driving the day
1. Remember the mission
On Thursday, Vice Premier Liu He – China’s top economic policymaker – chaired a meeting of the Financial Stability and Development Committee (FSDC).
Some context: The FSDC was created in July 2017 and helps to coordinate financial and economic policy among various regulators.
Liu kicked things off with some ruminations on the point of economic policymaking – protecting people’s jobs (Gov.cn):
- “Employment is the livelihood of the people.”
- “The primary goal of macro policy is protecting employment and protecting companies [that employ people].”
Liu said regulators can bolster employment by:
- Keeping prices stable – particularly bulk commodity prices
- Helping companies to survive and thrive
- Supporting private small, medium, and micro businesses
Actually, top leaders have been calling to boost employment and support small business all year.
- Just last week, Premier Li Keqiang was hyping the gig economy (see April 1 Tip Sheet).
But Liu’s top priority – stabilizing commodities prices – is a new talking point.
- Top leaders are worried about inflationary pressures if high commodities prices and a spike in PPI are passed on to consumers (see entry below).
Get smart: Inflation could hit workers hard – cutting into the value of wages at a time when Beijing wants to boost incomes and consumption.
- Policymakers aren’t in panic mode yet, but inflation potential is clearly a budding concern.
2. Data dump – inflation
Monthly inflation data for March landed today.
- The consumer price index (CPI) rose 0.4% y/y, compared with a 0.2% y/y decline in February.
- The producer price index (PPI) rose 4.4% y/y, versus a 1.7% y/y expansion in February.
Higher producer price inflation should boost industrial profits.
- Producer prices increased by the most since July 2018, led by mining and quarrying and raw materials.
- That should help to lift profits at these upstream industries.
For now, consumer price inflation remains extremely weak as the recovery in household consumption continues to lag.
- Core CPI – which excludes food and energy costs – rose by only 0.3% y/y in March.
Our concern: Upstream raw material producers may be drooling over higher profits, but can downstream industries absorb higher prices?
- The construction sector is already likely to be weaker this year as Beijing clamps down on real estate.
- Consumer goods manufacturers will struggle to pass on higher raw materials costs to households.
Get smart: Higher producer prices risk dampening demand in downstream industries.
Get smarter: Senior officials are watching this dynamic closely.
- The readout from Thursday’s meeting of the Financial Stability and Development Committee warned policymakers to keep a close eye on commodities prices (see previous entry).
3. Xi wants the East to help the West
Yeah, you read that right.
- But Xi Jinping isn’t proclaiming his latest global ambitions.
In instructions published Thursday, Xi urged China’s eastern provinces to help their less developed western peers enjoy some common prosperity.
Some context: China’s vast geography can be divided into two roughly equal land masses by the imaginary Heihe-Tengchong Line, with 94% of the nation’s total population residing in the eastern half.
Xi said that the east should help the sparsely populated, mostly rural, and underdeveloped west by (Xinhua):
- Improving and expanding so called “point-to-point” (locality-to-locality) aid relationships
- Creating innovative assistance programs
- Leveraging the comparative advantage of industrial and natural resources
- Connecting labor markets and boosting exchanges of human talent
- Mobilizing all-of-society participation
More context: Point-to-point assistance between eastern and western China was part of the strategy to mobilize resources that brought Xi’s battle against poverty to a much-celebrated victory late last year (see December 4 Tip Sheet).
- Now, Xi wants the same trick to work for rural revitalization.
Get smart: Encouraging all-of-society participation shows that Xi means businesses.
- Whether state-owned or privately-held, domestic or foreign, all businesses will do well to look at how they can contribute to this cause.
4. People’s Daily bashes cadres for poor Dual Circulation Strategy implementation
On Friday, the People’s Daily – the Party’s flagship publication – published a massive front page editorial explaining the significance of the Dual Circulation Strategy (DCS) for the country’s long-term strength.
Quick refresher: In a nutshell, the DCS is Xi Jinping’s new economic framework aimed at making the economy more resilient to external shocks by having domestic demand become its main driver.
The editorial was mostly full of the same old Party talk.
But this caught our eye: There was some serious lamenting of cadres who are not applying the DCS correctly (People’s Daily):
- “[Some officials] don’t care about building a nation-wide unified market and just focus on building their own small circulation.”
- “When it comes to developing ‘choking point’ technologies, [some officials] will seek to build everything by themselves.”
- “[They] disregard industrial reality and are obsessed with ‘big’ and ‘high-end’ projects, which [often] leads to projects being abandoned.”
- “When it comes to expanding domestic demand, [some officials just] inflate investments and overstimulate consumption.“
Get smart: It ain’t easy being a local official in China. Top policymakers are not always clear on what they want, or how they think local officials should go about achieving it.
- And even when they are clear, some of their instructions tend to contradict one another.
5. From Changchun to Zhengzhou
That Henan top job didn’t stay vacant for long.
- Last Friday, former Changchun city Party Secretary Wang Kai was appointed governor of Henan province.
Some context: Wang is taking over in Henan from Yin Hong, who was appointed as Gansu province Party Secretary in late March (see April 1 Tip Sheet).
A little about Wang:
- Wang worked for five years as a teacher at the Jincheng Party school in Shanxi (1983-1988).
- Wang then spent 11 years at the Central Commission for Discipline Inspection, becoming director of the research office’s case trial room in 1999.
- In 2001, Wang was transferred to Guangxi where served in the city of Wuzhou for 12 years, including five as mayor.
- In 2013, he was transferred to Yulin, Guangxi, where he served a year as mayor and then three years as Party secretary.
- In March 2017, Wang was transferred to Jilin, where he took over the provincial organization department – before making Party Secretary of Changchun in April 2019.
Get smart: Previously assumed to be slated for retirement next year, Wang’s successful leadership in Changchun impressed the higher-ups enough to land him this new gig.
- This promotion should earn Wang a spot on the 20th Central Committee (2022-2027).