SinoInsight 1
The Xi Jinping-Kim Jong Un meeting forebodes peace on the Korean Peninsula. This will have implications for China’s political system and Sino-U.S. relations.
Three summits in the next four months are a must-watch:
April 27: The inter-Korean summit could see concrete steps taken to end hostilities and move the Korean Peninsula toward peace.
May: The Trump-Kim meeting could see the signing of a deal to denuclearize North Korea.
July: Should the April and May summits develop in a positive direction, Xi could visit North Korea around the period of the Korean Armistice (July 27, 1953) to mark the 65th anniversary of the ceasefire. And unlike previous Chinese Communist Party leaders, Xi will make the trip as a successful peace broker.
OUR TAKE
The Xi-Kim summit moves China and North Korea further down the path of ideological calamity which we outlined in assessing whether Xi would abandon Kim should the United States use the military option.
Put together recent political developments—Xi dropping presidential limits, advancing institutional reforms (including scrapping the 610 Office), Xi-Kim meeting—and China appears to be headed for tremendous political change in the coming months and years. The Trump administration’s trade war and new hires (Mike Pompeo and John Bolton) would also influence China’s political situation.
All companies with business in China must account for political risk to sidestep major risks and uncover hidden opportunities. Firms should also carefully consider how the political changes could affect their brand image in China.
SinoInsight 2
During the first meeting of the central committee for deepening overall reform on March 28, Xi Jinping said that China’s reform progress had reached a “new state” with the institutional reforms. He added that reforms would see a “profound adjustment of interests patterns and changes of the system of institutions,” and reforms will become “more complex, sensitive and onerous.”
Meanwhile, China Banking and Insurance regulator Guo Shuqing said on March 29 that the new regulatory body would focus this year on deleveraging the banking and insurance sectors, dismantling shadow banking, severely punishing illegal financial activity, preventing the property bubble from expanding, and aiding local governments in restructuring their hidden debt.
OUR TAKE
1. Expect the Xi administration to take additional steps to rein in the financial sector. The purge of Anbang’s Wu Xiaohui should be just the beginning of a targeted sweep of prominent holding groups. Already, HNA, CEFC, and Fosun Group have been forced to sell their assets and shrink their operations. The authorities should see that these conglomerates settle their foreign debts before the renminbi depreciates.
2. Xi and Guo’s emphasis on reforms indicates that the international community is underestimating China’s financial risks.
3. Beijing is trying to delay the trade war with the U.S. so that it can resolve its debt problems. China’s domestic economic woes are partly the reason why Xi Jinping is coordinating with Trump to force Kim Jong Un to give up his nuclear program.
