1. Data dump – inflation
China’s stats bureau released the inflation data for June on Friday.
- The consumer price index (CPI) rose 1.1% y/y in June, down from a 1.3% y/y increase in May.
- The producer price index (PPI) rose 8.8% y/y in June, versus a 9.0% y/y expansion in May.
PPI is down but not out:
- The fall in the headline index was mainly due to a weaker base effect.
- Prices are still increasing on a m/m basis, albeit at a slower rate – 0.3% m/m in June versus 1.6% in May.
PPI remaining at elevated levels is not great news growth-wise.
- This week’s State Council meeting flagged up the prospect of an RRR cut as a way of offsetting the inflationary drag on economic activity.
One bit of good news: Higher producer prices are still not filtering through into consumer prices.
- The decline in the headline CPI index was helped by a 1.7% y/y fall in food prices.
- But core CPI, which excludes food and energy costs, was stable at 0.9% y/y, suggesting non-food inflation is still tepid.
Get smart: The fact that producer price inflation is not pushing up the cost of consumer goods will be a relief to officials.
Get smarter: The continued gap between CPI and PPI is, however, a stark indication of the divergent fortunes of the retail and industrial sectors.
2. Payments platforms face same treatment as Ant
On Thursday, People’s Bank of China (PBoC) Vice Governor Fan Yifei said that the anti-monopoly measures imposed on Ant Group will also be applied to other payments companies.
Some context: In April, regulators imposed a far-reaching restructuring plan on Alibaba’s fintech affiliate, Ant.
- As part of the restructuring, Ant was required to cut links between Alipay – its payments service – and other businesses in the Ali family.
Speaking at a press conference, Fan said:
- “Ant isn’t the only company where monopolistic behavior exists.”
- “The measures we adopted for Ant Group we will also use for other payment services market players.”
Get smart: This shouldn’t come as a surprise. While Ant and Alibaba were the first targets in regulators’ crackdown on the tech sector, they’ve since taken the lessons they’ve learnt from Ant and Ali and applied them more widely.
Get smarter: Online payments have become an essential piece of China’s financial infrastructure – a piece that authorities are increasingly looking to put their stamp on.
3. MofCom issues Commerce Development Five-Year Plan
On Thursday, the Ministry of Commerce (MofCom) published the 14th Five-Year Plan (FYP) for Commerce Development.
Some context: Following the March release of the national FYP, ministries, agencies, and localities are now drafting and issuing scores o specific sectoral and local plans.
- The plan projects that retail sales – a proxy for domestic consumption – will grow at 5% annually for the next five years.
- That’s a sharp drop from the 10% annual growth targeted in the last FYP.
We don’t think MofCom’s projection matters.
- That’s because MofCom doesn’t have influence over retail sales.
But the ministry does have influence over foreign investment.
And that’s why this is worth noting:
- “[We must] protect against risks associated with using foreign capital, improve the system for foreign investment national security review, and initiate review of foreign investments that may impact national security.”
Get smart: Foreign investment is set to come under heavier scrutiny in the years ahead.
What to watch: Back in March, MofCom promised an entire FYP on foreign investment.
- That would include more detail on any new investment review process.
4. Xi Thought research centers proliferate
A troop of Xi Jinping Thought Research Centers have been popping up all over the governance apparatus recently – not unlike some sort of forest-dwelling fungi.
Over the past two weeks, three new such centers were announced, at the:
- Ministry of Ecology and Environment (MEE) – Xi Thought on Ecological Civilization
- China Law Society – Xi Thought on the Rule of Law
- National Development and Reform Commission – Xi Jinping Economic Thought
Some context: This brings the total tally of Xi Thought centers to five.
- In July 2020, a center for studying Xi Jinping Thought on Diplomacy was set up in an institute directly under the foreign ministry.
- The first center, for studying Xi Jinping Thought on a Strong Military, was launched in May 2019.
Why the centers are a big deal:
- Party general secretaries don’t usually establish research centers for their own ideological slogans.
- The proliferation of Xi Thought centers is proof of his political dominance.
Judging from the way the foreign ministry center has operated so far, the new centers are less about research – and more about propaganda (NOPSS):
- “The research center should become…an important platform for publicity and implementation and… for interpretation and communication [of Xi Thought].”
Get smart: With Xi Thought now physically ensconced in the government apparatus, it’s pretty clear that Xi ain’t going anywhere anytime soon.
5. Checking up on doctors and nurses
On Wednesday and Thursday, Vice Premier Sun Chunlan paid a visit to Fujian province to inspect local medical reform pilots.
Some context: In 2012, the medical insurance scheme in Fujian’s Sanming city was nearly bankrupt.
- Sanming introduced a series of reforms – including negotiating directly with drug companies to bulk-buy medicines – that allowed the local public healthcare system to cut costs and improve patient care.
Sun hailed Sanming’s example as the model for national health care reform (Xinhua):
- “Based on the experience gained during Sanming’s reforms, [China] is making notable achievements in reforming drug bulk-buying, healthcare pricing, medical workers’ salaries, and medical insurance payments.”
Sun’s mention of medical workers’ salaries caught our eye.
- That’s because the National Health Commission just announced it’s about to release new guidelines for public hospitals’ salary systems. (Caixin)
More context: Policymakers have been trying to improve pay and working conditions in public hospitals since before Xi Jinping came to power.
- Progress has been slow because cash-strapped public hospitals don’t have the resources to offer raises.
Get smart: The plight of China’s doctors and nurses – overworked, underpaid, and absolutely essential – was front and center as the country battled the initial COVID-19 outbreak in early 2020.
Get smarter: Leaders are now hellbent on advancing the long-delayed salary reform agenda.