1. LKQ plays his greatest macro policy hits
On Monday, Premier Li Keqiang invited economic experts, business leaders, and top government officials to share their thoughts on the economy.
Some context: Li does this every year when he and other top leaders prepare for the Politburo’s mid-year economic policy review, which happens at the end of July.
The big takeaway: Li is worried about the economy (Xinhua):
- “The domestic and external environments remain complicated and complex.”
- “There are relatively many factors creating uncertainty and instability.”
- “We must respond well to cyclical risks that could occur.”
Our take: We think Li is worried about a couple things in particular.
- Continued high commodity prices, as the global recovery gathers momentum
- A looming drop in export growth as post-pandemic economies spend more on services at home, and less on goods made in China
Despite his anxieties, Li signaled that macro policy will stay restrained (Xinhua):
- “We should maintain continuity and stability in macro policy and resolutely resist ‘flood irrigation’ in macro policy.”
Some context: “Flood irrigation” = overly aggressive monetary and fiscal policy.
- That may seem like mixed messaging, given Friday’s RRR cut.
- But we’ll reiterate that the move was not loosening, per se – it was about lowering bank funding costs and supporting SMEs.
That doesn’t mean the government will just sit on its hands:
- “We should support policies to ease the pressure caused by rising commodities prices.”
- “We support the use of funds such as special purpose bonds to promote construction projects and positive quality-of-life projects.”
Get smart: China’s economic recovery is looking increasingly shaky. Beijing knows this, but remains hesitant to go back to the well on stimulative policies.
The upshot: The growth outlook for H2 ain’t good.
2. More support for trade on the way
Li Keqiang isn’t the only one worried about the economy (see previous entry).
The State Council, the Ministry of Commerce (MofCom), and the General Administration of Customs (GAC) have promised a spate of new support measures for foreign trade over the past few days.
On Friday, the State Council released a policy document outlining their vision for supporting “new formats and models” for foreign trade, via (Gov.cn):
- More free trade pilot zones
- Better cross-border logistics and warehousing facilities
- Simplified, integrated systems for managing customs clearance, traceability, and taxation of traded goods
- New fiscal, financial, and tax support policies
MofCom vice minister Ren Hongbin outlined how his ministry planned to help. At a Monday presser, he promised to (Caixin):
- “Introduce targeted policies to help alleviate the difficulties faced by enterprises and ‘fully stabilize foreign trade and investment.’”
On Tuesday, GAC weighed in with a laundry list of practical plans to support trade, including (NBD):
- Reforming port use fee structures
- Simplifying customs clearance procedures
- Expanding the “single window” program, which simplifies customs declarations
Hang on a second: GAC just released June trade data on Tuesday – and things looked peachy keen.
- In y/y terms, trade growth hit the highest level in a decade!
- Even correcting for 2020’s very low base, trade growth looked robust.
Get smart: Regulators are conscious that high commodities prices and CNY appreciation are masking weaknesses in the trade data.
- They expect the sector will need some help in H2.
3. It’s celebrate the celebration time, come on
That was Xi Jinping’s message to around 125 officials who oversaw preparations for the Party’s big centenary bash on July 1.
It wasn’t just Xi who expressed his thanks. Five of his Politburo Standing Committee colleagues – and a further six Politburo members – also stopped by to say thanks. And pose for a group photo.
The event was a big deal (Xinhua):
- “Xi Jinping stressed that the grand celebration was… a major event in the political life of the party and the state.“
It’s safe to say that Xi was impressed:
- “The celebrations were magnificent and stately, with expansive grandeur; they were in line with the universal order, and in harmony with heaven and earth... [they] served to unify thinking, aggregate abilities, inspire the people, and boost morale.”
Just when everybody hoped Xi was ready to crack open the champagne red wine mixed with Coke, he told everybody to keep working:
- “We must make full use of the surging enthusiasm and strong positive energy aroused by the celebrations to pool [the country’s] great strengths to build a modern socialist country… and realize the great rejuvenation of the Chinese nation.”
Get smart: Xi is obsessed with creating a more effective, unified, and popular Party. Its 95 million members will be pushed to achieve this as long as he is in power.
4. Xi calls on leaders to celebrate with a little Belt and Road
On Tuesday, Xi racked up the phone bills with three separate calls to:
- Turkish President Recep Tayyip Erdoğan
- Ukrainian President Volodymyr Zelensky
- Barbadian Prime Minister Mia Mottley
You’ll be glad to know that the running theme was…you guessed it…more anniversaries:
- China and Turkey will celebrate their 50th anniversary of diplomatic relations on August 5.
- China and Ukraine will celebrate their 30th a little later, on January 4.
- China and Barbados celebrated their 44th in May – a less exciting number, but since such matters were clearly on Xi’s mind, the anniversary still made the top of the state media readout.
Naturally, the bilateral bonhomie served as appetizer for an unsurprising main course:
- Each leader congratulated the Party (again) on its big 100th…
- …while Xi called on everyone to celebrate by promoting the Belt and Road Initiative.
Get smart: There’s a lot going on – but don’t forget the Belt and Road.
- Xi certainly hasn’t – and he’s making every effort to ensure no one else does, either.
5. China’s carbon market: ready for liftoff
Remember how the world’s largest carbon market missed its end-of-June launch?
- Over a week went by before regulators commented, attributing the delay to operational issues.
Well, we’re finally set for liftoff – this time for real!
On Thursday, Zhao Yingmin, Vice Minister of Ecology and Environment, reiterated that the national emissions trading scheme (ETS) will launch in July.
- He said that it’s all systems go.
- But he didn’t reveal the actual launch date.
So it’s a good thing that industry participants have confirmed that the ETS will open this Friday.
- Simultaneous launch parties are scheduled for Beijing, Shanghai, and Wuhan.
- After which, the first batch of transactions will begin.
Remember: This is just the start.
- The market will initially cover just the power generation sector, including 2,225 generators.
- Over the next few years, the ETS will expand to cover a total of eight high-emissions industries.
Get smart: We said this in our recent net zero deep dive, but it bears repeating —this is a really big deal.
- The national ETS is one of China’s best mechanisms to embed carbon reductions into its economy over the long term.