Transcript
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Speaker: Hello and welcome to Under the Banyan Tree with me, Harold van der Linde, Head of Asia Equity Strategy at HSBC.
Speaker: On the podcast today, new leadership and tighter regulations in Asia's largest economy.
Speaker: China's National People's Congress has drawn to a close.
Speaker: We're going to talk through the key takeaways of this event with two members of our China economics team, Qing Liu, she's the chief China economist, and her colleague, Greater China Economist, Erin Zin.
Speaker: It's a story that takes us from the seat of national power to the everyday lives of working citizens in China.
Speaker: And it's coming up right here, under the banyan tree.
Speaker: Well, thank you, Jing and Erin, for joining us on the podcast this week.
Speaker: We're going to talk about the NPC, the National People's Congress.
Speaker: Jing, let's kick off with you.
Speaker: What is this actually?
Speaker: What is this forum?
Speaker: Thank you, Herod, for having us.
Speaker: So this is a National People's Congress, basically held once every year, usually in March.
Speaker: And the legislators in the country will gather together, decide the important things, including the growth target and lots of other targets,
Speaker: as well as important legislation to be introduced to the country in the coming year.
Speaker: This year is special too, because every five years, China will have the government reshuffle.
Speaker: So this year we have the new appointment of all the important state institutions, including the premier, vice premiers, and also PBOC governor and other important ministers.
Speaker: Okay, well, let's unpack that first then.
Speaker: So what are some of these key important appointments that have come through?
Speaker: The new premier is Li Qiang, who used to be the party secretary of Shanghai.
Speaker: And previously, he has been basically either party secretary or governor in the Yangtze River Delta region.
Speaker: Yeah, I think he's in the past worked with Xi Jinping in that region, correct?
Speaker: Yes, exactly.
Speaker: And another two vice premiers also come from the Politburo Standing Committee, including He Liefeng, who used to be the director of National Development and Reform Commission.
Speaker: Yeah, that's right.
Speaker: and Ding Chue Xiang, who's also holding the high-ranking position and worked with President Xi for a long time.
Speaker: Also at the minister level, several positions are retained, including the PBOC Governor Yi Gang, Finance Minister Liu Kun, as well as Commerce Minister Wang Wentao.
Speaker: That was a bit of a surprise, right?
Speaker: Because the market expected there would be changes, as normally happens.
Speaker: But clearly, they've decided that on the economic team that they want some stability or continuity.
Speaker: Right, exactly.
Speaker: I think the continuity is actually perceived positively by the market because these six nodes, the unwavering support for the economy going forward.
Speaker: So, Erin, in the discussions that the two of you are having with other economists, what are some of the key topics that people are looking at with regards to this NPC?
Speaker: So one of the key takeaways from the MPC is around the GDP target.
Speaker: So there's a lot of focus around that.
Speaker: And this year, the GDP target came at around 5%, which kind of missed expectations.
Speaker: We had expected they would set something at above 5%.
Speaker: So I think that there was some initial reaction that, oh, maybe they're taking the foot off the gas, stepping back.
Speaker: But that's actually not the case.
Speaker: When we look into some of the details, like the fiscal budgets, there's actually more expansionary fiscal support there.
Speaker: They've increased the special local government bond issuance that typically goes to infrastructure investment, which was a key driver for growth last year.
Speaker: So they're really trying to continue some of these drivers there.
Speaker: So they remain a kind of a pro-growth mentality.
Speaker: Is that fair to say?
Speaker: Yeah, that's exactly right.
Speaker: I think that, you know, China last year, growth had slowed considerably given the COVID-19 situation, and we're still very much in a recovery phase.
Speaker: Some of the high frequency data does show that the activity is picking up, but there's still pressures in the economy.
Speaker: And I think that's why they've set the target at, you know, at a reasonable pace of around 5% growth.
Speaker: Okay.
Speaker: And also, I think it's important, you know, after last year's miss of 2.5 percentage point, they want to probably earn on the conservative side to make sure they set a target which is deliverable and reflective of the ongoing pressures.
Speaker: What about monetary policy?
Speaker: Have they said anything about that?
Speaker: So the language around monetary policy is very continuous.
Speaker: They want to be prudent but still support the economy while managing financial risk.
Speaker: I think this wasn't too much of a surprise.
Speaker: So overall, they're still being fairly accommodative here.
Speaker: And I think that our expectations are that they'll continue to provide more of the policy support from the fiscal side in order to allow that recovery to solidify.
Speaker: I think more interestingly is that they did not mention the macro leverage ratio, keeping that stable.
Speaker: Meaning about the debt that's in the system, right?
Speaker: Debt as a percent of GDP.
Speaker: So what this means in our interpretation is that there's more flexibility in allowing credit growth this year.
Speaker: So credit growth, extending more investment into the real economy.
Speaker: which translates into, you know, your business investment, but also more into the property sector, which had been under considerable pressure last year.
Speaker: Yeah.
Speaker: I just want to go back to Premier Li Chang, who's now being appointed.
Speaker: He gave his first speech to China to present himself, you could say, to the rest of the world as well.
Speaker: Jing, what was your impression of that speech?
Speaker: Right.
Speaker: At the press conference, interestingly, he opened the discussion by saying, actually, you know, for people in the country, they don't care so much about the headline GDP growth rate.
Speaker: They care more about their own jobs, their homes, and then probably their savings.
Speaker: Yeah, I understand he's also mentioned that it's important sometimes to roll up your sleeves, right, and go into the paddy fields and talk to farmers and kind of having your feet on the ground and making decisions.
Speaker: Is that correct?
Speaker: Right.
Speaker: He said that when you sit in the office, you see lots of problems.
Speaker: But when you go to the field, you see lots of solutions.
Speaker: Yeah.
Speaker: OK.
Speaker: So that's a kind of a different approach that he's trying to portray, I would say.
Speaker: We'll see how that what that takes us in the next couple of years.
Speaker: Time now for a quick break.
Speaker: When we come back, we're going to talk new rules around financial regulations that were made official at the NPC.
Speaker: So Jing, there's also been talk about institutional change.
Speaker: What does that really mean?
Speaker: What are they talking about?
Speaker: Right.
Speaker: So this time, the MPC approved the restructuring, reorganization of the ministries under the state council.
Speaker: And several important changes, including, you know, upgrading the ministry, which looks after the technology innovation industries, etc.
Speaker: And also to establish a new data bureau.
Speaker: And the third one, probably most closely to the capital market, is overhaul of the financial regulatory regime.
Speaker: Yeah, and I believe the idea is to have a new kind of supervisory body that is going to be established over time as well, right?
Speaker: That's right.
Speaker: That's part of the change.
Speaker: Actually, in the overhaul, we will see PBOC from now on will specialize in monetary policy and macroprudential policies.
Speaker: And this newly established regulatory administration will
Speaker: will be in charge of the microprudential regulation for all but the security sector.
Speaker: And also, it will consolidate all the consumer and investor protection across the whole financial industry.
Speaker: And for the security regulator, the CSRC, it will now not only oversee the capital market, security sector in particular, and also it will consolidate the bond issuance approval.
Speaker: Previously, the duty was split between the NDRC and CSRC.
Speaker: Okay, so we've had personnel changes, we've had changes in supervision and departments, a lot of reshuffling taking place.
Speaker: So Jing, is this a story of trying to control the economy more, or is this more of a story of them trying to streamline and ensure better coordination between these different supervisory bodies?
Speaker: I see it as a streamlining of the regulatory responsibilities because previously there's blurred boundary and sometimes a regulatory vacuum.
Speaker: And after the restructuring, now it's very clear who's in charge of which and in particular having this new established body to look after the investor and consumer protection.
Speaker: actually enable it to basically, you know, look at the new financial activities and new entities and bring them under the same regulatory standard.
Speaker: Okay, that's good to see.
Speaker: So it's all about setting themselves up for the future.
Speaker: So Erin, what does that mean for the long run for China?
Speaker: So China is right now very much in a recovery phase, but that doesn't mean that they're shying away from longer term goals.
Speaker: And that really means that they want to increase the quality of their growth.
Speaker: China is facing some structural challenges, such as an aging population.
Speaker: And some of the old growth drivers are no longer going to be as punchy as before.
Speaker: So in order to develop these longer term growth drivers, they're trying to increase growth
Speaker: things like productivity from technology innovation, manufacturing, upgrading, and also to move towards their longer term green development goals, which is the 2030, 2060 peak carbon emissions and carbon neutrality goals.
Speaker: So kind of what they want to do with the longer run hasn't really changed that much, I could say, but the people and the way they want to do it and get there, that's really changed.
Speaker: Yeah, I think that the policymaking is very much still focused on the longer term, and they are doubling down on that.
Speaker: I think when you look at some of the specific measures, they are channeling more support in these targeted fields.
Speaker: Industries and fields, that's right, yeah.
Speaker: Can I ask you a question, Harold?
Speaker: Absolutely.
Speaker: Last time we talked about the investors' preference, you know, A shares or H shares.
Speaker: So after the MPC, do you think that has changed the way the market is thinking?
Speaker: Yep.
Speaker: So first of all, the Asia market, so that's Shanghai, more traditional, right?
Speaker: And the H-share market is in Hong Kong.
Speaker: And that has got more internet names in it.
Speaker: So the composition of these two markets difference and the dynamics therefore difference as well.
Speaker: In particular, the Hong Kong market is very sensitive to what happens globally, in particular with bond markets.
Speaker: And we've seen quite some movements in these markets in the last couple of days.
Speaker: Nothing to do with the MPC.
Speaker: That's got more to do with developments in the US and in Europe as well.
Speaker: So that really impacts the eight share market to a large extent.
Speaker: In the long run, in the equity space, we're looking for those areas in the economy or in the market that will continue to grow.
Speaker: And we go back to what Erin was talking about.
Speaker: We know that they want to be self-sufficient in certain high-end technologies.
Speaker: They want to be self-sufficient in food and in energy.
Speaker: This green drive also means that you are not as
Speaker: reliant on external energy supply, but more on wind and solar, which is domestically generated.
Speaker: Now, those are the whole industries that are formed around it.
Speaker: And we typically look at those parts of the industries where people don't have to raise a lot of capital, but where they can grow without putting too much additional money in place in solar, in wind, semiconductor equipment and these sort of things, but also the consumer sector.
Speaker: But again, yeah, the dynamics are different there.
Speaker: So I don't think the NPC in itself changes the way we look at China in that regard.
Speaker: But we have to see, of course, over time what new policies will come out, this whole new leadership team that has now been presented to us.
Speaker: So maybe for me to summarize it, we now have a new leadership team in place in China.
Speaker: A lot of the new leaders seem to know Xi Jinping quite well.
Speaker: They've worked with him in the past.
Speaker: They have a history together.
Speaker: They've reshuffled the way they want to have the function of institutions and supervision over these in order to allow for better coordination.
Speaker: But actually kind of the longer term growth trajectory that they're looking for, that hasn't really changed to a large extent.
Speaker: On that note, Jean and Erin, thanks for being on the podcast.
Speaker: Thank you, Harold.
Speaker: Thank you for having us.
Speaker: That's a wrap for this week's podcast.
Speaker: Many thanks for listening.
Speaker: We'll be back again next week, putting Asian markets and economics in context.
Speaker: Talk to you then.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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