We don’t share the view that the market is seeing a rate-cut cycle. The PBOC may be able to cut LPR for another 2-3 times by a total of 10-15 bps, and no more. But even that will only bring the total rate reduction to 26-31bps, which equals to one rate cut under the previous system, still with less impact because they only apply to part of new bank loans. This is hardly a “cycle”.
In the middle of a provincial corruption shakedown, Central Commission for Discipline Inspection (CCDI), the Party’s top anti-corruption watchdog, replaced its chief liaison in Jilin on 20 November. The former Jilin CCP Standing Committee (CCPSC) member and Commission for Discipline Inspection (CDI) chairman Tao Zhiguo (陶治国) was transferred to General Administration of Customs China (GACC) as CCDI’s chief liaison, and has been replaced by Zhang Zhong (张忠), former vice-ministerial-ranking inspector of Central Leading Group for Inspection Work, who spent most of his career in Central Organization Department (COD).
According to CCDI and local commissions for discipline inspection (CDIs) websites, a total of 98 bankers, financiers, and financial regulators have been investigated for corruption in 2019. These included high-profile names such as Liu Shiyu, former securities regulator chairman and Hu Huaibang, former chairman of China Development Bank – the largest policy bank in China. More people are taken down at the provincial level.
We think this time Hong Kong’s economy could get worse than that in 1998 but through a longer period. First, retail sales now account for a greater share of HK GDP today (17%) than 20 years ago (15%), and seems more vulnerable to this domestic instability. When the conflicts escalated in August retails sales shrank by 22.9% yoy, more than the biggest single-month drop in 1998 (21.5%). Hotel occupancy rate also fell to 63% in September, the lowest level on record, as tourists’ visits dropped by 35%. Second, the external environment is unfavorable given the unresolved US-China trade tensions, meaning that it will be difficult for Hong Kong exports to recover, especially if the protests erode Hong Kong’s connection with mainland China.
On 15 November, Guangdong Commission for Discipline Inspection announced on its website that Dongguan CCPSC member and Songshan Lake Hi-Tech Industrial Development Zone Party Secretary Huang Shaowen (黄少文) is under investigation. Huang has been the official in charge of Dongguan’s hi-tech zone, as well as an ecological industry park, since May 2017. Beforehand, he also served as Dongguan CCP Committee’s Secretary-General and Political and Legal Affairs Commission. Notably, Huang’s wife Liang Fengming (梁凤鸣) is the incumbent Dongguan Bureau of Education Director, and once served as Dongguan Government Vice Secretary-General. We expect Liang to be investigated as well.
The room for further monetary easing may be more limited than what the market believes, and it is difficult for interest rates to fall further in China. This is because the economy is likely to set for stabilization or even a mini cyclical rebound after six straight quarters of slowdown, as the outlooks for housing and automobile are quite positive. Also, the economy is not heading for deflation. The decline of PPI year-on-year growth is probably ending while the pork-led CPI inflation is to surge further. Last, the external pressure may also ease slightly if Beijing could strike a truce with Washington.
On 11 November, Zhubai People’s Congress’s standing committee appointed Zeng Jinze (曾进泽), former Guangzhou Development and Reform Commission Chairman, as Zhuhai CCPSC member and Executive Vice Mayor. Zeng has spent his entire career prior to this latest appointment in Guangzhou. Most notably, Zeng spent six years from 2013 to 2019 in Guangzhou Nansha Economic and Technological Development Zone, working on free trade and development of the zone. Nansha currently ranks No.16 among all national economic and technological development zones.
The Fourth Plenum of the Chinese Communist Party’s 19th Central Committee convened and concluded at the end of October 2019. This plenum gave more indications that President Xi will continue to serve after 2022. Facing a slowing economy and an unpredictable White House, the Party’s leaders pledged to modernize state governance and to carry forward Socialism with Chinese characteristics as China’s ruling ideology. In short, the Party is going to prove that it can reconcile governance dilemmas that other political systems cannot.
Following the transfer of former Tianjin Vice Mayor Yao Laiying (姚来英) to Hunan in mid-October, Shenyang-Fushun New District (SFND) CCP Committee Vice Party Secretary and SFND Work Committee Chair Lian Maojun (连茂君) was transferred into Tianjin to be Yao’s replacement on 5 November. Tianjin officialdom has witnessed a series of high-profile personnel reshuffle in recent weeks, including the ouster of a retired statistics bureau head, the demotion of an incumbent finance bureau head, the outbound-transfer of a former vice mayor, and the inbound-transfer of a number of officials from Jiangsu. Lian’s appointment is just the latest.
On 24 October 2019, Central Organization Department announced a series of senior leadership reshuffle in China’s central SOEs. To request more details on the transfers, please contact us.
