China Macro Reporter

<table class="nl_card"><tbody><tr><td class="nl-post"><p>The National People’s Congress is underway. And, it sure feels different from last year.</p><p>Last year, you could feel the confidence in China’s economy and in Xi Jinping.</p><p>This year, not so much. Trump's shadow is creeping into some of the policy statements. And, since the last NPC, Xi Jinping's authority has maybe frayed a bit around the edges.</p><p>There are already some pretty good analyses that are worth a look. You'll find my picks here. With more to come as the Two Sessions roll on.</p></td></tr></tbody></table>

1. Facing Slowing Economic Growth, China’s Premier Promises Relief for Business

<table class="nl_card" id="19mar0901"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src=";auto=webp" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p>The annual report by Li Keqiang, the No. 2 leader, laid out promises to reduce burdens on the private sector and warned about “struggle” ahead. NYT</p><p><strong>'China’s premier</strong> said on Tuesday that his government would respond to an economic slowdown by cutting taxes, easing burdens on the private sector and giving markets a bigger role — diluting the heavily pro-state pronouncements and policies that critics have warned were scaring investors,' <a href="" target="_blank">reports NYT's Keith Bradsher and Chris Buckley</a>.</p><ul><li><strong>'Calling 2019 a “crucial year”</strong> for China’s economy, Premier Li Keqiang, the second-ranking official in China after President Xi Jinping, laid out measures long supported by private businesses.</li><li><strong>'Mr. Li’s annual report</strong> to the national legislature revived rhetoric about market solutions after the government faced growing criticism for favoring government initiatives and state-owned companies, squeezing out private enterprise.</li><li><strong>'“We will keep using market-oriented</strong> reforming thinking,” Mr. Li said in his report. “The government must act with resolve to hand matters it shouldn’t manage over to the market.”'</li><li><strong>“We will face a graver and more complicated environment</strong>, as well as risks and challenges,” Mr. Li said. “We must be fully prepared for a tough struggle.”'</li></ul><p><strong>'Mr. Li set an ambitious target</strong> for economic growth this year of 6 to 6.5 percent.</p><ul><li><strong>'The three main choices</strong> for maintaining high growth have been to further ramp up spending on roads, bridges, rail lines and other infrastructure; to print more money and force banks to lend more; or to cut taxes and deregulate.</li><li><strong>'The government</strong> has been slow to cut taxes or deregulate, preferring to maintain its revenues and control. But many tycoons want lower taxes.'</li></ul><p><strong>Overall, '“This was not a leadership</strong> that appeared strong and decisive with a clear vision,” says Elizabeth C. Economy of the Council on Foreign Relations.</p><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table></td></tr></tbody></table>

2. Six key takeaways from China's annual policy blueprint

<table class="nl_card" id="19mar0902"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p><strong>'Chinese Premier Li Keqiang</strong> delivered his 2019 government work report on Tuesday morning to the National People’s Congress in Beijing, but what does it mean?' asks the South China Morning Post]</p><p><strong>Here are my favorite three - 1 ,2, &amp; 5</strong> from SCMP's <a href="" target="_blank">'Six key takeaways from China's annual policy blueprint'</a>:</p><hr><h2>'1. Uncertain outlook'</h2><ul><li><strong>'The government</strong> is foreseeing “graver and more complex” risks and challenges of a “both predictable and unpredictable” nature, and China must be “prepared to fight tough battles” this year.'</li><li><strong>'As such,</strong> the government has set the economic growth target in a range of 6.0 to 6.5 per cent, which offers Beijing the necessary leeway to cope with those uncertainties.'</li></ul><hr><h2>2. Tax cut</h2><ul><li><strong>The government announced</strong> a 3 percentage points cut in value-added tax rate (VAT) for manufacturers to 13 per cent, a significant tax cut.</li><li><strong>The VAT tax cut</strong> is part of a broader efforts by Beijing to help its domestic businesses, especially the manufacturing sector, that is vital for employment and social stability.</li></ul><p><strong>In </strong><a href="" target="_blank">'China’s Tax Cuts Just Won’t Cut It: <strong>The manufacturing sector needs something better</strong>,'</a>Bloomberg's Anjani Trivedi points out:</p><ul><li><strong>'Generous as that is</strong>, the tax cuts don’t solve the single biggest problem crimping China’s companies: longer working capital cycles.'</li><li><strong>'An ongoing liquidity squeeze</strong> continues to deprive private and, increasingly, state-backed companies of credit, which is affecting their everyday operations and ability to service debt.</li><li><strong>'Capital structures have weakened</strong>; short-term borrowings are becoming a larger part of firms’ total debt; receivables are ballooning, as are the number of days inventories are held.</li><li><strong>'Large swathes</strong> of the manufacturing sector are paralyzed.</li><li><strong>'The manufacturing sector</strong>, mired in a crisis of confidence, needs more than this tax cut.</li><li><strong>'These companies</strong> — mostly private — have long borne a disproportionate burden of taxes, contributing a third of the government’s revenue.'</li></ul><hr><h2>5. No ‘Made in China 2025’</h2><ul><li><strong>'The phrase “Made in China 2025”</strong>, a Beijing strategy that invites suspicion from the US and Europe, did not appear in the 2019 government work report, but Beijing’s ambitions for upgrading its manufacturing industry remains.'</li></ul><p><strong>According to</strong><a href="" target="_blank">'Beijing Drops Contentious'Made in China 2025' Slogan, but Policy Remains,'</a> WSJ:</p><ul><li><strong>'“Made in China 2025,”</strong> a government-led industrial program at the center of the contentious U.S.-China trade dispute, is officially gone—but in name only.</li><li><strong>'During a nearly 100-minute speech</strong>to China’s legislature Tuesday, Premier Li Keqiang dropped any reference to the plan that the Trump administration has criticized as a subsidy-stuffed program to make China a global technology leader at the expense of the U.S. The policy had been a highlight of Mr. Li’s State-of-the-Nation-like address for three years running.</li><li><strong>'Instead, Mr. Li said</strong> the government would promote advanced manufacturing. He ticked off a list of emerging industries to nurture—next-generation information technology, high-end equipment, biomedicine and new-energy automobiles—that were also in “Made in China 2025” and with a similar goal: “Buy China.”'</li></ul></td></tr></tbody></table>

3. China’s Stimulus Muddle Deepens

<table class="nl_card" id="19mar0903"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src=";aspect_ratio=1.5" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p>Beijing is going to find it increasingly difficult to achieve its twin aims of cutting debt while keeping growth on track.</p><p><strong>'Li Keqiang, China’s premier</strong>, has a few ideas for 2019: keep overall debt growth in check, cut taxes, accelerate government bond issuance, and boost lending to small businesses,' reports <a href="">Nathaniel Taplin in the WSJ</a>.</p><p><strong>'If that sounds like</strong> a lot to ask—and contradictory—it is.</p><ul><li><strong>'Some of these goals</strong> will fall by the wayside.</li><li><strong>'Getting banks</strong> to lend more to small businesses without overall credit growth accelerating will be near impossible.</li><li><strong>'And significantly higher government debt</strong> sales will require more banking system liquidity to keep rates from rising and further damaging growth.</li><li><strong>'That means</strong> more monetary easing: probably not a 2015-like flood, but definitely a rising tide.'</li></ul><p><strong>'In short</strong>, Beijing is still holding on to contradictory goals: boosting growth and formal government debt issuance while keeping overall indebtedness in check.</p><ul><li><strong>'The result</strong> is likely to be a relatively weak stimulus by past standards—although still enough to boost overall leverage—and a weak recovery, at best, some time in the second half.'</li></ul></td></tr></tbody></table>

4. China’s ‘two sessions’: an economic watershed or more of the same?

<table class="nl_card" id="19mar0904"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p><strong>'History may record</strong> that this year was a watershed for China, when Chinese leaders started taking the steps to change course and remove the structural obstacles to the country’s further development to become the world’s largest economy,' said the <a href="" target="_blank">South China Morning Post</a>.</p><ul><li><strong>'Or it may show leaders</strong> stayed their course, with the Chinese economy continuing to muddle along, trapped by its unwillingness to set its “animal spirits” free.'</li></ul><p><strong>'The meetings of the “two sessions”</strong> – the National People’s Congress (NPC), the country’s parliament where major policies are ratified, and the Chinese People’s Political Consultative Conference, the government’s top political advisory group – could give strong evidence over the next two weeks of the direction China’s leaders will choose.'</p><p><strong>'How far China is willing to go</strong> to enact the structural changes to its system that are necessary to level the playing field for private firms, both domestic and foreign, remains in question.'</p><ul><li><strong>'“Xi, despite being a strong figure</strong>, does not seem to have the political will or capacity to tackle these economic issues head-on,” said Lynette Ong, University of Toronto.' -' “His power base comes from the red aristocrats (princelings) who have major stakes in the SOEs and protected sectors.”'</li></ul><p><strong>But, Xi's political will</strong> may be stiffened thanks to President Trump's pressure.</p><ul><li><strong>Xi has to figure out</strong> the minimum he has to do to placate U.S. demands.</li><li><strong>Then, he has to figure out</strong> how to actually implement changes that the U.S. may closely monitor.</li><li><strong>Failing at that,</strong> he's back under threat.</li><li><strong>So, as Xi weighs special interests</strong> against U.S. actions, he could take on those interests.</li><li><strong>The problem for Xi,</strong> and for Chinese leaders for centuries, is getting his orders followed.</li></ul></td></tr></tbody></table>

5. Xi Jinping Works to Stifle Dissent Amid Concerns About China’s Economy

<table class="nl_card" id="19mar0905"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src=";aspect_ratio=1.5" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p>President Xi Jinping, battling a persistent downturn in China’s economy, is trying to gird his rule by demanding absolute loyalty from the Communist Party in an effort to stifle simmering dissent. WSJ</p><p><strong>'While Mr. Xi remains undisputedly in charge</strong>, party watchers say his maneuvers point to disquiet within the government and political elite' says the <a href="" target="_blank">WSJ</a>.</p><ul><li><strong>'Critics say</strong> the president’s policies have failed to shore up the slowing economy, unnecessarily aggravated tensions with the U.S. and alienated many other foreign governments.</li><li><strong>'Meanwhile, they say</strong>, his insistence on control and threats to punish wayward officials are creating a policy muddle on the economy and sowing confusion in the bureaucracy.'</li></ul><p><strong>'“Xi does feel a sense of crisis”</strong> as he grapples with China’s economic woes and bureaucratic resistance within the party, says Deng Yuwen, a former deputy editor of the Study Times, a newspaper published by Beijing’s elite Central Party School. “From Xi’s perspective, he believes his policies are correct but the problem is they aren’t being implemented properly.”'</p><ul><li><strong>'A test of Mr. Xi’s authority</strong> will unfold over the next two weeks, when roughly 3,000 lawmakers gather in Beijing to review the government’s economic blueprint for a year full of politically challenging anniversaries.'</li><li><strong>'The atmosphere is a measure</strong> of how Mr. Xi’s aura of dominance, if not his power, has receded over the past year.</li><li><strong>'Last spring</strong>, he appeared unassailable as China’s leader, having emerged from a party conclave with unrivaled authority and cleared a path toward lifetime rule by scrapping term limits on his presidency.</li><li><strong>'Concerns that he had concentrated too much power</strong>, fueled by fulsome state-media praise for his leadership, soon stirred criticism, exacerbated by slowing growth and trade tensions with the U.S.'</li></ul><p><strong>'Who are Xi Jinping’s Enemies?'</strong>. Willy Wo-Lap Lam goes into more detail in the Jamestown Foundation's <a href="">China Brief</a>:</p><p><strong>'While Xi’s status</strong> as “core of the party,” the highest commander, and “pathfinder for the people” does not seem to have been seriously challenged by the multi-pronged attacks launched by US President Donald Trump, there is little doubt that his enemies in the party and government have multiplied.</p><p><strong>'So who</strong> are Xi’s political foes?'</p><ul><li><strong>'Foremost among them</strong> are cadres and even ordinary folks who are the beneficiaries of Deng’s visionary policy, represented by Xi’s fellow princelings who are the offspring of party elders closely tied to Deng Xiaoping’s reforms.</li><li><strong>'Xi is also facing opposition</strong> from regional administrators who fear the trade war’s potential to exacerbate unemployment.</li><li><strong>'Serious employment problems</strong> could translate into street protests, which would adversely affect local-level cadres’ chances for promotion.</li><li><strong>'Some analysts believe</strong> that Xi’s unpopularity among regional officials could be one reason why he has decided not to convene the Fourth Plenum of the Central Committee this year.</li><li><strong>'Some the nation’s most prominent intellectuals</strong> are also chafing under Xi’s ironclad control over their freedom of expression.</li><li><strong>'Xi’s popularity among China’s burgeoning middle class</strong>—estimated to be around 400 million people—could also be put at risk by a rising tide of economic warning signs, including declining government investment, feeble consumer spending, and mounting debt among local governments.'</li></ul><p><strong>If Willy is right</strong>, then Xi needs more than a show of strength at the NPC.</p></td></tr></tbody></table>

6. FINTECH: Two Sessions Sends Strong Signals on Support for Chinese Fintech Development

<table class="nl_card" id="19mar0906"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p><strong>Delegates to the National People’s Congress (NPC)</strong> and the Chinese People’s Political Consultative Conference (CPPCC) have submitted a slew of opinions and recommendations for China’s fintech sector, reports the <a href="" target="_blank">China Banking News</a>.</p><ul><li><strong>'Pony Ma</strong> (马化腾), NPC delegate and chair and CEO of internet giant Tencent, has submitted seven written proposals at the Two Sessions this year, touching upon multiple areas including the Industrial Internet, the Greater Bay Area, basic scientific research and environmental protection.'</li><li><strong>'Zhang Jin</strong> (张劲), CPPCC and chair of Cedar Holdings, called for the establishment of a shared service platform for supply chain financing that makes use of technologies including big data and the blockchain, and is connected to key participants including financial institutions, core enterprises, small and medium-sized enterprises and third party logistics providers.'</li><li><strong>'Liu Shangxi</strong> (刘尚希), CPPCC representative and head of the Chinese Academy of Fiscal Sciences, also pointed to the ability of fintech to resolve the financing challenges of small and medium-sized enterprises.'</li></ul><p><strong>China already leads in fintech</strong> - mobile payments, online lending, consumer finance, online money-market funds, online insurance, personal financial management, and online brokerage.</p><p><strong>Take payments.</strong> According to <a href="" target="_blank">Peterson Institute's Martin Chorzempa</a>:</p><ul><li><strong>'When American Internet companies</strong> began to take off in the 1990s, credit cards were ubiquitous and joined into international networks. American ecommerce sites simply needed to accept credit cards to handle payments from anywhere in the country and even abroad.'</li><li><strong>But, because of 'the backward state</strong> of China’s payment infrastructure in the early 2000s, when Internet companies were beginning to expand,' ecommerce firms were forced to develop their own payment tools to build nationwide businesses.</li><li><strong>'Tencent</strong> (China’s largest social and gaming company) and Alibaba (its largest ecommerce company) built their own payment systems.'</li></ul><p><strong>In effect,</strong> the country has leapfrogged from cash to mobile payments, bypassing the payment cards system,' says <a href="" target="_blank">Brookings' David Dollar</a>.</p><ul><li><strong>'Behind China’s fintech miracle</strong> lies the country’s unique technology ecosystem: a tech-savvy population, an underdeveloped banking industry, and an initially relaxed regulatory environment.'</li><li><strong>'China’s remarkably unsophisticated banks</strong> stand in marked contrast to its well-developed technological infrastructure and soaring demand for financial services.'</li></ul><p><strong>China's government</strong> is paying more and more attention to fintech and its regulation (think peer-to-peer lending). So expect these proposals to get both attention and maybe pushback.</p></td></tr></tbody></table>

7. How tea is served in the Great Hall of the People in China

<table class="nl_card" id="19mar0907"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p><em>Great South China Morning Post video (60s).</em></p><p>Here's the transcript:</p><p><strong>Soon after Xi Jinping</strong> became China's top leader in 2012 he made significant changes not only to China's governance but also how tea is served in the Great Hall of the People.</p><p><strong>Xi's predecessors</strong> used to be served by female attendants only.</p><ul><li><strong>But since Xi</strong> took the helm state leaders in the first two rows are served by men.</li></ul><p><strong>Xi is also the only leader</strong> whose cup is not refilled but replaced.</p><ul><li><strong>An attendant</strong> will bring an extra cup for Xi, take away his old cup and put the new one on his table.</li></ul><p><strong>No one knows exactly why</strong> we don't know whether this arrangement is all about security concerns or simply a personal preference.</p></td></tr></tbody></table>

8. 'Two Sessions': A rap song extolling China's annual political meeting

<table class="nl_card" id="19mar0908"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr></tbody></table></td></tr><tr><td class="nl-post"><p>State-sponsored propaganda at its best.</p><p>Here's the refrain:</p><p>We’ve got “two sessions,” w-we’ve got “two sessions.”<br>For the fragrance we’re blessing,<br>to the world we show our affection.<br>See we’ve got “two sessions”<br>let me show you Chinese manners.<br>Tramp the bygone cession we’re the fortitude presence.</p></td></tr></tbody></table>