Politburo meeting, no announcement of Third Plenum; Li Shangfu missing from study session; Evergrande chairman under "control"; TikTok
Earlier today I published this week’s episode of the Sharp China podcast. From the show notes:
On today’s show Andrew and Bill begin with a correction to last week’s episode and the latest bizarre twist in the Qin Gang saga. Then: A closer look at the recent clashes between the PLA and the Philippines in the South China Sea, this week’s news at the Scarborough Shoal, the Filipino media strategy under President Marcos, and possible PRC responses as international attention intensifies. From there: Xi welcomes Syrian President Bashar al-Assad to Hangzhou, Syria praises the “counter-terrorism” efforts in Xinjiang, and new information indicates that Uyghur history scholar Rahile Dawut has been sentenced to life in prison. At the end: The rumors of Rahm’s Twitter demise were greatly exaggerated, exploring “Back to Bali” as momentum builds for increased US-China engagement, and the Panda farewell at the National Zoo yields a great Foreign Policy article, memories of a film set in 1994, and uncertainty about the future of Panda Diplomacy in the United States.
Summary of today’s top items:
Politburo meeting - The Politburo held its monthly meeting, the focus was on the results of the recent round of CCDI inspections. The readout did not mention any dates for the Third Plenum. If past precedent holds for announcing the dates then the likely earliest date for the Plenum would be in November. But perhaps they will just announce it a few days ahead, as past precedent does not seem particularly binding in the Xi Era. I expect the lack of an announcement of dates for this meeting will lead to a new round of rumors that it has been “delayed” because of turmoil/disagreements etc. Perhaps, but I will be cautious about jumping to that conclusion.
Politburo Study Session on WTO reform and opening up - Gu Xueming 顾学明 from the Ministry of Commerce was the discussant. Only three of the five State Councillors were in attendance. Qin Gang and Defense Minister Li Shangfu were absent.
Evergrande restructuring in doubt as chairman placed under control -Bloomberg broke the news that Hui Ka Yan “has been placed under police control”. This follows news earlier this week that several other executives had been detained. I am not sure how this news can give confidence that Evergrande can avoid liquidation, and it will likely worry the heads of other struggling real estate firms.
PBoC Q3 meeting - A translation of the readout, I do not see any surprises - “The foreign exchange market is basically balanced in supply and demand, the current account surplus is stable, foreign exchange reserves are sufficient, the RMB exchange rate is two-way floating, expectations are stabilizing, and it remains basically stable at a reasonable and balanced level, playing the role of a macroeconomic stabilizer….The meeting pointed out that the current external environment is becoming more complex and severe, international economic trade and investment are slowing down, inflation remains high, and developed countries' interest rates will continue to remain high. The domestic economy continues to recover, rebound, and strengthen, but still faces challenges such as insufficient demand”
Inner Mongolia issues bonds to pay off debts owed to businesses - The $9 billion debt issuance may be related to the the State Council last week approving a "Special Action Plan for Clearing Arrears of Enterprises". The April Politburo meeting readout said that “Work must be done to ultimately address the issue of overdue payments to enterprises”. Six months later, it sounds like more work needs to be done.
More TikTok US issues - The Wall Street Journal reports some Bytedance executives are transferring from China to the US to work at TikTok, though my read of this news is that maybe more about retaining Bytedance executives by giving them an opportunity to leave China move to the US with their families. Forbes reports the TikTok and Bytedance employees can access the contact lists of high-profile celebrities and public figures using TikTok. But none of this will matter, it seems highly unlikely US government will materially harm TikTok before the 2024 election. The TikTok lobbyists are too plentiful and connected, and the campaigns too reliant on TikTok. Teflon TikTok?
Thanks for reading.
1. Politburo meeting
The Political Bureau of the Communist Party of China (CPC) Central Committee convened a meeting on Wednesday to deliberate a report on the first round of disciplinary inspections launched by the 20th CPC Central Committee…
Practice has proven that disciplinary inspections are an effective method to identify and solve problems, and need to be carried out constantly and intensively, the meeting noted.
Results of the first round of disciplinary inspections showed that Party building and self-governance had been strengthened in the state-owned enterprises (SOEs), finance and sports sectors, but there remain some problems, the meeting said, noting that strict steps should be taken consistently.
The disciplinary inspections and follow-up actions to solve existing problems must serve as opportunities for strengthening the Party's overall leadership and helping SOEs perform their core functions better and improve their core competitiveness.
The meeting also stressed the need for greater efforts to ensure financial enterprises serve the real economy and national strategies in an improved manner.
It is crucial to ensure both development and security, stay prepared to deal with worst-case and extreme-case scenarios, and take effective measures to forestall and defuse major risks, the meeting noted.
Full translation - 中共中央政治局召开会议 审议《关于二十届中央第一轮巡视情况的综合报告》 中共中央总书记习近平主持会议-新华网
On September 27, the Political Bureau of the CPC Central Committee held a meeting to review the "Comprehensive Report on the First Round of Inspections of the 20th Central Committee." The meeting was chaired by Xi Jinping, the General Secretary of the CPC Central Committee.
The meeting emphasized that the Party Central Committee, with Comrade Xi Jinping at its core, attaches great importance to inspection work. The inspection is regarded as a strategic institutional arrangement for advancing the Party's self-revolution and strict governance. A series of significant decisions and deployments have been made. The first round of inspections of the 20th Central Committee adhered to innovation while maintaining correctness, promoting specific, precise, and normalized political supervision, sending a clear signal that strict governance of the Party and the Party's self-revolution are always ongoing. Practice has proven that inspection is an effective way to discover and address issues, and efforts should continue to be intensified.
The meeting pointed out that based on the inspections, the Party's construction and strict governance in state-owned enterprises, finance, and sports sectors have been strengthened, achieving new results. However, some issues still exist. It's essential to maintain strict measures and atmosphere consistently. The inspected Party organizations, especially the main responsible comrades, should take responsibility seriously, strictly and practically implement rectifications, and combine inspection rectifications with the study and implementation of Xi Jinping Thought on Socialism with Chinese Characteristics For a New Era. They should deeply understand the decisive significance of the "two establishes" and resolutely uphold the "two safeguards."
The meeting emphasized that, taking the inspection rectification as an opportunity, the Party's overall leadership should be further strengthened. The inspected Party organizations should elevate their political stance, conscientiously fulfill the responsibilities and missions entrusted by the Party Central Committee, continuously enhance the core functions and competitiveness of state-owned enterprises, solidify the essential material and political foundation of socialism with Chinese characteristics, increase the intensity of financial enterprises serving the real economy and national strategy, and promote high-quality development. It is crucial to coordinate development and security, establish bottom-line and extreme case thinking, take effective measures to prevent and resolve significant risks, and firmly guard the safety bottom line. Efforts should be made to promote the in-depth development of strict governance of the Party, emphasize the supervision of top leaders at all levels, intensify anti-corruption efforts in state-owned enterprises and the financial sector, deeply rectify the "four winds," deepen reforms prompted by cases, and comprehensively advance the initiatives to ensure officials don't dare to, can't, and don't want to be corrupt. It's essential to implement the Party's organizational line in the new era, strengthen the construction of leadership teams, cadre and talent teams, and grassroots Party organizations. The results of inspections should be utilized comprehensively to deepen reforms, improve systems, promote governance at the source, and ensure both symptoms and root causes are addressed.
The meeting also discussed other matters.
2. Politburo Study Session on WTO reform and opening up
Xi made the remarks while presiding over a group study session of the Political Bureau of the CPC Central Committee on Wednesday.
Noting that the WTO is an important pillar of multilateralism and an important stage for global economic governance, Xi said it is a common consensus and a general trend to implement necessary reforms of the WTO.
He urged efforts to fully participate in WTO reform and adjustments of international economic and trade rules, while promoting deep-level reform and high-quality development with high-level opening-up.
Since its accession to the WTO more than 20 years ago, China has become the world's largest trader for goods and a major trading partner for over 140 countries and regions, contributing an average of nearly 30 percent to the world's annual economic growth, Xi said.
Historical changes have taken place in the relationship between China and the WTO, he said, noting that the country has gradually grown from a passive recipient of and an active adapter to international economic and trade rules, to an important participant in this field.
Facts have proven that China's decision to join the WTO has been a perfectly right one, as the accession has not only accelerated China's own development but also benefited the rest of the world, Xi said.
As for participation in the WTO reform, Xi called for firmly upholding the authority and efficacy of multilateral trading system with the WTO at the core, and actively promoting the restoration of the normal operation of the WTO dispute settlement mechanism.
He stressed the need to stick to the overall trend of economic globalization, champion free trade and true multilateralism, oppose unilateralism and protectionism, oppose politicizing, weaponizing and overstretching the concept of national security on economic and trade issues, and build an open world economy.
He also stressed improving the Chinese solutions in the country's extensive and in-depth participation in WTO reform while upholding the concept of a global community of shared future, as well as firmly protecting the legitimate interests of developing countries including China
CCTV Evening News on the Politburo Study Session - 习近平在中共中央政治局第八次集体学习时强调 积极参与世界贸易组织改革 提高驾驭高水平对外开放能力 An excerpt:
Xi Jinping emphasized that in participating in the reform of the World Trade Organization (WTO), it is essential to firmly uphold the authority and effectiveness of the multilateral trading system with the WTO at its core and actively promote the resumption of the normal operation of the WTO's dispute resolution mechanism. We must firmly stand on the right side of history, adhere to the general direction of economic globalization, clearly advocate free trade and genuine multilateralism, oppose unilateralism and protectionism, and oppose the politicization, weaponization, and over-securitization of economic and trade issues. We should promote the construction of an open world economy. Upholding the concept of a community with a shared future for mankind, we need to refine and perfect China's plan for comprehensive and in-depth participation in the reform of the WTO. We must resolutely defend the legitimate rights and interests of the vast number of developing countries, including China.
Xi Jinping pointed out that promoting reform and development through openness has been an essential strategy for China's continuous achievements in modernization. This year marks the 45th anniversary of the reform and opening-up. We need to continue to focus on our own reforms, both expanding the door to openness and ensuring the path of reform is steady. We should proactively align with high-standard international economic and trade rules, steadily expand institutional openness in rules, regulations, management, and standards, accelerate the creation of new highlands for external openness, build a new system for a higher-level open economy, and speed up the establishment of a new development pattern. We should actively create a first-class business environment that is market-oriented, rule-of-law-based, and internationalized. Taking the opportunities of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Digital Economy Partnership Agreement, we should further tap into the potential for imports, relax market access, promote in-depth development of multilateral and bilateral cooperation, and enhance the attractiveness to foreign investment. We need to accelerate the construction of a strong trading nation, upgrade goods trade, innovate in service trade, develop digital trade, and, with digitalization and greening as the direction, further enhance our position in international division of labor and advance to the mid-to-high end of the global value chain. At the same time, we must pay attention to safeguarding national economic security.
The three State Councilors in attendance, Shen Yiqin, Wu Zhenglong and Wang Xiaohong:
3. Evergrande restructuring in doubt as chairman placed under control
Hui Ka Yan, the billionaire chairman of beleaguered property developer China Evergrande Group, has been placed under police control, according to people with knowledge of the matter.
Hui was taken away by Chinese police earlier this month and is being monitored at a designated location, the people said, asking not to be identified because the matter is private.
It’s not clear why Hui is under so-called residential surveillance, a type of police action that falls short of formal detention or arrest and doesn’t mean Hui will be charged with a crime. Still, the measure means he is unable to leave the location, meet or communicate with others without approval, based on China’s Criminal Procedure Law.
The company is "very likely to fail on debt restructuring, and with negative equity, Evergrande may go into bankruptcy, which includes bankruptcy reorganisation and bankruptcy liquidation," UOB Kay Hian wrote in a note on Wednesday.
As the developer's already sold but unfinished apartments will pose a risk to "social stability", there is a good chance that Evergrande will likely seek bankruptcy reorganisation, the brokerage said.
Evergrande has been in the process of seeking its creditors' approval to restructure offshore debt worth $31.7 billion, which includes bonds, collateral, and repurchase obligations, amid weakening cash flows...
But a weekend announcement it could not issue new debt due to a regulatory investigation underway into one of its main Chinese units has thrown those plans into disarray.
The net share of respondents planning to cut their investment in domestic real estate over the next year rose to a record 31.7% in the third quarter of this year, according to the quarterly investor sentiment survey published by the Cheung Kong Graduate School of Business in Beijing.
Pessimism on property values appears to be one reason for caution, with the share of investors predicting that secondary-market prices will rise in first and second-tier cities over the next year falling to 47.6% — a record low since the survey began in 2018.
A Bloomberg Intelligence gauge of developer shares closed down 3.5% on Wednesday. The biggest drag was CIFI Holdings Group Co., which plunged 59% as trading resumed following months of suspension. The gauge is down more than a third for the year, compared with the 9% decline in the broader Hang Seng China Enterprises Index.
The selloff has now erased all of the sector’s gains since China’s reopening rally took off at the end of October. Investors are bracing for further troubles at some distressed builders after policy support failed to drive a sustainable recovery in home sales. While developers are counting on the Golden Week holiday to revive sales momentum, a stream of negative headlines on the sector’s distress may keep buyers away.
Economists generally have been sanguine about property-related risks to China’s financial system, in part because home buyers tend to make large down payments. That gives them extra cushion if home prices fall, unlike the U.S., which saw a wave of mortgage defaults during the financial crisis that weakened the banking sector.
The picture could change in China if prices fall a lot more, triggering fire sales and sending the market into a downward spiral, ANZ noted in a report published in September.
If property values drop 30% in China—as much as they fell in Tokyo and Hong Kong during past downturns, ANZ said—about 12% of the country’s $5.3 trillion mortgage book, or around $640 billion in mortgages, would have negative equity, meaning the properties would be worth less than their mortgages.
If prices drop by half, about 51% of mortgages would be underwater.
4. PBoC Q3 meeting
China's central bank said on Wednesday it would step up policy adjustments and implement monetary policy in a "precise and forceful" manner to support an economy whose recovery was improving with "increasing momentum".
The People's Bank of China (PBOC) will keep liquidity reasonably ample and maintain stable credit expansion, the bank said in a statement after a quarterly meeting of its monetary policy committee
The People's Bank of China's Monetary Policy Committee held its third quarterly meeting (the 102nd in total) for 2023 in Beijing on September 25th.
The meeting analyzed the domestic and international economic and financial situation. The conference believed that since the beginning of the year, macro policies have adhered to stability as the top priority and sought progress while maintaining stability. The prudent monetary policy has been precise and powerful, increasing counter-cyclical adjustments, comprehensively using policy tools such as interest rates and reserve requirements, effectively serving the real economy, effectively preventing and controlling financial risks, and creating a suitable monetary and financial environment for the economic recovery. The reform of the loan market quoted interest rate has achieved significant results, the deposit interest rate market adjustment mechanism has been effectively implemented, the efficiency of monetary policy transmission has been enhanced, and the social financing cost has significantly decreased. The foreign exchange market is basically balanced in supply and demand, the current account surplus is stable, foreign exchange reserves are sufficient, the RMB exchange rate is two-way floating, expectations are stabilizing, and it remains basically stable at a reasonable and balanced level, playing the role of a macroeconomic stabilizer.
The meeting pointed out that the current external environment is becoming more complex and severe, international economic trade and investment are slowing down, inflation remains high, and developed countries' interest rates will continue to remain high. The domestic economy continues to recover, rebound, and strengthen, but still faces challenges such as insufficient demand. It is necessary to continue to exert effort, seize the momentum, increase the intensity of macro-policy regulation, accurately and powerfully implement a prudent monetary policy, handle counter-cyclical and cross-cycle adjustments well, better play the dual function of the overall and structural monetary policy tools, focus on expanding domestic demand, boost confidence, accelerate the benign economic cycle, and provide stronger support for the real economy. Intensify the implementation of the already introduced monetary policies, maintain adequate liquidity, ensure reasonable growth and stable rhythm of credit, and ensure that the growth rates of money supply and social financing scale basically match the nominal economic growth rate.
Enhance the guiding role of government investment and policy incentives, effectively stimulate and inspire private investment. Promote a modest rise in prices and keep them at a reasonable level. Implement the increased re-lending and re-discount quotas well, continue to increase support for inclusive finance, green development, technological innovation, infrastructure construction, and other key areas and weak links in the national economy, and comprehensively support coordinated regional development.
Deepen financial supply-side structural reforms, guide major banks to focus their services more on grassroots levels, urge small and medium-sized banks to concentrate on their primary responsibilities and businesses, support banks in replenishing their capital, and jointly maintain the stable development of the financial market. Improve the market-based interest rate formation and transmission mechanism, leverage the guiding role of the central bank's policy interest rates, release the effectiveness of the loan market quoted interest rate reform and deposit interest rate market adjustment mechanism, and promote a steady reduction in the financing costs for enterprises and the credit costs for residents.
Deepen the reform of exchange rate marketization, guide enterprises and financial institutions to adhere to the "risk-neutral" concept, comprehensively implement measures, correct deviations, stabilize expectations, resolutely correct unilateral and pro-cyclical behaviors, resolutely prevent exchange rate overshooting risks, and keep the RMB exchange rate basically stable at a reasonable and balanced level. Construct a financial system that effectively supports the real economy, implement the action plan to increase support for financing of technology-based enterprises, guide financial institutions to increase medium and long-term loans to the manufacturing industry, and support the accelerated construction of a modern industrial system. Improve the green financial system with the goal of promoting carbon peaking and carbon neutrality.
Optimize bulk consumer goods and social service sector consumer financial services, and continue to increase financial support for enterprise job stabilization and expansion and key group entrepreneurship and employment.
Implement differentiated housing credit policies according to the city, support rigid and improved housing demand, implement the dynamic adjustment mechanism of the new first-home loan interest rate policy, reduce the down payment ratio and the lower limit of the second-home loan interest rate, promote the reduction of the stock of the first-home loan interest rate to take effect, increase financial support for "dual-use" public infrastructure construction, urban village renovation, and guaranteed housing construction, promote the establishment of a new model of real estate industry development, and promote the stable and healthy development of the real estate market.
Implement financial policy measures to promote the healthy development of the platform economy and promote the standardized, healthy, and sustainable development of platform enterprises. Effectively promote high-level two-way financial opening, improve the ability to manage and control risks in the open economy and finance.
The meeting emphasized that it is necessary to take Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era as the guide, fully implement the spirit of the 20th National Congress of the Communist Party of China and the Central Economic Work Conference, adhere to the general tone of seeking progress while maintaining stability in accordance with the decision and deployment of the Party Central Committee and the State Council, firmly grasp the primary task of high-quality development, solidly promote Chinese-style modernization, comprehensively, accurately, and fully implement the new development concept, accelerate the construction of a new development pattern, and promote the effective improvement of economic quality and reasonable growth of quantity. Adhere to the "two unwaverings", fight a combination of macro-policy, expanding demand, reform and innovation, and risk prevention and resolution, combine the implementation of the strategy to expand domestic demand with deepening supply-side structural reform, combine the effectiveness of policy and the vitality of business entities, further strengthen inter-departmental policy coordination, fully play the effectiveness of monetary and credit policies, balance internal and external balance, and continuously promote the continuous improvement of economic operation, continuous enhancement of endogenous motivation, continuous improvement of social expectations, and continuous resolution of risk hidden dangers, and make a good start in building a socialist modern country in an all-round way.
The meeting was chaired by Pan Gongsheng, Governor of the People's Bank of China and Chairman of the Monetary Policy Committee. Members of the Monetary Policy Committee Liu Guoqiang, Zhang Qingsong, Li Yunze, Yi Huiman, Kang Yi, Tian Guoli, Liu Shijin, Cai Fang, and Wang Yiming attended the meeting. Xu Shouben, Li Chunlin, and Xu Hongcai took leave for official business. Responsible comrades from the Shanghai Headquarters of the People's Bank of China, Liaoning Branch, Hunan Branch, and Yunnan Branch attended the meeting
5. Inner Mongolia issues bonds to pay off debts owed to businesses
The government of China’s Inner Mongolia autonomous region plans to issue 66.3 billion yuan ($9 billion) of refinancing bonds Oct. 9 to pay off debts owed to businesses, authorities said Monday.
It will be the first borrowing by a local government to make overdue payments to private businesses in response to a State Council directive Sept. 20. China’s cabinet ordered state-owned enterprises (SOEs) and provincial-level governments to pay their debts to businesses.
Refinancing bonds were originally used to pay off local government bonds. As part of a 2020 trial program to defuse local governments’ hidden debt risks, the use of refinancing bonds was expanded to cover such hidden debts. The borrowings are mostly concentrated in local government financing vehicles (LGFVs), which are state-owned companies set up to finance local government investment such as infrastructure projects like highways and bridges.
The Inner Mongolia bond issuance will represent an expansion of the program to include repayment of arrearages owed businesses.
Cailian on the Inner Mongolia debt issuance - 663.2亿定了！内蒙古打响化债第一枪，“一揽子地方债务化解方案”预期陆续落地
Previously, industry insiders indicated that this round of comprehensive debt consolidation plan would be different from the previous round, which aimed to alleviate the hidden debt in existing stock. Instead, it would primarily focus on repaying the statutory debts of local governments, including the hidden debts of urban development investment platforms and even overdue payments, such as those related to nucleic acid testing during the pandemic. This can be seen from the way Inner Mongolia is issuing bonds in this instance.
6. More TikTok US issues
Since the start of the year, a string of high-level executives have transferred from ByteDance to TikTok, taking on some of the top jobs in the popular video-sharing app’s moneymaking operations. Some moved to the U.S. from ByteDance’s Beijing headquarters.
The ByteDance executives have taken on roles overseeing swaths of TikTok’s advertising business, human resources, monetization, business marketing and products related to advertising and e-commerce initiatives. Some have brought teams from Beijing.
The moves have concerned some U.S.-based TikTok employees, who have complained internally to high-level TikTok managers, according to current and former employees familiar with the discussions. The TikTok employees say they are worried that the appointments show ByteDance plays a greater role in TikTok’s operations than TikTok has disclosed publicly...
Some TikTok employees complained to managers after watching the congressional testimony of TikTok Chief Executive Officer Shou Zi Chew in March about the app’s ties to China. They said they felt Chew’s statements to Congress misrepresented TikTok’s relationship with ByteDance.
Beyonce. Ed Sheeran. Charli D'Amelio. The Bidens. Members of Congress. Abortion activists.
They’re just a handful of the high-profile celebrities and public figures whose closest contacts could be searched and scrutinized by nearly any TikTok or ByteDance employee around the world this year with few restrictions, according to people familiar with one of the company’s social graph tools and a trove of internal images, videos, audio and communications related to it that were obtained by Forbes.