1. Get your house in order or we will
On Tuesday, the antitrust watchdog (SAMR) and two other ministries invited 34 tech companies for a talk, demanding that companies correct anti-competitive practices.
- All the big names – including Alibaba, Tencent, JD.com, and Meituan – were at the meeting.
The message: Forget crossing antitrust red lines – don’t even get near them.
SAMR is going particularly hard after forced exclusivity:
- Forced exclusivity – which regulators refer to as “choose one” tactics – occur when platforms prevent online vendors from selling products if they also list those products with a competitor.
Quick refresher: The RMB 18.2 billion fine that SAMR handed Alibaba on Saturday was due to this exact anti-competitive practice (see April 12 Tip Sheet).
During the meeting, SAMR instructed the assembled to:
- Conduct an internal review on anti-competitive practices and rectify them within a month
- Issue a public statement outlining compliance commitments
SAMR threatened particularly hefty punishments for tech companies found imposing forced exclusivity on vendors in the future.
In short, SAMR wants tech companies to avoid Ali’s mistakes (SAMR):
- “The Alibaba case should serve as a warning sign.”
- “[All] Internet platforms should know how to respect and obey the rules.”
Get smart: SAMR’s antitrust enforcement team is massively understaffed. They hope “killing a chicken to scare the monkeys” will bring the whole tech industry in line.
Get smarter: Giving big tech just one month to fix what has become standard practice may seem harsh. But it gives tech firms – and regulators – some breathing room.
- We expect a short break in the sweeping antitrust efforts, allowing both sides to take stock and address issues.
2. State Council takes on hidden local government debt
On Tuesday, the State Council published new guidelines for managing government finances.
Broadly, the document focused on ensuring that local governments:
- Collect fiscal revenue fairly and efficiently
- Deploy resources in the interests of the public
At the top of the priority list – addressing local governments’ hidden debts.
According to the document:
- New projects must not be undertaken if they will generate new hidden debt.
- Supervision of state-owned enterprises must be strengthened to ensure they’re not used to disguise local government debt.
- Financial institutions are strictly forbidden from accepting guarantees from local Party or state bodies.
- Local government financing platforms that are unable to repay debts must enter into bankruptcy and liquidation.
- Government officials will be held accountable for any decisions that increase government debt.
Some context: For years, local governments have borrowed far more than Beijing has approved, using creative tactics to obscure debts.
Get smart: Beijing is extremely concerned about local government debt burdens after borrowing increased significantly in 2020 to help counter the economic effects of the pandemic.
Get smarter: The State Council’s solution is, basically, imposing more oversight.
- If solving local government debt was that simple, it would have been fixed years ago.
3. Meeting each other half way
On Tuesday, Premier Li Keqiang joined a virtual dialogue with US business leaders.
- The event was chaired by former US treasury secretary Hank Paulson.
Li said the two countries agree on the goal (Gov.cn):
- “Promoting China-US relations moving forward in a stable direction.”
He had some ideas about how to keep relations stable, including old favorites:
- Mutual respect
- Win-win cooperation
He also had a warning for the business community:
- “‘Decoupling’ is not good for anyone, and it will hurt the world.”
- “I hope the two sides can meet each other half way…and maintain the safety and stability of industrial and supply chains.”
Li promised more financial and trade opening:
- “China’s door to the world will only open wider and wider.”
And get this: Both sides highlighted climate change as an important area for future cooperation.
Some context: Paulson has spent the last few years working closely with now-US climate envoy John Kerry on efforts to address climate change.
- And Kerry just arrived in China on Wednesday for an official visit…
Get smart: After several years of doom and gloom, the US-China business community would breathe a sigh of relief for even a small positive development on climate cooperation.
4. Party bigwig offers insight on geopolitics
On Wednesday, He Yiting, former executive vice-president of the Central Party School, shed some light on the Party’s geopolitical thinking in a Study Times article.
A little about He: He is a Party heavy-weight who has served as a policy advisor to both Xi Jinping and his predecessor Hu Jintao.
He said Xi’s oft-touted phrase “profound changes unseen in a century” is mainly about global power dynamics:
- “The most prominent feature of this great change…is ‘the East rising and the West declining.’”
With “the great rejuvenation of the Chinese nation” driving this change, He said this could rock our current geopolitical reality to its core:
- “This is not only a dispute over national strength between China and the hegemonic countries, but also a dispute over the two systems of socialism and capitalism.”
- “[This change] is more severe and complicated than any competition between big powers in history.”
Luckily, He remedied his bleak outlook a touch, by advocating for China to:
- “[S]trengthen coordination and cooperation with all parties, adhere to principles, and reflect a constructive attitude.”
Some context: He has mentioned before that China’s global attitude might need a rethink, specifically criticizing wolf warrior diplomacy (see March 11 Tip Sheet).
Get smart: China’s rise will create friction with the West no matter how benignly – or not – it happens.
- Senior policy thinkers in China understand this, as well as the momentous complications that China’s rise creates for the geopolitical system.
- But they don’t seem to have good answers as to how to defuse the situation.
5. Will the big payday finally come?
On Wednesday, state-owned news agency Xinhua’s Economic Information Daily (EID) reported that a plan to expand China’s middle-income group will drop in 2021.
Some context: The 14th Five Year Plan (FYP) provided the first official confirmation that such a plan was in the making (see March 12 Tip Sheet).
More context: Reportedly, the goal is to double the size of the middle-income group from 400 million to 800 million within 15 years.
To get this done, the government plans to use a two-front approach:
- Boosting incomes
- Cutting burdens on individuals
The EID didn’t elaborate further – but here’s a rundown of measures we hear might be coming down the pipeline:
- Building an environment to create more and better jobs
- Building a better environment for businesses – particularly SMEs – which are instrumental in creating higher-income households
- Opening more channels for household investment
- Changing individual-based income taxation to household-based income taxation – with the goal of deducting basic household costs and thus cutting the tax burden on households
Get smart: Income increases are critical for boosting long-term consumption – a critical goal during this FYP.
Get smarter: Material increases in income take time, while tax cuts can be quickly enacted.
- But tax cuts require the government to bear costs in the meantime.
Our question: How much burden is the government willing to bear while incomes slowly inch up?