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China policy round-up: Trump said to sign trade deal, China wraps up annual economic planning meeting, Macau to become contingency plan for Hong Kong

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By Rebecca Feng
13 Dec 2019

In this round-up, US president Donald Trump reportedly signed the phase one trade deal on Thursday, China concluded the Central Economic Work Conference and the Mainland government is set to turn Macau into a financial hub with new policies.

Trump signed the phase one trade deal with China on Thursday, Bloomberg reported. The deal includes promises by China to buy more US agricultural products. The official announcement had not been made by either side at the time of writing.

“The centrepiece of the reported deal is that China will buy substantially more US agricultural products but, in exchange, China demands a reduction of existing US tariffs,” Rob Subbaraman, chief economist at Nomura, wrote in a Friday note. “[…] If the US is indeed going to reduce existing tariffs, then this ‘phase one’ is likely to be more than just a mini deal: in return, the US will surely demand more from China, and we suspect China would agree.”

Subbaraman added that these further demands from the US may include China opening up its services sector, a commitment not to manipulate the renminbi and to increase transparency on foreign exchange intervention.

The news came after Trump tweeted on Thursday evening: “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”

“China and the US are in close communication on trade,” Gao Feng, a spokesperson at the Chinese Ministry of Commerce, said in a Thursday press conference.

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The Chinese annual Central Economic Work Conference wrapped up on Thursday evening. The meeting is one of the most important planning meetings of the year.

The official notice of the meeting laid out six key tasks. They are: “unswervingly implement the new vision for development”, “resolutely fight the ‘three tough battles’”, “ensure the well being of people, especially those in poor living conditions”, “continue to implement a proactive fiscal and prudent monetary policy”, “work hard to promote high-quality development” and “deepen economic restructuring”.

Bankers in China pointed out that the official readout also included language that reflected the tight funding policies for the real estate sector — that “houses are for living, not for speculating.”

However, Eric Zhu, an economist at Barclays, said in a Friday note that the tone surrounding the housing sector is softer.

“The softened tone, in our view, on deleveraging and housing policy could allow more room for regulatory and housing fine-tuning,” he wrote. “Compared to last year, we note ‘sticking to structural deleveraging’ was changed to ‘maintaining broad stability in macro leverage.’ Meanwhile, although ‘housing is for living not for speculation’ was repeated this year, the statement added ‘a long-term fine-tuning mechanism to stabilise land prices, housing prices, and expectations’, sending a less hawkish message, in our view.”

Inflation was not mentioned, which came as a surprise, Yu Song, chief China economist at Beijing Gao Hua Securities, noted in a Friday morning report.

“The statement emphasized only the need for stabilising pork supply and price but didn't express concerns about overall higher CPI inflation or general inflation,” he wrote. “This implies that the authorities have treated the higher CPI as a micro-level issue, which means the elevated headline CPI could be less of a constraint for policy easing on a macro level.”

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China is considering making Macau a contingency plan for Hong Kong should the social unrest situation gets worse, Reuters reported on Thursday, citing officials.

Chinese president Xi Jinping will visit Macau next week to announce new policies aimed at shifting Macau’s economy from a casino-dependent one into a financial centre, the report said.

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The Ministry of Finance published capital increase rules for state-owned financial firms on Thursday.

The MOF is asking state-owned financial firms to obtain approvals from the local government before carrying out any capital increase measures that could result in the government shareholder losing its controlling stake.

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The Shenzhen Stock Exchange launched a pilot programme of stock options on the bourse on Monday. The new trading rules will come in effect immediately, according to an official statement.

Retail investors who want to trade stock options at the bourse need to have a securities trading account first and then apply for a derivative account with eligible financial institutions.

Additionally, they should have at least Rmb500,000 ($71,748) of assets in their accounts consistently for the last 20 trading days.

By Rebecca Feng
13 Dec 2019