finance & economics
1. Free money? Why not!
On Tuesday, Beijing’s finance bureau announced it would give away RMB 40 million in digital yuan (DCEP) to city residents in another beta-test of the DCEP.
Some context: China has been handing out free money left and right to promote the digital yuan since October.
- The new trial will bring the total number of trial users to roughly 1.7 million.
But as beta testing gains steam, people the world over are asking one burning question:
- What’s China’s digital yuan end game?
Last month, US Federal Reserve Chair Jay Powell posited a theory at a policy meeting (Coindesk):
- “[The digital yuan] really allows the government to see every payment for which it is used in real time.”
Speaking at a financial forum over the weekend, Yao Qian, former head of digital yuan development at the central bank, insisted that wasn’t the case (mPayPass):
- “In face of the digital revolution, the central bank must innovate…and alleviate the impact of private digital payment tools.”
- “Third-party payment tools have caused issues around data privacy, monopoly, and regulatory challenges.”
Get smart: The central bank wants to have better control of the mobile payment system, which is currently dominated by two private players – Alipay and WeChat Pay.
Get smarter: It’s hard to overstate how much these two payment behemoths dominate the market.
- Even with ever-increasing DCEP beta tests, it will be a long time before the digital yuan can seriously challenge them.
Go deeper: We offer ongoing coverage of China’s DCEP development, not to mention broader currency and economic analysis, in our premium service for professional investors. Check it out, and click here to request a free trial.
politics & policy
2. Li Keqiang, conqueror of red tape
On Wednesday, Premier Li Keqiang did his thing – presiding over a weekly State Council executive meeting.
The topic(s), per usual: Deregulation and market fairness.
Some context: Li has been downright incessant in his calls for market access and administrative process reforms to serve a large cohort of China’s workers – not just big corporations.
ICYMI: Li hates red tape and loves small and medium-sized businesses (see May 27 Tip Sheet).
On Li’s wish list (as presented at the meeting):
- Empowering market players
- Reducing improper intervention
- Strengthening equitable regulation
- Optimizing public services
- Encouraging people to dare to start a business
- Breaking unreasonable obstacles to innovation
- Opposing monopoly and unfair competition
- Taking greater steps in expanding international opening
Think that’s too much to ask for? Think again.
- That’s only about 25% of the full list.
Get smart: Li and co. seem to be making some headway on the market fairness front.
- Don’t believe us? Just ask Alibaba and Tencent.
Get smarter: Deregulation, on the other hand, means less control for Beijing.
- That’s proven a lot more difficult.
3. Promoting the Party
Career-focused cadres, listen up.
On Wednesday, the Party center dropped new regs on its organization work.
Quick translation: “Organization work” is the Party’s code name for HR. It covers all the work of appointing officials and staffing Party and state bodies.
The new regs make it perfectly clear who’s in charge (Xinhua):
- “The Central Committee has the centralized and unified leadership over organization work.”
And they detail new ways to evaluate officials’ performance, by:
- Adding new key performance indicators (KPI) to incentivize officials to promote high-quality economic growth
- Promising a slew of new performance reviews – including ongoing reviews, annual reviews, special reviews, and post-tenure reviews
Quick take: Nabbing a promotion is set to get harder.
What we’re hearing: The Central Organization Department has been leading an effort to retool the KPI system over the past six months.
Get smart: Nothing in these new regs is earth shattering.
- They’re just another attempt by Xi Jinping and co. to codify existing practices within the Party’s rulebook.
The bigger picture: Getting organization work right is no small potato. It is a key component in the Party’s ability to control the state.
4. Wang Yi’s moral offensive
At a BRICS meeting on Tuesday, Foreign Minister Wang Yi took a stab at improving China’s moral standing vis-à-vis COVID-19.
One-two punch: Wang accused unnamed developed countries of hoarding vaccines while praising the BRICS countries – not least China – for sharing their own (SCMP).
- “China has provided more than 350 million doses of vaccines to the international community.”
- “This is in sharp contrast with developed countries that have adopted a ‘domestic first’ approach.”
Wang then proposed that China establish an international forum for vaccine cooperation.
- He offered no details, but the proposal harkens back to Xi Jinping’s May 21 offer of USD 3 billion to support developing economies over the next three years.
Timing is everything:
- Wang’s moral offensive came just one day after the World Health Organization cleared the Sinovac vaccine for emergency use.
Get smart: Wang’s effort to improve China’s image is an uphill battle, but there’s really no better time to try.
Get smarter: Wang had several audiences in mind here. As China looks to quell tensions with India, for example, fighting COVID-19 is the best common ground available right now.
The bigger picture: It’ll be hard to change minds in Europe or North America.
- Strengthening ties in the global south is an attractive alternative in the meantime.
5. Seeing the forest for the trees
On Wednesday, the State Council published guiding opinions on “scientific greening.”
- Yes, that’s literal greening, as in ecological restoration.
Some context: China’s “growth at all costs” reform period is infamous for its wanton environmental degradation, but top-down greening efforts aren’t new.
- The so-called “Great Green Wall” afforestation program, aimed at abating desertification in northern China, began in 1978.
- In 2019, the Director of the National Forestry and Grassland Administration said that China planted some 194 million acres of forest, half the global total.
But it turns out that ecological restoration is trickier than throwing green at the problem.
- Poorly considered afforestation projects have had negative consequences.
Chief among these is exacerbation of northern China’s water stress:
- Trees are thirsty creatures, and large-scale desert planting, sometimes using non-native species, has accelerated groundwater depletion.
- Artificial stands sometimes die off en masse after sucking the soil dry.
There are other problems, too:
- Afforestation has conflicted with the need to preserve arable land, which is also in short supply.
- Tree planting occasionally comes at the expense of functioning native ecosystems.
The overall message of the opinions should be familiar to Tip Sheet devotees: Quality over quantity.
Get smart: China’s favored campaign-style implementation consistently produces mixed outcomes.
- Can the emphasis on quality permanently fix the drawbacks?
6. Shipping up to Zhengzhou
It isn’t just Shanxi that got a new Party secretary (see yesterday’s Tip Sheet).
Over the past few days, Lou Yangsheng was appointed Party boss of Henan.
- Lou is taking over the job after Wang Guosheng, who is stepping down due to having reached retirement age.
A little about Lou:
- Lou was identified as a rising star early in his career.
- Lou spent the first 27 years of his career in his native Zhejiang, eventually serving as head of the Zhejiang United Front Work Department (2008-2009).
- Lou came to national attention when he was appointed deputy Party secretary of Shanxi in June 2014, following a massive corruption scandal that saw five Shanxi Party Standing Committee members purged.
- Since November 2019, Lou has been serving as Party secretary of Shanxi.
- Lou is a member of the 19th Central Committee (2022-2027).
And there’s more:
- Lou is part of the New Zhijiang Army – a group of officials that worked with Xi Jinping when he was Party secretary of Zhejiang from 2002-2007.
Get smart: The Henan top job is not usually a stepping stone to higher office.
Get smarter: Due to his Xi connection, we still give Lou a 18% chance of reaching the Politburo in 2022.
- If Lou is not promoted to a state-level position, he will reach retirement age in 2024.