CEWC underwhelms; State Council Executive Meeting; Trump on US-China; TikTok running out of time?; Royal China mess in UK
Summary of today’s Essential Eight:
1. Reactions to the Central Economic Work Conference - Markets were not impressed by the readout from the CEWC, as even though anyone paying attention knew the meeting would not announce specific numbers or targets, I think the broader sense is that the leadership is still not acting with enough urgency to deal with the growing risks of a severely damaging deflationary spiral. On Monday Xinhua published a Q&A with a “Responsible Official from the Office of the Central Committee for Financial and Economic Affairs” to interpret the CEWC readout. The official explained that “expanding domestic demand is a strategic move, and boosting consumption is the top priority. Regarding vigorously boosting consumption, a special action to boost consumption will be implemented next year, focusing on closely combining consumption promotion with people's livelihood improvement”, and said that “we will continue to optimize consumption promotion policies, improve relevant systems, and enhance the consumption environment…Next year, we will increase the scope and arrange more funds to include more consumer goods in the scope of support and optimize the subsidy distribution process”. I have included a long translated excerpt of the officials’ comments. I do not think they will change market views about the CEWC.
2. November economic data - Retail sales grew less than expected. The official explanation was the “earlier-than-usual Double 11 shopping festival”, but the data does support growing concerns about deflationary risks. Housing prices declined at the slowest amount in 2024, but they still declined.
3. State Council Executive Meeting - There was a State Council Executive meeting Monday. According to the readout the meeting discussed “arrangements made for implementing the decisions and deployments of the central economic work conference; deployment to optimize and improve the management mechanism of local government special bonds; research on policies and measures to promote the high-quality development of government investment funds; report on the progress of the three-year action plan for fundamental safety production; research on promoting the revitalization and development of football and review and approval of the draft regulation on the management of public safety video image information systems, pointing out the need to regulate the construction and use of public safety video systems to better maintain public safety and protect personal privacy.”. According to the meeting local government special bonds will be allowed to be used for land reserves and supporting the acquisition of existing commercial housing for use as affordable housing
4. Xinhua explains the “four red lines” for US-China relations - The PRC readout from the Xi-Biden meeting in Lima last month concisely articulated four red lines for US-China relations. According to that readout “the Taiwan question, democracy and human rights, China’s path and system, and China’s development right are four red lines for China. They must not be challenged. These are the most important guardrails and safety nets for China-U.S. relations.” The red lines were not new in US-China high-level discussions, but this public formulation is. Last week Xinhua launched the commentary series “On the Correct Way for China and the U.S. to Get Along in the New Era”. In the second installment which ran Monday, Xinhua writes: “In high-level exchanges between China and the US, China has repeatedly emphasized these red lines to help the US understand China's principles and bottom lines, avoid misunderstandings and misjudgments, properly manage differences, and prevent conflict and confrontation. In the past, when China-US relations encountered setbacks, the responsibility was clear. It was the US side's repeated provocations on issues concerning China's core interests that once drove China-US relations to their lowest point since the establishment of diplomatic relations. Historical lessons should be learned. Now during the US government transition period, to maintain the hard-won stabilizing momentum in China-US relations and lay a good foundation for their future development, these four red lines are warning lines that cannot be challenged”. The commentary is not too long so I have included a full translation.
5. Trump talks Xi and China at press conference - President-elect Trump held a press conference Monday. In response to a question about Xi, he said that Xi has not said he will not be coming to the inauguration, that they have been communicating through letters, and that "China and the United States can together solve all the problems in the world, if you think about it. So it’s very important. He was a friend of mine… We spent hours and hours talking. And he’s an amazing guy". Will the PRC side hear these comments and think Trump is open to some sort of G2-like grand bargain, even if Trump is more just speaking off the cuff? Or is he actually open to a grand bargain? On Friday the US and China signed a five year extension to the Agreement Between the United States and China on Cooperation in Science and Technology
6. TikTok running out of time in the US? - TikTok lost its bid for an injunction to delay the January 19 deadline from going into effect. The company has now appealed to the Supreme Court, and to President-elect Trump. TikTok CEO Shouzi Chew made the pilgrimage to Mar-a-Lago today to meet with Trump, though it is not clear he can do anything to prevent the law from going into effect in 33 days. If the Supreme Court declines to hear the case or grant a delay, then TikTok may lose access to US service providers at 12:01 AM January 19th.
7. More AI chip restrictions coming? - Reuters and then the Wall Street Journal reported that “the U.S. will empower companies like Google and Microsoft to act as gatekeepers worldwide for highly sought-after access to AI chips”, while capping the number of chips that can be shipped to some countries. Last week the New York Times published a long story about the tussle between industry and some parts of the US government over the controls on semiconductor exports to the PRC. In one particularly disturbing revelation “some B.I.S. employees inappropriately informed U.S. companies about forthcoming sanctions. That information had sometimes been passed on to Chinese customers, who then stockpiled U.S. products”.
8. A royal China mess in the UK - Reuters reported Monday that the UK government has “pared back an audit of relations with China…preparing the way for a less critical report that could help Prime Minister Keir Starmer focus on improving economic ties.” That news comes just days after revelations that a PRC businessman who cultivated close ties with Prince Andrew was banned from entering the UK. From across the pond it looks like there may be a two line struggle underway for UK China policy, with those advocating for a tougher approach losing.