driving the day
1. A dish best served perfunctorily
On Wednesday, we told you about Beijing’s angry response to Washington’s decision to sanction 14 members of China’s legislature for passing the Hong Kong national security law (see December 9, Tip Sheet).
Now, China’s developed a diabolical scheme to wreak a terrible revenge on the US.
- American diplomats will now need to apply for a visa to visit Hong Kong or Macau as a tourist.
Some context: Until now, US citizens – including diplomatic passport holders – could visit both special administrative regions for tourism purposes visa free.
So yeah…that’s it.
China’s retaliation also included a withering lecture from foreign ministry spokesperson Hua Chunying (MoFA):
- “As the U.S. side exploits issues relating to Hong Kong to gravely interfere in China’s internal affairs and harm China’s core interests, the Chinese side [has decided] to impose reciprocal sanctions on U.S. officials…who act egregiously…on Hong Kong-related issues.”
Get smart: Chinese officials feel the need to respond to high-profile US sanctions but are also desperate not to ratchet up tensions in the final turbulent weeks of the Trump presidency.
Get smarter: Despite the harsh rhetoric, top leaders would much prefer a reset with the US over continued conflict.
2. Finance officials warn over local government debt
Current and former Ministry of Finance (MoF) officials sounded off about the risks posed by rising local government debt at a forum on Tuesday.
Xue Xiaogan, deputy director of MoF’s Government Debt Research and Evaluation Center said that outstanding local government debt would reach RMB 26 trillion by the end of 2020.
- That’s up from RMB 21.3 trillion at the end of 2019 and RMB 16.5 trillion in 2017.
Xue said that localities were overstretched (Caixin 1):
- “The overall ratio of outstanding debt to local governments’ [financial resources]…is now approaching 100%.”
- He also warned that special purpose bonds (SPBs) needed to be brought under control to reduce risk and avoid governments becoming dependent on them.
Former Vice Minister of Finance Zhang Hongli echoed Xue’s concerns, warning of a worrying cycle:
- “92% of the 310 billion yuan of SPBs that matured in the first eight months of 2020 were repaid using money raised from the sale of new SPBs.”
- He called for local governments’ revenue streams and expenditure responsibilities to be better balanced.
Get smart: Beijing has leaned hard on local governments to provide support for the economy while also slashing tax and fee revenue that they depend on, effectively asking localities to do more with less.
3. Hong Kong gets mainland audit papers
On Friday, the Ministry of Finance handed over the audit working papers of seven Hong Kong-listed Chinese companies to the Financial Reporting Council (FRC), the city’s auditing watchdog.
- The papers were transferred after mainland authorities confirmed they didn’t contain state secrets.
- Another four sets of papers will be transferred soon.
Some context: Hong Kong and the US have long tried to access the audit working papers of Chinese companies listed in their jurisdictions that have been accused of fraud.
- But China treats audit papers as state secrets and rarely shares them.
FRC Chairman Kelvin Wong Tin-yau hailed the move as a positive step (SCMP):
- “This is a landmark moment for cross-border cooperation in the investigation of auditing irregularities.”
More context: Last week, US Congress passed a bill stipulating that any foreign company that fails to comply with audit oversight rules for three years will be delisted.
- The news prompted US-listed Chinese companies to scramble to secure backup listings.
Get smart: Beijing could prevent a cull of Chinese listcos in the US by sharing auditing information with American regulators.
4. Han Zheng calls for high-quality development along Yellow River
On Wednesday, Executive Vice Premier Han Zheng presided over a meeting of the leading group for promoting ecological protection and high-quality development along the Yellow River.
Han’s message: The management of water resources is the overriding consideration in the development of the Yellow River basin.
Some context: Xi Jinping highlighted the importance of water supply in 2019 where he called for better use of water resources and for officials to address water demand issues.
Han emphasized eight tasks ahead:
- Ecological restoration
- Integrated management of natural resources
- Improving water quality
- Environmental pollution management
- Centralized flood control and prevention
- Enhanced disaster resilience
- Water resource conservation
- Promoting high-quality development in urban clusters along the Yellow River
Get smart: None of these suggestions are new.
Get smarter: The Chinese leadership do not see environmental protection as necessarily in conflict with economic growth.
5. Wang Yi calls Kiwi counterpart
On Thursday, Foreign Minister Wang Yi called New Zealand’s newly-appointed Foreign Minister Nanaia Mahuta.
Wang praised relations between the two countries (Xinhua 1):
- “[China-New Zealand relations are] a model of mutually beneficial cooperation between countries with different social systems, development stages, and volumes of economy.”
Some context: New Zealand has worked hard to balance its relations with its Western allies and with China, its major trading partner.
Wang was keen to make the good relations even better.
- He called for both sides to upgrade their economic ties by signing the free trade agreement upgrade protocol.
- Wang also said he hoped New Zealand would provide an open, fair and non-discriminatory business environment for Chinese companies.
Mahuta returned Wang’s energy, indicating New Zealand’s interest in:
- Participating in the Belt and Road
- Cooperating on matters related to Pacific islands
- Cooperating on vaccine research and development
Get smart: Given the broader context, this whole call reads like a not so subtle jab at New Zealand neighbor and thorn-in-China’s side, Australia.
- That’s not by accident.
6. The crossroads of data and accounting
On December 9, the government-led research institute China Academy of Information and Communications Technology (CAICT) released a research report on data assets and accounting measures.
Some context: In April, the CCP Central Committee and the State Council issued opinions on promoting the market-based allocation of factors of production – including data and land resources (see April 10 Tip Sheet).
Translation: We need a way to put a price tag on data and trade data.
This is no easy task (CAICT):
- “As of May 2020, only 84 A-share companies, less than 3% of the total, have realized the capitalization of data.”
The big problem: Current accounting methods don’t count data as an asset.
- “[After factoring in data] there is a huge difference between the book value and actual value of a company.”
To solve this issue, the report recommends a revision of current accounting laws:
- “[Laws] should create a catalogue of data assets and explicitly require companies to record data assets in their accounting statements.”
Get smart: Today’s recommendations from state research institutes often transform into tomorrow’s policy pronouncements.
The bigger picture: Accounting rules are one piece of the giant puzzle that Beijing needs to develop a data market regulatory framework.