finance economics
1. Data dump – November econ data
China’s stats bureau dropped the monthly econ data for November on Tuesday morning.
The headlines:
- Retail sales rose by 5.0%, up from 4.3% y/y growth in October.
- Fixed asset investment increased by 2.6% y/y in the first 11 months of the year, up from 1.8% growth in the Jan-Oct period.
- Value-added output at industrial firms rose 7.0% y/y last month, versus 6.9% growth in October.
China now looks to be firing on all cylinders.
- Both the production and consumption sides of the economy are now picking up steam.
We have some reservations, however.
On the production and investment side of things, growth continues to be heavily weighted towards real estate.
- Non-ferrous metals output hit a record high in November.
- Real estate investment jumped 11.5% y/y.
- Home sales were up 19.2% y/y.
But we are starting to see some shakiness around the outlook for property activity.
One worrying sign: New land sales dropped sharply last month.
- Land transactions were down 15.7% y/y in November.
But that’s not all:
- For more in-depth analysis of the numbers, paid subscribers can check out today’s China Markets Dispatch.
The bottom line: A real estate driven recovery is not sustainable given policymakers’ shift to a more risk-averse policy stance toward the sector.
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NBS: 2020年1—11月份全国固定资产投资（不含农户）增长2.6%
NBS: 2020年1—11月份全国房地产开发投资和销售情况
2. Who ya gonna call? Trust busters!
On Monday, we told you that the Politburo called for stronger antitrust enforcement to curb “the disorderly expansion of capital” (see yesterday’s Tip Sheet).
Without missing a beat, the State Administration for Market Regulation (SAMR) went after Alibaba Group on Monday, fining the one-time national darling RMB 500,000.
The reason: Failure to seek regulatory approval before increasing its ownership stake in a department store chain in 2017.
Other big tech companies and their subsidiaries also felt SAMR’s wrath over improper mergers or acquisitions, including:
- China Literature, a subsidiary of Tencent
- Hive Box, a subsidiary of SF Express
- Video game streaming service Douyu and publisher Huya
SAMR explained the crackdown’s rationale (Caixin):
- “The above-mentioned companies have a large influence in the industry, carry out many investments and takeovers, have specialized legal teams and should be familiar with the regulations governing MA.”
- “Their failure to actively declare has a relatively severe impact.”
Get smart: Big Chinese tech companies are facing a regulatory reckoning. Beijing wants them to understand that nobody is above the Anti-Monopoly Law.
Get smarter: Expect stronger regulatory enforcement aimed at bringing large private firms into line in the next several months.
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Caixin: In Sign of Deepening Scrutiny, Major Private Firms’ Knuckles Rapped Over Acquisitions
Caijing: 丰巢回应遭反垄断处罚：已收到通知，积极落实
politics policy
3. (Long, weary CAI)
On Friday, Chinese and European negotiators concluded the 35th round of negotiations for the Comprehensive Agreement on Investment (CAI).
Some context: Both Xi Jinping and German Chancellor Angela Merkel said they would get the deal done by the end of 2020.
Reality check: That goal looks unlikely.
Still, Beijing tried to put a positive spin on the latest round of talks (SCMP):
- “According to a brief statement posted by China’s Ministry of Commerce on Monday, the two sides made positive progress on the text of the treaty and the remaining problems.”
EU ambassador to China Nicolas Chapuis was a little more circumspect:
- “The negotiations will continue this week.”
- “We are committed to the end-of-the-year deadline but prioritise substance over speed.”
- “More efforts are still needed to push the remaining issues over the finishing line.”
Get smart: It’s not impossible that CAI gets signed by the end of the year, but with tense Brexit negotiations also ongoing, EU trade officials already have plenty to keep them busy.
Get smarter: Chinese negotiators want to get the CAI done fast. Their European interlocutors want to get it done right (for them, that is).
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SCMP: EU and China set for further investment talks as end-of-year deadline for deal looms
4. The age of retirement upheaval is upon us
On Monday, state-owned news agency Xinhua issued an article addressing key public concerns about an upcoming rise in the retirement age.
- Recall that in the Party’s recommendations for the 14th Five-Year Plan, raising the retirement age was explicitly mentioned (see December 2 Tip Sheet).
- But that’s not exactly a popular policy, so officials are looking to do some messaging.
Still, according to Zheng Bingwen, director at the Center for International Social Security Studies under the state-backed Chinese Academy of Social Sciences, the rollout of the new policy is imminent (Xinhua):
- “The Party’s recommendations to the 14th Five-Year Plan emphasized implementation.”
- “Raising the statutory retirement age is the irreversible trend.”
That underscores the renewed political will behind the policy.
Some context: Since the Fifth Plenum in October, state media and policy advisors have been beating the drum for upping the retirement age from 55 (see December 2 Tip Sheet).
More context: As it turns out, policymakers had previously been far behind schedule in rolling out the policy.
- The original plan was to solicit public comments on the policy in 2017 and kick it off in 2021.
- But the policy draft was never made public.
That’s probably because Chinese leaders know the public isn’t exactly jazzed about the move.
- But now things look set to change, as the aging population problem has become more pressing.
Get smart: Articles like the Xinhua piece are a way of testing the public’s response and managing their expectations, while laying the groundwork for a policy roll out.
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Xinhua: 何时改？怎样动？——聚焦延迟退休六大焦点
5. Tax bureau official urges more tax cuts
On Monday, Fu Guangjun, deputy director of the academic committee of the State Taxation Administration’s (STA) tax office, spoke about tax policies at an economic forum.
Fu’s message: Low taxes are good for the economy.
To this end, Fu said the STA has been working hard to cut taxes, already managing a tax reduction of:
- RMB 934.8 billion in 2016
- RMB 765.5 billion in 2017
- RMB 995.2 billion in 2018
- RMB 2.3 trillion in 2019
The STA also projects a record tax reduction of RMB 2.5 trillion in 2020.
Fu said low taxes have led to:
- Stable employment
- More startups
- More corporate investment
- Higher business confidence
But not everyone agrees with this approach (China.com.cn):
- “Some scholars say there is no room for tax cuts [in 2021].”
Still, Fu’s not overly worried:
- ”I personally think we should continue to lower taxes and cut fees next year.”
Get smart: With China’s fiscal policy firing blanks this year, fiscal doves are having a hard time getting their voices heard.
Get smarter: Despite Fu’s plea, we agree with the current conventional wisdom – the room to cut taxes will be limited next year.
- Still, it’s important to note that the debate is ongoing, as policies for 2021 will be hashed out and finalized in the next few months.
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China.com.cn: 2021年《经济蓝皮书》发布会暨中国经济形势报告会