Article 23 for Hong Kong; Real estate; Economic policy; Bill Burns on China

I will be attending a forum tomorrow and so there will be no newsletter on January 31st.

Summary of today’s top items:

1. Article 23 and Hong Kong’s holistic view of national security - Hong Kong is going to finally pass Article 23. A previous attempt in 2003 led to the government ending its efforts in the face of mass protests. There will not be mass protests this time, and after a thirty day public consultation period it will likely become law by July 1 is my guess, and will be a “complement” to Hong Kong’s National Security Law. We knew this was coming in 2024, as they said so publicly, and repeatedly. The Article 23 Public Consultation Document in PDF states that “Article 2 of the National Security Law of the People’s Republic of China defined “national security”. The same set of national security standards should apply throughout the country, and the national security standards of our country should also apply to the HKSAR, which is an inalienable part of the People’s Republic of China. Therefore, the HKSAR shall discharge its responsibility of safeguarding national security in accordance with the holistic view of national security. The definition of national security in the HKSAR’s local legislation should be consistent with that in the laws of our country, i.e. to adopt the same definition in the National Security Law of the People’s Republic of China.” Hong Kong is a PRC city so it makes sense that it adopts the same laws as the PRC does, but Article 23 is unlikely to improve business and investor sentiment in the city, among other effects.

2. Real Estate - Guangzhou, Suzhou and Shanghai have removed some housing purchase restrictions to try to boost their local real estate markets. These moves are straight from the old playbook and worked in previous real estate cycles to signal that a bottom was close, and potential home buyers and speculators, conditioned to the idea that prices were only going to go up for the near future as confidence in economic and personal financial growth was strong, would start rushing back in, driving up transactions and prices. I think many people believe some of those fundamental assumptions— a bottom is near, prospects for economic and personal financial growth remain bright - are either broken or very much in doubt, and so I would be very surprised if these relaxations of housing purchase restrictions have much more than a marginal impact at best. One problem policymakers may face is the mood around Lunar New Year holiday, as people gather with family and friends. How many people are going to be talking about how much money they have lost in the stock market or in property, or have lost their jobs or had salaries and benefits reduced, or know people who have? Negative energy can be contagious, especially when much of the truth behind it comes from facts.

3. National Financial Regulatory Administration (NFRA) sets out its 2024 key tasks

4. Supply-side structural reforms and expanding effective demand - There is an article from "钟才文 Zhongcai Wen" on page 2 of People's Daily for the second day in a row. This one is titled "We must adhere to deepening supply-side structural reforms and focus on expanding effective demand to work in synergy." As I wrote in the Monday newsletter "I will guess that "钟才文 Zhongcai Wen" is the pen name for an article written by the Central Financial and Economic Affairs Commission 中央财经委员会. If that guess is correct (emphasis on “if) then this seems interesting". These first two are so far rehashing the key points from the Central Economic Work Conference (CEWC), which may support my previously articulated view that hopes for some sort of big policy changes from Premier Li at the March NPC are misplaced, and that in fact the policies have already been set by the CEWC and the Central Financial Work Conference. The policy response looks from the outside to be too little and too slow, but perhaps Xi and the leadership's view is that things are not that bad and they just need to harden everything that can be hardened while grinding through all the problems on the way to the promised land of the new development concept and high quality development? They may be right, either way that would mean more pain is ahead, and not for a short period of time.

5. Premier Li goes to Shaanxi - Premier Li goes on an inspection tour of Shaanxi with hi-tech on his mind and visits several semiconductor-related and other high tech firms.

6. Bill Burns on China - A new article in Foreign Affairs by William Burns, Director of the US CIA, is interesting. It is titled “Spycraft and Statecraft” and of course China features large in this essay. Burns writes that “China remains the only U.S. rival with both the intent to reshape the international order and the economic, diplomatic, military, and technological power to do so. The country’s economic transformation over the past five decades has been extraordinary. It is one for which the Chinese people deserve great credit and one that the rest of the world has broadly supported in the belief that a prosperous China is a global good. The issue is not China’s rise in itself but the threatening actions that increasingly accompany it. China’s leader, Xi Jinping, has begun his third presidential term with more power than any of his predecessors since Mao Zedong. Rather than use that power to reinforce and revitalize the international system that enabled China’s transformation, Xi is seeking to rewrite it.” So would things be different if someone not named Xi were leading the CPC and the PRC? And how can the US or its allies expect anything more than a pause in tensions between the US and China when, if Burns is correct, the structural contradictions between the countries are so large and intensifying?

There was no announcement of a monthly Politburo meeting today. Will we get one tomorrow, the last day of January, or will this be another month where they just leave us hanging?