1.Two-track recovery continues
On Friday, a research institute (CERDS) affiliated with the State-owned Assets Supervision and Administration Commission (SASAC) published a survey on COVID-19’s impact on 4,391 Chinese companies.
The good news: Things are improving.
Buuuuut…not by much:
- As of August 10, 53.5% ofsurveyed companies said that customer demand is still belowpre-epidemic levels.
- That’s a small improvement compared to 58.8% in May.
Things are improving for small businesses:
- As of August 10, 56.7% of the surveyed individual merchants said the epidemic is still weighing on their businesses.
- That is an improvement from 71.3% in May.
The survey also noted that real estate, logistics, and manufacturing are driving the economic recovery – with the services sector lagging behind.
Get smart:Things are better than a few months ago, no doubt. But therecovery is lopsided – industrial companies areup and running, but consumers remain cautious.
In case youmissed it:On Sunday, China Banking and Regulatory Commission ChairmanGuo Shuqingpublished an essay inQiushi, the Party’s top journal.
Guo revisited his new favorite message:Nonperforming loans (NPLs) are making a comeback.
- “Toxic assets are lesions that must be removed with determination.”
- “Cover-ups will only delay treatment and ultimately bring serious consequences.”
- “Banks must dispose of non-performing assets as early as possible.”
Get smart:The pressures of the pandemic have forced the banking regulator to consider relaxing new rules governing NPL recognition, and to delay the implementation of wealth management rules.
Get smarter:Guo has spent the last three years cleaning up the financial system so that it’s safer, more stable, and more sustainable. He’s not about to see his good work undone.
Go deeper: We’ve got a lot more to say about Guo’s essay. For more, check out today’s China Markets Dispatch.
3.Xi lays out economic philosophy
On Sunday, the Party’s top journal Qiushi, published a speech by Xi Jinping on Marxist political economy. delivered at a Politburo study session onNovember 23, 2015.
Pay attention: The speech is an important summary of Xi’s views on economic policy.
Xi reminded his colleagues that sound economic management is core to the Party’s legitimacy:
- “Whether or not we can control the big ship of China’s economy is a major test for our Party.”
This is not your father’s Marxism:
- Xi celebrates the important role of markets in deciding economic outcomes.
- He also says that the private sector has an important role to play in China’s economy.
Xi says that the ability to update Marxist political economy is a core strength of the Party.
The bottom line: When it comes to economic ideology, the Party’s thinking is decidedly non-ideological.
Our take: The Party’s creativity on the ideological front is a double-edged sword.
- On the positive side, it allows for pragmatic policy that adapts to changing circumstances.
- On the negative side, a lack of ideological clarity often leads to confused economic policy.
Go deeper: For those interested in how Xi views economics, the piece is worth a thorough read.
4.Phase one trade deal review postponed
Unless you’ve just woken up from a coma, you know that US-China relations are caught in a dangerous tailspin.
As Sino-US ties approach rock bottom,the phase one trade deal has emerged as seemingly the only point of cooperation.
That’s why this was worrying:
- The six-month review of the deal originally scheduled for this past weekend waspostponed.
According to Reuters, the postponement is happening for all the right reasons:
- “One source familiar with the talks said the delay was related to a conference of senior Communist Party leaders at the seaside town of Beidaihe.”
- “The postponement did not reflect any substantive problem with the trade deal, the source said, adding: ‘The new date has not been finalized yet.’”
This may also be Washington’s way of cutting Beijing some slack:
- “Another source…said that U.S. officials wanted more time to allow China to increase purchases of U.S. goods agreed in the deal, to improve the political optics of the review.”
Get smart:Neither side wants to see the phase one deal fall through.
Get smarter:No meeting is better than a bad meeting in terms of market sentiment.
5.How MNCs fit into the “dual circulation” strategy
We’ve got a burning question:
- How do foreign companies fit in to the new “dual circulation” economic framework?
A quick refresher: China’s top leaders introducedthe “dual circulation” framework in May(see May 15 Tip Sheet). Its goal is tomakethe economy less vulnerable to external shocks.
On Friday, Wang Yiming, former vice president of the State Council’s Development Research Center, shed some light on the matter.
Wang thinks foreign companies are critical in introducing technologies and stabilizing domestic supply chains (Sina):
- “Our industrial technological progress is inseparable from participating in international cooperation and competition.”
- “Development separated from the mainstream of the world will only widen the gap between our country and the international advanced level.”
He argued that a mixed supply chain where Chinese and foreign companies are tightly integrated is the most secure. That’s because in that scenario all parties are equally vulnerable (Caixin):
- “If you put restrictions on me, I can do the same to you.”
However, that doesn’t apply to sectors facing US sanctions – like chips.
- For them, Wang proposesreplacingUS suppliers with domestic ones.
Get smart: China won’tshutforeign companies out of its economic system. They know that wouldcripple economic efficiency.
Get smarter:Still, policymakers will continue to try and develop domestic capabilities in key technologies.
6.Xinjiang recovered,Guangdong next
Missyour daily COVID-19 update over the weekend?
Don’t worry. We’ve got you covered. There were (NHC):
- Eight domestically transmittedand 14 imported cases on Friday
- Four domestically transmittedand 15 imported cases on Saturday
- Zero domestically transmitted and 22 imported cases on Sunday
- All domestically transmitted cases, except for one on Friday, were found in Urumqi, Xinjiang.
- The one exception on Friday was reported in Shanwei, Guangdong province.
- Sunday was the first day that Xinjiang reported no new confirmed cases since the local outbreak on July 15.
The Guangdong case came after 107 days of zero new cases in the province:
- The case lives in Shanwei but works at a supermarket in Shenzhen.
- Five close contacts of the case have been diagnosed as asymptomatic COVID-19 carriers – two workplace colleagues and three family members.
Since then, Shenzhen and Shanwei authorities have:
- Closed 21 and investigated 48 of the supermarket’s chain stores
- Tested people who visited these stores since July 24
Get smart: Guangdong authorities will contain the situation following a specific set of measures already trialed in Xinjiang, Dalian, and Beijing.