Good morning from DC. It is the July 4 holiday in the US so today's newsletter is very brief.

Here are the top things I am watching about China today:

HNA chairman Wang Jian died from a fall in France. This tragedy will only make creditors, partners and shareholders more nervous about HNA's fate;
The RMB bounced back as the PBoC officials' statements seemed to work, at least for now;
There are still no signs of serious US-China talks to avert the imposition of the first round of tariffs in about 60 hours.

Thanks for reading, and for my American readers Happy 4th of July!

The Essential Eight

1. US-China tariffs countdown

China Vows Not to Fire Tariff Shot Ahead of U.S. in Trade War - Bloomberg

"We will never fire the first shot and will not implement tariffs ahead of the U.S.," the Ministry of Finance said in a statement late Wednesday, after media reported that Beijing would start levying tariffs hours ahead of the U.S. due to the time zone difference.
Bloomberg earlier reported that China would start applying the duties from midnight on Friday -- midday on July 5 in Washington -- according to two officials with knowledge of the plans. The Chinese customs service had adjusted their systems so the new tariffs would start being charged as soon as the clock ticks over to July 6 in Beijing, according to one of the people.

China not to preempt U.S. tariff move: official - Xinhua:

China will not implement additional tariffs ahead of the United States' tariff move, an official of the Customs Tariff Commission of the State Council said Wednesday.
"The Chinese government has reiterated its stance that it will not fire the first shot and will not preempt the United States' move of imposing additional tariffs," the official said in response to a report of Japanese newspaper Asahi Shimbun.

新华社-国务院关税税则委员会有关负责人：中国不会先于美国实施加征关税措施:

国务院关税税则委员会办公室有关负责人7月4日表示，我们已注意到日本《朝日新闻》关于“中国的‘报复’行动将先于美国开始”的报道。中国政府立场已多次申明，我们绝不会打第一枪，不会先于美国实施加征关税措施。

Get ready for short-term trade pain, US tells American companies in China | South China Morning Post:

Two US business sources said that the US embassy in Beijing told American companies on Thursday to be prepared for fallout over the short term, suggesting that the trade clash with China could last some time but would be in their interest over the long run. The embassy declined to comment.

2. China promoting US-Europe splittism

Of course Beijing sees opportunity in the Trump Era, but so far the Europeans, as angry as they may be at Trump, are not so crazy that they think an "anti-US alliance on trade" with China is a good idea...

China presses Europe for anti-U.S. alliance on trade | Reuters:

In meetings in Brussels, Berlin and Beijing, senior Chinese officials, including Vice Premier Liu He and the Chinese government’s top diplomat, State Councillor Wang Yi, have proposed an alliance between the two economic powers and offered to open more of the Chinese market in a gesture of goodwill.
One proposal has been for China and the European Union to launch joint action against the United States at the World Trade Organization.
But the European Union, the world’s largest trading bloc, has rejected the idea of allying with Beijing against Washington, five EU officials and diplomats told Reuters, ahead of a Sino-European summit in Beijing on July 16-17.

China's ambitions in eastern Europe to face scrutiny at summit | Reuters:

China meets central and eastern European leaders on Saturday for a summit where Beijing’s promises of big infrastructure deals will come under greater scrutiny with some participants saying the annual gatherings yield little...
States from the Baltics to the Balkans will meet China’s Premier Li Keqiang at the seventh “16+1” summit in the Bulgarian capital, hoping for fresh money from Chinese companies backed by state banks..
The gathering, less than two weeks before the European Union’s annual summit with China in Beijing, is unpopular in Brussels, which sees it as an attempt to divide the European Union. The EU is also resisting Chinese pressure to agree a joint stance against U.S. trade policies at the Beijing meeting.

Riding China’s Rise: The European Politicians in Beijing’s Orbit - Bloomberg:

Across Europe, politicians past and present are taking positions on China’s growing global reach.
Some such as Anders Fogh Rasmussen, the former Danish premier and head of NATO, warn that Europe must gird itself against China’s rise. Far more are riding the wave and helping China’s onward march. It’s a dilemma likely to feature at an EU-China summit this month.

3. Made in China 2025 at the grassroots

Another excellent article from Li Yuan, a terrific recent hire for the New York Times from the Wall Street Journal. The US and other governments can and should target the IP theft that helps Made in China 2025 but it is absurd and unrealistic to expect China to drop this plan, especially since foreign governments and experts have been advising China for years to "move up the value chain"...

Why Made in China 2025 Will Succeed, Despite Trump - The New York Times - Li Yuan:

This factory floor, in the southern Chinese city of Dongguan, once employed what one employee called a “magnificent sea of people.” Rising labor costs and a new generation with little interest in toiling in factories forced a new tack. Now the sea of people is being replaced by a whirring array of boxy machines, each performing work it used to take 15 people 26 steps to finish.
The factory suggests that Beijing’s vision of Made in China 2025 — the ambitious state-driven plan to retool China’s industries to compete in areas like automation, microchips and self-driving cars — is not being pushed just by the Communist Party’s top leaders. Instead, the drive is also coming from the bottom up: from the businesses and cities across China that know they must modernize or perish.

4. Micron gets the China treatment

First we steal your tech then we use a local court to shut you down...

Micron Chip Sales Banned in China on Patent Case, Rival UMC Says - Bloomberg:

In a patent ruling in favor of UMC, the Fuzhou Intermediate People’s Court of the People’s Republic of China issued a preliminary injunction stopping Micron from selling 26 products, including dynamic random access memory and Nand flash memory-related products, UMC said in a statement Tuesday. Micron said it hasn’t been served with the injunction and won’t comment until it does. Shares in the Boise, Idaho-based company dropped as much as 8 percent.
A Chinese court temporarily banned Micron Technology Inc. chip sales, cutting the U.S. company off from the world’s largest semiconductor market, Taiwanese rival United Microelectronics Corp. said.
In a patent ruling in favor of UMC, the Fuzhou Intermediate People’s Court of the People’s Republic of China issued a preliminary injunction stopping Micron from selling 26 products, including dynamic random access memory and Nand flash memory-related products, UMC said in a statement Tuesday. Micron said it hasn’t been served with the injunction and won’t comment until it does. Shares in the Boise, Idaho-based company dropped as much as 8 percent.
The case is part of a broader dispute between the two companies centering on accusations that UMC acted as a conduit for the theft of Micron’s designs in an attempt to help China grow its domestic chip industry and replace imports that rival oil in total value. A Chinese antitrust regulator is already investigating Micron and its Korean rivals, the companies have said. Local media has reported that authorities are looking into increases in chip prices.

China’s Found the Perfect Patsy to Tackle U.S. Chipmakers - Bloomberg:

Taiwanese prosecutors alleged that UMC employees were part of a plan to misappropriate IP from an American company (Micron) and deliver it to China (via Jinhua). In its December civil complaint, Micron accused UMC of trying to recruit key Taiwanese personnel, and induce former Micron Taiwan staff to steal files that could be used to give little-known Jinhua a boost in China’s campaign to develop its own chip technology.
A recent piece in the New York Times details the heist, which includes a police raid and a junior colleague spiriting a phone out of a factory as authorities closed in.
That a Chinese court suddenly finds in favor of UMC and Jinhua, with a threat to stop all import and sale of Micron’s chips, completes the cycle of absurdity.

5. Wang Jian dies in France

Of course conspiracy theorists are going nuts over his death, and perhaps there was something nefarious, but anyone who has spent time with Chinese tourists will understand the risks some will take to get the best photo possible...

HNA Chairman Dies After Fall in France - Caixin Global:

A source close to Wang told Caixin that he was visiting France on a business trip and took a break to visit Avignon in Provence, an area popular with tourists. He became unconsciousness after falling more than 10 meters (32.8 feet) off a wall. The source said that after regaining consciousness while he was being treated at hospital, the only thing Wang said was that his feet hurt.
HNA Chairman Chen Feng is on his way to France, and other executives have rushed back to the company’s headquarters in Haikou, Hainan province, Caixin has learned.
A friend of Wang’s who dined with him a month ago told Caixin that Wang explained to him during the meal that he had been having heart problems and that his blood pressure had been unstable. “Wang Jian had a hereditary heart disease, and he had undergone a heart surgery before,” the source told Caixin. “He had been under great pressure recently.”
French media reported that an unidentified aviation executive fell from a wall while taking pictures at a castle in the village of Bonnieux.

Wang Jian, Co-Founder of Chinese Giant HNA, Dies in France - The New York Times:

Mr. Wang was visiting Bonnieux, a traditional village with a church atop a rocky outcropping, when the fall occurred on Tuesday morning.
“He wanted to have his picture taken by someone in his group,” Col. Hubert Mériaux, of the Vaucluse gendarmerie force, said in a telephone interview. As he climbed onto a low wall with a view of the local landscape “he fell backwards, 10 to 15 meters further below,” Col. Mériaux said.

Local French news report on Wang's death, with pictures of the location /--Un touriste chinois se tue en voulant prendre des photos en Luberon - France Bleu

Les pompiers ont tenté en vain de ranimer un touriste chinois en fin de matinée mardi à Bonnieux, en Luberon. L'homme de 57 ans visitait le village avec un petit groupe d'une dizaine de vacanciers en villégiature en sud Vaucluse. Il se trouvait rue du Castelas, près de l'église. Ce propriétaire d'une compagnie d'aviation aurait fait une chute d'une douzaine de mètres vers 11h30 ce mardi matin. Il serait tombé d'un muret alors qu'il tentait de prendre des photos du superbe panorama qui s'offre à cet endroit, la forêt des Cèdres.
C'est un accident, selon ses compagnons de voyages, qui ont été auditionnés par les gendarmes à la brigade de Bonnieux. Les auditions se sont faites en chinois, l'interprète du groupe a été réquisitionné pour traduire. L'épouse de la victime est attendue mercredi en Vaucluse.

6. No "excessive" deleveraging

But what about any deleveraging? Seriously, as I wrote yesterday "recalibration in the face of changing economic conditions is to be expected, full retreat would be surprising given that reducing financial risks is one of the "three decisive battles" outlined at the 19th Party Congress."

Quick Take: PBOC Adviser Says Regulators Will Avoid Excessive Deleveraging - Caixin Global:

Ma Jun, a member of the central bank’s monetary policy committee, indicated that policymakers may be shifting their approach to implementing the government’s campaign to cut debt in the Chinese economy.
Ma, previously the head of the research bureau at the People’s Bank of China (PBOC), said financial watchdogs would not take a “one-size-fits-all” approach to deleveraging that could involve the excessive use of measures to reduce leverage at the aggregate level.
“In future, regulators will pay more attention to structural deleveraging,” Ma was quoted as saying in a statement released by the central bank to the media on Tuesday after the first meeting of the Financial Stability and Development Committee (FSDC), the new super-regulator set up last year to formulate policies to reduce financial risk and coordinate the work of the various financial watchdogs.

Stability Commission Backs Deleveraging, Financial Reforms - Caixin Global:

The new session of the cabinet-level Financial Stability and Development Commission (FSDC), led by Vice Premier Liu He, held its first meeting Monday to assess progress in the ongoing battle against financial risks and outline its future policy agenda, according to a statement on the government’s official website.
The commission found that China’s three-year-old campaign to cut excess financial leverage has been carried out in an orderly way and financial irregularities have been effectively curbed...
Several regulatory officials told Caixin that the FSDC reaffirmed the policy of consistent deleveraging but also emphasized that policies should be carried out “in proper pace and strength.”
“Deleveraging efforts require consistency; otherwise it will create greater risks,” one official said. “But policies should be issued to pacify the market sentiment or offset impacts on the market.”
The FSDC also pledged to continue financial reforms, maintain a prudent and neutral monetary policy and keep market liquidity at abundant and reasonable levels. The commission said China’s overall financial operations remain stable, and the Chinese economy is resilient with many “favorable conditions” to fend off major external risks.

Members of China's Financial Stability and Development Committee Revealed - China Banking News:

Liu He as chair;
Yi Gang (易纲), governor of the Chinese Central Bank, as vice-chair and office chair;
Ding Xuedong (丁学东), deputy-secretary general of the State Council as, as vice chair;
Guo Shuqing (郭树清), chair of the China Banking and Insurance Regulatory Commission;
Liu Shiyu (刘士余), chair of the China Securities Regulatory Commission;
Pan Gongsheng (潘功胜) , vice-chair of PBOC and head of the State Administration of Foreign Exchange;
Han Wenxiu (韩文秀), vice-chair of the Central Leading Group on Financial and Economic Affairs;
Lian Weiliang (连维良), vice-chair of the National Development and Reform Commission;
Liu Wei (刘伟), vice finance minister.

7. RMB bounces

Renminbi heads for third best day in 2018 after PBoC support | Financial Times $$

The offshore renminbi, which is not constrained by the same trading band as its onshore counterpart, was 0.7 per cent firmer against the dollar at Rmb6.6164, by mid-afternoon in Hong Kong. That reflected its biggest daily gain since March and came a day after it touched its lowest level in almost one year, according to Reuters data.
The onshore renminbi, meanwhile, which has a 2 per cent trading band in either direction, was trading 0.5 per cent firmer against the dollar at Rmb6.66042, also reflecting its biggest daily gain since March and heading for its fifth best day in 2018.

Volatile Yuan Puts Focus on China's Capital-Control Buffers - Bloomberg:

The sharpest decline in China’s currency since policy makers devalued the yuan in 2015 has seen little of the capital-flight panic that gripped markets back then. How long the calm lasts depends in part on the effectiveness of controls put in place last time.
This time around, the yuan’s 3.6 percent slide since mid-June has been accompanied mainly by an outflow of cash from foreign, rather than domestic, investors, analysts say. Overseas funds took out almost 4 billion yuan ($610 million) from Hong Kong’s Stock Connect with mainland exchanges in that period, reversing inflows the prior two weeks.

My thoughts: China can obviously control the direction of the RMB in at least the short to medium term, so interpreting the most recent moves as signaling to the US is not illogical. But is the threat of a significant devaluation in the face of a US-China trade war really credible, given the damage to domestic sentiment and subsequent increased capital flow pressure such a move with cause, as well as the fact that a competitive devaluation would damage the image China and Xi have worked so hard to cultivate since Davos 2017 of China as a responsible major economic power and upholder of the global trading system?

8. Self-revolution for the Party and its members

Xi has been all about Party building since at least his time on the 17th PBSC, this latest meeting another reminder that the fun days for cadres are long gone and are not coming back any time soon...I am intrigued by what appears to be an increased emphasis on "self-revolution 自我革命" since the 19th Party Congress. Thoughts on this are appreciated

Xi pledges to make CPC stronger - Xinhua

Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, has called on the whole Party to implement the Party's organizational line for the new era and make the Party stronger.
Xi, also Chinese president and chairman of the Central Military Commission, made the remarks at the national conference on organizational work, which was held here from Tuesday to Wednesday.
He required efforts to break new ground in "the great new project of Party building."
"In order to uphold and develop socialism with Chinese characteristics in the new era, our party must have the courage to carry out self-reform [interesting translation, the original Chinese is "self-revolution" 自我革命 ] to make the Party stronger," Xi said.

The Wednesday CCTV Evening News spent the first 14 minutes of the broadcast on the meeting - 习近平在全国组织工作会议上强调切实贯彻落实新时代党的组织路线全党努力把党建设得更加坚强有力

习近平强调，党的十八大以来，我们推进全面从严治党取得了显著成效，但还远未到大功告成的时候。我们党面临的“四大考验”“四种危险”是长期的、尖锐的，影响党的先进性、弱化党的纯洁性的因素也是复杂的，党内存在的思想不纯、政治不纯、组织不纯、作风不纯等突出问题尚未得到根本解决。特别是要看到，在新时代，我们党领导人民进行伟大社会革命，涵盖领域的广泛性、触及利益格局调整的深刻性、涉及矛盾和问题的尖锐性、突破体制机制障碍的艰巨性、进行伟大斗争形势的复杂性，都是前所未有的。我们必须增强忧患意识、责任意识，把党的伟大自我革命进行到底。要全面贯彻新时代党的建设总要求，不断提高党的建设质量，把党建设成为始终走在时代前列、人民衷心拥护、勇于自我革命、经得起各种风浪考验、朝气蓬勃的马克思主义执政党。

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