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TRIVIUM CHINA: Tip Sheet China, Know China Better



"Some people are fighting alone while some…are sitting on the sidelines in pushing forward reforms."

Wu Jinglian, renowned market-oriented reformist policy advisor

Some context: Wu said that at an economists’ forum over the weekend. Wu is one of the godfathers of China’s economic reforms. Economic czar Liu He was also at the forum, potentially signalling his support for more lieralizing reforms. More in the Tip Sheet below.

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1.  The trade war rollercoaster rolls on

The latest round of mooted US-China trade talks is already in jeopardy. Quelle surprise!

Some context: Late last week, the WSJ scooped that US Treasury Secretary Steve Mnuchin had invited Vice Premier Liu He (Xi Jinping’s right-hand man on the economy) to open a new round of talks on the trade spat.

The Chinese are interested and, as always, are broadly willing to sit down at the negotiating table.

But as the WSJ scoops again today, China’s tactics may be changing.

If Trump decides to go ahead with the newest round of USD 200 billion of tariffs on Chinese goods – which is widely expected to happen this week – then China might walk away from the talks.

Get smart: This would mark a pretty significant change in China’s attitude toward the trade war. Till now, the stance has always been to engage whenever possible to try to find the path to a deal.

But China’s policymakers are increasingly fed up.

Get this: Former finance minister Lou Jiwei said over the weekend that China might actually restrict exports to the US in certain areas where American companies’ supply chains are particularly vulnerable (we’re looking at you Apple).

Our take: None of this seems conducive to finding a deal soon.

WSJ: U.S. and China Ramp Up Trade Threats 


2.  Two trillion is a crowd for local government bonds

Regular Tip Sheet readers will be well aware that financial regulators have been encouraging local governments to issue more bonds over the past six weeks.

This morning, the Ministry of Finance (MoF) released an assessment of the state of play.You’d never guess it, but they say things are going swimmingly.

In fact, MoF says that the ramp up in local government bond issuance(which should exceed RMB 2 trillion in August and September when all is said and done) isn’t crowding out the private sector:

"Since the acceleration of special bond issuance in August, there has been no 'crowding-out effect' on other bonds, and the proportion of other bond issuances and balances in the overall bond market has not changed significantly."

Get smart: MoF is being a bit disingenuous here. Its own numbers show that local governments have increased their share of overall bonds by a percentage point over the past two months. That’s a decent-sized change in the course of six weeks.

Get smarter: It not who issues the bonds, t’s whether those bonds are financing viable projects. And right now there are not a lot of projects worth investing in.

MoF: 地方政府专项债券发行提速债券市场运行平稳


3. Policy advisors pitch reform agenda

The China Economists 50 Forum held a symposium on Sunday to commemorate its 20th anniversary.

It was an important occasion: Even Vice Premier Liu He was present, though he opted not to speak.

Some context: The China Economists 50 Forum was founded by Liu 20 years ago. It is composed of reform-minded policy advisors and former economic officials.

The economists and technocrats in attendance all advocated for more market and less government.

Lou Jiwei said that the current supply-side structural reforms have too many “administrative measures from the planned economy era.”Yang Weimin said that market-oriented reform of factor markets has lagged, and that local governments, need to be downsized.

Get smart: Reformists feel that the reform agenda is in limbo as the government struggles to keep its head above water on a host of critical policy issues.

Get smarter: If recent Chinese history tells us one thing, it’s that conservative voices become ascendant during times of political or economic stress. That's a big reason that reformers are worried.

What to watch: By being present at the event, Liu He was tying himself to these reformists. Will he get the political backing to do anything bold?

Sina: 纪念中国经济改革开放40年 吴敬琏、楼继伟说了啥?


4. Maduro gets lukewarm reception in Beijing

Venezuelan president Nicolas Maduro was in Beijing on Friday. He met with Xi Jinping, Li Keqiang, NPC Chairman Li Zhanshu, State Councilor and Foreign Minister Wang Yi, and NDRC Chairman He Lifeng.

Maduro’s mission (SCMP):

“To seek economic cooperation for his country, which is mired in debt and battling hyperinflation.”“The [IMF] projects…inflation…will reach 1 million per cent by the end of the year.”Venezuela is already in China’s debt:“Over the past decade, China has loaned US$50 billion to Venezuela, and while Caracas has been gradually paying off that debt with oil shipments, it still owes Beijing about US$20 billion.”Xi said China would help (Xinhua):"China always views and develops Sino-Venezuelan ties from a strategic and long-term perspective,"But it’s unclear that Maduro got what he wanted (FT):“Simon Zerpa, Venezuelan finance minister, said earlier this week that Beijing would extend a $5bn loan to Caracas.”“But Premier Li Keqiang…made no mention of that money and urged Caracas to provide more ‘policy support and legal guarantees.’”Why China might not be so keen:“The potential loss to Beijing of billions of dollars loaned to Venezuela…is a sensitive one in China, where citizens are already resentful of loans to Africa.”


Xinhua: China Focus: Xi, Maduro agree to promote Sino-Venezuelan ties to higher level 
SCMP: China says promise of more money for Venezuela part of ‘mutually beneficial cooperation’
The Financial Times: Venezuela looks to China for help but gets few promises


5. Going after fake data

Nobody trusts China’s economic data – not even the government.

There is good reason for suspicion:

Liaoning Province was found to have grossly overstated fiscal revenues from 2011 to 2014.In 2016, Tianjin and Inner Mongolia were found to have faked their data as well.That’s why on Sunday the Central Committee General Office and the State Council General Office jointly released new measures to prevent and punish the faking of data.

These new measures are just the latest in a string of recent measures:In June 2017, the legislature revised the Statistics Law (see June 20, 2017 Tip Sheet).In September 2017, the Central Committee General Office and the State Council General Office issued measures detailing punishments for faking data.

The measures released Sunday will increase inspections of local government data.

And the National Statistics Bureau will create a new Statistics Supervision Group.

Get smart: The first step is admitting there’s a problem. The government has done that. Now it is beginning to address it.

READ MORE 中共中央办公厅 国务院办公厅印发《防范和惩治统计造假、弄虚作假督察工作规定》


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