The Tip Sheet, know china better
HEARD IN BEIJING
"We hope to hear the truth."
- Financial Stability and Development Committee
Some context: Someone on the committee (we’re not sure who) said that to private businesses and banks during inspections in the provinces that took place over the past few weeks. Regulators are doing their darnedest to understand what’s happening on the ground and better implement policies to support the private sector. More in the Tip Sheet below.
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THE TIP SHEET
DRIVING THE DAY
1. Xi wants the Mainland to swallow Hong Kong and Macau
Xi met with top leaders from Hong Kong and Macau on Monday to celebrate 40 years of Reform and Opening.
Xi’s message: It's time for Hong Kong and Macau to integrate with the Mainland (CPC):
“Carrying out construction of the Greater Bay Area is our long-term grand strategy.”Xi said it’s going to be good for the two cities:“It is also a strategic decision to preserve the long-term prosperity and stability of Hong Kong and Macau.”
Get smart: Xi is all about One Country, but he doesn’t seem to be a big fan of Two Systems.
CPC People: 习近平会见香港澳门各界庆祝国家改革开放40周年访问团
FINANCE & ECONOMICS
2. Regulators up their game on supporting private companies
The Financial Stability and Development Committee (FSDC) is trying to walk the walk.
That’s why the body dispatched seven supervisory groups to undertake provincial inspections.
The goal: assess the implementation and effectiveness of policies to support the private sector.
Shanghai’s The Paper has some details:
"From October 23 to November 9, seven supervisory groups headed by the joint ministries of the People's Bank of China, the Banking and Insurance Regulatory Commission, the Securities Regulatory Commission, the Foreign Exchange Bureau, the Central Financial and Economic Affairs Commission, the Development and Reform Commission, and the Ministry of Finance went to Guangdong, Fujian, Anhui, Zhejiang, Jiangsu, Liaoning, Sichuan and other places [to inspect] relevant departments, financial institutions and local governments."What did these groups do?"The supervisory groups conducted investigations in various forms, such as symposia, open and secret visits, individual talks, accessing records, and policy publicity.""The inspection subjects included large commercial banks, the legal representatives of local banks, insurance institutions, securities companies, village banks and other financial institutions."
Get smart: We are still skeptical these policies will work. But regulators are going all in – and inspection teams have a pretty good record for getting things done in recent years.
The Paper: 金融委督导组兵分七路，通过座谈会、明察暗访等调研民企融资
FINANCE & ECONOMICS
3. Inspections, inspections, inspections
The Paper gives some further details on two of the supervisory groups (see previous entry):
"In Anhui, Liu Shiyu, chairman of China Securities Regulatory Commission, led the supervisory team, which…organized [a symposium with] more than 40 small and micro enterprises and 18 financial institutions."One of our favorite regulators was doing his bit in Hangzhou.
That's where head FX administrator and deputy central bank governor, Pan Gongsheng, convened the heads of 30 city-level banks for an elegantly titled meeting:"The National City Commercial Bank and Private and Small- and Medium-sized Enterprises Financial Services Experience Exchange and on-site Promotion Conference."What Pan had to say:"Most of the city commercial banks have taken private enterprises and small and medium-sized enterprises as their main service objects from the very beginning of their establishment. They have first-mover advantages in market competition. You have experience."
Our take: We actually aren’t sure how true Pan’s comment is. As we understand it, most city commercial banks are owned by local SOEs, who use them as piggy banks. Private companies tend to borrow from the shadow banking market.
Get smart: City commercial banks only represent 12% of the banking system. So even if 100% of their loans go to private companies, it won’t be enough.
The Paper: 30家城商行负责人与金融委督导组面对面，只谈一个问题
FINANCE & ECONOMICS
4. Is currency policy changing?
When we highlighted the Q3 monetary policy report yesterday, we underscored that it didn’t represent much of a change for policy going forward (see yesterday's Tip Sheet).
But we may have missed one important point, which the 21stCentury Business Herald helpfully highlighted today.
It’s has to do with exchange rate management:
"The most important change was that the Q3 report deleted the expression found in the Q2 report [that the central bank will] ‘increase market-determination of the exchange rate’ and it added the expression saying [the central bank will] ‘strengthen macro-prudential management when necessary.’”
Get smart: That pretty much says it all. The PBoC had already become more interventionist throughout September and October. This signals that the regulator will continue to step in as needed.
Our take: That still doesn’t signal that 7/1USD is the PBoC’s line in the sand for the CNY. In fact, we expect to break 7/1USD by the end of the year – assuming another Fed rate hike in December and no deal to delay a looming tariff increase from the US, set to take place on January 1.
21st Cent Biz: 美元指数上涨人民币承压 央行加强宏观审慎管理
POLITICS & POLICY
5. China to revise its goal for solar power development
Tip Sheet readers know that the government is sick of subsidizing the solar power industry (see June 5 Tip Sheet).
But industry players aren’t giving up that government money without a fight (see June 7 Tip Sheet).
Liu Hanyuan, head of solar panel manufacturer Tongwei Group was invited to Xi Jinping’s sit down with private businesses on November 1 (see November 2 Tip Sheet). Liu used that opportunity to tell Xi that cutting subsidies would tank his business (NBD 1).
The next day, industry players saw an easing in their regulator's attitude, as they lobbied the National Energy Administration during a meeting to review the Five-Year Plan for Development of Solar Power (2016-2020). .
Some context: Most five-year plans undergo a review after two years.
The industry seems to have won the day. According to reports (NBD 2):
Subsidies will be extended to 2022.The target for solar power capacity will be increased.
Get smart: Industry lobbying plays a bigger part in policymaking than most people realize.
Want to know more about how policy gets made in China? Check out our sweet primer.
POLITICS & POLICY
6. Free trade isn't dead
China and Singapore have upgraded their free-trade agreement.
The Straits Times has the skinny:
“Singapore has said yes to opening up its air transport, courier and environmental sectors to Chinese companies…, while allowing a third Chinese bank full bank privileges.”"Singapore will now have more access to China’s legal, maritime and construction services sectors.”“More petrochemical exports from Singapore will also qualify for preferential treatment when imported into China.”Some context:“Singapore was the first Asian country to have a comprehensive free trade agreement with China in 2009.”“Since then, bilateral trade has grown at 4.6 per cent and investments at 12.2 percent a year on average." "Last year, total bilateral trade between Singapore and China reached $137.1 billion.”
Up next: Li is in town for the annual East Asia and ASEAN summits. Look for a progress report on negotiations for the 16-nation Regional Comprehensive Economic Partnership (RCEP) free trade deal at the end of the week.
Get smart: China is desperate to change the narrative around its trade and investment practices. That’s finally leading to some concrete actions.
It’s a good time for foreign companies and (non-US) governments to press China for a deal.
Gov.cn: Premier Li talks with Singaporean PM on cooperation
Straits Times: Singapore and China sign upgraded FTA as Premier Li Keqiang kicks off official visit
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