1. A bad week for Jack
On Monday, the People’s Bank of China (PBoC) and three other financial regulators disclosed details about a plan to restructure Ant Group.
Some context: We first caught wind of this development back in January when the Wall Street Journal scooped that Ant was preparing to turn itself into a financial holding company.
PBoC Deputy Governor Pan Gongsheng outlined five requirements that regulators have laid out for Ant, including:
- Severing links between Alipay – the company’s payment service – and Ant’s small loan and credit card businesses.
- Barring Ant from collecting more than a legal minimum of personal information
- Requiring Ant to set up a financial holding company
- Mandating Ant to reduce the leverage of its financial businesses
- Requiring Ant to reduce the size of Yu’e Bao, its money market fund
ICYMI: It’s been a bad week for Jack Ma’s corporate empire.
- On Saturday, the market regulator imposed a record RMB 18.2 billion fine on Alibaba Group, an Ant affiliate, for antitrust violations (see April 12 Tip Sheet).
Get smart: Regulators are demonstrating they’re serious about compliance at Ant and Alibaba and hoping that other tech companies will fall into line of their own accord.
2. What China Dreams are made of
On Monday and Tuesday, Vice Premier Sun Chunlan chaired a national vocational education conference in Beijing.
- Both Xi Jinping and Premier Li Keqiang sent instructions to the conference.
Xi said that vocational education was key to the China Dream (Xinhua 1):
- “Party committees and governments at all levels should increase policy support and investment [in vocational education] and raise the social status of technical personnel [in order] to provide powerful talent and technical support for…the realization of the Chinese Dream of the Great Rejuvenation of the Chinese nation.”
Li’s instructions were a little more down to earth:
- “[We will] attract more young people to receive vocational education, and minimize the gap between education, talent development, industrial development, and innovation.”
Get smart: China’s vocational education system is HUGE, with over 27 million students enrolled in its technical schools.
- Problem is, many of those schools aren’t equipping China’s students to thrive in a rapidly upgrading industrial economy.
Get smarter: Top leaders want to train a workforce that can meet the needs of an evolving economy.
Unrelated musing: What is Xi Jinping up to these days? Apart from sending instructions to various meetings, we haven’t heard from him for more than a week.
3. Something wicked downstream comes
On Monday, we got a detailed read-out of Premier Li Keqiang’s economic symposium with advisors and business leaders late last week.
- Yesterday, we told you this meeting caught our eye in part because the timing is unusual (see April 12 China Markets Dispatch).
Attendees told Li that government tax and fee reductions are missing the mark of where the real pain is for businesses (21st Cent Biz):
- “A sharp rise in international commodity prices has put great pressure on enterprises to increase costs.”
- “Rising raw material prices… are becoming a barrier to healthy development of the economy and society.”
More context: Li has been laser focused on the threat of upstream inflation since last week’s Financial Stability and Development Committee meeting (see April 9 China Markets Dispatch).
But we’re not sure Li has a solution just yet. He told the gathered that:
- “It is necessary to strengthen market regulation of raw materials…to ease cost pressures on enterprises.”
Get smart: That doesn’t sound like a new approach.
But this caught our eye: Hu Dezhao, chair of Baiyun Electric – a state-owned power equipment manufacturer – suggested the State Council should organize companies that are heavily reliant on imported raw materials to negotiate together.
Get smarter: It’s unlikely, but not unprecedented, for the government to step in and help organize bulk procurement of important products.
- The practice is sometimes used in the pharmaceutical sector.
What to watch: Policy interventions are brewing in this space. But we, and the government, don’t yet know exactly what they will be.
4. A hukou for you-kou
On Tuesday, China’s macroeconomic planning agency (NDRC) released its urbanization task list for 2021.
The document called for more cities to abolish household registration (hukou) restrictions (NDRC):
- “Cities with an urban population of fewer than 3 million people should implement the policy of fully liberalizing hukou restrictions.”
Quick math: That means that hukou restrictions will be done away with in all but the 30 or so largest Chinese cities.
Some context: The policy of abolishing hukou restrictions for smaller cities has been in place since 2019.
- Now, the NDRC is pressuring local governments to get it done.
The NDRC also has a plan for China’s major metropolises:
- For bigger cities, the macro planner wants to make it easier for rural residents who have worked in said cities for more than five years to get a hukou.
Get smart: Dictates on hukou reform may be coming down from on high, but local governments are the ones who are on the hook for the cost of providing public services to all these newly minted urbanites.
Get smarter: Local governments used to push back on policies like these, but as human capital becomes increasingly scarce and the elderly population grows, their calculus is changing.
5. I’m givin’ her all she’s got, cap’n!
Bad news everyone! China’s vaccination rate is slowing again.
- As of Sunday, China had administered a total of 167.34 million vaccine doses.
- Over the last week, just 3.91 million jabs were administered each day – down from 4.55 million per day the week before.
Some context: Top leaders have consistently repeated their goal of vaccinating 40% of the population by the end of June.
- That means administering roughly 11.9 million doses per day, every day, until then (see April 7 Tip Sheet).
According to our calculations: The current pace of 3.91 million per day is…uhh…less than that.
The slow vaccination has economists and business leaders worried:
On Monday, Xing Ziqiang, chief economist at Morgan Stanley China said (Caixin):
- “If China’s herd immunity is achieved slower than developed countries…the service trade may not be able to recover quickly.
Get smart: It’s officially crunch time for China’s vaccination efforts.
- As other countries are working their way toward herd-immunity, Beijing’s stringent (and successful) COVID control efforts have ironically engendered a sense of complacency among the public.
The big question: How to incentivize people to get the dang jab?