finance economics
1. SPBs on a slippery slope
On Tuesday, former minister of finance Lou Jiwei raised some doubts about prevailing fiscal policies at a seminar in Ningbo.
His message: Cut down on special purpose bonds (SPBs) issuance.
Some context: SPBs – which are used to fund infrastructure projects and whose issuance has reached record highs this year – account for nearly 80% of the 2020 local government bond quota.
But there’s a problem: Their stimulatory power has become increasingly muted (see October 14 Tip Sheet).
Lou says it’s time to make a strategic pivot (21st Century Biz):
- “[We should] increase spending on healthcare, education, erderly care, childcare, and other facilities that improve people’s livelihood.”
- “These public welfare investments mostly are not included among SPB projects.“
- “[We should] consider funding some of these investments using local government general bonds.”
Xue Xiaoqian, deputy director of a Ministry of Finance affiliated think tank, echoed Lou’s views at the same seminar:
- “After the economy recovers , the size of SPB [issuance] should be [gradually reduced].”
- “[We should] avoid the risks associated with accumulating persistent debts.”
Get smart: The days of large-scale SPB issuance are numbered.
The big question: What will replace the void created by the exit of SPBs from the scene?
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21st Century Biz 1: 楼继伟：未来要提高一般债占比，降低专项债占比（附实录）
21st Century Biz 2: 财政部薛虓乾：在宏观经济好转后，专项债规模要逐步“退坡”
2. Goldman Sachs applies to own 100% of securities JV
On Tuesday, financial media reported that Goldman Sachs Group applied to Chinese regulators to take full control of its China securities JV, Goldman Sachs Gao Hua.
- Regulatory approval would make Goldman the first foreign financial institution to take full control of its China securities JV.
The deets: Goldman has reportedly already signed an agreement with its JV partner of 17 year, Beijing Gao Hua Securities, to purchase the 49% of the venture that it doesn’t already own.
Some context: In August 2019, the Wall Street bank applied to increase its share in Goldman Sachs Gao Hua from 33% to 51%. It received approval in March.
A memo released by Goldman hailed the development (Nikkei):
- “One hundred percent ownership of our franchise on the mainland represents a significant commitment to and investment in China.”
Get smart: Foreign financial institutions are champing at the bit to gain full control of their China JVs. Goldman may be the first to gain a 100% stake in its China securities business, but it won’t be the last.
Get smarter: Regulators are hopeful that the entry of foreign competitors will force domestic financial institutions to up their game.
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Nikkei: Goldman Sachs seeks full ownership of China securities venture
Bloomberg: Goldman Sachs Racing to Be First With 100% of China Venture
21st Century Biz: 外资独资券商跃跃欲试 高盛已启动全资控股高盛高华收购程序
politics policy
3. US sanctions provoke angry response
The fun never stops in the wonderful world of the US-China recrimination whirlpool.
On Monday, the US State Department announced a new batch of sanctions against 14 members of China’s legislature (NPC) for their role in passing the Hong Kong national security law.
- The sanctions institute an asset freeze and US travel ban on the named legislators.
Targets of US ire include:
- NPC Vice Chairman and Politburo member Wang Chen
- Chief Prosecutor of the Supreme People‘s Procuratorate Cao Jianming
Beijing has ignored the provocation.
- Just kidding.
Vice Foreign Minister Zheng Zeguang summoned US Chargé d’Affaires Robert Forden for a meeting, where Zheng said (Xinhua):
- “The US side, under the pretext of safeguarding Hong Kong’s democracy…has intervened in Hong Kong affairs [and] encouraged and supported illegal and criminal activities that split the country and disrupted social order.”
Foreign ministry spokesperson Hua Chunying also had some choice words saying (MoFA):
- “The Chinese government and people express strong indignation to and strongly condemn the outrageous, unscrupulous, crazy and vile act of the U.S. side.”
Get smart: Having high-ranking officials subject to US sanctions looks bad. Beijing feels it has no choice but to strongly condemn the action.
Get smarter: Despite the bluster, US sanctions against Chinese officials have little to no practical impact.
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U.S. Department of STATE: Designations of National People’s Congress Officials Undermining the Autonomy of Hong Kong
SCMP: US sanctions Chinese legislators for national security law on Hong Kong
Xinhua: 外交部副部长郑泽光召见美国驻华使馆临时代办对美方制裁我全国人大常委会副委员长提出严正抗议、予以强烈谴责
MoFA: Foreign Ministry Spokesperson Hua Chunying’s Regular Press Conference on December 8, 2020
4. Who is more authoritative?
On Wednesday, Study Times, a publication of the Central Party School, published an editorial by Secretary-general of the Central Political and Legal Affairs Commission Chen Yixin.
The topic: Xi Jinping Thought on the Rule of Law.
Some context: Studying Xi’s musings on the rule of law has become mandatory for all officials since the big man himself chaired the first ever central work conference on overall law-based governance last month (see November 8 Tip Sheet).
Chen posed an interesting (and politically fraught) philosophical question:
- Which is more authoritative: The Party or the law?
Chen offered a *ahem* sensible answer:
- “[We need to have] a deep understanding that [question of whether the] Party or the law is more authoritative, is a political trap and a false proposition.”
- “The leadership of the Party…is the biggest difference between the rule of law in our country and that in Western capitalist countries.”
Get smart: Xi said exactly the same thing to officials in 2015.
Get smarter: The system that Chen describes, whereby the Party presides over a coherent system of laws but is not itself subject to independent judicial oversight, is more accurately termed rule by law rather than rule of law.
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Paper.cn: 学深悟透习近平法治思想加快推进全面依法治国
5. Chengdu heads toward bigger outbreak
A local COVID-19 outbreak originating in Chengdu, Sichuan has continued to spread.
Authorities have reported (Chengdu HC):
- Two domestically transmitted confirmed COVID-19 cases on Monday.
- Four domestically transmitted confirmed cases and one asymptomatic case on Tuesday.
Chengdu authorities have taken quick and decisive actions, including:
- Locking down infected communities and hospitals
- Raising the risk-profile for affected areas
- Testing more than 25,000 people in affected localities
- Limiting the occupancy rate at recreational venues to 75% of maximum capacity
Some context: While the source of the infection is still unknown, one of the cases identified on Tuesday has a worrying travel history, having:
- Crossed the city multiples times via public transportation
- Visited four bars in the 48 hours prior to her diagnosis
Adding insult to injury: The case’s personal information, home address, and cell phone number have been leaked online, together with her travel history.
- Since then, she says she has been inundated with calls from strangers.
Get smart: Given the above case’s wide travel history and the fact that the other confirmed cases came from other areas of Chengdu, the outbreak may be set to spread further.
Get smarter: The leak has led to heated debate about data privacy in China’s blogosphere.
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Chengdu HC : 12月8日成都市新增4例新冠肺炎确诊病例和1名无症状感染者
Paper.cn 1: 成都郫都区完成5个风控地区核酸采样工作，共采集近2万例样本
Paper.cn 2: 成都郫都区教育局：中风险区域学校教职员工、学生全部居家隔离
Paper.cn 3: 成都娱乐行业下发紧急通知，各场所消费人数不超过75%
21st Century Biz: 成都确诊女生发声：信息遭泄露1分钟6个来电，此前在酒吧工作不知奶奶确诊