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TRIVIUM CHINA: THE TIP SHEET

TRIVIUM CHINA

HEARD IN BEIJING

“Africa has chosen China.”

- Roch Marc Christian Kaboré, President of Burkina Faso
 

Some context: Kaboré arrived in Beijing Thursday, ahead of next week’s Forum on China-Africa Cooperation. Kaboré, like many other African heads of state, appreciates China’s sustained efforts to improve ties with the continent. More in the Tip Sheet below.

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THE TIP SHEET

DRIVING THE DAY

1. Looking forward to FOCAC

 

The Forum on China-Africa Cooperation (FOCAC) will commence in Beijing on Monday.

Some context: FOCAC was created in 2000 as a forum to discuss Sino-African relations. Its members include China and all African states except Eswatini (formerly Swazliand), which doesn’t formally recognize the PRC. It’s held every three years.

The forum is growing in importance under Xi Jinping. All but one of the first five forums were held at the ministerial level. But the two FOCACs since Xi came to power – in 2015 and this year – have both been at the head of state level.  

What to watch (Xinhua):

“Xi Jinping will deliver a keynote speech at the opening ceremony of the summit…[where] he is expected to propose new ideas to strengthen relations with Africa and announce new measures for pragmatic cooperation.”“The summit will conclude with the signing of a declaration and an action plan, providing guidelines for China-Africa cooperation for the next three years.”

African leaders are already arriving. Xi held separate talks with Sierra Leonean President Julius Maada Bio and Cote d'Ivoire's President Alassane Ouattara on Thursday.

Get smart: China invests more energy in relations with Africa than any other major economy, and it is paying off.
 

READ MORE
Xinhua: 2018 FOCAC Beijing Summit: What to expect
CPC: 习近平同科特迪瓦总统瓦塔拉举行会谈
CPC: 习近平同塞拉利昂总统比奥举行会谈
 

FINANCE & ECONOMICS

2. More tax cuts on the way

Thursday’s State Council meeting focused on cutting taxes.

That’s nothing new (gov.cn):

“The meeting was the ninth time that the issue of tax and fee cuts was included on the agenda of the State Council’s weekly executive meetings since the new government took office in March.”Here’s what the government will do:“Enterprises whose production is halted or business suspended due to the required cutting of overcapacity or restructuring will see their real estate tax and urban land-use tax reduced or exempted.”“The investment businesses of social security funds and basic pension insurance funds will enjoy a tax break.”“The value-added tax exemption on lenders’ interest income for loans [will be expanded] to micro and small businesses with a credit quota of up to 10 million yuan, up from the previous credit quota of 5 million yuan.”“Export rebate rates for some products will also be improved.”The expected impact:“These incentives are expected to cut the corporate tax burden by 45 billion-plus yuan this year.”

Get smart: These measures will cushion the economic slowdown, not reverse it.

The long game: Not enough Chinese companies pay their fair share of taxes. The idea is to lower the tax rate over time and get more companies in the system.
 

READ MORE
Gov.cn: 李克强主持召开国务院常务会议
Gov.cn: China rolls out further tax cuts in support of real economy
 

FINANCE & ECONOMICS

3. State Council also gives some love to foreign bond holders 

The State Council is not just offering help to domestic companies in its efforts to shore up growth.

Chinese regulators will also be cutting taxes for foreign bond purchasers (gov.cn):

“Corporate income tax and value-added tax on foreign institutions’ interest gains from onshore bond market investments will be exempted for three years.”

Some context: Foreigners own a very small proportion of Chinese bonds – about 8% of all central government bonds outstanding.

But foreign purchases have been growing in importance.

Get this: A full 36% of central government bonds were purchased by foreigners over the past twelve months.

Get smart: This is not just an effort to support the bond market – which will help keep bond yields low and give the government abundant financing. It’s also about attracting – and keeping – capital inflows, to alleviate some of the downward pressure on the exchange rate.

One problem: The Federal Reserve is set to continue raising interest rates. As US and Chinese yields continue to converge, a tax break won’t be enough to keep investors focused on the mainland.
 

READ MORE
Bloomberg: China Plans Tax Cuts for Foreign Bond Investors to Aid Growth 
Gov.cn: China rolls out further tax cuts in support of real economy
 

FINANCE & ECONOMICS

4. China’s banks keep raking it in

China’s banks started reporting their second quarter earnings this week.

The upshot: China’s big banks are still killing it, profit-wise.

Caixin has some details:

"China Construction Bank (CCB), the country’s second-largest bank by assets, reported its profit grew 6.3% to 147 billion yuan in the six months through June.""The first-half figure implies a 7.1% quarterly profit growth for CCB, up from 5.4% quarterly profit growth in the first three months of the year.""The net profit of Agricultural Bank of China (ABC), China’s third-largest bank, rose 6.7% year-on-year to 115.8 billion yuan for the period."

Some context: It might seem counterintuitive that China’s banks saw such great profit growth during the most expansive financial regulatory crackdown in two decades.

How it happened: China’s big banks lend to the smaller banks. When liquidity was tight and rates were high in H1 of this year, China’s big banks were getting relatively cheap money from the central bank and lending it on to smaller banks.

What to watch: Those good times might not last. All the banks are now being asked to aggressively write off bad loans, which will eat into both profits and capital cushions.
 

READ MORE
Caixin Global: Big Chinese Banks’ Profits Hold Up in Face of Tougher Regulations
 

POLITICS & POLICY

5. Xi’s whims make life hard for cadres

Xi Jinping reads the newspaper every day, at least according to Xinhua.

And apparently, a recent article about poor eyesight has stirred the big man to action:

“The myopia of our students is… a big issue that affects the future of the country and the nation.”“Attention must be paid to this issue.”“It is necessary to combine deepening education reforms with effective integrated prevention and control programs.”“[We shall] urge all regions and relevant departments to implement them.”

When Xi talks, officials listen. In short order, the Ministry of Education and National Health Commission drafted the “Plan to Comprehensively Prevent and Control Myopia in Young People” (MoE).

The plan sets ambitious targetsfor reducing myopia among different age groups.It also promises to include myopia rates in evaluations of officials.

Get this: The General Administration of Press and Publication is trying to do its part by placing a quota on the number of video games allowed (Yicai).

Get smart: There’s nothing wrong with wanting better eyesight for China’s’ youth. But we’re not sure that the government can do much to address the problem.

Get smarter: One complaint we hear often from lower level officials is being asked to carry out unattainable policies. This seems to fall in that category.
 

READ MORE
CPC: 习近平近日作出重要指示强调 共同呵护好孩子的眼睛 让他们拥有一个光明的未来
Xinhua: 这件事,让习近平揪心
MoE: 教育部等八部门关于印发《综合防控儿童青少年近视实施方案》的通知

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