HEARD IN BEIJING
"[Intellectuals] must...earnestly strengthen their spirit of patriotic struggle"
- Excerpt from announcement of a new patriotic study campaign
Some context: There are increasing signs that the Chinese intellegentsia are not on board with Xi Jinping's political program. So the Party's Organization and Propaganda Departments are launching a new campaign to boost patriotism among intellectuals. More in the Tip Sheet below.
THE TIP SHEET
DRIVING THE DAY
1. PBoC on board with Politburo’s plan
Financial regulators wasted no time getting in line with the latest Politburo directives (see yesterday's Tip Sheet).
On Wednesday, top central bank (PBoC) officials held a meeting to assess priorities for H2 2018.
The primary goal: follow the Party’s leadership.
Other priorities flow almost verbatim from the Politburo statement on Tuesday. The PBoC wants to:
"Implement prudent monetary policy, control the money supply tap..and maintain reasonably abundant liquidity""Encourage financial institutions to increase support for the real economy and reduce the financing costs for the real economy""Actively guard against and defuse financial risks and combine the prevention and resolution of financial risks with servicing of the real economy""Conscientiously implement the three-year action plan to prevent and resolve major risks""Continue to improve the financial services of small and micro enterprises""Deepen financial support for, and win, the three-year action plan to fight poverty""Further expand financial openness""Pay more attention to policy communication with the market"
Get smart: That’s quite a laundry list. It shows that authorities have not given up on de-risking. But they also want to support the real economy.
The rub: The two may not be compatible. Where to strike the balance is still an open debate.
FINANCE & ECONOMICS
2. New window guidance for trust companies
Speaking of new initiatives, the 21st Century Business Herald reports on new window guidance for trust companies (see link).
Trusts are being told to speed up financing for investment projects – within important constraints.
Some context: Trust lending is a type of “shadow banking” – in the least scary sense of the term. These entities have been a part of China’s financial ecosystem for decades. They don’t take deposits, but they aggregate investor funds to and finance all sorts of projects.
More context: The problem is that trusts tend to invest in speculative projects, and engage in other risky behavior, in order to boost returns. That’s why regulators have been cracking down on them over the past 18 months via tough new asset management rules.
Get smart: This is an early example of a recalibration of the financial de-risking program.
The new message is: “We may have shortened your leash, but make full use of the leash you have!”
21st Century Biz: 独家｜监管窗口指导信托加快项目投放
FINANCE & ECONOMICS
3. MoF promises to keep local government debt in check
Tuesday’s Politburo meetingsignaled an emphasis on infrastructure investment in H2 (see yesterday’s Tip Sheet)
Does that mean that the government is easing up on efforts to control local government debt?
Minister of Finance Liu Kun says "no." He will continue to hold local governments’ feet to the fire (Qiushi):
“Fiscal authorities must…resolutely put a stop to the practice of disorderly borrowing and firmly defend the bottom line of not allowing systemic risks.” Here’s Liu’s plan:Local governments will have only one way to borrow money – through bond issuance.No new projects will be allowed to be funded through off-balance-sheet borrowings.Local governments will be forbidden from making illegal guarantees.The Ministry of Finance will step up its supervision of local governments.
Get smart: The government is trying to send a clear message that its more supportive stance does not mean that it is abandoning the financial de-risking campaign.
Qiushi: 充分发挥财政职能作用 坚决支持打好三大攻坚战
POLITICS & POLICY
4. Google goes back to China
The Intercept scoops that Google has quietly developed a new, censored version of its search engine for in China.
"Teams of programmers and engineers at Google have created a custom Android app, different versions of which have been named 'Maotai' and 'Longfei.'”"The app has already been demonstrated to the Chinese government; the finalized version could be launched in the next six to nine months, pending approval from Chinese officials."
The move marks a total about-face for Google, which pulled out of China in 2010 because of censorship.
Our best guess for what’s going on:Google feels pressure to keep up with Western tech companies that are already doing well in China (Apple) or desperately trying to get in (Facebook).
Get smart: Western tech companies want to be part of China’s fast-growing tech scene. But to do so, they will have to toe the Communist Party line. That's not going to play well back at home.
What to watch: The "China question" may be the next pole in public debate around the moral and societal responsibilities of big tech providers.
You should know: Chinese authorities have said the Intercept's piece is not true (Securities Daily).
The Intercept: GOOGLE PLANS TO LAUNCH CENSORED SEARCH ENGINE IN CHINA, LEAKED DOCUMENTS REVEAL
Securities Daily: 谷歌或重返中国的报道不实
POLITICS & POLICY
5. Xinhua celebrates Xi's military reforms
Yesterday was the 91st anniversary of the founding of the People’s Liberation Army (PLA).
As part of its coverage of the anniversary, Xinhua had an article reviewing Xi Jinping’s military reforms over the past three years.
It’s an impressive list of accomplishments:
"Military organizations were revamped, and the joint combat command mechanism was improved.""The four military headquarters -- staff, politics, logistics, and armaments -- were reorganized into 15 agencies.""The seven military area commands were regrouped into five theater commands.""The percentage of land forces' personnel among the entire PLA was cut to less than half for the first time.""The new Rocket Force and the Strategic Support Force were established."The number of PLA officers was...reduced by 30 percent, and hundreds of generals switched posts."“China's first domestically built aircraft carrier was launched.”“New transport aircraft and stealth jets were commissioned.”“The latest missiles were unveiled.”
Get smart: Overhauling a massive and powerful organization like the PLA is no mean feat – it is arguably Xi’s most impressive achievement.
What to watch: As the military becomes stronger, will they be more prone to flexing their muscle abroad?
POLITICS & POLICY
6. Building the military-industrial complex
Part of Xi’s military modernization project is a desire to make it easier for the military to integrate technologies developed by the private sector, and vice versa.
Some context: Attempts at civilian-military integration have been going on for decades. But Xi put new impetus behind the drive by creating a dedicated Party commission on civilian-military integration in 2017.
Here’s what the civ-mil integration commission got up to on Tuesday:
“A general working plan to integrate military and civilian standards…was adopted.”“The plan specified the goals of integrating military-civilian standards in the next three to five years, including the elimination of conflicting standards and timely upgrading of outdated standards.”“At least 60 percent of newly-introduced standards in key areas should be universal in both military and civilian sectors, said the document.”“Examples include the integration of standards for satellite navigation, manned space technology, and semiconductor technology.”
Get smart: As the private sector gets more entwined with the military, it’s going to make it more complicated for foreign companies to do business with Chinese companies.
Xinhua: Plan adopted to promote integration of military, civilian standards
POLITICS & POLICY
7. China's discontented liberals
Last week, Tsinghua professor Xu Zhangrun posted a scathing critique of Xi Jinping on the website of the liberal Unirule Institute of Economics think tank (NYT):
“People nationwide, including the entire bureaucratic elite, feel once more lost in uncertainty about the direction of the country and about their own personal security, and the rising anxiety has spread into a degree of panic throughout society.”Chris Buckley reports that the essay has gotten some traction:“Party insiders and foreign experts said misgivings about Mr. Xi’s hard-line policies appeared to be building among intellectuals, liberal-minded former officials and middle-class people.”“A former official who spoke on condition of anonymity said that many former colleagues had shared Professor Xu’s essay.”That could spell political trouble for Xi:“Over time, he and others said, such criticism could coalesce into deeper disaffection that erodes Mr. Xi’s authority and gives other senior officials more courage to question his decisions.”
The Party's response: A new patriotic study campaign for intellectuals (Xinhua).
Get smart: Those study campaigns never work.
What to watch: With a slowing economy and increasing tensions with the US, there may be an opening for opponents to push back on parts of Xi’s agenda.