driving the day
1.Xi plots China’s economic future
ICYMI: 2020 has been a rough year for the Chinese economy.
The economic fallout from the pandemic, combined with increasing efforts by the US to cut China off from Western markets, is causing officials to do some hard thinking on economic policy.
On Monday, Xi Jinping asked for a little help from his friends.
- He gathered top economic officials and a gaggle of economists for a meeting to discuss China’s economic challenges – and what the leadership should do about them.
Xi explained why it is time for an economic rethink (Xinhua):
- “International economic, technological, cultural, security, and political structures are undergoing profound adjustment, and the world has entered a period of turbulent change.”
According to Xi, this means that the “main task” is to make China’s economy more resilient to external shocks:
- “In the future, we will face a more adverse external environment, and we must be prepared to deal with a series of new risks and challenges.”
Fortunately, Xi’s got a plan.
- The answer to these new challenges is a new economic framework – the dual circulation strategy (see next entry).
2. Xi waxes poetic on dual circulation
Regular Tip Sheet readers know that Xi Jinping and other senior Chineseleadershave been working on a new economic framework – the dual circulation strategy (DCS) – since May (see May 15 Tip Sheet).
So what is dual circulation?
- In a nutshell, it’s a strategy to make the economy more resilient to external shocks by making domestic demand the main driver of the economy.
But beyond that high-level goal, senior officialshaven’tsaid exactly what dual circulation willmean in practice.
On Monday, Xi gave his most extensive comments yet on DCS.
In many ways, DCS, is just an acceleration of trends already in motion:
- “Since the 2008 global financial crisis, our economy has been transforming to one where internal circulation plays the main role.”
- “In the future, the distinctive feature of the domestic market guiding the national economy will become even more obvious.”
This could lead to a wholesale repositioning of China in the global economy. Instead of an export powerhouse, China is looking tobecome an import behemoth:
- “For other countries, It will provide ever larger market opportunities and become a tremendous gravitational field attracting international goods and factor resources.”
Get smart: Given China’s outsized role in global trade, even a minor shift in its trading patterns will have hugeeffects on global trading patterns.
3. Xi’s message on opening
One of the key concerns Xi Jinping tried to address in his Monday meeting (see previous two entries) is how China will continue to open its economy.
Some context: This isan important question. The dual circulation strategy’s (DCS) emphasis on domestic consumption opens the door for conservatives to argue for self-sufficiency at the expense of openness.
But Xi doesn’t see it that way (Xinhua):
- “We believe that international economic connectivity and exchanges are still the objective requirements of world economic development.”
He believes it’s in China’s interest to keep its door open:
- “An important driving force for our country’s sustained and rapid economic development is opening up.”
Xi promised that foreign countries would benefit from China’s openness:
- “Our country’s … connection with the world economy will be closer.”
He also made an interesting pitch directly to American industry…bypassing the federal government:
- “We must actively cooperate with all countries, regions and companies that are willing to cooperate with us, including American states, localities, and companies.”
Get smart: It’s a positive message, but there needs to be some serious coordination and oversight to ensure that specific directives from different ministries aren’t undercutting the big picture.
4.Xi Jinping’s brain trust
Who attended Xi Jinping’s economic policy powwow on Monday (see entries #1-3)?
Nine experts were invited to share their thoughts:
- Justin Yifu Lin, Honorary Dean, National School of Development, Peking University
- Fan Gang, Vice President, China Society of Economic Reform
- Jiang Xiaojuan, Dean, School of Public Policy and Management, Tsinghua University
- Cai Fang, Vice President, Chinese Academy of Social Sciences
- Wang Changlin, President, Academy of Macroeconomic Research, National Development and Reform Committee
- Zhu Min, Chair, National Institute of Financial Research, Tsinghua University
- Lu Ming, Distinguished Professor, Antai College of Economics Management, Shanghai Jiao Tong University
- Zhang Yuyan, Director, Institute of World Economics and Politics, Chinese Academy of Social Sciences
- Zheng Yongnian, President, Advanced Institute for Global and Contemporary China, Chinese University of Hong Kong, Shenzhen
What’s interesting: These nine are a relatively diverse crew, with different specialties and differing views on economic policy.
Guess who wasn’t there: Premier Li Keqiang. Just saying.
Get smart: There are more inputs into the policymaking process than most people realize.
What to watch: The discussion on dual circulation is in the early stages; what the strategy means in practice is still being worked out. As Xi said on Monday (Xinhua 2):
- “We can continue to deepen the research, and put forward insights.”
5. Phase one trade review finally happens
Hallelujah! US-China relations are saved!
- No, not really.
But there was a (somewhat) positive development.
On Tuesday, after a nerve-wracking postponement, US and Chinese negotiators sat down for a scheduled call to review the phase one trade deal.
Xinhua has the details:
- “Chinese Vice Premier Liu He…held a phone conversation with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.”
- “The two sides conducted a constructive dialogue on such issues as strengthening bilateral coordination of macroeconomic policies and the implementation of the China-U.S. phase-one…agreement.”
The US side also seempleased with the meeting (USTR):
- “The parties also discussed…future actions needed to implement the agreement.”
- “Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”
Get smart: Like we said on Thursday, both sides have strong incentives to keep the phase one trade deal alive (see August 21 Tip Sheet).
6. Wang Yi’s awkward Euro-Trip
On Tuesday, Chinese foreign minister Wang Yi began his week-long European tour – his first overseas trip since the outbreak of COVID-19.
Between now and September 1, Wang will visit:
- The Netherlands
Unfortunately, Wang’s trip isn’t going to be all fjords and tiramisu –his main task will be rehabilitating China’s badly damaged reputation on the continent.
Some context: Between China’s perceived bungling of the COVID-19 crisis, its aggressively nationalistic diplomats, and a bevy of broken promises on trade and investment, a growing number of European leaders have grown weary of Beijing’s antics.
On Monday, Wang’s meeting with Hungarian foreign minister Péter Szijjártó gave us a taste of his main talking points for his upcoming trip (MoFA):
- “The economic integration among countries is the natural product of the further development of international division of labor.”
- “[Wang] said that both China and Europe are open economies. As supporters of globalization and the multilateral trading system, we should not allow the ‘decoupling’ argument to interfere with the normal operation of the global industrial chain.”
Get smart: As the bottom falls out of US-China relations, it’s more urgent than ever that Beijing patch things up with Europe.
7. Zuckerberg plays the China Card
Is Mark Zuckerberg behind the push to exile TikTok from the US?
- Chinese netizens seem to think so.
Domestic tech media is in a tizzy over allegations that Zuckerberg stoked anti-TikTok sentiment in meetings with U.S. lawmakers and in D.C. speeches.
But why would the Zuck do such a dastardly thing? (Sina Tech):
- “Facebook has been unable to dominate the market through fair competition, so it hopes to use political means to suppress TikTok by making itself a beneficiary of the deterioration of Sino-US relations.”
Ow. That hurts right in the numbers:
- Facebook’s Instagram sees around 112 million Monthly Active Users (MAUs) in the US.
- Tiktok has been coming up fast on Instagram’s flank, with 91 million US MAUs this year, an increase of 800% since January 2018.
- With teen sentiment towards Facebook in decline, Instagram is Facebook’s Gen-Z life preserver.
Facebook is under friendly fire as well: The company has been caught up in the recent US antitrust investigations over monopolistic practices in big tech.
The strategy? The China card. (WSJ):
- “Mr. Zuckerberg made the case to President Trump that the rise of Chinese internet companies threatens American business, and should be a bigger concern than reining in Facebook.”
Get smart: So much for a decade of Mandarin lessons and conspicuous jogs through Tiananmen Square.
8. You may now engage in non-aggregate individual activities
This morning, the National Health Commision dropped the latest COVID-19 numbers (NHC):
On Monday, China saw:
- No domestically transmitted cases – for the ninth consecutive day
- No domestically transmitted asymptomatic cases – for the fourth consecutive day
- 14 imported cases – down from 16 on Sunday
- 16 imported asymptomatic cases – down from 27 on Sunday
In other words: The COVID-19 era is effectively over in China (*unfurls celebratory banner*).
Things are going so well, in fact, that restrictive public health measures implemented in Xinjiang to contain the Urumqi outbreak that started on July 15 (see July 17 Tip Sheet), are finally being relaxed.
Starting on Sunday, Urumqi authorities decided to relax lockdown measures at selected residential communities, by allowing community residents to (XJBS):
- “Engage in non-aggregate individual activities inside the residential communities.”
Residential communities are cleared for the “relaxed” measures if:
- They have neither confirmed, asymptomatic, nor suspected COVID-19 cases.
- All residents have tested negative for COVID-19 in the latest testing round.
Urumqians are no doubt relieved:
- Local anecdotal evidence tells of an overly restrictive, bureaucratic, and rigid response to the outbreak.
Get smart: Although China has contained local outbreaks effectively and quickly, even moderated lockdown measures come at a social cost.
Get smarter: Given it’s Xinjiang, overly restrictive measures were very much expected.