finance economics
1. NPL disposals start scaling
Regular readers know that for the past few weeks, the China Banking and Insurance Regulatory Commission (CBIRC) has been warning of a substantial rise in nonperforming loans (NPLs).
- AQA posted on the CBIRC website on Saturday said thatbanks had disposed of RMB 1.1 trillion worth of nonperforming loans (NPLs) in the first half of the year.
- That’s up RMB 168.9 billion, or 18% from the same period in 2019.
While a good start, that’s well behind the pace CBIRC chairman Guo Shuqing has set for 2020.
- In mid-August, Guo said China’s banks would aim to dispose of RMB 3.4 billion worth of bad loans this year, a 48% increase from RMB 2.3 trillion last year.
The CBIRC QA also said that:
- Banks’ impairment provisions increased by RMB 1.3 trillion during the first six months of 2020, 34.4% more than during the same period last year.
- Banks’ net profit declined by 9.4% in H1, partly the result of banks reducing firms’ borrowing costs, and partly due to NPL disposals and increased provisioning.
Get smart:For the past month, the CBIRC has been warning banks to prepare themselves for the rising tide of NPLs.
Get smarter:This is just the beginning. Banks will need to further ramp up their disposals, provisioning, and capital raising by year’s end.
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CBIRC: 中国银保监会新闻发言人答记者问
politics policy
2. Xi tells officials to keep sight of big picture
On Friday, at the conclusion of his trip to Anhui, Xi Jinping sat down with the provincial leadership to discuss policy priorities.
First things first:
- Xi said that controlling the coronavirus and dealing with ongoing floods are core to boosting the Party’s legitimacy.
But officials need to walk and chew gum at the same time.
Xi told them not lose sight of one of his biggest policy priorities (CPC People):
- “We must put the prevention of poverty caused by epidemic diseases and disasters in a prominent position, persist in targeted poverty alleviation, and move forward with targeted assistance.”
Some context: Xi has promised to eradicate poverty by the end of the year.
Xi also wants officials thinking long-term when it comes to the economy.
Xi’s number one priority on this front is the manufacturing sector:
- “We must upgrade traditional industry, while simultaneously strengthening and expanding strategic emerging industries.”
- “[We must] promote the accelerated development of a digital, networked, and intelligent manufacturing industry.”
Get smart: Xi was referring to the Party’s new economic framework – dual circulation (see May 15 Tip Sheet). It’s China’s new attempt to make the economy less vulnerable to external shocks.
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CPC People: 习近平在安徽考察时强调 坚持改革开放坚持高质量发展 在加快建设美好安徽上取得新的更大进展
3. Xi pushes for Yangtze River Delta integration
On Thursday, while in Anhui, Xi chaired a symposium on integrating the Yangtze River Delta (YRD) region.
Some context: The YRD consists of Shanghai, Zhejiang, Jiangsu, and Anhui. Integrating the region is one of Xi’s pet projects. It has gained momentum following a Politburo meeting on the issue in May 2019 (see May 14, 2019 Tip Sheet).
Xi’s vision (Xinhua 2):
- “[An] Integrated approach and measures should be taken to break administrative barriers, enhance policy coordination, and enable the smooth flow of production factors on a larger scale.”
Xi also wants the YRD to lead the way in strategic emerging industries:
- “Xi urged the provinces of Jiangsu, Anhui and Zhejiang as well as Shanghai to prioritize key areas and major fields including integrated circuit[s], biomedicine, [and] artificial intelligence.”
Xi stressed that this is a long-term initiative.
- “The integrated development of the Yangtze River Delta will not be achieved overnight, Xi said.”
Get smart: The lack of a unified national market is one of the biggest drags on overall economic efficiency. If Xi’s regional integration push can address that problem, it will improve the medium and long-term economic outlook.
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Xinhua 1: 第一观察丨总书记就这项战略首开座谈会，有何新部署？
Xinhua 2: Xi Focus: Xi stresses advancing integrated, high-quality development of Yangtze River Delta
4. Li Keqiang inspects the recovery inChongqing
Premier Li Keqiang recently wrapped up avisit tosouthwestern megacity Chongqing (see Friday’s Tip Sheet).
His focus: How to get businesses up and running.
Li urged local officials to implement fee and tax cuts for business.
He also gave the private sector some love by visiting a couple of local firms (Xinhua):
- ZBJ.com, a crowdsourcing platform that offers services to small and medium-sized enterprises
- Chongqing BOE Optoelectronics Technology Co., Ltd.
Li also stopped by state-owned automaker Changan. Li had some advice for the company (Gov.cn 2):
- “Premier Li encouraged the company to develop more products that drive up consumption.”
Get smart: Li and other leaders have been telling producers to focus more on the Chinese consumer for years.
Get smarter: If the government wants to boost consumption, it should help consumers–not tell manufacturers to make better products.
The bigger picture: China’s economy is experiencing a two-track recovery, with productionhumming but consumption still lagging.
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Gov.cn 1: 李克强在重庆考察
Gov.cn 2: Premier stresses post-disaster reconstruction, economic rebound through opening-up
Xinhua: Chinese premier stresses flood control, consolidating economic recovery
5. China racing for a vaccine
China’s streak of no domestically transmitted COVID-19 cases continued over the weekend.
- Sundaymarkedeight consecutive days without a single domestically transmitted case.
What’s more: For the past three days, there have been no domestically transmitted asymptomatic cases.
Imported COVID-19 cases are still a problem. China reported (NHC):
- 22 confirmed and 34 asymptomatic imported cases on Friday
- 12 confirmed and 15 asymptomatic imported cases on Saturday
- 16 confirmed and 27 asymptomatic imported cases on Sunday
But the big COVID-19 news this weekend:
- On Saturday,an official from the National Health Commission revealed that China has been administering COVID-19 vaccine candidates to selected groups for emergency use since July 22.
Who’s receiving the vaccine?
- The vaccine candidates were first made available to medical staff and border inspection workers, and then to people working in public transportation.
- Soon the vaccines will also be available for workers in wet markets.
Get smart: China is part of the global race to introduce the first effective vaccine against COVID-19.
Get smarter: Having previously promised to share any successful vaccine originating in China with the world (see May 19 Tip Sheet), crossing the finish line first could go some way in repairing itstarnished international reputation.
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NHC 1: 截至8月21日24时新型冠状病毒肺炎疫情最新情况
NHC 2: 截至8月22日24时新型冠状病毒肺炎疫情最新情况
NHC 3: 截至8月23日24时新型冠状病毒肺炎疫情最新情况
Yicai: 国药新冠灭活疫苗已进入紧急使用，三期临床入组超2万人