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The week in review: Xi explains GDP growth rationale, regulators offer details on stimulus package, China’s foreign minister issues warning to the US

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By Addison Gong, Rebecca Feng
25 May 2020

In this round-up, China’s top government officials, including president Xi Jinping, discuss key economic targets and a fiscal stimulus package, and foreign minister Wang Yi warns the US against a ‘new cold war’.

China’s annual “Two Sessions” parliamentary meetings kicked off last Thursday and will conclude this Thursday.

Last Friday, the government said it will not set a numeric target for its GDP growth for 2020.

China was being realistic not to set a target, Xi said on Friday afternoon. If it did, the government’s focus will be on strong stimulation to meet that target, which is “not in line with the purpose of our economic and social development”, Xi said. “Our focus cannot be on GDP growth.”

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Ning Jizhe, the vice chairman of the National Development and Reform Commission (NDRC), said that not setting a target for economic growth does not mean that growth is not important.

“Although [the government] did not directly put forward the GDP growth targets, the content of the growth has been incorporated into other economic and social development goals,” Ning said in a Sunday press conference.

Separately, Ning said China’s total assets have reached Rmb1.3 quadrillion ($182.3tr).

He also stressed that China will shorten the negative list for foreign investment this year. He reckoned retail data will improve in May compared to April, with a recovery in domestic consumption. 

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Cong Liang, the secretary general of the NDRC, also spoke at the Sunday press conference. He said the increase in the government’s budget deficit this year and the issuance of special anti-pandemic treasury bonds are “safe” and “necessary” measures.

China plans to increase its fiscal deficit to at least 3.6% of GDP in 2020.

He said China has a lower fiscal deficit ratio compared to global numbers. The world’s average deficit is expected to rise to 9.9% this year from 3.7% in 2019, and to 10.7% from 3% for developed countries, he added. The numbers stood at 19.2% for France, 15.4% for the US, 8.3% for the UK, and 7.9% for Japan.

By the end of last year, the Chinese government debt ratio was 38.5%, “way lower” than the levels seen in major developed and emerging market countries, he said.

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China’s finance minister Liu Kun said he expects the reduction in fiscal income, together with the increase in spending for local governments, to amount to around Rmb800bn-Rmb900bn this year. The central government has stepped up efforts to help local governments, with a 12.8% increase in transfer payments so far this year.

Central fiscal transfer payment is an important source of revenue for local governments. These could include tax refunds and other grants.

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Wang Yi, China’s foreign minister, held a press conference on Sunday afternoon. He addressed questions including US-China relationship and the new national security law for Hong Kong. 

“To our regret, other than the raging Covid-19 virus, a political virus is also spreading in the US,” Wang said in response to a question on US-China relationship. “This political virus is to use every chance to attack and smear China’s image. Some politicians are ignoring the most basic facts. They have made up too many lies targeting China and plotted too many conspiracies.”

He added that some political powers in the US are trying to push the US-China relationship to a “new cold war”.

When addressing the new national security law planned for Hong Kong, Wang said that Hong Kong’s affairs are the domestic affairs of China.

Wang said that the decision to impose a national security law for Hong Kong only targets certain extreme actions that have “seriously endangered national security”. It will not influence Hong Kong’s autonomy or the rights and freedom of its residents. It will also not impact the rights of foreign investors in Hong Kong.

“We should be more confident about Hong Kong’s future and do not need to worry too much,” Wang said.

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The net profits at commercial banks in China rose by 5% for the first quarter to Rmb600bn, according to the People’s Bank of China (PBoC). The pace of the increase was 4.4 percentage point slower compared to the same period in 2019.

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The China Banking and Insurance Regulatory Commission (CBIRC) said it will publish guidelines on corporate governance for Chinese banks and insurance companies.

The CBIRC also said it will to open up the domestic market further to foreign banks and insurers, promising a speedy approval process for qualified financial institutions to invest and expand their businesses in China.

The regulator has set a target for the outstanding loan volume for the manufacturing sector to grow by at least 5% this year.

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The China Securities Regulatory Commission (CSRC) responded strongly to a US Senate bill that focuses on the lack of accounting transparency at foreign companies.

The bill — called the “Holding Foreign Companies Accountable Act” — requires foreign companies to establish that they are not owned or controlled by a foreign government, if they are audited by firms not inspected by the US’s Public Company Accounting Oversight Board.

In addition, if the audit watchdog is unable to inspect the company’s accounting firm for three consecutive years, the company’s securities will be banned from trading on US exchanges.

Chinese companies listed in the US are usually audited by auditors registered in Hong Kong and China. These auditors are generally not inspected by the PCAOB.

“The proposed act itself and public speeches of certain members of the US Congress reveal that some contents of the proposed act are targeting China, which has clearly departed from professional considerations of good regulation over securities markets,” the CSRC said in a Sunday statement. “The CSRC strongly opposes such acts of politicising securities regulation.”

The CSRC added that the law “completely ignores” the fact that the Chinese and US regulators have been working hard to strengthen audit oversight co-operation for a long time. The CSRC has repeatedly proposed plans to the PCAOB this year to carry out joint inspections of accounting firms.

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The cross-border use of renminbi continues to see rapid growth, said the deputy governor of the PBoC, Chen Yulu. Chen said the next step would be for RMB internalisation to better serve international trade, investment and financing. The PBoC will follow the principle of marketization, actively and proactively promoting the use of RMB.

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The PBoC and the CBIRC have decided to extend the takeover period of the failed Baoshang Bank by six months, according to a Saturday statement. Originally, the takeover would last until May 24 this year. The asset and capital verification and restructuring of Baoshang Bank have been delayed due to the Covid-19 pandemic, the statement read.

Baoshang Bank was taken over by the regulators in May 2019 due to “serious credit risk”. Mengshang Bank, a new bank set up to replace Baoshang, opened for operation on Monday.

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The CSRC published draft amendments to its regulatory framework for domestic securities firms. The regulator assigns a rating to securities firms each year based on a set of criteria. Highly rated companies receive perks such as faster approvals.

The regulator added new criteria in three areas — institutional clients service, asset management and risk management. 

By Addison Gong, Rebecca Feng
25 May 2020