TRIVIUM CHINA: THE TIP SHEET, know China better
HEARD IN BEIJING
"[We will] consider treating state-owned enterprises with the principle of 'competitive neutrality.'"
- Yi Gang, PBoC governor
Some context: Yi said that over the weekend in Bali. It's a sign that China is increasingly worried about its SOEs facing market access restrictions abroad. More in the Tip Sheet below.
There are no restrictions on forwarding the Tip Sheet, so send it on to friends and colleagues who can click here to subscribe.
And let us know what you think – your feedback is always appreciated.
THE TIP SHEET
FINANCE & ECONOMICS
1. Yi Gang’s weekend media blitz
"Nothing to see here."
That was the essence of PBoC Governor Yi Gang’s statements to media over the weekend. Yi made the comments while attending the G20 Meeting of Finance Ministers and Central Bank Governors and IMF fall meetings in Bali.
Yi tried to convey a sense of confidence and calm, despite a slowing economy, depreciating currency, continued debt challenges, and escalating trade war with the US.
He also indicated that China’s monetary policy stance hasn’t changed, that liquidity injections have been reasonable, and that there are plenty of tools to trot out if economic growth further deteriorates.
And he was blunt about the trade war:
“We prepared for the worst.""You see a lot of people in China now are preparing for the trade tension to be a prolonged situation.”
Yi also highlighted China’s more concerted efforts to open the services sector, particularly the financial sector.
Get smart: Yi's attempt to project calm is no surprise – any central banker would do the same. But the PBoC is indeed concerned about the effectiveness of monetary policy right now, which is why they have not loosened much despite the economic slowdown.
Bloomberg: China Weighing Up Range of Risks in Currency Policy, PBOC Says
FINANCE & ECONOMICS
2. China may be willing to deal on SOEs
While most of his remarks were pedestrian, Yi Gang did make one bit of real news over the weekend.
Yi floated an interesting idea while speaking at a banking industry symposium hosted by the expanded G30 (PBoC):
“In order to solve the structural problems in the Chinese economy, we will…consider treating state-owned enterprises with the principle of ‘competitive neutrality.’”
Some context: Competitive neutrality means maintaining a level playing field in terms of private versus state-owned companies.
More context: China has been trumpeting equal treatment for a long time. Yi’s statement indicates that practical discussions on how to achieve such a policy are underway in Beijing.
Even officials at the SOE administrator (SASAC) are on board, albeit for a different reason (Yicai):
"We also advocate 'neutrality of ownership'…and oppose discriminatory treatment of state-owned enterprises in the formulation of international rules."
Get smart: These statements reveal anxiety in Beijing that Chinese SOEs may get shut out of global markets. Chinese authorities may be willing to offer more access to foreign private companies in order to stop that from happening.
Our take: Any genuine movement from China toward competitive neutrality would be significant – this issue has long been a sticking point in foreign trade and investment negotiations.
FINANCE & ECONOMICS
3. Getting equity investors on side
While Yi Gang was off schmoozing in Bali (see previous two entries), the head of the securities regulator, Liu Shiyu, was meeting investors in Beijing.
Liu wants to build confidence in China's equity markets. That's a tough sell, given that China’s main stock index is down over 21% on the year.
His goal was to make market actors feel heard – emphasizing that regulators are keen to interact more with market players, to understand their mindset, and to heed their suggestions.
Liu also emphasized that market stability is now key – but not simply to stabilize the current market slump. He was also focused on overall risk prevention and information disclosure, both of which are currently weak in Chinese equity markets.
Get smart: This meeting was geared toward domestic institutional investors – not foreign investors. But domestic asset managers largely have the same complaints as the foreign community – there is too much funny business in the equities market.
Our take: Listening to the market is a step forward, but it will take a lot more to fundamentally change how things work.
21st Century Business Herald: 周末不平静！刘士余、易纲罕见发声！信息量大！
FINANCE & ECONOMICS
4. Insurance companies’ leash gets longer
China’s insurers look set to get more leeway in how they invest domestically.
That’s according to Ren Chunsheng, director of the Insurance Capital Operations Department at the China Banking and Insurance Regulatory Commission (CBIRC).
Ren was speaking at a conference over the weekend and flagged a few changes for industry folks and investors to watch for:
In the short-term, insurers will be asked to boost their strategic investments in quality private companies, to help protect market liquidity.In the longer-term, the restrictions that insurers face on investing in certain industries will be relaxed.Instead of approving individual investments, the regulator will adopt a negative-list approach.Soon insurers may also be allowed to invest in asset-backed securities and other derivatives – to enhance their hedging capabilities – and debt-for-equity swaps.
Why it matters: The insurance industry has long been the neglected stepchild of financial services in China. Over the years, that led to lax oversight and a big risk buildup in the sector – which subsequently led to a regulatory crackdown.
What to watch: Regulators need more liquidity in various asset markets, so we could see further easing of investment restrictions.
POLITICS & POLICY
5. Li Keqiang in Tajikistan
Li Keqiang was in Dushanbe, Tajikistan, over the weekend attending a meeting of the heads of government from Shanghai Cooperation Organization (SCO) countries.
Some context (Gov.cn):
"The SCO was established in 2001 by China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. India and Pakistan joined as full members in 2017." "Its Council of Heads of Government meets once a year to discuss the organization’s multilateral cooperation strategy and priorities."
This caught our eye: New members India and Pakistan did not send their heads of government, instead sending only their foreign ministers. The addition of India and Pakistan was supposed to make the SCO a more important group, but if they don't fully participate, it could undermine the group.
Li had some ideas for the organization to consider:
"The Premier proposed advancing SCO cooperation in six areas: security, multilateral economic cooperation and trade, industrial capacity cooperation, connectivity, innovation, and people-to-people ties."
Get smart: It’s no surprise that security cooperation was Li’s top priority – fears of terrorism are one of the few things that all SCO states have in common.
Our question: How are the Xinjiang re-education camps affecting China’s relations with its Central Asian neighbors? Citizens from several SCO member countries have been put in the camps.
POLITICS & POLICY
6. CPPCC ordered to be loyal to the Party
On Sunday, the Chinese Communist Party General Office issued new opinions on Party-building in the Chinese People’s Political Consultative Conference (CPPCC).
Some context: The CPPCC is China’s top political advisory body. Its job is to solicit policy ideas and suggestions from non-Party groups and individuals.
The new opinions call on the CPPCC to be loyal to the Party – and to Xi Jinping (Xinhua):
"The CPPCC is a political organization; taking a clear-cut stand when discussing politics is the fundamental requirement of the CPPCC.”“The most important task is firmly protecting General Secretary Xi Jinping’s core status.”
Get smart: At this point, new regulations demanding loyalty to Xi should come as no surprise.
Get smarter: As the pressure to show loyalty to Xi mounts in all parts of the Party-state, the risk that Xi fails to get honest advice increases.
And ICYMI: It’s ironic that the body whose main task it to represent the ideas of non-Party entities would have to double down on its support of the Party. Such is the state of play in Xi’s China.
HIT US WITH YOUR BEST SHOT.
If the Tip Sheet isn't the best thing in your inbox every day,
we'd like to know why.