Stock market volatility; Premier Li meetings on the economy; PRC goes after EU brandy; Wu Bangguo; Wang-Raimondo call; MSS on the "China Initiative"

Summary of today’s Essential Eight:

1. Mainland stocks surge even as NDRC presser “disappoints” - Mainland stock markets surged at the opening Tuesday, but then fell from their highs when the National Development and Reform Commission press conference was seen as underwhelming. But the mainland markets still had a very good day, with the Shanghai Composite Index up by 4.59 percent, the Shenzhen Component Index up by 9.17 percent, and the ChiNext Index up by 17.25 percent. “Disappointing” is relative, and individual investors who opened brokerage accounts over the holiday can not start trading until Wednesday October 9th.

The NDRC presser disappointed investors because it did not announce any new fiscal stimulus and it was light on policy details. Expectations that the NDRC would announce meaningful new fiscal stimulus were misplaced. As I wrote on September 30:

This sharp rally is happening before we have details of any additional fiscal stimulus. From last week’s Politburo readout (full translation) it sounds like something more is coming on the fiscal side, but we may need to wait several more weeks, as Caixin noted in its latest cover story:

Unlike monetary policies, expanding fiscal measures like issuance of government bonds and special bonds, requires approval from the National People’s Congress. So all eyes will be on the upcoming session of the NPC Standing Committee in late October, which may provide a crucial window for greenlighting any new fiscal initiatives.

Expectations may have been too high Tuesday, but underlying policy impetus from the slew of September announcements, and especially the September 26 Politburo meeting, remain intact. Policymakers may not be unhappy with some volatility; it reminds investors there is risk, and perhaps helps with the goal of a slow and steady bull market rather than a craps table experience.

We have a good chat about the markets ongoing (excuse the typo):

We recorded this week’s episode of Sharp China earlier today, and we talked about the markets and related policies for almost the first half to discussion. Look for it in your inboxes Wednesday AM ET.

2. Premier Li chairs symposium with economic experts and entrepreneurs and holds a State Council study session - The symposium with economic experts and entrepreneurs to “hear opinions and suggestions on the current economic situation and future economic work” included Zhou Qiren, an economist whose presence at Xi’s May symposium in Jinan got lots of people excited as a potential signal for reforms to come at the Third Plenum.

Li told the group that “we should promptly implement the package of incremental policies to stabilize the economy, accelerate the implementation of policies already introduced to ensure early landing and early results, and quickly develop specific plans for policies under study. We should track and evaluate the transmission effects of policies, optimizing and strengthening them where necessary. At the same time, in conjunction with planning next year's economic work, we should study and reserve a batch of policy measures to stabilize the economy and promote development, and introduce them in a timely manner according to changes in the economic situation. The key to stabilizing the economy is to stabilize enterprises. We must effectively assist enterprises in alleviating difficulties, guide localities to make good use of various preferential policies for enterprises, resolutely tackle issues such as arbitrary fines, inspections, and seizures [Bill: So this is clearly a significant problem, for it to make it into this meeting and the readout], and continuously optimize the business environment to stimulate enterprise vitality”.

The study session had as its theme “Enhancing the Consistency of Macroeconomic Policy Orientation and Strengthening Policy Coordination to Improve Implementation Effects”. Li told the meeting that “especially in situations where downward economic pressure is significant, all sectors should actively introduce policies that are conducive to stabilizing growth and expectations, while being cautious about implementing policies with contractionary and restraining effects. He emphasized the need to strengthen the coordination of policy measures, focusing on systematic integration and mutual complementarity. When implementing policies, it is important to grasp the right timing, intensity, and rhythm. Li Qiang called for a strong emphasis on standardizing law enforcement and regulatory behaviors related to enterprises, reducing the space for discretionary actions. [Bill: This again makes it clear that the squeezing of businesses for revenue by local governments is a real problem. Zhou Tianyong was clearly onto something when a couple of weeks ago he wrote a short article titled "Urgently Prohibit and Stop Local Governments from Supplementing Fiscal Revenue by Detaining Private Entrepreneurs and Releasing Them for Money"].

3. Holiday week data - Not too strong, not too weak, some signs of life in some real estate markets.

4. PRC going after EU brandy, pork, dairy and large-displacement ICE vehicles - The PRC retaliation against EU tariffs on PRC EV imports has started. The Ministry of Commerce announced that as of Friday “importers of brandy originating in the EU will have to put down security deposits mostly ranging from 34.8% to 39.0% of the import value”, as part of anti-dumping penalties. It also announced that “regarding the anti-dumping and anti-subsidy investigations launched on certain pork and pork by-products, dairy products, and other items imported from the European Union, the spokesperson for the Ministry of Commerce stated that China is currently conducting investigations in accordance with the law…At the same time, China is studying measures such as increasing import tariffs on large-displacement fuel vehicles”. Increasing tariffs on large-displacement fuel vehicles would hurt Germany and Slovakia the most, even though the two countries voted against the EU tariffs.

5. Wang Wentao and Gina Raimondo have a chat - Minister of Commerce Wang Wentao and US Commerce Secretary Raimondo had a call Tuesday. According to the readout Wang "expressed serious concerns about U.S. semiconductor policies towards China and restrictions on Chinese connected vehicles, among other issues. He emphasized that it is particularly necessary to clarify the boundaries of national security in the economic and trade field, which is conducive to maintaining the security and stability of global industrial and supply chains and creating a favorable policy environment for cooperation between businesses of both countries. China urges the U.S. to address the specific concerns of Chinese enterprises, lift sanctions on Chinese companies as soon as possible, and improve the business environment for Chinese enterprises in the U.S."

The US readout says Raimondo told Wang that “U.S. national security is not negotiable and re-emphasized that the U.S. government’s “small yard, high fence” approach aims to safeguard U.S. national security in as targeted a manner as possible, while leaving space for healthy trade and investment”. I am curious if she briefed him on the expected annual update to the 2022 October semiconductor controls, and whether they are even issuing an update, or if it has been significantly watered down by industry lobbying and internal “negotiating”. I keep hearing if an update is issued it will be one industry finds much more tolerable/toothless.

6. Wu Bangguo dead at 84 - Wu Bangguo has died at 84. He did not attend the 75th anniversary celebrations last week. Wu was a Standing Committee member and the number two ranked Party member in the 16th and 17th Central Committees, and Chairman of the Standing Committee of the NPC from 2003-2013. He worked with Jiang Zemin in Shanghai and was seen as part of the then important now an artifact of history Jiang Zemin Shanghai faction. His funeral should occur within the next week, and I will guess that Party protocol dictates it will be at the same level as those of Li Peng and Li Keqiang. Wu was never Premier but like those two was ranked second in the Party hierarchy. The Tuesday CCTV Evening News read out the announcement and his obituary over 12 minutes, as the sixth report of the broadcast.

7. What are US goals for its China policy? - CSIS has put together an interesting report with contributions from more than 20 experts about the end goals, or “theory of victory”, for US policy on China. It is thought provoking, though I do not think we yet have a good answer.

8. MSS weighs in on the US “China Initiative” - The MSS WeChat account posted about the case of Tan Hongjin, a PRC national working in the US for Phillips 66 who pled guilty in 2020 to stealing trade secrets worth USD $1 Billion. The MSS says the case against Tan was baseless and uses it to criticize the “China Initiative”, writing that “relevant officials from the U.S. Department of Justice have admitted that the "China Initiative" has fostered discrimination against Chinese people in the U.S. FBI counterintelligence officials have also acknowledged the negative impact on the Asian American community, particularly the strong impact on the careers of many Chinese scientists and students. In February 2022, under external pressure, the U.S. Department of Justice announced the termination of the "China Initiative." However, the "China Initiative" has only ended in form; a considerable number of cases are still under trial, persecution of Chinese scientists continues, and normal academic exchanges between China and the U.S. remain deeply affected.”

Event Notice: I am hosting a live video discussion with Chris Johnson this Friday October 11 at 11 AM ET, as part of the Substack election dialogues. We will discuss how PRC policymakers may view the upcoming US election, and how US policy towards China might change in the next administration. Anyone can watch, but you need the Substack app, so if you have not already downloaded the excellent Substack app I encourage you to do so:

Thanks for reading.