1. Central government reverses local vaccination mandates – or did it?
China’s vaccination pace has plateaued.
- Over the past week, China administered an average 10.84 million daily vaccine doses – slightly up from the week before.
Some context: The pace has dropped significantly from the last two weeks of June, when China’s vaccination drive was at its peak, with more than 20 million doses administered daily.
The recent slowdown has led to some extreme measures to regain the momentum.
- A number of city, county, and lower levels of government set deadlines ranging from late July to early August to get their populations vaccinated.
- Local authorities threatened unvaccinated citizens with a variety of limits to travel, employment, and education.
But, but, but: Many of these restrictions were rolled back almost immediately, as a public backlash broke out.
The backpedaling created confusion – until the central government’s health authority (NHC) spoke on Friday, clarifying:
- Vaccination should still be voluntary.
- Getting vaccinated is both important and necessary.
- Local moves to apply simplified or one-size-fits-all approaches will be rectified.
Get smart: The NHC’s statement is meant to calm the public outcry, but not directly contradict or immediately roll back local restrictions on the unvaccinated.
Get smarter: The central government is aligned with local authorities on the end game, even where they differ on how to get there.
Get real smart: So far restrictions on the unvaccinated only affect smaller cities. Big cities like Beijing and Shanghai are under less pressure to vaccinate, as they already enjoy very high inoculation rates.
2. Leave growth to the economists
On Friday, leading demographer Cai Fang gave a talk on how China should respond to the economic challenge posed by its changing population.
Some context: Cai, a researcher at the Chinese Academy of Social Sciences, also sits on the central bank’s monetary policy committee.
Cai confirmed that Beijing was surprised by China’s 2020 population census (Caixin):
- “The most unexpected census result was the total fertility rate.”
ICYMI: Results were released over a month late this spring, driving speculation that the data had shocked top leadership.
- Just a few weeks later, the Politburo announced the end of restrictions on having a third child.
But Cai said it’s too late to do much about the low birthrate:
- “The decline in the fertility rate is a basically irreversible long-term trend.”
He admonished his audience to stop looking to demographics to deliver growth:
- “The population itself is no longer a solution to the economic growth problem – this economic issue must return to the economists.”
Instead, Cai called for:
- Boosting labor productivity by supporting education, automation, and highly productive sectors
- Boosting consumption by improving income distribution – including direct redistribution efforts
Get smart: Expect raising labor productivity and domestic consumption to remain among Beijing’s top economic policy priorities for the next decade.
3. Serious hackusations
On Monday, the US leveled sweeping accusations of state-sponsored hacking against China.
The most serious charge: hackers employed by the Ministry of State Security (MSS), China’s spy agency, were behind the Microsoft Exchange Server breach disclosed in March.
Some context: The Microsoft hack enabled deep penetration of business networks, and impacted some 250,000 servers.
The proof? Well… proof is difficult to furnish in hacking cases.
- But the US has a “high degree of confidence” it was China (as does Microsoft, which pointed the finger first).
The US also indicted four MSS-affiliated Chinese nationals on charges of conducting a years-long campaign targeting sensitive technologies.
US authorities have made accusations and laid formal charges numerous times in the past.
But this time, it was backed up by allies, including the EU and NATO – a first.
- That said, they were notably more circumspect in blaming the Chinese government.
China predictably denied any wrongdoing. Beijing’s mission to the EU called the accusations “groundless,” while asserting its own hacking victimhood and calling for international cooperation.
Get smart: The Biden Administration achieved a minor victory in coordinating allies to back its complaints, but without concrete steps it’s just complaining, louder.
- And the only result: louder denials.
4. Making common prosperity look easy
On Monday, the Zhejiang government dropped a detailed plan for building a common prosperity pilot zone in the province, spanning 2021-2025.
Why it matters: The Zhejiang zone will be the first – and only – common prosperity pilot zone in China.
But wait! Shouldn’t a long-embedded Communist Party deliver common prosperity nationwide (even worldwide)?
- In time-honored tradition, what happens in the pilot serves as an example for all.
Some context: The Party’s Central Committee and the State Council ordered the zone on June 10.
The zone’s big goal: To tackle income inequality.
By 2025, Zhejiang will:
- Increase residents’ per capita disposable income to RMB 75,000
- Make labor compensation account for more than 50% of GDP
- Reach a 75% urbanization rate; lower the urban and rural income gap
This socialist paradise will arise on the local government’s rock-solid promise to:
- Create more and better jobs – and increase salaries
- Cut living costs for middle-income families
- Create more channels for households to invest their money
Get smart: Xi Jinping has pledged to tackle income inequality.
- The Zhejiang zone marks a small – yet significant – step in that direction.
Our thought: We’re still unclear how the government plans to dodge the middle-income trap for an entire province, in just five years.
5. Curb your enthusiasm
Steel yourself. Capacity growth in the world’s largest steelmaker could finally be reaching the end of the line.
The China Iron and Steel Association (CISA) is drafting an authoritative plan to curb steel capacity and production. The CISA confirmed progress on the plan – to align the industry with the nation’s peak carbon and carbon neutrality goals – at an industry forum on Saturday.
But haven’t we heard this before?
Previous efforts to reduce steel production and capacity failed to move the needle. Despite the government’s goal of decreasing total crude steel production y/y in 2021, production is on pace to rise significantly:
- Strong demand drove up H1 crude steel production 11.8% y/y.
- Steel center Tangshan is reportedly considering easing output constraints in H2 to manage high prices.
The NDRC recognizes that things haven’t gone well – and it wants change. One representative warned that the government could take “more severe” measures later in the year, to make sure things move in the right direction.
Get smart: CISA is under pressure to get results.
- The steel sector accounts for roughly 15% of China’s carbon emissions.
- That’s far too large for the industry to continue without course correction in the next few years.
Get smarter: But that doesn’t mean it’ll get any easier.
For one, CISA has been pumping out capacity reduction policies for years, to little avail.
For two, high prices are squeezing policymakers trying to mitigate downstream impacts – an issue that won’t get easier when they further constrain production and capacity.