HEARD IN BEIJING
"There is some grave anxiety, because we are facing some urgent matters."
- Anonymous expert in Beidaihe
Context: The expert, along with many others, met with political leaders in Beidaihe, where the atmosphere is decidely more gloomy than in years past. More in the Tip Sheet below.
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DRIVING THE DAY
1. Talking tech at Beidaihe
Top leaders met with a group of the country’s top tech experts Saturday (see August 6 Tip Sheet).
"Advice on making breakthroughs in “neck-choking” technologies"
Some context: "Neck-choking technologies" are those that, should China not have access to them, could cripple the economy – think semiconductors.
Experts at the meeting were from various fields, including aerospace, integrated circuits, biomedicine, food safety, and agricultural technologies.
Get smart: China’s technological dependency on other countries – particularly the United States – is making leaders uneasy as the trade war heats up.
Get smarter: Xi has been putting increasing emphasis on the need to develop core technologies at home.
What to watch: Things are feeling a bit panicky in Beijing and Beidaihe. That is opening up space for debate on policy, meaning that we could see some new initiatives in the coming weeks and months.
DRIVING THE DAY CONT'D
2. Backstage at Beidaihe
The SCMP is giving us a rare peek behind the scenes at Beidaihe – circa 1995.
How it used to be:
“One family member of a party elder who wielded huge political power for nearly two decades after Deng took power in 1978 told the South China Morning Post the closed-door meeting in those days usually started in mid-July and lasted for nearly two months.”But the same source says that things have changed:“The source close to a party elder said: ‘Unlike the practice in 1980s and 1990s, in which there was at least one issue or two scheduled to be discussed in Beidaihe, nobody knows for the time being whether there is any agenda or meeting in the resort, although party elites are supposed to be all there to spend their summer holidays.’”
Get smart: Beidaihe used to be an important venue for Party elders to input into the policy process. But in the Xi era, Xi calls the shots, and the influence of elders has waned.
What to watch - weekend edition: In 2000, former leader, Jiang Zemin took a “nothing off-limits” interview with CBS 60 minutes’ Mike Wallace in Beidaihe. Click the YouTube link below for the full interview, and the last link for the story behind the interview.
SCMP: Where China’s top leaders go in summer and in secret: a brief history of Beidaihe
Youtube: 华莱士谈笑风生 完整版
Ifeng News: 3小时57分钟，88个回合 迈克·华莱士采访江泽民的故事
FINANCE & ECONOMICS
3. FSDC wants to know why loans aren't getting to businesses
Yesterday, we highlighted a piece from the China Securities Journalthat helped explain why increased liquidity does not seem to be turning into accelerated credit growth.
A recent meeting of the Financial Stability and Development Committee (FSDC) raised the same issue.
Some context: In case you forgot, the FSDC is a State Council body that was created in 2017 to coordinate economic and financial policy.
For a flavor of the recent FSDC discussions, we turn to China Banking News:
"[The FSDC] has called for further 'clearing out' of monetary policy transmission mechanisms, while a senior PBOC official has also pointed to the possibility of further targeted reductions in the required reserve ratio.""A recently convened meeting of FSDC called for more 'focused research into the issues of the further clearing out of monetary policy transmission mechanisms and strengthening of the ability to service the real economy.'”
Get smart: Policymakers want to channel funds to small businesses, but banks aren’t interested. Ironically, that is partly because the de-risking campaign has made banks more risk averse – and small companies carry a higher chance of default.
China Banking News: FSDC Frets over Blockages in China’s Monetary Policy Transmission Mechanisms
FINANCE & ECONOMICS
4. Financial regulators focus on "vicious debt evasion"
2018 has seen the collapse of hundreds of online P2P lenders, as the financial de-risking campaign has dried up funds at the platforms (See July 18 Tip Sheet).
Given the widespread implosion of such lenders, borrowers are now trying to game the system, purposefully not repaying their loans in the hopes that the lender will fold up shop.
Those “malicious borrowers” are now in the crosshairs (Caixin)
"Watchdogs want to put these malicious delinquent borrowers on databases overseen by the central bank to alert all lenders, according to a notice issued on Wednesday by the Office of the Leading Group for the Special Campaign Against Internet Financial Risks and seen by Caixin.""Local authorities, who are responsible for supervising P2P lenders registered in their respective administrative areas, were given until midday Thursday to compile and submit lists of borrowers who have defaulted on loan repayments since the beginning of July."
The idea is to identify such borrowers so they can’t hop from platform to platform.
Get smart: The government is concerned about these platforms because they are funded by small investors. As the firms blow up, more and more people are taking to the streets to demand payment.
Caixin: China to Debt Dodgers: We’re Coming For You
POLITICS & POLICY
5. Party media says rivalry with US is inevitable
There is growing debate within China about whether or not the authorities have gone too far in projecting power and confidence with regards to the trade war.
On Thursday, People's Daily waded in. They say that there are two erroneous theories being batted around:
"[China’s] 'overconfidence and boastful rhetoric' has incurred the US's wrath.""If [China] comrpomises and concedes early, the trade war will not intensify."Instead, the People's Daily says this is all on the States:"Whichever country is the second strongest global power,...[will be] the most important opponent of the United States, and the United States will want to contain that country.""It doesn't matter if it’s the Soviet Union, Japan, or China – there are no exceptions."
Get smart: This doesn't look good. If China and the United States are convinced that they are enemies, then it becomes a self-fulfilling prophecy.
People's Daily: 美国挑起贸易战的实质是什么？
POLITICS & POLICY
6. Market regulator reveals its shape
The powerful new State Administration of Market Regulation (SAMR) is out with its organization plan.
Some context: The SAMR was created in March as part of the government’s MASSIVE restructuring. It consolidated the previously separate food and drug regulator (CFDA), anti-monopoly regulators, product quality inspector (AQSIQ), standards making body (SAC), and IPR office (SIPO).
The new agency is a beast. According to its org plan, the SAMR has a whopping 27 departments.
This caught our eye: One of the SAMR’s tasks will be to support the Party’s Organization Department to build a Party presence in China’s small businesses.
Get smart: The SAMR promises more uniform regulation of business activities. But business should also be prepared for more rigorous supervision.
What to watch: SAMR’s internal setup should be in order by the end of September.
What to watch 2: Other restructured government bodies will be revealing their org plans in the coming weeks.
POLITICS & POLICY
7. Migrant workers group reshuffled
The State Council’s Leading Small Group for Migrant Workers has been reshuffled (Gov.cn):
“Vice-Premier Hu Chunhua will sit at the helm of the new lineup as the group leader, flanked by Zhang Jinan, minister of Human Resources and Social Security; Ding Xiangyang, vice-secretary of the State Council; and Guo Wei, deputy head of the State Council’s research office.”
Some context: This group is relatively new, having only been established in 2013.
The Ministry of Human Resources and Social Security (MoHRSS) will be running the day-to-day work of the group. MoHRSS vice minister Qiu Xiaoping will head the group’s office.
Qiu is well-qualified: He’s been head of the office since 2015.
Get smart: This group could have its hands full. If the economy slows precipitously, migrant workers will bear the brunt – the government’s top priority will be ensuring that layoffs don’t turn into civil unrest.