driving the day
1. Xi deals with Europe
On Monday, Xi Jinping co-hosted a China-Germany-EU leaders’ meeting with German Chancellor Angela Merkel via video link.
Everyone was keen on getting along (Xinhua 2):
- “[The leaders] agreed to strengthen communication and cooperation to ensure the success of the upcoming series of major political agenda between China and the EU,…vowing to bring ties up to a higher level.”
The leaders announced that they’d agreed to:
- Sign a China-EU agreement on geographical indications
- Conclude negotiations of the China-EU Comprehensive Agreement on Investment (CAI) within the year
- Establish two high level dialogues: on environment and climate, and on digital cooperation
- Forge “green and digital partnerships”
Some progress was made on the CAI (European Commission):
- “Both sides registered progress on the rules regulating the behaviour of State-owned-enterprises, on forced technology transfer and on transparency of subsidies.”
Still, thorny issues remain, including ICT standards, trade unions, and human rights.
That’s where Xi put his foot down (Xinhua 2):
- “China firmly opposes…meddling in China’s internal affairs by any country.”
- “The Chinese people will not accept ‘an instructor’ on human rights and [we] oppose ‘double standards.’”
Get smart: Neither China nor the EU wants to throw in the towel on CAI. But prospects for concluding a deal this year do not look good.
2. Data dump – August econ data
Econ data for August was published this morning, and things appear to be on the up.
- Growth in retail sales, fixed asset investment and industrial value-added output all improved from last month.
- They also comfortably beat consensus forecasts.
- Fixed asset investment increased by 9.3% y/y in August. That was up from 8.3% y/y growth in July.
- Value-added output at industrial firms rose 5.6% y/y in August versus 4.8% y/y growth in July.
- Retail sales rose by 0.5% y/y last month, up from a 1.1% y/y contraction in July. This was the first y/y expansion in 2020, but it’s still way down fromthe 8.0% y/y growth recorded in2019.
Get smart:It’s important to differentiate between how quickly the economy is recovering from Covid-19 disruptions and to what extent economic activity has normalized
Overall, things are looking pretty solid for China’s recoverybut on the normalization front, we are still seeing a dual-track economy.
- Capex and industrial production have normalized.
- Consumer spending is still nowhere near full strength.
Want to know more?We break these numbers down further in our premium daily analysis, China Markets Dispatch. Click here to find out more.
3. Party issues more rules for cadres
On Monday, the general office of the Party’s Central Committee issued guidelines on consolidating the achievements of the “Stay true to the Party’s founding mission” education campaign.
Some context: The campaign was launched in May 2019 in an effort to instill cadres with discipline (see May 14, 2019 Tip Sheet). It concluded late last year.
So what’s in the new guidelines? Xinhua summarizes:
- “The guidelines call for enhanced study and discussion of the Party’s theories and strengthened education on ideals and convictions among CPC members.”
- “Regular self-examination and self-criticism should be conducted by Party members, and problems found should be rectified in time, according to the guidelines.”
- “The guidelines caution against the practices of bureaucratism and formalities for formalities’ sake, and urge Party members to abide by the Party’s regulations and disciplines and uphold integrity.”
Get smart: Since Xi Jinping took over the Party in late 2012, he has been obsessed with improving discipline.
- To this end, he has launched multiple education campaigns and rewritten heaps of the Party’s internal rules.
Get smarter: The Party is definitely more disciplined than it was pre-Xi. But it is still far from the organization Xi wants it to be.
4. State TV headline sinks cross-strait talks
On Monday, the main opposition party in Taiwan – the Kuomintang (KMT) – announced it would not send any official delegates to the 2020 Straits Forum in Xiamen.
Some context: The Straits Forum is an annual forum on business and culture, bringing together attendees from the mainland and Taiwan. Begun in 2009, the event is intended to be a non-political platform for exchange.
More context: Just last week, the KMT announced it would send an official delegation to the forum, headed by:
- Wang Jin-pyng, former president of Taiwan’s Legislative Yuan
- Lee Chien-lung, KMT general secretary
The trip was cancelled after an uproar in Taiwan over a headline on a state-sponsored CCTV program, which read (SCMP):
- “With the [Taiwan] strait on the brink of war, this man [Wang] is coming to beg for peace.”
CCTV had a second chance, but squandered that too (SCMP):
- “The KMT later asked for an apology from CCTV, but the demand was not met.”
Get smart: The forum could have been a great opportunity for dialogue considering Beijing suspended official exchanges with Taiwan in 2016.
Get smarter: The CCTV headline is not necessarily a reflection of official policy – but it’s certainly read by Taiwan that way.
The bottom line: Overly nationalistic proclamations aimed at a domestic audience sometimes come with a hefty price tag, undermining the Party’s strategic objectives.
5. Decoupling by proxy?
Yesterday, US computing hardware behemoth Nvidia announced the purchase of UK semiconductor giant Arm Holdings.
What’s it to China? (The Guardian)
- “[Arm] has been described … as ‘the Switzerland of the semiconductor industry.’ It maintains independent relations with hundreds of customers around the world, many of which are rivals.”
Plenty of Chinese companies rely on Arm chips, including (Reuters):
- Huawei’s Hisilicon
- Shenzhen Goodix Technology
- Horizon Robotics
Arm CEO Simon Segars wants to smooth over mainland jitters (Caixin):
- “Most of Arm products are designed outside the United Kingdom or the United States, so most Arm products are not under U.S. export controls.”
No such luck. According to Zhu Jing, the deputy secretary-general of the Beijing Semiconductor Industry Association (The Paper):
- “Although Nvidia has promised to maintain ARM’s independence, under the current geopolitical climate, everyone will look upon the transaction with distrust.”
What to watch: The State Administration for Market Regulation is one of many global regulators that get to weigh in on the deal, and it still hasn’t taken a stance.