1. Go forth and relend!
On Wednesday the State Council had one of its regular get togethers.
Top of the docket?
- Helping small firms.
The big news is that the State Council has instructed the central bank to increase relending to banks by an additional RMB 300 billion this year.
Some context: Relending occurs when the central bank provides a commercial bank with funding for an existing loan.
- The loan typically needs to be to small or agricultural firms to qualify.
But the State Council also flagged a bunch of other measures, including:
- Establishing a national guarantee fund that will back guarantee institutions to facilitate borrowing by small firms that lack collateral and credit records.
- Reducing lending rates for companies adversely affected by the pandemic.
- Increasing support for entrepreneurs and innovation.
- Helping small firms get their outstanding trade receivables paid.
- Encouraging local governments to alleviate the pressure of rising costs on small firms.
The State Council said the measures were necessary to:
- “[S]tabilize growth and ensure employment.”
Get smart: Relending has become Beijing’s go-to tool for increasing the flow of credit to small firms.
- In early August, the People’s Bank of China increased the facility by RMB 200 billion, albeit for a handful of struggling provinces only.
- At the end of June, the total volume of outstanding funds lent through the relending facility was RMB 888 billion.
Get smarter: China’s private sector still hasn’t recovered from the pandemic. That’s having consequences for employment, and it’s making Beijing nervous.
2. Caixin Manufacturing PMI contracts in August
On Tuesday, the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for August indicated that factory activity in China contracted last month for the first time since April 2020.
The headline number: The PMI dropped to 49.2 – down from 50.3 in July.
Quick refresher: A PMI above 50 indicates expansion in the sector. Below 50 means contraction.
- Analysts polled by Reuters predicted that August’s number would come in at 50.2, a fairly wide miss.
- New export orders dropped for the first time since February.
- Factories hired fewer workers than they laid off in the month.
Why the dip?
- The primary culprit was the Delta variant. The resurgence of COVID-19 – and of COVID-19-related lockdowns – put a damper on output.
- The global chip shortage was also cited as an issue.
Get smart: With the COVID outbreak now largely under control, we expect September’s PMI to poke its head back above 50.
Get smarter: A just-over-50 print won’t exactly be anything to write home about, as the overall economic data flow out of China remains weak.
The bigger picture: As we wrote last week, the downward pressure is greatest on parts of the economy that are exposed to tight macro policies, but officials are not inclined to change course (see Beijing is not for turning).
- The upshot: That means further slowing in Q4 2021.
3. Organizational skills
Can grassroots grow from the top down?
On Wednesday, local media reported that ride-hailing giant Didi and e-commerce platform JD.com have moved to establish unions for their employees.
- They will be the first big tech companies in China to have company-wide organized labor (albeit with Chinese characteristics).
Some context: Labor fairness is among the many issues targeted by this year’s sweeping tech crackdown.
- Many tech giants rely on armies of temporary workers – cab and delivery drivers, respectively, in the case of Didi and JD.com.
- And while employment opportunities are great, these folks have been left out in the cold when it comes to basic protections like health insurance.
More context: In addition to general government criticism, eight state organs, including the All-China Federation of Trade Unions (ACFTU), issued opinions in July on labor rights for workers in “new forms of employment.”
- They called for more unions.
Few details are available, although it’s clear these unions must operate under the auspices of the ACFTU, which remains the only way to run a union in China.
- Independently organized labor is not tolerated.
Get smart: The writing was already the wall when it comes to big tech labor practices – they’re changing.
- Forming labor unions is a low-cost way for companies to demonstrate acquiescence to government demands.
Get smarter: China’s tech companies have been tripping over themselves to show alignment with Beijing’s priorities.
- These are the first unions, but they won’t be the last.
4. No partying at the Party school
For the next four months, 800 mid-level officials will undergo training at the Central Party School.
Why it matters: These are the leaders of tomorrow. Many of these officials are in their 30s, so should be around for decades.
On Wednesday, Xi Jinping addressed the students.
His message: Being an official isn’t supposed to be easy.
Some key quotes (Xinhua):
- Assigning young cadres to work in difficult and remote areas is [a sign of] trust and [an attempt] to groom [them for future roles].”
- Young cadres should take pride in this, and seek to outdo each other [in this respect.]
- “When the Party puts an official in a post, it is so that they can be [like military] officers, not so that they can become officials enjoying comfort and happiness.”
Get smart: It’s become a lot less fun to be an official since Xi came to power. And that’s the way he likes it.
- Xi wants officials to serve because they are dedicated to his larger mission of making China rich and powerful, not because they are dedicated to themselves.
5. Oasis or mirage?
On Wednesday, Foreign Minister Wang Yi sat down for a virtual meeting with US special climate envoy John Kerry.
Some context: Kerry is in Tianjin for climate discussions with his Chinese counterpart Xie Zhenhua.
- We noted with interest that Wang opted to meet Kerry via videolink, despite being just a 30-minute train ride away.
Wang said that Beijing was eager to cooperate with Washington on climate issues (The Paper):
- “[C]ooperation is the only correct choice and is also the ardent expectation of the international community.”
But Wang warned that the US would need to adjust its attitude toward China:
- “The reason [for poor bilateral ties] is that the United States has made a major strategic miscalculation about China.”
- [T]he US side should stop treating China as a threat…and stop encircling and suppressing China.”
Wang concluded with a metaphor, saying US-China climate cooperation is like an oasis (Reuters).
So look out: “[S]urrounding the oasis is a desert, and the oasis could be desert-ified very soon.”
Get smart: Wang’s right. It’s hard to see climate cooperation going anywhere while US-China ties are still actively deteriorating.
6. State Council supports struggling students
On Wednesday, Premier Li Keqiang did his thing – hosting the State Council’s weekly executive meeting (see entry #1).
What was Li on about this week?
- Helping poor students.
Li said that the national student loan policy will get an update this fall, by (Xinhua):
- Increasing the maximum annual student loan amount – from RMB 8,000 to RMB 12,000 for undergrads, and from RMB 12,000 to RMB 16,000 for postgrads
- Fully subsidizing loan interest for student loans during the time of study
But that’s not all.
Li also promised the government will:
- Continue compensating banks for the added risk of taking on student loans
- Guide students to be “diligent and thrifty” to enhance their employability
- Urge schools to provide more work experience opportunities for students
Get smart: As a policy move, helping poor students complete their schooling is almost as good as it gets.
- This drive will help reduce education inequality, keep unemployment down, and raise the quality of the workforce.
- It’s a win-win-win.
7. Do you debit or credit emission reductions?
You can’t manage what you can’t measure.
On Tuesday, the National Development and Reform Commission (NDRC) announced that its Leading Small Group (LSG) for Peak Carbon and Carbon Neutrality had established a Carbon Emission Statistics and Accounting Working Group.
Some context: The LSG was established in May to push the country towards its goals of peak carbon emissions before 2030 and carbon neutrality before 2060.
The new working group’s mission is to speed up the establishment of a unified, standardized carbon emission statistics and accounting system nationwide and across industries.
- Without such a system, it will be challenging to coordinate efforts, track results, and make adjustments.
The group is led by members of the:
- Department of Resource Conservation and the Department of Environmental Protection of the NDRC
- Department of Energy Statistics of the National Bureau of Statistics (which will run it)
Get smart: With all the focus on reducing emissions, it’s easy to forget the importance of tracking just how much emissions have fallen.
Get smarter: A unified carbon statistics and accounting system is crucial for gauging which policies work – and which don’t.
- It also speeds the day when environmental results count more heavily in cadres’ performance evaluations.