1. Canary in the coal mine
Last week, Yongcheng Coal and Electricity Holding Group Co., a Henan provincial SOE, sent the bond market into a tizzy when it defaulted on a RMB 1 billion bond.
Things continue to look grim for the beleaguered firm.
According to 21st Century Biz, Yongcheng met its bondholders on Thursday to discuss extending the bond for 270 days after which the principal would be paid in full.
- Some of the bondholders refused and demanded at least some of their principal now in return for an extension on the remainder.
- Yongcheng didn’t respond to their suggestion.
Things might get a whole lot worse: Without an extension the cross-default clauses on Yongcheng’s other bonds will be triggered.
- Yongcheng and its parent company have RMB 26.5 billion worth of outstanding bonds with such clauses.
Get smart: A default of that magnitude would be a game changer.
What to watch: Henan provincial authorities have declined to intervene so far, but if Yongcheng’s defaults were to balloon suddenly, we imagine Henan will feel compelled to show the market it stands behind its firms.
Why that matters: SOEs will not become more efficient if they know that the government will always step in to clean up their messes.
2. One law to rule them all
On Wednesday, National People’s Congress chairman Li Zhanshu wrapped up a three day inspection tour to Shanxi.
His message: Policymakers everywhere need to get to work implementing Xi Jinping Thought on the Rule of Law.
Some context: Xi Jinping Thought on the Rule of Law is having a big week.
- First, Xi’s ideas on law-based governance were highlighted in Qiushi, the Party’s top journal (see the November 17 Tip Sheet).
- The framework was also front and center at the first ever central work conference on overall law-based governance (see the November 18 Tip Sheet).
In Shanxi, Li reminded his fellow legislators to do their duty as representatives (CCTV):
- “Use systems, mechanisms, and platforms to stay in touch with the masses, [and] unblock channels for people to express their wishes and make suggestions.”
More context: Shanxi was ground zero for the anti-corruption campaign during Xi Jinping’s first term (see June 23, 2017 Tip Sheet).
- The province has since turned a corner, piloting strict anti-corruption supervision mechanisms while transitioning away from its previously coal-dominated economy.
Get smart: Li chose Shanxi for a reason – it demonstrates that change is possible.
3. State Council pushes for fairer competition
On Thursday, the State Council approved the establishment of a ministerial joint conference system for fair competition.
The new system will (Gov.cn 2):
- Strengthen guidance on fair competition work
- Study and implement major policies
- Address pressing issues and illegal activities
- Encourage better cooperation and coordination between relevant departments
- Improve public awareness of fair competition laws, rules, and policies
Running the show: The State Administration for Market Regulation will be in charge of the system.
- 16 other ministries will also be involved.
Get smart: Over the past few years the government has been trying to create a better business environment that ensures fair competition.
Get smarter: The establishment of the new mechanism shows that central leaders are not satisfied with the results thus far.
4. Party like it’s 2035
On Thursday, People’s Daily published an article by Executive Vice Premier Han Zheng, laying out his thoughts on the Party’s 2035 vision.
Some context: We’ve already told you about Premier Li Keqiang’s article on the 14th Five-Year Plan (FYP) (see yesterday’s Tip Sheet).
- Spoiler alert – Han’s article isn’t much more interesting than Li’s was.
Han touched on a few all-too-familiar themes the Party hopes to address by 2035.
Specifically, he highlighted the challenges facing the tech sector (Gov.cn):
- “Innovation capacity does not meet our requirements for high-quality development.”
- “Many fields, like chips and basic components, are facing ‘choke point’ problems.”
- “In areas where tech development is facing external pressure and constraints, it is urgent to speed up the pace of innovation.”
He also emphasized quality growth over quantity growth:
- “[We must] realize a transition from economic development based on scale to [development] based on quality and efficiency improvements, and…from a big economy to a strong economy.”
Get smart: There haven’t been many surprises this policy cycle because top leadership is happy with their strategic direction. The challenge – as usual – lies in implementation.
5. Sinopharm vaccinates one million people
On Tuesday, Sinopharm revealed that nearly one million people had been given its COVID-19 vaccines, which are still under Phase III clinical trials.
According to Sinopharm Chairman Liu Jingzhen things have been going swimmingly (SCMP):
- “[T]he vaccines were applied to nearly a million people.”
- “[T]here has not been a single case of a serious adverse event.”
- “People have had only mild symptoms.”
Some context: China began administering COVID-19 vaccines on a limited basis back in July to protect high-risk populations such as frontline healthcare workers, public transportation workers, and people going overseas (see August 24 Tip Sheet).
Due to the lack of COVID-19 patients in China, Sinopharm is currently conducting Phase III clinical trials abroad to determine the effectiveness of the vaccines, including in:
Get smart: Conducting Phase III clinical trials abroad adds regulatory hurdles to the process, which delays the results.
Get smarter: China is in a competition with the world to develop the first effective vaccine, not only to protect its people and maintain economic momentum, but also to raise its international profile.