1. Silly Didi, IPOs are for kids with excellent network security compliance
The reasoning behind China’s most recent regulatory smackdown on big tech is slowly taking shape.
ICYMI: Since Friday, the Cyberspace Administration of China (CAC) has launched cybersecurity investigations into four major apps, including Didi Chuxing, China’s equivalent to Uber.
- The parent companies of all four apps recently listed in the U.S.
- The apps were ordered to pause new user registrations for the duration of the investigations.
- Regulators cited national security concerns as the key motivation.
What national security concerns, you ask? Still unclear. The best theory is that the CAC may have taken issue with some of the network equipment listed on Didi’s SEC filing documents (WSJ):
- “[CAC] officials…worry that equipment for those servers, if procured from abroad, could be vulnerable to security breaches upon the company’s disclosure, potentially putting the caches of data in danger.”
Didi should have known better than to move ahead with the IPO:
- “Weeks before Didi…went public in the U.S., [the CAC] suggested the Chinese ride-hailing giant delay its initial public offering and urged it to conduct a thorough self-examination of its network security.”
So why did Didi IPO without getting the green light?
- “[The company was] facing investor pressure to list after raising billions of dollars from prominent venture capitalists.”
- “In the absence of an outright order to halt the IPO, it went ahead.”
Get smart: This will make overseas investors cautious about buying into Chinese tech, but regulators don’t care.
- Chinese regulators prioritize domestic compliance over a company’s ability to raise money overseas.
2. Officials scramble to keep vaccination momentum going
Over the past week, China’s vaccination campaign slowed down a bit from the breakneck speed of the two weeks prior.
As of Monday, China had administered a total of 1.318 billion vaccine doses – up from 1.207 billion doses a week ago.
Some quick math:
- This means a daily average of 15.96 million doses were administrated last week – down from the record-breaking daily average of 22.42 million doses the week before.
- That’s a drop of 5.5 million doses per day.
The slower vaccination pace has officials scrambling.
What we are hearing: Some local governments are back to offering monetary incentives to get people enthusiastic about getting jabbed.
- This includes offering expensive prizes like iPhone 12s.
And that’s not all: In some cities, high-level Party members have been assigned vaccination quotas to get the vaccination drive back to top speed.
This is sure to get officials moving: Failing to meet said quotas will result in deductions in their salaries and bonuses.
This has led to some…err…interesting results:
- Some city officials are paying out-of-towners to get vaccinated on their turf to boost their numbers.
Get smart: Local officials are doing everything they can to keep the health of their bank accou… the nation on track.
The bottom line: After getting the most eager parts of the population vaccinated early, the long hard slog to find – and convince – the rest will result in a decelerating jabbin’ pace.
3. Provinces look to slash steel production
One by one, provinces are instructing steelmakers to cut production this year.
On July 5, Caixin reported that Beijing has issued a national mandate instructing provinces to reduce crude steel output within their jurisdictions in 2021.
- So far, that policy isn’t public.
Here’s what we know:
- A few provinces – including Gansu and Anhui – have already instructed steelmakers to cap production at 2020 levels.
- Government sources in Hebei told Caixin the province was initially told to reduce production by 20 million tons.
- A report from Huabao Securities suggests the steel reduction targets won’t be made public until Q3.
What we’re wondering: Will provinces actually be held to reduction targets?
Some context: Hebei province instructed firms to slash steel production in April as part of a crackdown on steelmakers who had flouted emissions control measures during China’s annual legislative session.
- By mid-May, these restrictions were loosened as part of efforts to control skyrocketing steel prices.
At this point, it’s hard to see overall steel production decreasing in 2021. Between January and May, production was up y/y in all three of the largest steel-producing provinces, by:
- 2.63% in Hebei
- 18.71% in Jiangsu
- 17.74% in Shandong
Get smart: Steel production will have to drop off dramatically if it is to be less than it was in 2020.
And there’s one big problem: Less steel production would lead to much higher steel prices.
- And that is something Beijing is keen to avoid.
Get smarter: Beijing wants to have its cake and eat it too – both reducing steel production and keeping steel prices low.
- That just ain’t gonna happen.
The bottom line: Something’s got to give.
4. Smoothing things over
On Monday, Xi Jinping called up his favourite European counterparts – German Chancellor Angela Merkel and French President Emmanuel Macron – for some casual chit chat.
The goal: To improve the tense EU-China relationship.
The elephant in the room: This is the first meeting between Xi and the two leaders since the EU parliament put the brakes on the EU-China investment agreement (CAI) in late May.
Causing the delay: Retaliatory sanctions on EU and China politicians over human rights issue in Xinjiang.
During the call, the three leaders all expressed support for the CAI to be approved soon.
Good guy Xi also offered some advice to his European counterparts.
Xi said that now is not a good time for quarrelling (Xinhua):
- “[The] world more than ever needs mutual respect and close collaboration, rather than suspicion, antagonism or zero-sum game[s].”
Xi also reminded the European leaders that they don’t have to do what the US tells them:
- “We hope the European side can play a more positive role in global affairs [and] genuinely demonstrate strategic independence.”
Get smart: With anti-China sentiment on the rise in Europe – and among European MEPs – ratification of the deal looks unlikely any time soon.
5. A piece of advice from Jiang Xiaojuan
Doesn’t it feel like everybody is just talking over each other these days?
That’s why we found Jiang Xiaojuan’s recent commencement speech at Tsinghua University so refreshing.
A little about Jiang:
- Jiang is an economist turned technocrat.
- She served in the belly of the beast as deputy secretary-general of the State Council between 2011 and 2018.
- After retirement, she became the dean of the Public Management School at Tsinghua University.
Jiang told the fresh graduates that they are entering a world in flux (Tsinghua University):
- Whereas economic growth used to preoccupy everybody, now there are competing demands for higher quality growth, a better environment, and more equality.
- Geopolitical tensions will continue to rise as China’s economy becomes less complimentary, and more competitive, with other major economies.
Jiang offered advice on how to deal with all this change:
- Allow different voices and opinions to be heard – and make sure to listen to them.
Get smart: Chinese politics has become more doctrinaire under Xi Jinping. But there are still a diverse range of ideas and opinions about the country’s path forwards.