrastructure – rather than more widely used global financial infrastructure (Reuters):
- “Greater use of the Cross-Border Interbank Payment System (CIPS) instead of the Belgium based SWIFT system would…reduce exposure of China’s global payments data to the United States.”
The idea is to protect China’s financial institutions in the event the US tries to cut them off from USD transactions.
The problem: Chinese policymakers don’t have many good solutions. CIPS, for example, is a fraction of the size of SWIFT and unlikely to be able to handle the transaction volume Chinese banks need, at least not immediately.
Get smart: A full-on financial war between the US and China would wreak havoc on global capital flows and currency markets.
Go deeper: For more,
you know where to go
2. Long, long, long (term planning)
On Thursday, Xi Jinping presided over a Politburo meeting that was a little…different.
He urged Politburo members to take the long view…the really long view.
- The meeting decided that in October, the Party will set goals for China to be achieved by 2035.
Some context: In 2017, the Party divided development from 2021 to 2050 into two phases. The goal by 2035 is to achieve modernization, while the goal by 2050 is to become a fully modernized superpower.
Policymakers will flesh out what modernization means in the next two months.
- Thiswould make a perfect topic for the beach party/policy conclave in Beidaihe in August
Get smart: Xi doesn’t plan onletting geopolitical tensions derailhis plan to make China a superpower.
But there’s more: Policymakers are also going long on economic policy.
To address medium- and long-term economic issues they are proposing to:
- Speedup the implementation of the dual circulation strategy (See July 23 Tip Sheet)
- Developa long-term mechanism to coordinate economic development and virus containment
- Promoteinnovation-driven economic restructuring
- Buildout mechanismsto balance growth and financial de-risking
Get smarter: Despite the most recent wave of COVID-19 infections (see entry #5), Chinese policymakers are in the unique position of being mostly on the back end of the pandemic.
- That means they can increasingly turn their attention back to long-term policy objectives.
3. With a little help from my friends
On July 28, Xi Jinping presided over a forum attended by China’s non-Communist political parties.
What’s that now?
- Believe it or not, China has eight other political parties, though all of them acknowledge the leadership of the CCP.
- The eight independent parties play a small but important advisory role in the policymaking process.
The All-China Federation of Industry and Commerce (ACFIC) was at the forum, as well.
Xi took the opportunity to talkabout the economy (People’s Daily):
- “[Xi] stressed the need to…to further deepen the reform in an all-round way, to actively crack down on various problems faced by development, to resolve risks and challenges and pressures from all sides, and to build a broad consensus…for advancing reform and development and defeating all kinds of risks and challenges.”
After the big guy’s speech, the heads of the independent parties chimed in:
- Get this: They agreed with the CCPs policy proposals!
- But they also made some suggestions of their own,which Xi listened to politely.
Get smart: China may be aone-party state, but the little guys serve as something of a policymaking brain trust and their counsel is taken seriously.
4. We can work it out
Reading the news, it’s easy to get the sense that there’s only wrath and rancor between Washington and Beijing these days…and that’s pretty much spot on.
But there are some voices on the Chinese side calling for reconciliation.
- Ambassador to the United States Cui Tiankai
- Ambassador to the United Kingdom Liu Xiaoming
On Thursday, Cui published an op-ed in Politico which harkened back to better times (Politico):
- “As some try to overthrow the China policy built by successive U.S. administrations, it is important to remember the history between the two countries.”
- “[N]o sensible foreign policy is based on ignorance, arrogance or shortsightedness, let alone hatred.”
Cui then alluded to the hopeful atmosphere of Nixon’s first visit to China and even shoehorned an inspirational George Washington quote into his musings.
Liu had a similar message (Reuters):
- “We have no interest in any Cold War, we have no interest in any war.”
- “[W]e keep telling America, China is not your enemy, China is your friend, your partner.”
- “I don’t think we have passed the point of no return.”
Get smart: Despite (or maybe because of)the recent rise in tensions, there’s a sizeable contingent of top Chinese policymakers pushing for reconciliation with the US.
What to watch: Are we witnessing a pivot away from Wolf Warrior diplomacy?
5. I (don’t) wanna hold your hand
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
On Thursday, China reported 127 new confirmed cases – up slightly from 105 on Wednesday (NHC):
- Only four of the cases were imported from abroad – up from three on Wednesday.
- The other 123 were all domestically transmitted – up from 102 on Wednesday.
This is not good: China hasn’t seen this many new cases in a single day since February.
Of the 123 domestic cases (NHC):
- 112 were in Xinjiang – up from 96 on Wednesday
- 11 were in Dalian, Liaoning – up from five on Wednesday.
In addition (NHC):
- China reported 11 new asymptomatic cases on Wednesday – five of which were imported from abroad.
- Of the 112 domestic cases in Xinjiang, 30 were confirmed from existing asymptomatic cases.
- Another 12,416 people are currently under isolated medical observation in Xinjiang.
Get smart: The vast majority of new cases are being identified in Xinjiang.
Get smarter: You’d think with stringent contact tracing and social distancingpractices – not to mentiontight control ofsociety in general – Xinjiang would get the outbreak under control faster.