More special bonds for fiscal stimulus?; Stock market surge; Water-filled submarine; MSS mad at New Zealand; Raising money by detaining private entrepreneurs
Earlier today I published a full translation of the readout of the Politburo meeting along with thoughts on some of the key points - September Politburo Meeting to Analyze and Study Current Economic Situation and Economic Work; Investors Pumped.
I also published this week’s episode of Sharp China - Unpacking the New Stimulus Measures; A Top Economist Disappears; US Moves on Connected Vehicles; The Future of China Policy for Democrats. From the show notes:
On today's show Andrew and Bill begin with a raft of measures announced this week to stimulate the economy. Topics include: A pop to the stock market just in time for the PRC's 75th anniversary, stimulating mergers and acquisitions, whether this week's measures indicate more relief in the months to come, and more. Then: The disappearance of prominent economist Zhu Hengpeng, and a reminder of structural problems under Xi that have continued to intensify, regardless of monetary policy. At the end: The Ministry of Commerce announces that the owner of Calvin Klein and Tommy Hilfiger are under investigation, the US Commerce Department moves forward with a proposed rule that would effectively ban Chinese vehicles from the US, and a Substack post offers a taxonomy of Democrat China policies and questions about who might set the agenda for a Kamala Harris administration.
You can listen to the full episode here.
Summary of today’s Essential Eight:
1. More special bonds for fiscal stimulus? - The readout from today’s Politburo meeting talked about intensifying “counter-cyclical adjustments in fiscal and monetary policies” and issuing and utilizing “long-term special government bonds and local government special bonds to better leverage the role of government investment”, but there were no details. Reuters reports that the government will issue around 2 trillion RMB of special sovereign bonds “as part of a fresh fiscal stimulus”. According to their sources 1 trillion will go towards stimulating consumption, and there will also a monthly allowance of 800 RMB for families with two or more kids. That kind of cash handout would also fit the goal of encouraging more births.
2. Stocks have a great week - The various stimulative measures this week, and the Politburo meeting “to analyze and study the current economic situation and make further arrangements for economic work”, popped stocks. I spoke with CNBC this afternoon about the measures, and why they will probably spur at least a very nice rebound rally, but are not enough to fix some of the tougher underlying issues.
The multi-trillion RMB question is why did Xi seemingly suddenly decide to approve a series of stimulative policies this week? Has the economy had gotten so bad that the political security and social stability risks were becoming so pronounced that he was convinced he had to act?
3. Guiding Opinions on Promoting Medium and Long-term Funds to Enter the Market - In another measure that will likely provide support for the stock market, the office of the Central Financial Work Commission and the China Securities Regulatory Commission jointly issued the "Guiding Opinions on Promoting Medium and Long-term Funds to Enter the Market” on Thursday.
4. Call for local governments to stop raising money by detaining private entrepreneurs - Earlier this week economist and Deputy Director of the Institute of International Strategy, Party School of the Central Committee of the CPC Zhou Tianyong wrote a short article titled "Urgently Prohibit and Stop Local Governments from Supplementing Fiscal Revenue by Detaining Private Entrepreneurs and Releasing Them for Money". The article is now harmonized. The censorship is unsurprising since he is basically saying local governments are kidnapping people and forcing them to pay ransom, because they are so desperate for revenue. Zhou writes “Recently, local governments at all levels are facing widespread financial difficulties, and local party committees have assigned tasks to supplement local fiscal revenue to various party, government, and judicial institutions. The pressure of balancing income and expenditure and repaying debts is understandable. However, if local disciplinary inspection committees at all levels detain entrepreneurs who have allegedly bribed, are suspected of bribery, or even those who have been reported based on rumors, and then release them for money to obtain local fiscal revenue, it will certainly lead to another national economic disaster if it spreads.”
5. Submarine sank at a Wuhan shipyard - The Wall Street Journal reports that the first of the Zhou-class nuclear powered attack submarine sank pier-side in a shipyard near Wuhan. Later Thursday the Pentagon confirmed the report. There was no reason given for the sinking. Water-filled submarines are worse than water-filled missiles.
6. MSS mad at New Zealand - The MSS used its WeChat account to criticize New Zealand for its recent report describing the PRC as a “complex intelligence concern”. According to the MSS the report “openly smears the broader overseas Chinese community and students. Following the release of this report, some overseas Chinese in New Zealand have been subjected to harassment and intimidation by so-called New Zealand "intelligence personnel.“ The agency also warned New Zealand: “Whether out of imagination, ulterior motives, or instigation by external forces, creating contradictions and differences between China and New Zealand and pushing someone else's agenda will not solve any of one's own problems, but will instead harm one's own interests and bilateral relations.”
7. Central Science and Technology Commission - Jimmy Goodrich, an advisor to Rand and a non-resident fellow at the University of California Institute on Global Conflict and Cooperation, has written a useful briefing on the new and somewhat secretive Central Science and Technology Commission.