Xi in Vietnam, CEWC, financial reform, mini-stimulus - Week in Review #7

Welcome again! For your weekend reading, I personally review the events of the past week about China that I think will have lasting impact beyond news cycles. For why I write, please check here. For who I am and what new things I can bring on the table, please check here.

the profound

#1 Vietnam visit: “building a Vietnam-China community with a shared future”

Xi’s state visit to Vietnam, only his 4th foreign visit this year after Russia, South Africa and US, could prove historically significant.

I find many notable expressions from the joint statement issued during the visit.

On the biggest flashing point in mutual relations, the South China Sea dispute:

The two sides agree to continue to adhere to important common perceptions between senior leaders of the two Parties and two states, persistently pursue friendly negotiations, strengthen the negotiation mechanism at the governmental level on Vietnam-China border and affiliated working groups; actively seek basic and long-term solutions acceptable by both sides, in accordance with the “Vietnam-China agreement on basic principles guiding the settlement of sea-related issues”, and international law, including the 1982  United Nations Convention on the Law of the Sea (UNCLOS 1982).

On sensitive topic of railway connection:

The two sides promote standard-gauge railway connectivity across the Vietnam - China border, study and promote the building of Lao Cai - Hanoi - Hai Phong standard-gauge railway route, study on the Dong Dang – Hanoi and Mong Cai - Ha Long - Hai Phong standard-gauge railway routes at appropriate times.

(This is quite significant, since China and Vietnam had a land war barely one generation ago. Connecting the two countries by railway will need to get over a lot of security concerns, and shows that mutual trust between the two has reached a new level)

On security cooperation:

Both sides agree to enhance high-level exchanges between law-enforcement agencies; promote the role of such mechanisms as ministerial-level conference on crime prevention and combat, and strategic security dialogue; establish the mechanism of deputy ministerial-level dialogue on political security and a hotline between the two public security ministries; forge cooperation between the Vietnamese Ministry of Public Security and China’s security and law-enforcement agencies in the fields of security, intelligence, particularly deepening cooperation in government security and regime security; bolster cooperation in traditional and non-traditional security such as prevention of terrorism and online scams, cyber security, immigration management, migration, illegal border crossings, and arrest of criminals fleeing overseas; deepening cooperation and enhance experience exchange in the fields of economic security, food security, energy, water resources, and reform and opening up; boost intelligence cooperation and share experience in the issues of anti-interference, anti-secession, prevention and fighting of "peaceful evolution" and "colour revolution" of hostile and reactionary forces; strengthen cooperation in preventing and fighting legal violations in religion and managing non-governmental organisations, promote staff training; and step up cooperation to protect the safety of organisations, businesses and citizens of one country in the other. 

Despite the many disputes and differences, China and Vietnam actually looks very similar. It is not just because both countries are ruled by a communist party. Both countries shared 3 main pillars of their respective societies: a socialist system, with a market economy, and East Asian confucian ethics. Actually in this regard, for both of them, there is no other country in the world that looks quite like each other (For example, even North Korea only shares 2 of the 3 attributes). So at a deep, ideological level, we have the same operating system in our mindsets and thus can really understand each other more easily.

Brothers in arms?

On the other hand, the difference is also huge. The relative size difference is one thing, the unresolved border dispute is another. Besides, the Vietnamese are tactfully capitalizing on the ongoing China-US rivalry to maximize their own interests, by courting both sides, the same way Singapore does. Again, this is a huge part of the "East Asian confucian ethics": be practical and rise above ideologies, something China can understand and appreciate in principle.

Two things are for sure now: 1) it is highly unlikely for mutual dispute to rise to anything serious for a very, very long time. So don’t count on Vietnam to be a destabilizing force for China. (I also belong to the camp who believe parties to the South China Sea dispute, including even the Philippines, will find a way to resolve it in some form. The whole SCS episode is more like a “neighbors having a long-unresolved quarrel” story, not a “China hellbent on becoming a hegemon” narrative.) 2) Vietnam will be one of the countries that may disproportionately enjoy the benefits in this age of great power competition. Because of the sheer size differences, Vietnam will not be the next China, but it can be the next Pearl River Delta region, it could even be the next Singapore, albeit a much larger one.

I am not Vietnamese, but I am very bullish for this neighbor of us.

the interesting

#2 Central Economic Work Conference (CEWC)

Immediately before leaving for Vietnam, Xi also chaired the very important CEWC. In it, the novel expression from last week’s politburo meeting, “先立后破”, which essentially implies stronger stimulus before reforming things, has found its way through again. There is also the reiteration of “Expectation Management”, which I mentioned last week. The tone is decidedly pro-growth, pro-stimulus, and quite candid about the ongoing economic pains in some paragraphs.

But such conference should not be expected as a big 08/09 style stimulus push. Again, China’s economic complexity is way past that. It is more about setting the tone, while the actual policies will keep rolling out in a stream, which I will talk about later.

#3 Big reform in the fund management and private equity industry

After several rounds of messaging here and there, the follow-up to Central Financial Work Conference (CFWC) has finally entered the implementation stage. Last weekend, China’s top securities regulator, the CSRC, introduce a twin set of policy consultation papers that would fundamentally change the market structure of both public market funds and private equity fund in China. Understand its actual impact, you can check this post by

Baiguan - China Insights, Data, Context

#4 Stream of mini-stimulus policies continue…

As I mentioned, instead of a big stimulus push, we will only see a steady flow of mini-stimulus policies. This week, the same trend continues.

The most notable one comes from the simultaneous loosening some of the property restrictions in Beijing and Shanghai, two of the most tightly restricted regional property markets in China.

Among the many regions, the lowering of down payment threshold is easy to understand. But I think the most important part is about the resetting the definition of so-called “normal housing普通住宅”, something a person not living in China will find difficult to appreciate the impact of.

In China, whether you are a “normal housing” or not can make as much as a ~5% difference in terms of tax burden for a property transaction. But for around a decade, the definition of “normal housing” was too outdated in both cities, that you would need to live in a very shitty apartment in a very shitty place, the kind of place no normal middle-class family will like to live in, for you to qualify. So there was this 5% extra tax expense for the whole market. Now, with the new policy, to qualify as “normal housing” in Beijing, the price limit is significantly increased. In Shanghai, they even get rid of price limit entirely, with only the size limit, which is no more than 144 square meters (Quite comfy now!) This is, tax reduction in one stroke.

On the other hand, the biggest piece of property restriction policy in those 2 cities, namely the restriction against purchase by outside residents, is still not loosened. This shows there are still quite a lot of tools in Chinese government’s toolbox. They are really not rushing it.

honorable mentions

In case you miss it, we at Baiguan has recently published some fascinating new contents.

Mu Chen

spoke with a 3-decade veteran in China’s high-end manufacturing industry, Mr. Shaojian Zhang, talking about the past and future of China’s high-end manufacturing, on which the future of China depends. There is also no shunning away from sensitive topics such as “forced technology transfer”.

Amber Zhang

took a vacation to China’s paradise city, Dali, but she did not forget to work but wrote a touching piece about how young people are choosing to stay in Dali, and what that means for the future of China’s youth as well as the upgrade of service industry.

Like this Dali article, Baiguan has been quite successful for these local-level vignettes. The one about a textile town and another one about a nothing-special city both become the most popular articles on Baiguan to date. We find it is helpful for our readers to combine macro-level data readings and on the ground feelings and touches. So we are grouping these contents into a new China City series. Stay tuned!