1. Help is on the way
On Thursday, the Ministry of Commerce along with the banking and insurance regulator released a statement saying China will help support some foreign companies struggling to access financing in the wake of the COVID-19 pandemic.
The deets (Bloomberg):
- “Businesses will have access to funds including 1.5 trillion yuan ($230 billion) in special re-lending and re-discounting quotas provided by the central bank, and 570 billion yuan in a new loan quota from Export-Import Bank of China.”
The statement included a list of sectors that may benefit from the support, including:
- Manufacturers of “special and general equipment”
- Electronic and communications equipment makers
- Medical equipment makers
- Chemicals and pharmaceuticals’ producers
- Automobile manufacturers
- Textile and garment companies
- Restaurants, hotels, and tourism companies
Some context: Back in August, the State Council also said that foreign firms were eligible for the RMB 1.5 trillion special re-lending and re-discounting quota.
What we’re wondering: Does this new statement suggest that local governments and banks didn’t get the message the first time?
Get smart: Foreign businesses bring much-needed investment into China, create jobs and pay taxes. They also often serve as links with export markets.
Get smarter: This is also about securing industrial supply chains. If certain foreign firms go under, it will threaten China’s supply of key components.
2. A CAI of relief
On Friday, media outlets reported that German Chancellor Angela Merkel and French President Emmanuel Macron had agreed “in principle” to a negotiated version of the EU-China Comprehensive Agreement on Investment (CAI).
Some context: Back in September, Xi Jinping and Merkel committed to signing the deal before the end of 2020, but recent rounds of negotiations yielded little progress (see September 15 Tip Sheet).
Now it seems negotiators have achieved a breakthrough (SCMP):
- “China is understood to have made concessions on sectors like financial services, manufacturing and real estate.”
- “In return, China secured the EU’s agreement to open up the renewable energy sector for Chinese investment.”
Having given the deal their preliminary stamp of approval, Merkel and co. will need to pitch the deal to the rest of the EU.
- “Germany, which currently holds the presidency of the EU Council, announced that [CAI] would be discussed among the 27 countries’ representatives to the bloc on Friday.”
Get smart: While the signing of CAI by the end of 2020 is still not guaranteed, the deal’s chances of being completed on time have improved significantly.
Get smarter: Fancy new investment deal or no, mistrust of Beijing in Europe remains high.
3. China looks to improve urban and suburban railways
On Thursday, the National Development and Reform Commission (NDRC) and three other ministerial-level bodies released guidelines for accelerating the construction of urban and suburban railways.
The idea: Build more railways to connect smaller towns and cities to nearby metropolitan areas.
A caveat: Authorities were clear that the initiative is NOT an excuse for local governments to build subway networks or light-rail projects.
The NDRC laid out some parameters for the new lines:
- Trips should take an hour or less.
- Trains should run between 100-160 km/h.
- Trains should run at least every 10 minutes during rush hours.
The project will focus on creating connections within urban clusters, such as:
- The Beijing-Tianjin-Hebei (Jing-Jin-Ji) area
- The Yangtze River Delta region
- The Greater Bay Area, which connects Guangdong, Hong Kong, and Macau
- The Chengdu-Chongqing economic circle
- Urban clusters in the middle reaches of the Yangtze River
Sounds like a good investment? Then we have good news:
- The government wants to attract private and foreign capital to invest in the construction and management of the railways.
Get smart: Improving the efficiency of rail transport can make living outside city centers more attractive, and thus reduce metropolitan overcrowding.
Get smarter: Large-scale infrastructure projects also boost employment and domestic demand.
4. PLA goes MIA
On Monday, the US and Chinese militaries participated virtually in the Military Maritime Consultative Agreement (MMCA), a three-day summit to discuss safety mechanisms.
At least that was the plan until the representatives of the People’s Liberation Army (PLA) failed to show up.
Some context: The MNCA has typically been held twice a year since 1998. According to US sources, this is the first time the PLA has been a no-show.
US Admiral Phil Davidson had some sharp words for his Chinese counterparts (SCMP):
- “[China’s] refusal to show up to MMCA is another example [showing] that China does not honour its agreements.”
- “This should serve as a reminder to all nations as they pursue agreements with China going forward.”
But PLA spokesperson Major Liu Wenshang wasn’t having it:
- “[T]he US side persisted in…arbitrarily compressing the length of the annual meeting…and even attempting to force China’s participation in the meeting when the two sides had not yet agreed on the topics.”
Get smart: This is bad news. Consultative meetings between the two militaries are designed to prevent accidents and misunderstandings from turning into armed clashes. Removing guard rails like the MNCA benefits nobody.
5. More tax breaks for chip makers
On Thursday, the Ministry of Finance and three other central agencies released a plan to cut corporate income tax for integrated circuit and software companies.
Some context: Integrated circuits and software are strategically important sectors that the central government has supported since 2000.
- In August, the State Council updated the support policies, granting such companies even more tax exemptions (see August 5 Tip Sheet).
- The support policies apply to all companies registered in China, including foreign-invested ones.
The new tax cuts are designed to get companies hustling:
- Firms that meet higher technical standards will enjoy bigger tax breaks.
- The most technologically advanced companies can enjoy corporate income tax exemptions for up to ten years.
And the tax breaks are huge (Yicai):
- “The total amount of income tax paid by listed domestic semiconductor companies in 2019 was about RMB 2.567 billion.”
- “Most of the listed semiconductor companies will be exempt for corporate income tax in the next three years.”
And check this: The new tax breaks will apply retroactively to the 2020 fiscal year.
Get smart: Tax cuts will artificially pump up domestic chip makers’ price competitiveness.
Get smarter: Whether gigantic tax breaks translate into high-quality innovation is a separate question.