driving the day
1. Party rules is in the house tonight
Yesterday, the CCP Central Committee released a set of regulations regardingits work procedures thatcalled for increased compliance from subordinate organs and local governments.
- You are as excited as we are, we can just tell!
Some context: The Politburo approved the regulations at its monthly meeting in lateSeptember.
More context: The Central Committee is a body of 204 senior CCP cadres. It is nominally the Party’s most powerful organ, though in practice it is outranked by the Politburo and its Standing Committee.
The regulations demand obedience to the Central Committee at all levels of society (Xinhua):
- “People’s congresses, governments, people’s political consultative conferences, supervisory organs, judicial organs and procuratorate organs at all levels, the armed forces, all democratic parties and persons without party affiliation…enterprises and institutions and social organizations must…accept the leadership of the Party Central Committee.”
And no points for guessing who sets the agenda for the Central Committee:
- The regulations stipulate that the CCP General Secretary (aka Xi Jinping) will determine work priorities for the Politburo, the Politburo Standing Committee, and the Party’s policymaking bodies.
Get smart: Nothing new here, but this is the first time the Central Committee has codified its operational rules.
Get smarter: COVID-19 and a worsening external environment have helped Xi and co. tomake a compelling case for a stronger,more unified Party apparatus.
2. Data dump – trade
On Tuesday, China’s General Administration of Customs released trade data for September.
- China’s exports increased by 9.9% y/yin dollar terms, up slightly from 9.5% y/y growth in August, and broadly in line with expectations.
- China’s imports rose by 13.2% y/yin dollar terms, compared with a 2.1% y/y drop in August, and significantly above analysts’ expectations of 0.4% y/y growth.
- The trade surplus was down in September, coming in at USD 37 billion compared with USD 58.9 billion in August.
Export growth looks to be on shaky foundations.
In recent months, sales of Chinese goods abroad have benefited from:
- Soaring demand for medical gear and work-from-home equipment.
- China’s relative advantage over other exporting nations in re-opening production and logistics links post-COVID.
These are temporary phenomena.
- Moreover, broaddemand for Chinese goods doesn’t look robust given the resurgence of COVID-19 in key markets.
Meanwhile, wecaution against extrapolating from the surge in imports that the domestic economy is booming once again.
- Go deeper: For more details, check out theChina Markets Dispatch,our daily research and analysis for investors, where we take a deep dive andexplain the unusual import strength.
3. Journey to the South
Aaaaand he’s off!
On Monday, Xi Jinping began his highlyanticipated inspection tour of Guangdong province.
Why it’s a big deal: Xi’s visit corresponds with the 40th anniversary of Shenzhen’s establishment as a special economic zone.
- And given that it comes just ahead of the Party’sfifth plenum later this month,whatever Xi’s emphasizes on this trip will translate directly into high-level policy.
On the first day of his trip, Xi visited the city of Chaozhou where he:
- Toured historical and cultural landmarks in the city and emphasized the importance of cultural preservation
- Inspected facilities belonging to electronics manufacturer Chaozhou Sanhuan Group where he called for greater self-reliance and for boosting indigenous innovation
Xi also made time to address a crowd of adoring fans on a public street, saying (SCMP):
- “When we celebrate the 100th anniversary of the founding of the People’s Republic [in 2049], we will have built China into a much stronger and more beautiful country.”
Notably, the crowd was mask-less, an almost certainly stage-managed detail designed to underscore China’s victory over COVID-19.
Get smart: Xi will save the real meat of his policy vision for his visit to Shenzhen on Wednesday, but his remarks in Chaozhou – especially on self-reliance – are worth paying attention to.
4. Shenzhen gets experimental
On Sunday, the CCP Central Committee and the State Council jointly released a new implementation plan outlining experimental reforms to be rolled out in Shenzhen between 2020 and 2025.
Some context: The State Councildesignated Shenzhen as a socialist demonstration pilot area in August 2019 (see the August 19, 2019 Tip Sheet).
- Sunday’s plan further outlines what that will mean in practice.
The implementation plan outlined several guiding principles including:
- Giving full play to the decisive role of the market
- Giving adequate space to policy experimentation
- Promoting reform in a systematic and step-by-step manner
Planned reforms include:
- Liberalizing the household registration (hukou) system
- Optimizing market access for private equity funds and venture capital firms
- Continuing closed pilot tests of the digital RMB
- Establishing a data trading market
- Relaxing market access in the energy, telecommunications, public utilities, transportation, and education sectors
- Relaxing restrictions on foreign investment in cutting edge technology
- Establishing a system for attracting internationally competitive talent
Get smart: The plan is characteristically light on details as to how specifically it will achieve these laudable goals.
Get smarter: The plan coincides with the 40th anniversary of Shenzhen’s establishment as a special economic zone and comes on the eve of a landmark visit by Xi Jinping who is expected to tout continued reform and opening (see previous entry).
5. Li Keqiang is staying positive
On Monday, Premier Li Keqiang held a symposium on the economy.
In attendance were Li’s State Council colleagues and the governors of Liaoning, Jiangsu, Fujian, Jiangxi, and Shaanxi who attended via video link.
Some context: Liholds biannual group meetings with provincial governors to talk about the local economy.
First, Li decided that a little backslapping was in order (Gov.cn):
- “It is [remarkable] that the Chinese economy has maintained basic fundamentals, and presented steady resumption and growing momentum.”
Then Li had an important ask for local leaders:
- Secure positive economic growth for the year.
To achieve this, Li wants to see a few key policy programs implemented in Q4, including:
- Tax and fee cuts for businesses
- Business environment optimization
- Stabilizing foreign trade and investment
- Maintaining the stability of industrial chains and supply chains
- Extending inclusive finance to more small and medium businesses as well as industries facing difficulty
- Promoting investments in key areas like ecological and environmental protection and critical technologies
Get smart: Getting China’s economy into positive growth territory this year should be achievable. The problem is that, so far, the recovery looks uneven and unsustainable.
6. COVID infections detected in Qingdao hospital
It was bound to happen sooner or later…
On Sunday, three asymptomatic cases of COVID-19 were identified in Qingdao, all of which were linked to a local hospital.
- Two of these asymptomatic cases developed into confirmed, symptomatic cases on October 12.
And that’s not all. As of today:
- Nine additional positive cases were detected through contact tracing, fourof which were symptomatic
- Qingdao designated the community where the hospital is located as a medium-risk area
Some context: These are mainland China’s first confirmed domestic cases in nine weeks.
The good news: No further infections were found after authorities conducted 1.1 million tests on Qingdao residents.
- But just to be safe, Qingdao authorities plan to test all of its nine million residents within five days.
As a precaution, several other cities have imposed screening and quarantine measures on visitors from Qingdao and have advised residents not to travel to Qingdao.
Get smart: The testing results indicate the situation isunder control, thanks to speedy contact tracing and widespreadtesting.
What to watch: With millions of travelers having just returned from home from their various jaunts during the National Day holiday, it’s possible that other outbreaks may emerge in the coming days.