1. COVID apocalypse dawns on Fujian
2. Data dump – August econ data
China’s stats bureau published the monthly econ data for August on Wednesday.
- Retail sales rose 2.5% y/y in August, down from 8.5% y/y growth in July.
- Fixed asset investment rose by 0.2% y/y, compared with a 0.8% y/y fall in July.
- Value-added output at industrial firms rose 5.3% y/y, versus 6.4% y/y growth in July.
Things don’t look much better on a two-year average basis, taken to smooth out last year’s pandemic-related distortions:
- The geometric mean of retail sales growth in August 2020 and August 2021 was 1.5% y/y, down from average y/y growth of 3.6% for July over the past two years.
- Fixed asset investment averaged 2.4% y/y growth, compared with 3.2% for July.
- Value-added output at industrial firms averaged 5.4% y/y growth, versus 5.6% growth for July.
Analysts had been expecting a slowdown in economic activity given the host of recent problems, including:
- COVID-19 outbreaks
- Ongoing component shortages, including chips
- Continued cost pressures from rising commodity prices
Worryingly, activity came in below the already scaled-back expectations:
- The consensus forecast for retail sales was 7% y/y growth.
- Analysts had been anticipating a 5.8% y/y increase in industrial value-added output.
The pullback in service sector spending was particularly stark:
- The Service Production Index – which measures inflation-adjusted growth in the sector – rose by just 4.8% y/y last month, the weakest since last August.
- Catering sales fell by 4.5% y/y.
Get smart: The latest COVID-19 outbreak in Fujian province is a reminder that the economic disruptions that wreaked havoc in August are not going away.
3. More tax-free when you R&D
Don’t fiddle your expenses, nor miss these incentives.
On Tuesday, the State Tax Administration published the Announcement on Further Implementing the Issues Related to the Policy on the Additional Deduction of R&D Expenses.
Make me care: The policy aims to increase R&D investment by helping companies better manage their cash flows. It will be easier and faster for companies to file for tax deductions based on their R&D spending.
A closer look:
- For the 2021 tax year, companies will enjoy greater autonomy on what constitutes their R&D spending as they prepare their taxes. The government won’t ask too much about it.
- The announcement simplified the R&D tax book’s template, so firms should find filing taxes easier.
- Companies will also get tax deductions in October, rather than the following May as they did previously.
Get smart: This policy means that companies can enjoy the cash flow benefit (totaling around RMB 300 billion, based on 2020 numbers) immediately after filing their provisional taxes.
Get smarter: The government is pulling out all the stops to support innovation.
4. Li wants a COVID cure
On Monday, Premier Li Keqiang visited Peking Union Medical College Hospital (PUMCH).
The occasion: PUMCH will turn 100 years old on Thursday.
Some context: Founded by the Rockefeller Foundation in 1921, the hospital became and has remained one of China’s best general hospitals.
While there, Li held a symposium with medical experts.
His message? Healthcare is more important than ever.
And that means greater expectations for cutting edge treatments (Gov.cn):
- Li urged medical staff to hone their medical skills and seek the best treatments for challenging diseases.
- They should also enhance international exchanges to innovate new treatments.
- Hospitals will invest more to conduct and apply world-class clinical research.
Li had some specific requests, too, including:
- More efforts to improve the efficacy of COVID-19 vaccines
- And even more efforts to develop COVID-19 treatments
Get smart: The right incentive schemes, not Li’s expressions of hope, will decide whether medical professionals at public hospitals can deliver better and more innovative healthcare services.
What to watch: The public hospital sector just started another round of salary and benefit scheme reform, aimed at increasing medical professionals’ salaries. But the jury’s still out on the impact.
5. Back to the revolutionary roots
On Tuesday, Xi Jinping continued trippin’ around the countryside of his home province Shaanxi, visiting the northwestern county of Suide.
In Suide, Xi stopped by:
- A revolutionary site – the 1937 premises of the former Party committee
- A middle school
- An exhibition hall for local cultural heritage
- A village
That’s the second revolutionary site Xi has visited in the past two days – following his visit to Yangjiagou on Monday.
ICYDK: A crucible of China’s revolution before 1949, the Shaanxi countryside is rife with red sites.
But this caught our eye: Both these party venues are important to Xi’s own family history.
- Xi’s parents met for the first time in Suide back in 1943, when Xi’s father chaired the county’s Party committee.
- And in 1947, his father attended the important “December Meeting” in Yangjiagou chaired by Mao Zedong.
Get smart: Xi’s red pedigree is pretty much impeccable. This trip delivers a neat reminder of that to any sceptics amongst the Party leadership ahead of the Sixth Plenum in November.
More history: What will the upcoming plenum’s keenly anticipated “resolution on history” focus on?
- We’re not sure, but there’s one safe bet: The necessity of keeping Xi Jinping as the “core” of the Party.
6. Charming Qin chats cheerily
Beijing’s man in Washington is on a charm offensive.
This week, Ambassador Qin Gang struck a notably hopeful tone on US-China relations in messages to:
- The US-China Business Council (USCBC)
- NYU Shanghai’s class of 2025
In a video address to USCBC, Qin deployed a sturdy nautical cliché to describe Sino-American ties (Chinese Embassy in the US):
- “If we compare China-US relations to a giant ship, then economic and trade cooperation has been its ballast and propeller.”
- “When the ship sails against heavy winds…we need to add more strength to the ballast and propeller.”
He’s on deck to help chart a new course through rocky waters:
- “I would love to talk to you, and be a good listener and helper to you, so that we can…promote the common interests of China and the US.”
Qin then channeled not the Great Helmsman but the sage himself, in a message to NYU Shanghai’s incoming class (The Paper):
- “Confucius said, ‘when three people walk together, one will be my teacher.’”
- “China will, as always, support China-US educational exchanges, encourage two-way study abroad, and deepen university cooperation.”
Get smart: Qin’s saying all the right things, but it’ll take more than that (from people higher up the totem pole) to break the impasse in US-China relations.