driving the day
1. A patriotic fervor
Xi Jinping isn’tstopping his efforts to rally popular support behindChina’scurrent geopolitical struggle (see Tuesday’s Tip Sheet).
On Friday morning, Xi delivered an address to commemorate the 70th anniversary of China’s participation in the Korean War.
It’s clear Xi is speaking not just to a domestic audience but to the world, as well, when he says (Xinhua):
- “In today’s world, any unilateralism, protectionism, and extreme egoism are absolutely unworkable!”
- “Blackmailing, blockading, and extreme pressure tactics are totally unworkable!”
- “Any hegemonic or bullying behavior will simply not work!”
- “Not only will these approaches fail, but they will also be a dead end!
We wonder who he is referring to…?
Xi also said the Chinese people won’t back down.
- “We will never sit back and allowdamage to national sovereignty, security, and development interests, and will never allow anyone or any force to invade and divide the sacred territory of the motherland.”
- “If such a serious situation occurs, the Chinese people will surely attack it head-on!”
Get smart: This sort of nationalist rhetoric can certainly whip up a patriotic fervor.
Get smarter: Nationalism cuts both ways. It may win support for Xi’s agenda, but it also ties his hands in the event of a necessary compromise.
- Still, he’s clearly fanning the flames.
2. MoF releases data on local government bond issuance
On Wednesday, the Ministry of Finance (MoF) dropped the latest data on local government bond issuance.
A refresher: Local governments have been using special purpose bonds (SPBs) as a primary source of fiscal stimulus. The annual quota for SPBs this year is RMB 3.75 trillion, with RMB 200 billion set aside for recapitalizing small local banks.
Here is the latest data on SPBs:
- From Jan-Sep, local governments issued RMB 3.37 trillion worth of SPBs – around 95% of the quota.
- Some RMB 2.8 trillion of funds raised havebeen allocated to infrastructure projects.
The problem: This deluge of bond issuance isn’t showing up in the infrastructure investment data, so it’s not clear all the money is going to good use (surprise!).
But something else caught our eye, as well:
- From Jan-Sep, local governments issued RMB 1.37 trillion in refinancing bonds, which are only used for paying back old debts.
In just nine months, that figure has already exceeded last year’s total of RMB 1.14 trillion.
- The quota for refinancing bonds this year is set at around RMB 1.84 trillion.
Get smart: Local governments were already in a bad fiscal shape before this year’s glut of SPBs. The pressure for them to find good investment projects – with repayment potential – is high and rising.
3. It’s that time of the (five) year.
On Thursday, the Politburo Standing Committee met to discuss outcomes of the 13th Five-Year Plan (FYP).
- It was a huge success.
Some context: As the year nears its end, just about every state and party organ is meeting or reporting on how the 13th FYP went. We watch these closely for clues about the forthcoming 14th FYP.
OK, so they just declared victory? Not quite.
- The meeting’s readout acknowledged the pandemic posed a huge challenge to hitting some FYP targets.
- It urged policymakers to finish out the year strong, particularly regarding the “three critical battles,” i.e. poverty alleviation, pollution control, and financial de-risking.
They also offered some “profound realizations” as guidance for policymakers in the 14th FYP period, calling on them to:
- Understand the new requirements resulting from contradictions and changes in society
- Understand the challenges posed by the “complex” international environment
- Recognize that China is entering a new stage of development
The bottom line: If any big moves are to be made in the 14th FYP, top leadersare so far holdingtheir cardsclose to their chest.
4. A private debut
Hurray! We’ve finally gotten a peek at China’s long-awaited draft Personal Information Protection Law.
- On Wednesday, the National People’s Congress Standing Committee released it for public comment.
Some context: This new Law will join the Cybersecurity Law (passed in 2017) and the Data Security Law (currently under revision) in shaping a complete legal framework for data governance in China.
The Law aims to address a problem that close to a billion Chinese internet users are extremely familiar with: the unavoidable collection of personal information by every app and platform.
- It mandates better opt-out options that go beyond “check yes to accept.”
As expected, the draft Law constrains international businesses by repeating:
- Critical information infrastructure operators that process personal information up to a certain threshold must store information in China or pass a security assessment from the state cybersecurity regulator.
It also includes a vague but ominous threat on countermeasures:
- China can take countermeasures against foreign countries that it believes have adopted discriminatory prohibitions or restrictions against China regarding the protection of personal information.
Get smart: The threat of countermeasures is a result of a deteriorating external environment –specifically, recent US actions against Chinese apps.
Get smarter: There’s an awful lot left up to interpretation on what constitutes “discriminatory actions,”let alone countermeasures.
5. Sino-Swedish ties to be tested by 5G
On Tuesday, Sweden – the jewel of Scandinavia – banned Huawei and ZTE from participating in the buildout of its domestic 5G network, citing security concerns.
Some context: Sweden is the latest in a growing list of countries to exclude the Chinese telecom giant. The list also includes the US, Australia, the UK, and France.
The Swedish ban was expected, but its blunt references to Huawei and China came as a surprise.
- Both the UK and France have worded their bans with polite vagueness.
Unsurprisingly, pushback from China was swift.
On Wednesday, China’s ambassador to Sweden, Gui Congyou, slammed the decision (The Paper):
- “Sweden’s decision is an abuse of the ‘national security concept.’”
And foreign ministry spokesperson Zhao Lijian said there might be consequences (MoFA):
- “Sweden should…correct its wrongful decision, so as to avoid negative impacts on China-Sweden economic and trade cooperation and Swedish enterprises’ operation in China.”
Get smart: Swedish telecom giant Ericsson has contracts with all of China’s big three telecom operators and is a prime target for Chinese retaliation.
Get smarter: China might not be willing to push too hard against the US or the UK, but it may be willing to test its luck against a smaller country.