finance & economics
1. The price is not right
On Wednesday, Premier Li Keqiang did his thing, presiding over the State Council’s weekly executive meeting.
The topic du jour: Addressing “unreasonable” commodities prices.
Some context: Commodities prices have surged in the wake of the world’s gradual recovery from COVID-19 as well as various supply disruptions in recent weeks.
China’s domestic policies are also partially to blame:
- Looming carbon-reducing production cuts and robust property investment brought on by China’s fiscal stimulus have led to higher prices.
Li had some ideas on how to put things right, including:
- Increasing export tariffs on certain commodities
- Zeroing out import tax rates on pig iron and scrap steel
- Increasing renewables output
- Cracking down on commodities speculation
- Exposing companies engaging in collusion, disinformation, and resource hoarding
Li also requested a boost in coal production (Gov.cn):
- “We should give full play to China’s advantages in coal resources and urge key coal producers to increase production.”
Get smart: China doesn’t want to see its post-pandemic recovery derailed by high upstream prices.
- Officials are particularly concerned that those high upstream prices will transmit into rising consumer prices.
- There’s no real sign of this yet, but that’s the key reason top leaders are on high alert.
Get smarter: There’s only so much Beijing can do.
- China imports the majority of its commodity inputs and prices are up worldwide.
2. Corn imports set to break records
China’s corn imports are on pace to break historic records in 2021 – with well over a third of that likely to come from the US.
Some context: With China’s pig population almost back to normal after a protracted struggle with African swine fever (ASF), corn demand – and prices – are soaring.
- Importing corn from abroad is now cheaper than growing it at home.
Exactly how much cheaper is imported corn? (Global Times)
- “[C]orn prices in China were nearly double those of US corn at the end of January.”
Get this: Chinese buyers have already booked purchases of 9.5 million tons of US corn in May alone (Bloomberg).
- That’s well over a third of China’s estimated total imports for the year.
Plus, the shopping spree isn’t even close to over yet.
One trader told Bloomberg:
- “Chatter within China reflects…buyers will continue to buy until they’ve booked close to 15 million metric tons of U.S. new-crop corn.”
Get smart: A big part of food security is about locking in food supplies – including from abroad.
Get smarter: Surging US corn purchases is also good optics ahead of the looming review of the phase one US-China trade deal.
politics & policy
3. Certified efficient
Soaring commodities prices wasn’t the only thing discussed at Wednesday’s State Council executive meeting (see entry #1).
Premier Li Keqiang also juiced the importance of optimizing notarization services to create a “market-oriented legalized international business environment.”
Errr: Notary services is… an oddly specific issue for the Premier to be on about, right?
- We thought so too, but it’s not unimportant.
Some context: This is but one part of the massive e-government push that got rolling in 2016:
- The idea is to create convenient, standardized, nationally integrated digital government services.
- The much discussed (and misunderstood) Social Credit System is also a part the plan (ICYMI check out Trivium’s in-depth social credit explainer).
Li pushed for quick action, urging:
- The streamlining of notarization services by the end of the year
- The implementation of “one network” for documents that frequently require authentication – including academic degrees and driver’s licenses
Get smart: The amount of time and money wasted every year standing in line for document services is untold.
- Anyone who has had to collect and authenticate documents for a routine business matter in China understands the Kafkaesque nightmare of this experience.
Get smarter: The e-government program is underappreciated, but will likely lead to significant improvements in bureaucratic efficiency in coming years.
4. Carbon rulez, carbon rulez, carbon rulez
On Monday, the Ministry of Ecology and Environment (MEE) released operational rules for its national carbon emission rights trading scheme (ETS) – covering registry, trading, and settlement.
Some context: After MEE minister Huang Runqiu announced that a national launch of the ETS would happen by the end of June (see March 1 Tip Sheet), regulators have been rushing to sort out the legal framework.
Third time’s a charm: The MEE has previously released two draft versions of the operational rules, first in November 2020 and then in March this year (see March 31 Tip Sheet).
The finalized version include some new juicy tidbits:
- The MEE may take stabilizing measures when trading prices show abnormal fluctuations.
- The rules describe the types of trading that can take place and specify that the trading platform may adjust the trading volume for each type of trading activity depending on market risk conditions.
- Until the national market is up and running, the Shanghai and Hubei carbon markets will respectively handle trading and registration.
Get smart: Excessive market risk would defeat the purpose of the ETS – i.e. to reach China’s aggressive climate goals.
- Regulators are signaling they will not allow that to happen.
The bigger picture: As with everything else these days, stability remains Beijing’s front and center concern.
5. Daddy issues
Well, this is awkward.
Turns out the son of Xi Jinping’s right-hand man is benefitting from his father’s position.
On Wednesday, the Financial Times reported that the son of Vice Premier Liu He, Liu Tianran, has been making a loooot of money from tech investments via his investment firm Skycus Capital.
- Skycus was established in late 2016 and Liu Jr. served as its chairman until April 2017 – six months before his dad was promoted to the Politburo.
- Just after Liu Sr. was appointed the vice premier with the finance portfolio in March 2018, Liu Jr. transferred all his shares in Skycus to another executive.
Why did he do that? (FT)
- “Under Chinese government rules, children of senior officials are prohibited from managing companies in industries regulated by a parent.”
Our question: Does this mean that Xi’s anti-corruption campaign doesn’t work?
Arguing for the prosecution:
- All the kiddos of China’s high-and-mighty still make serious money off of their privs – rules be damned.
Arguing for the defense:
- The fact that even princelings have to divest – at least on paper – before their dads come into power shows that the anti-corruption campaign works as intended.
One final musing: Liu He has been getting some interesting press lately (see May 14 Tip Sheet).
- Could something be cooking?