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TRIVIUM CHINA: The Tip Sheet, know china better



"Any remarks that badmouth state-owned enterprises are wrong."

- Xi Jinping, CCP General Secretary

Some context: In case anyone missed his message on Wednesday, Xi doubled down on the notion that SOEs are key to China’s future on Thursday. More in the Tip Sheet below. 

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Special note: The Tip Sheet will be off next week for the week-long National Day holiday in China. We hope everyone has a good, relaxing week – we know we will. See everyone on October 8! 



1. Xi tries to balance his message in Dongbei

Xi Jinping is still on road in Dongbei. On Thursday, he visited yet another SOE, calling on a petrochemical facility in Jilin.

In case he didn’t make the message clear before, Xi doubled down on the idea that SOEs are indispensable to China’s economy, and key to China’s future (Xinhua):

“Our state-owned enterprises must continue to be stronger, better, and bigger.”“The arguments that we don’t need state-owned enterprises, and [we should] shrink state-owned enterprises, are all wrong and one-sided.But despite the focus on SOEs, Xi also decided to give private enterprises a shout out, as well.  

He visited China Zhongwang, the world’s second largest industrial aluminum producer, saying:“We must create a good environment for the rule of law for private enterprises.”“The party's line, principles, and policies are beneficial to the development of private enterprises.”

That last point is debatable, to say the least.

Get smart: We have recently seen increasing concern as to where the Chinese private sector fits into Xi’s vision for China’s economy. This is the first time in a wile that he has personally weighed in.

Our take: It’s hard to see how this sop to the private sector jibes with Xi’s bigger picture about strengthening SOEs.

Xinhua: 习近平:怀疑、唱衰国企的思想和言论都是错误的 党中央毫不动摇地支持民营经济发展


2.  Li Keqiang continues to champion private business

While Xi Jinping went north this week, Premier Li Keqiang went south.

Li was down in Zhejiang province, where private business have thrived for decades.

His message: We need to make things easier for private businesses.

Li inspected local government efforts to ease administrative burdens on the private sector (

“The general principle is this: the overall business burden should not be increased.” “Relevant departments are studying [policies to] further reduce social security rates.”

Li also tried to cheer private businesses by visiting a petrochemical facility – with private majority ownership – to further tout the private sector in an industry traditional dominated by the state.

Li basically said, “hang in there, more policy support is coming.”

Get smart: Li’s policy efforts are nice. But they don’t offset the weight of Xi Jinping’s northern trip – laying it on thick to support SOEs. It’s clear which way the wind is really blowing.

READ MORE 李克强改变既定考察路线释放什么信号? 李克强浙江考察现场见证一家市场主体诞生!


3. Foreigners continue jumping on the A-share train

Chinese equities are increasingly en vogue with foreign investors.

That’s despite heightened trade tensions between the US and China – and the fact that the Shanghai Composite is down 21% from its peak in January.

One element driving foreign flows into Chinese capital markets is the steadily increasing inclusion of Chinese assets into various emerging market or global equity and bond indices.

The latest move came from the UK’s FTSE Russell on Thursday (FT):

“[The move] will see so-called A-shares constitute 5.5 per cent of the company’s key emerging markets index.”“The index provider said…that it would begin phasing in inclusion of eligible A-share stocks from June 2019.”The vice chairman of China’s securities regulator, Fang Xinghai, was certainly happy about the move (The Paper):“I have recently met with a number of international investors…who have expressed their active support for FTSE Russell's inclusion of A shares.”“These international investors have a long investment planning cycle, they do not care about the short-term performance of the market.”

That second comment doesn’t jibe with the attitude of portfolio managers that we know.

But even so: A growing number of asset managers do think the China market has hit the bottom and sense a buying opportunity.

FT: FTSE Russell to include China A-shares in key indices
The Paper: 证监会副主席方星海:中国股市不缺资金,缺的是长期资金
Reuters: POLL-China funds boost suggested equity exposure on stimulus, index inclusion


4. Environmental inspections reveal weak links

Chinese provinces still have lots of work to do in getting compliant with the latest pollution requirements.

That’s according to the Ministry of Ecology and Environment, which published the results of its latest round of environmental inspections on Friday morning.

First the good news, per Reuters:

“Of the 531 violations identified in the provinces of Shanxi, Liaoning, Anhui, Fujian, Hunan and Guizhou, as well as the municipality of Tianjin, 313 had already been fixed by mid-September.”That is certainly a positive stat. But other places still have a lot of improvement to do:“Some regions were “chasing success” when it comes to fixing environmental problems and were not doing enough to rectify violations.”“In documents published by the ministry on Friday, local governments said they were now planning to spend heavily to try to comply with state environmental policies.”“Southwestern China’s Guizhou…said it had accumulated a total “multi-channel” fund of 53 billion yuan ($7.7 billion) to spend on improving drinking water supplies, building urban environmental infrastructure and treating pollution caused by livestock farming and heavy metal mining.”

What to watch: Cleaning up pollution is the top policy priority right now. Expect intense scrutiny, and punishments for under-performance, to deepen going forward.

Reuters: China says there are still 'weak links' in environmental compliance


5. Know your cadre – Chen Quanguo edition

Bloomberg’s Peter Martin has just published an excellent backgrounder on Chen Quanguo – the architect of China’s crackdown on its Uighur population in northwestern Xinjiang province.

Martin first highlights the basics:

“Chen has been a rising star. His actions in Xinjiang, along with demonstrations of loyalty to President Xi Jinping, won him a promotion last year to the Communist Party’s powerful Politburo -- making him one of China’s 25 most powerful officials.”Chen cemented his reputation in Tibet, where he was appointed Party Secretary in 2011:“Chen then rolled out a set of policies that would establish him as Beijing’s point man for quelling ethnic unrest. He told the cadres that social stability was their ‘first responsibility,’ instructed them to live in Tibetan villages and assigned party officials to Buddhist temples.”Chen's political savvy has also served him well:“He publicly hailed Xi as China’s ‘core’ leader months before his title was made official, and has described Xi as a ‘wise leader’ with a ‘magnificent plan’ for China.”

Get smart: The piece isn’t just about Chen. It’s about the Party and its evolving theory of governance.

Go deeper: Click the link below.

Bloomberg: The Architect of China's Muslim Camps Is a Rising Star Under Xi


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