China’s consumer is MIA
It’s that time again: China’s stats bureau published the Q3 GDP results this morning.
The upshot? Meh.
- China’s GDP increased 4.9% y/y in real terms in Q3.
- That’s better than 3.2% in Q2 but was below expectations of 5.5% y/y growth.
Both in real and nominal terms, the economy is still not back up to 2019 levels of growth.
- Nominal growth was 5.5% y/y in Q3.
- That was up from 3.1% in Q2 but still some way below 7.4% in Q4 2019.
The reason is clear from the stats:
- The contribution of consumption to GDP growth was around half what it normally is in Q3.
Go deeper: For more in-depth analysis of the numbers, check out today’s (and everyday’s!) China Markets Dispatch.
2. Circles for circulation
Last Friday, the Politburo convened to go over a plan to build two economic “circles” encompassing the western cities of Chengdu and Chongqing.
Some context: Xi and co. originally floated the idea of these economic circles back in January with the aim of transforming Chongqing and Chengdu into an influential regional economic hub and a testing ground for economic reform and opening (see January 6 Tip Sheet).
But the regional development strategy has a new twist. Policymakers want the region to focus on bringing the dual circulation strategy (DCS) to life (Xinhua):
- “Thetwin-city economic circles in the Chengdu-Chongqing region…are conducive to expanding markets, optimizing and stabilizing the industrial supply chain, and are an important measure to build a new development pattern for [DCS].”
A quick refresher: DCS aims to make the economy more resilient to external shocks by making domestic demand the main driver of the economy.
Get smart: Better regional integration should help to improve investment flows and boost consumer demand.
The big picture: This marks the fourth regional development plan launched during Xi’s tenure, and the first in western China. The other three are the Beijing-Tianjin-Hebei (Jing-Jin-Ji) region, the Greater Bay Area, and Yangtze River Delta region.
3. Shenzhen unleashed
Organs of state are already getting down to work:
- On Sunday, the National Development Reform Commission (NDRC) released an “authorization list” of pilot reforms to be carried out in Shenzhen.
Some context: In a high-level five-year plan released last week, Beijing promised to give Shenzhen more leeway to implement pilot programs via an “authorization list” (see October 13 Tip Sheet).
The list includes reforms related to:
- Market-based allocation of production factors (see April 10 Tip Sheet)
- Technological innovation
- Financial opening
- Public services
- The environment and ecological civilization
Improving the business environment is also a priority.
Shenzhen will be granted with more autonomy to:
- Reform bankruptcy procedures
- Refine rules on intellectual property rights for digital assets
- Pursue innovationin such fields as artificial intelligence, autonomous vehicles, big data, and biotech
Get smart: Beijing wants Shenzhen to be its economic reform laboratory again. Expect more authorization lists to be rolled out soon.
By the by: There were also a number of capital market reforms on the list. We cover those in the China Markets Dispatch.
4. Quantum leaps and bounds
We’re reaching levels of RD that shouldn’t even be possible.
On Friday, Xi Jinping stressed the urgency of advancing China’s quantum science and technology development during a group study session with the Politburo.
Some context: Mastery of quantum technology promises to exponentially increase computing speeds, potentially giving China a significant technological edge.
Xi emphasized the importance of quantum tech (Xinhua 2):
- “The development of quantum science and technology is of great scientific significance and strategic value.”
- “It is a major disruptive technological innovation that…will lead a new round of sci-tech revolution and industrial transformation.”
Unsurprisingly, Xi envisions the state leading the RD charge:
- “Xi…stressed the importance of strengthening strategic planning and systematic layout for the development of quantum science and technology.”
Equally unsurprisingly, there’s a security dimension to China’s push for quantum development, with Xi calling for efforts to:
- “Enhance China’s ability of responding to international risks and challenges with science and technology.”
Get smart: Beijing hopes that by going all-in on powerful emerging technologies, China will be able to leapfrog the US in terms of technological supremacy – and supercharge the domestic economy to boot.
Get smarter: Add thisto the growing list of tech battlefields in the US-China rivalry.
5. At a crossroads
During his landmark speech last week, Xi Jinping stated his conviction that Shenzhen had flourished as a result of the Party’s benevolent guidance (see October 14 Tip Sheet).
But one retired Shenzhen Party leader is not so sure.
Li Youwei, former Shenzhen Party secretary, challenged Xi’s narrative in an article published in both the Hong Kong and mainland press.
Some context: Li knew Xi’s father well from his tenure as Shenzhen’s top Party official between 1993 and 1998, when the elder Xi lived in Shenzhen.
Li argued for less state direction and equal protection for private business (Wen Wei Po via ESSRA):
- “Should the private economy be treated equally to the state-owned economy?”
- “Or [should it be treated as] inferior to the state-owned economy, which is relatively common practice among local government officials?”
Li said a worsening external environment made equality between private and state-owned enterprises all the more urgent (Beijing News):
- “At this critical moment, the most important thing is to win the hearts of entrepreneurs, so that they feel that their personal safety and property rights are guaranteed by the government and laws.”
Get smart: Xi has overhauled some aspects of China’s system to better protect private businesses, but the tension between the private and state-owned sectors runs deep.
6. China’s big, fat export control law
On Saturday, the National People’s Congress Standing Committee approved China’s Export Control Law.
- The law will take effect on December 1, 2020.
The final version covers all three of the likely changes we flagged last week (see October 15 Tip Sheet).
Under the revised law (Gov.cn):
- China can take countermeasures against foreign countries that it believes have abused their export control measures to harm China’s interests.
- Violators could be subject to criminal, rather than administrative, penalties.
- The final version expanded the law’s remit by adding “data including technical information” to the list, which effectively covers algorithms and source code.
And in a move likely to befuddle the foreign business community, the final version widens the scope of the law’s stated purpose from “safeguarding national security” to “safeguarding national security and interests.”
Get smart: The law’s revised language gives the state broad (and imprecise) interpretive latitude. Foreign businesses won’t be thrilled.
Get smarter: Beijing wants to use the law as a not-so-secret weapon to fight back against the US or other countries if necessary.