politics & policy
1. Liu He’s new plan for the economy
In May, the top leadership introduced a new framework to guide economic policy (see May 15 Tip Sheet):
- The dual circulation theory
A quick refresher (July 23 Tip Sheet):
- “The ‘dual circulation’ concept is all about ensuring ‘development security,’ which means making the economy less vulnerable to external shocks.”
- “In plain English… the economy needs to become more self-reliant.”
Guess who’s behind the new strategy (WSJ):
- “Leading development of Mr. Xi’s new model is Vice Premier Liu He, the Chinese president’s point man on economic policies… according to the Chinese officials.”
Is this a stealthy plan to support the private sector?
- “Mr. Liu appears to be trying to use the new development agenda endorsed by his boss to push through changes he couldn’t achieve before, the officials say, including some that could make more credit available to private
The big man might have something to say about that:
- “’Xi has made it imperative to make the state sector bigger, stronger and better,’ says a Chinese official involved in policy making. ‘That will never change.’”
What to watch: Officials will flesh out details of the dual circulation theory at the Party’s plenum in October.
2. State Council to stabilize foreign investment, again
Yesterday, the General Office of the State Council released a task list for ministries to get a move on one of the government’s top policy priorities – stabilizing foreign trade and investment.
Some context: The State Council approved the task list at its executive meeting on July 29 (see July 30 Tip Sheet).
On the investment front, the State Council promises foreign companies access to the government’s financial aid package.
- To provide cheaper financing, foreign companies will be included in the government’s RMB 1.5 trillion relending and rediscount program on the same terms as Chinese companies.
- Moreover, China Exim Bank has a RMB 570 billion loan quota which will be available to foreign businesses.
Foreign investments of over USD 100 million will get some extra love.
- Such investments will get extra support in terms of access to land, energy, and guidance on how to pass environmental protection checks.
Get smart: While these policies looks good, they do little to address the issue clouding most companies’ China strategy – rising tensions between China and the US.
3. State Council to boost foreign trade
The task list released by the State Council yesterday wasn’t just about foreign investment. (see previous entry).
It also seeks to help struggling exporters.
Some context: In the wake of COVID-19, international orders are down and cancellations are up, leaving exporters with a lot of goods on their hands.
To address this problem, the State Council is calling for more efforts to support exporters, including:
- Better use of export credit insurance
- Encouraging local governments and departments to support government-backed financing guarantee institutions through risk-sharing and loan guarantees
- Encouraging banks to improve credit evaluation services by collecting better quality data
- Increasing export credit to micro, small, and medium enterprises (MSMEs) engaged in foreign trade
More context: Government-backed financial guarantees help to reduce the exposure of lending institutions to the greater risks associated with lending to MSMEs, especially since cross-border transactions come with additional risks.
The State Council also called for local governments and departments to:
- Support key large-scale, foreign trade enterprises in all aspects of import and export operations
- Improve the efficiency of customs clearance, promote standardization, and reduce import and export costs associated with compliance
Get smart: These all sound great, but what these companies really need are orders from international customers – which is something the government can’t control.
What to watch:
Expect relevant ministries and local governments to release implementation plans in the coming months.
4. Caging the wolfpack
Frequent Tip Sheet readers know that the past few months have seen the rise of “Wolf Warrior” diplomats, known for their strident nationalism and aggressive responses to foreign criticism.
- Netizens and top leaders alike have lauded the Wolf Warriors for their “fighting spirit.”
But not everyone likes their style (SCMP):
- “A source close to the government…noted that there was some disagreement in the Chinese diplomatic community about the virtues of the approach, with some saying it risked alienating the country from the rest of the world.”
- “[The source said] the foreign ministry was still under pressure to ‘play up the fighting spirit’ but there were also calls internally for reflection on Wolf Warrior diplomacy.”
The source also offered their own opinion on how China’s diplomats should behave:
- “[Diplomats should] stay cool-headed, play neutral but not be sarcastic, and refrain from scornful expressions.”
Get smart: The tough-talking Wolf Warriors have done significant damage to China’s international image.
Get smarter: Although many within China’s diplomatic community dislike the Wolf Warriors, there is no indication that the top leadership does not support them.
5. Returning migrants
This morning, the National Health Commission (NHC) dropped the latest COVID-19 numbers.
On Wednesday, China reported 19 newly confirmed cases – down from 25 on Tuesday (NHC):
- 11 were imported from abroad – down from 16 on Tuesday.
- The other eight were all domestically transmitted in Urumqi, Xinjiang – down from nine on Tuesday.
In addition, on Wednesday (NHC):
- China reported 20 new asymptomatic cases – 15 of which were imported from abroad.
Among the imported cases, a recent surge from the Middle East and Central Asia has been noticeable (Caixin):
- Between Sunday and Tuesday, China added a total of 82 imported COVID-19 cases.
- Of these, 30 were imported for the UAE, while 15 were imported from Kazakhstan.
- Most of them were migrant Chinese workers stationed abroad.
Some context: Government authorities have put more pressure on international airlines to filter out the infection risks, by:
- Suspending flights when too many cases are discovered on a single flight (see August 10 Tip Sheet)
- Requiring flights to check nucleic acid test results before allowing passengers to board (see July 22 Tip Sheet)
Get smart: Migrant workers coming back from Central Asia and the Middle East will add pressure on imported cases. But the government should be able to manage it.