HEARD IN BEIJING
"Some policies were poorly considered [and] lacked coordination."
- Yi Gang, Governor of the People's Bank of China
Some context: In a sit down with reporters yesterday, Yi admitted that recent efforts to support the private sector have failed. He promised that the central bank will get it right this time. We're not so sure. More in the Tip Sheet below.
Consider for a moment your friends and colleagues who do not receive the Tip Sheet. Then, in a coordinated fashion, forward them today's newsletter and tell them they can click here to subscribe.
And as always – keep the great comments, questions, tips, and complaints coming.
THE TIP SHEET
DRIVING THE DAY
1. Yi Gang promises to support the private sector
China’s central bank governor Yi Gang sat down for a press Q&A yesterday.
The topic: What Yi and his colleagues are doing to support the private sector
Some context: We’ve been writing about official support for the private sector ad nauseum recently. That’s because regulators are talking about it ad nauseum.
The problem: The policies being touted have not been very effective.
What went wrong, according to Yi (21st Cent Biz):
"In the early stages, some policies were poorly considered, lacked coordination, [and] saw diverging implementation.""[In addition] the effects of strong [financial] regulatory policies were overlaid, which…increased the financing difficulties of private enterprises."So how does Yi plan to change that?"In the future, in the process of formulating policies, the People's Bank of China will…fully listen to the opinions of private enterprises and financial institutions...and avoid 'one size fits all' [solutions]."Going forward, Yi said the PBoC still has three arrows in its policy quiver:Direct credit support through the banksSupporting private sector bond issuanceSupporting equity financing for private companies
Get smart: These arrows are the same ones the PBoC has already shot. It’s not clear to us why they would suddenly become more effective.
21st Century Biz: 易纲：前期一些政策加大了民营企业融资困难，今后将避免“一刀切”
FINANCE & ECONOMICS
2. CSRC to improve trading suspension rules
China’s securities regulator (CSRC) released an updated plan to improve equities markets late on Tuesday.
The thrust of the update was all about improving the rules and execution around trading suspensions when a company’s shares come under pressure.
Some context: Weak suspension procedures have been one of the major complaints of foreign investors. That complaint was specifically highlighted by MSCI, when it was deliberating the inclusion of A-shares in its key indices.
More context: MSCI ultimately went forward with inclusion, but with the expectation that weaknesses like this will be improved over time.
So the CSRC is looking to:
Establish basic principles for suspension and resumption of stock tradingReduce the duration of trading suspensionsStrengthen disclosure requirements around why a stock suspends tradingStrengthen the overall operation and coordination of the stock exchanges with companies that need to suspend trading
Why it matters: Any adjustments that boost information disclosure and improve the consistency of market governance are a positive step.
Get smart: Regulators want to continue attracting inflows of foreign capital. In some cases, that is leading to genuine improvements in market regulation. This looks to be one of those cases.
Caijing: 史上最严停复牌制度来了：确立三大原则 可强制停复牌
FINANCE & ECONOMICS
3. PBoC cautions prudence amid blockchain hype
The balancing act between encouraging innovation and corralling runaway development continues.
Case in point: A working paper released yesterday by the PBoC Research Bureau warns about blockchain investment hype (21st Cent Biz):
“There’s an obvious bubble in the blockchain investment sector, and speculation, market manipulation, and illegal activity are common.”“We should avoid putting blind, superstitious faith in blockchain.”But with big tech, big industry, and big government – including the PBoC itself – plowing full-speed ahead on blockchain research, no amount of finger-wagging is likely to break China’s blockchain fever.
The subtext of the paper runs deeper, taking subtle digs at the idea that blockchain’s primary advantage is its democratic nature:“Decentralized blockchain and centralized blockchain both have their place, and neither is good or bad.”
Get smart: This is China's approach to emerging technologies in a nutshell – incite eruptions of innovation, then follow up with heavy regulation.
21st Century Biz: 央行发布工作论文：区块链能做什么、不能做什么?
POLITICS & POLICY
4. Li Keqiang calls for WTO reform
On Tuesday, Premier Li Keqiang met with the leaders of six multilateral economic bodies:
World Bank President Jim Yong KimInternational Monetary Fund Managing Director Christine LagardeWorld Trade Organization (WTO) Director-General Roberto AzevedoOECD Secretary-General Angel GurriaFinancial Stability Board Chairman Mark CarneyInternational Labor Organization Deputy Director-General Deborah GreenfieldLi acknowledged that the WTO is in serious trouble (Xinhua):"Some of its members want to go it alone, while some want to scrap it and start all over again."Li said that China is in favor of trying to solve the current problems:"China supports reforms and improvements to the existing system, increasing WTO's effectiveness while maintaining its authority."
Oh the irony: After almost two decades of finding ways to skirt the spirit of WTO rules, while keeping strictly to the letter of them, China is now trying to defend and strengthen the body in the face of on onslaught from the US.
The rub for Li: Any WTO reform – if it ever happens – will almost certainly make it easier to sanction China’s state-owned enterprises.
Get smart: The future of the WTO is uncertain, with the US threatening to pull out all together. What is certain is that the current system looks increasingly kaput.
Xinhua: China backs WTO reforms: Chinese premier
POLITICS & POLICY
5. Provincial governments go all in on big data
Almost all of China’s 31 provincial governments have announced re-organization plans, following from the MASSIVE central government restructuring announced in March.
Most plans mirror the central government’s restructuring (see October 9 Tip Sheet).
But nine provinces will have an agency unheard of in Beijing – a Big Data Bureau.
Not all provincial big data bureaus are created equal:
Guangdong and Zhejiang want the bureau to collect data from all government departments in order to streamline government services.But Guizhou’s big data bureau has a much more expansive remit – they are investing in big data companies, including the one that runs Apple’s iCloud in China.
Get smart: Officials are still trying to figure out how to manage data. These nine provinces will compete to set the standard.
What to watch: Will central government follow these provinces’ lead and create a national big data bureau?
People's Daily: 29省份机构改革方案获批 新机构亮相
POLITICS & POLICY
6. The economic cost of clean air
Winter is coming. That means regulators’ ability to balance keeping people warm and improving the environment will soon be tested.
Some context: Last year, China embarked on an ambitious program to switch from coal-powered heat to gas-powered heat for the bulk of households in the northeastern part of the country. That caused a sudden spike in gas demand, and led to gas shortages across the country.
The government is better prepared this year. But they are still nervous after last year’s debacle, which is leading to some tactical shifts.Regions around Beijing are being told to carry on with the switch for more than 3.5 million households, which will affect more than 10 million people.But in Hebei province, 80.5% of households will switch to gas for the winter, down from over 90% last year. Electrical heat will make up the difference.But people are still unhappy. That's because heating costs continue to rise, despite government subsidies.
Get smart: Households have been enjoying cheap power, fired by cheap-but-dirty coal, for a long time. So regulators are faced with the dilemma of making everyone happy via better air, but upsetting some of them via higher heating costs.
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.