driving the day
1. Data dump – econ data
China’s stats bureau published the monthly econ data for April on Monday morning.
- Retail sales jumped 17.7% y/y in April, down from 34.2% y/y growth in March.
- Fixed asset investment increased by 9.9% y/y in April, down from 18.3% y/y growth in March.
- Value-added output at industrial firms rose 9.8% y/y in April, versus 14.1% y/y growth in March.
Given the distortions from last year’s low base, a two-year average of growth rates is more illuminating:
- Retail sales averaged 5.1% y/y growth over April 2020 and April 2021, down from average y/y growth of 9.2% for the March period over the past two years.
- Fixed asset investment averaged 5.4% y/y growth, compared with 4.4% for March.
- Value-added output at industrial firms averaged 6.9% y/y growth, versus 6.5% growth for March.
In short: Economic growth in China is still highly unbalanced.
Investors were hoping that the private sector in China would pick up the baton from the real estate and SOE-driven recovery last year.
- That isn’t happening.
Go deeper: For more in-depth analysis of the numbers, check out today’s (and everyday’s!) China Markets Dispatch.
politics & policy
2. Waste not want not
On Friday, Xi Jinping capped off his visit to Henan province by hosting a symposium on the South-to-North Water Diversion Project.
ICYMI: Xi Jinping has spent the last week touring Henan.
- During this trip, he visited people who were resettled in order to build the water diversion project, framing them as unsung heroes (see Friday’s Tip Sheet).
Also in attendance were:
- Executive Vice Premier Han Zheng
- Vice Premier Hu Chunhua, who accompanied Xi on the trip
- Minister of Water Resources Li Guoying
- He Lifeng, head of the National Development and Reform Commission
- Local Party bosses from Henan, Jiangsu, Tianjin, and Beijing
Xi reminded the assembled that water is kind of a big deal (Xinhua):
- “Water is the foundation of survival and the source of civilization.”
He then told officials to prioritize water conservation by:
- Saving water and controlling pollution emissions
- Treating polluted water so it can be used
Get smart: Diverting water from south to north has required careful engineering and an incredible amount of political capital.
- North China can’t be seen to waste or pollute this precious resource.
Get smarter: The South-to-North Water Diversion Project was first proposed by Mao Zedong back in 1952.
- Overseeing its successful completion is another way Xi is cementing his political legacy.
3. Xi-man and the masters of the universe
On Saturday, the China National Space Administration (CNSA) proclaimed that it had successfully landed a rover on Mars.
The technical details:
- The rover had been in orbit around Mars since February, arriving with China’s Tianwen-1 mission.
- After touchdown, it will search for water and ice – and signs of life.
Xi Jinping was pretty dang excited about the news, saying (Xinhua):
- “[The landing] is another landmark progress in China’s space industry development.”
- “China is now among the leading countries in planetary exploration.”
Xi wants to take China’s space ambitions to infinity…and beyond:
- “[Xi] called for boosting China’s strength in space technology and making new and greater contributions to exploring the mysteries of the universe.”
More context: This is not the only thing China is up to in space right now.
- China is also building its own space station (see April 30 Tip Sheet) and is working with Russia to set up a lunar research base station.
Get smart: The Mars mission is a big deal. It makes China only the second country ever to complete a Mars landing, after the US.
The bigger picture: China’s galactic endeavors are not happening in a (political) vacuum.
- They’re part of Beijing’s push to achieve mastery of cutting edge technologies.
4. Regulators cast gaze on transportation tech firms
On Friday, Chinese media reported that 10 transportation companies – including ride hailing giant Didi – were summoned for talks with an inter-ministerial group set up to supervise transportation techcos.
Regulators had a list of gripes, including:
- Lack of pricing transparency
- Monopolies on information
- Concerns about worker remuneration and welfare
The meeting’s readout admonished platforms to get their act together, saying they should (The Paper):
- “Face up to the problems, accept responsibility, and immediately carry out rectification.”
Some context: Since its 2016 acquisition of Uber China, Didi has controlled around 90% of the domestic ride hailing market.
- This dominant market share has led many to speculate that Didi might be next up in the anti-monopoly crackdown on big tech.
Get smart: So far, Didi has only copped a small fine for failing to properly disclose acquisitions.
- That may be about to change as regulators look to be gearing up for closer scrutiny of Didi and other transportation related tech companies.
Get smarter: That’ll be easier said than done. Investigations into things like algorithmic pricing abuses are technical and difficult, and China’s anti-monopoly watchdog is already overwhelmed.
The bottom line: Rumors of an impending crackdown could impact the company’s planned IPO.
5. Chipping in for chips
On Friday, Vice Premier Liu He chaired a meeting of the Leading Small Group (LSG) for the Reform of the National Science and Technology System and the Development of the Innovation System.
Hot tip: People in the know refer to the group as LSGftRotNSaTSatDotIS to save time.
Some context: The advisory body has been headed by Liu He since 2018 and oversees China’s strategic planning on tech innovation.
Top of the meeting agenda: Reviewing the soon-to-be-released draft 14th Five-Year Plan (FYP) for sci-tech development.
The meeting readout emphasized tech innovation as the core pillar to China’s strategic development and indicated that boosting China’s performance in semiconductor technologies will be a major plank of the FYP.
More context: For years, Chinese leaders have been obsessed with technological self-sufficiency.
- Problem is, China’s heavy reliance on foreign manufacturers for chips and other critical components is a major barrier to this goal.
Get smart: We expect the 14th FYP for sci-tech development to focus heavily on semiconductors in a bid to bust through this bothersome bottleneck.
Get smarter: Mainland chip producers are years behind their American and Taiwanese counterparts.
- It’s going to take a helluva a lot of money and research to close the gap.
6. Hey! Laowai! Leave them kids alone!
On Friday, the State Council published the new implementation rules of the Private Education Promotion Law.
Some context: Originally drafted by the Ministry of Justice in 2018, Premier Li Keqiang officially signed off on the law in April after three rounds of revision.
More context: Private schools, from kindergarten to colleges, are probably bigger than you thought in China.
- According to the Ministry of Education, the private sector provided educational services to around 20% of Chinese students in 2019.
The new regulations offered more supportfor private schools, including (Gov.cn):
- Preferential land use rights
- Tax breaks
- More fiscal resources
The legislation also tightened the Party’s grip over what goes into curricula by:
- Requiring Party cells at private schools to step up supervision of schools’ operations
- Heavily restricting the use of foreign textbooks in all schools and outright banning them for K-12 instruction
And that’s not all: The regulation effectively bans private investors from acquiring and controlling multiple K-12 schools and non-profit preschools.
Get smart: Beijing views K-12 education as a critical channel for inculcating youngsters with patriotic ideals and loyalty to the Party.
- It’ll be a cold day in Hainan before they cede that territory to foreigners.
7. New local outbreaks boosts vaccination progress
(Long, weary sigh.)
After three weeks of no domestic infections, Chinese officials reported a rash of locally transmitted COVID-19 cases in Lu’an, Anhui province, late last week.
The details: By the end of Sunday, a total of 16 confirmed cases and 15 additional asymptomatic cases had been reported in four cities in both Anhui and Liaoning.
- Since then, 10 provinces and municipalities have traced and quarantined 262 close contacts of the infected, with no additional positive cases reported so far.
Local authorities in Anhui and Liaoning responded by:
- Conducting citywide testing
- Instituting travel restrictions
- Quarantining both primary and secondary close contacts
- Postponing public events
But there may be a silver lining: These newest outbreaks have inspired more people to get vaccinated.
- On Thursday, when the Lu’an case was discovered, China reported a daily uptick in vaccine dose administrations of 12.64 million – the highest daily increase since the vaccination campaign began.
- Then on Sunday, the record was shattered again as 13.95 million vaccine doses were administered nationwide.
Get smart: The Anhui-Liaoning outbreaks will likely be brought under control in the coming weeks. But the episode has prompted people to protect themselves against a COVID comeback.
- That may not be a bad thing.