March 24, 2020

CHINA: "We are really in the same boat."



"We are really in the same boat."

- Cui Tiankai, Chinese ambassador to the US

Context: Cui said that during an interview with the American media outlet Axios published on Sunday. Cui struck a diplomatic tone after weeks of mudslinging and escalating tensions between the US and China. More in the Tip Sheet below.

These days, that boat is looking increasingly rickety. Keep an eye out for squalls on the horizon with our trusty, seaworthy Tip Sheet. Forward today’s note to all your landlubbin’ hardies who can click here to subscribe.

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Driving the Day

1. Li signals shift in epidemic control approach

Monday saw a comeback of domestically transmitted COVID-19 cases in China.

  • There were four new cases, after only one in past five days.
And imported cases spiked too:
  • There were 74 imported cases, up from 39 on Sunday.
That’s why Premier Li Keqiang chaired a coronavirus central leading small group meeting on Monday where he touted the importance of preventing both imported cases and a relapse at home.

To prevent a second domestic outbreak, Li urged efforts to:
  • Keep prevention efforts focused on communities in Wuhan and Hubei
  • Continue to treat critically ill COVID-19 patients
  • Release information about new infections in a transparent and timely manner
  • Contain new infections early
While keeping the virus under tight control, Li also called for efforts to resume normal economic activity, including:
  • Forbidding the use of administrative approval processes and filing procedures to delay work resumption by businesses
  • Cancelling unreasonable restrictions on the movement of migrant workers
  • Foregoing mandatory quarantine for returning workers except for those returning from selected high and medium-risk regions
Get smart: China is fighting a two-front war against domestic and imported infections.

Xinhua: 李克强主持召开中央应对新冠肺炎疫情工作领导小组会议 Premier Li stresses control of import of novel coronavirus disease
NHC: 截至3月23日24时新型冠状病毒肺炎疫情最新情况

Finance & Economics

2. Economic activity updates

As the fog of COVID-19 begins to lift over China, policymakers have turned their attention to economic resumption.

According to the Trivium Business Activity Index, the state of the economy ain’t looking half bad.

Here are our estimates as of March 24:

  • The Trivium National Business Activity Index indicates that China’s economy is operating at 78.1% of typical output. That’s up from 73.6% on March 20.
  • The Trivium National Large Enterprise Activity Index indicates that China’s large enterprises are operating at 78.0% of typical output. That’s up from 75.0% on March 20.
  • The Trivium National SME Activity Index indicates that China’s small businesses are operating at 78.1% of typical output. That’s up from 72.7% on March 20.
Get smart: China still needs to address the bottlenecks in the supply chain to get everything back to normal.

Get smarter: Depressed foreign demand for Chinese exports will be an altogether thornier problem to solve.

Trivium: Trivium Business Activity Index


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Finance & Economics

3. Central bank official hints at looser monetary policy

On Sunday, senior financial regulators held a presser on financial market stability amid the COVID-19 pandemic.

People’s Bank of China (PBoC) vice governor Chen Yulu indicated the central bank would adopt a looser monetary policy, calling for:

  • “[A] situation in which the growth rate of M2 and social financing scale basically matches the growth rate of nominal GDP, and may even be slightly higher.”
Why it matters: This was already happening, but this is the first time that central bank officials have publicly said that they might accept higher credit growth.

That does not mean that financial de-risking is over.

China Banking and Insurance Regulatory Commission (CBIRC) vice chairman Zhou Liang said the CBIRC continues to:
  • Clean up non-performing loans and shadow banking
  • Deal with risky financial institutions
  • Rein in financing to the property sector
  • Help local governments deal with off-balance sheet debts
  • Regulate internet financing and internet insurance
  • Recapitalize banks and insurers
  • Shore up the governance of banks and insurers to root out insider control
  • Implement financial opening measures
  • Carry out the anti-corruption campaign in the financial sector
Get smart: Financial regulators are generally looking to stay the course, but Chen’s comments suggest authorities may look to start accelerating credit growth in the months ahead.

READ MORE 国新办举行应对国际疫情影响维护金融市场稳定发布会

Politics & Policy

4. CSRC reins in dodgy private placements

Surprise, surprise: As Beijing tries to rescue the economy from COVID-19, some firms are trying to take advantage of the government’s largesse.

Some context: Last month, the securities regulator (CSRC) said that shares sold to strategic investors could be discounted by 20% of the traded share price – up from 10% previously – and halved the 18-month lock-up period.

It proved a popular move:

  • “Since the relaxation, 130 companies have published share sale plans, about half of which named strategic investors, according to Shanghai Securities News.”
The problem: The CSRC declined to define “strategic.” So firms did it for them, designating private equity and other financial investors as being “strategic.” The results are likely to be sweetheart deals with insiders who clean up when the economy – and share prices – rebound.

On Friday, the (CSRC) moved to stop that from happening, saying strategic investors must:
  • Own key resources
  • Participate in corporate governance
  • Have some technological strength that boosts profitability
The upshot: At least 10 A-share listed companies withdrew plans to raise funds via private placement.

Get smart: Beijing is in a hurry to get the economy back on its feet. But after four years cleaning up financial sector abuses, it’s not about to let things slide now.

Reuters: Chinese companies delay fundraising plans after watchdog tightens rules

Finance & Economics

5. ‘Bout to go HAM(C)

Hebei Asset Management Company (HAMC) – Hebei province’s sole provincial asset management company (AMC) – has joined a small group of provincial AMCs to have tapped China’s capital markets.

  • It recently raised RMB 550 million in its first ever bond issuance.
Some context: China currently has about 54 provincial AMCs, in addition to four legacy national AMCs, and one newly chartered national AMC. These have exclusive rights to acquire groups of three or more non-performing loans (NPLs) from banks.

Why HAMC’s bond issuance matters: Provincial AMCs have historically underperformed. A big reason is because they lack capital and funding.

Get smart: Hebei AMC’s bond issuance isn’t going to radically change that picture. But such moves are essential if the provincial AMCs are going to make a more meaningful contributions to China’s bank cleanup.

Securities Daily: 河北资管成功发行5.5亿元公司债 系全国地方资产管理公司首单

Politics & Policy

6. X(i) gon’ give it to ya

Xi Jinping is a man on a mission to turn China into the benevolent granddaddy of COVID-19 prevention and control in the eyes of the global community.

Some context: For the past couple of weeks, China has leveraged the receding of its coronavirus crisis to provide aid to and express solidarity with various afflicted countries.

On Monday, Xi placed calls to:

  • French President Emmanuel Macron
  • UK Prime Minister Boris Johnson
  • Egyptian President Abdel-Fattah al-Sisi
Xi’s comments to all three leaders were boilerplate, verging on formulaic (Xinhua 1 and Xinhua 2):
  • “Mankind is a community that shares weal and woe, and that all countries must unite and work together to jointly cope with the epidemic.”
  • “Viruses know no national boundaries or races, and only by working together can mankind win the battle against them.”
But there was something new in Xi’s calls to Johnson and Macron:
  • He called for countries to work together through the UN and the G20 to enhance the sharing of information and experience, scientific cooperation, and improve public health governance.
Get smart: As the world’s political landscape becomes ever more fractious, China sees an opportunity to reposition itself as a responsible global leader in a time of crisis.

Xinhua: Xi says China backs Egypt's fight against COVID-19
Xinhua: China, Britain agree to support WHO's role in combating COVID-19
Xinhua: China, France vow to promote multilateral cooperation against COVID-19

Politics & Policy

7. Ambassador to US dials down rhetoric

Newly appointed foreign ministry spokesperson Zhao Lijian is ruffling feathers.

Some context: In recent weeks, Zhao has aggressively promoted conspiracy theories that the US military created COVID-19 and covertly spread it to China.

Some more context: Zhao’s comments have infuriated US officials, and led them – including US President Donald Trump – to pointedly call COVID-19 the “China virus.”

In an interview published Sunday, Ambassador to the United States Cui Tiankai shot Zhao down (Axios):

  • “Cui Tiankai, told ‘Axios on HBO’ that he stands by his belief that it's ‘crazy’ to spread rumors about the coronavirus originating from a military laboratory in the United States.”
  • “Such speculation will help nobody. It’s very harmful.”
Opinion on Zhao is divided in the Ministry of Foreign Affairs (Bloomberg):
  • “One official said that Zhao’s approach had been vocally welcomed by many inside the foreign ministry.”
  • “Another expressed relief that Cui had disowned Zhao’s ‘dangerous’ remarks.”
Get smart: Thus far, the coronavirus pandemic has only served to heighten Sino-US tensions – at a time when the world needs coordination between the world’s two largest economies.

What to watch: Hopefully Cui’s rebuke of Zhao can dial down tensions and lead to more cooperative relations.

Axios: Top Chinese official disowns U.S. military lab coronavirus conspiracy
Bloomberg: Spat Between China Diplomats Signals Internal Split Over Trump


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