Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – December 1, 2021

OECD Economic Outlook  China
Economic growth will reach 8.1% this year as the economy rebounds, but will slow to 5.1% in 2022 and 2023. The swift recovery, driven by strong exports on the back of re-opening of overseas economies and robust investment, has stalled in the second half of the year. A large real estate company’s default is shaking financial markets and confidence in the sector, thereby weakening real estate investment, an important engine of growth. Prospects for manufacturing investment have also worsened due to temporary power cuts in a large number of provinces. Consumption growth is stable, but adverse confidence effects coupled with inadequate social protection still hold it back. Consumer price inflation is low as there is only limited pass-through from surging prices in upstream industries.  Monetary policy will remain prudent, ensuring sufficient liquidity, but refraining from significant easing. Fiscal policy will consolidate further to meet fiscal rule targets. The rebound of economic activities and the phasing out of COVID-19-related tax exemption and reduction measures has resulted in buoyant revenues. Reining in anti-competitive practices may cause disruptions in service provision in the short term, but will lead to greater efficiency over time. Confidence would be enhanced by more systematic implementation of anti-trust regulations. The authorities should adhere to their commitment not to bail out failing private enterprises to sharpen risk pricing. On-going electricity shortages and power cuts should be used to accelerate the transition toward renewables as well as the adoption of cleaner technologies.

China 2021 economic growth ‘expected to exceed target’, despite headwinds
Vice-Premier Liu He says China is on track to beat its gross domestic product growth target of ‘above 6 per cent’ this year    However, analysts are concerned about challenges ranging from sporadic coronavirus outbreaks to power shortages

Multi-billion EU bid to challenge Chinese influence
China’s Belt and Road strategy has extended into the Western Balkans, including here in Montenegro
The EU is to reveal details of a global investment plan that’s widely seen as a rival to China’s Belt and Road initiative.

pdf : Global Gateway: up to €300 billion for the European Union’s strategy to boost sustainable links around the world
Global Gateway draws on the new financial tools in the EU multi-annual financial framework 2021-2027. The Neighbourhood, Development and International Cooperation Instrument (NDICI)-Global Europe, the Instrument for Pre-Accession Assistance (IPA) III, as well as Interreg, InvestEU and the EU research and innovation programme Horizon Europe; all allow the EU to leverage public and private investments in priority areas, including connectivity. In particular, the European Fund for Sustainable Development+ (EFSD+), the financial arm of NDICI-Global Europe will make available up to €135 billion for guaranteed investments for infrastructure projects between 2021 and 2027 up to €18 billion will be made available in grant funding from the EU budget and European financial and development finance institutions have up to €145 billion in planned investment volumes.

The growing rift between Europe and China
It’s been a tumultuous year for the EU-China relationship. The European Parliament and European Commission are in agreement about the challenges of working with China, and the necessity of a new approach, but what form that will take remains uncertain.

China’s growing control of global minerals supply leaves the US in the dust
With Washington distracted by political crisis at home, Beijing has steadily invested in the inevitable shift away from fossil fuels towards green energy    China’s control of key minerals such as lithium and cobalt leaves the world with little option but to depend on it for at least the medium term  
China is already investing towards this paradigm shift, particularly in parts of the world where the US is now at a disadvantage. While former US president Donald Trump spent his term in office trying to revive the domestic coal industry, China was busy building ties with power brokers that controlled strategic mineral reserves around the world.   In 2015, Beijing rolled out the Made in China 2025 initiative, which includes a goal to dominate the global electric vehicle industry. Soon after, China began securing global supply lines for strategic minerals and cornered the mining industry across the resource-rich developing world.  Geopolitics has only served to help, especially in more dysfunctional, war-torn countries. Afghanistan, for instance, sits on a treasure trove of minerals worth US$1 trillion according to the US, including possibly one of the world’s largest lithium reserves. The Taliban are now in control of those reserves after the US and its allies exited ignominiously. China is already out there, exploring potential mines. Similarly, in Africa – home to some of the world’s biggest mineral reserves – China has inserted itself into diplomatic vacuums and quietly built ties with regimes that have been at loggerheads with the West for years.  In 2016, while Washington was distracted by political crisis, China Molybdenum acquired majority stakes in one of the country’s largest copper and cobalt mines, Tenke Fungurume, previously owned by the Arizona-based Freeport-McMoRan. Four years later, the same Chinese firm acquired yet another, even more impressive, cobalt reserve from the same American firm.  Such manoeuvres have now given China outsize influence in the refining and processing of the next generation of fuels. According to the International Energy Agency, China processes 50-70 per cent of the world’s lithium and cobalt, and as much as 90 per cent of its rare earth metals. China is also the largest processor of copper and nickel, with shares of 40 per cent and 35 per cent respectively.
China’s influence isn’t simply restricted to war-torn, fragile states that are at odds with the West; it has made significant investments in countries that are allies of the West, too. Over half of the world’s lithium, for instance, is produced in Australia. But 58 per cent of it is processed by China, according to IEA data.

How China can get its economy back on track after the 2021 battering
Energy shortages, a shift in focus away from the housing sector, and ongoing uncertainty around Covid-19 are the biggest threats to economic stability     To balance short-term economic pains with long-term recovery, more lenient regulatory policies and a ‘two steps forward, one step back’ approach are needed  As an amplifier of wealth inequality, the growing housing bubble is a major impediment to “common prosperity”. Housing construction, along with its upstream industrial sector, are the two biggest emitters of greenhouse gases, making them a target for decarbonisation.  Finally, housing is an unproductive asset that produces no output and employment after completion. This contrasts with building a factory, which creates jobs and productivity thereafter. Hence, a reallocation of resources away from housing to productive sectors should be beneficial for the economy as a whole.  However, reallocating resources from a sector that accounts for a quarter of the economy necessitates careful planning and execution. Against rising economic headwinds, the authorities have started to fine-tune policies lately to ensure that the pursuit of long-term objectives does not imperil short-term stability. This is no policy U-turn, but a “two steps forward, one step back” approach to balancing objectives across horizons. Finally, the uncertainty around Covid-19 remains the biggest domestic risk. This is not limited just to how the virus will evolve by itself and in relation to vaccines, but also how China’s virus-fighting strategy will change as more countries decide to “live with Covid-19”. Periodic lockdowns against even a small flare-up of infections have come at great cost to the economy, inhibiting consumption and service recoveries. Despite the apparent costs of “zero-Covid”, Beijing is unlikely to change its approach any time soon for social and political reasons. Recent experiences of countries moving towards “living with Covid-19” have all resulted in a sharp surge in local infections.  While that may be necessary to achieve collective immunity, such a cost could prove grave for a Chinese population living effectively Covid-19-free since mid-2020. Any drastic policy changes that reignite public fears of the pandemic could be seen as a colossal mistake by the government.  Beijing is therefore unlikely to deviate from the status quo unless further major medical breakthroughs are achieved.    To balance the economic shocks, official policies will prove critical. Those have been uncharacteristically tight this year, reflecting Beijing’s higher pain threshold underpinned by a recognition that many of the structural developments China is pursuing – including common prosperity and higher-quality growth – would inevitably create short-term pains. And those pains are better faced by a cyclically strong economy, bouncing off the Covid-19-induced low base.   However, the macro environment has changed. With the growth momentum fading, the authorities cannot afford to continue with policies that risk driving the economy into a hard landing.    A wholesale recalibration of macro operations is therefore needed for next year, which could consist of more lenient regulatory policies, more accommodative monetary policies – focused on targeted liquidity injections and credit growth stabilisation – and more front-loading of fiscal stimulus.   As these put a floor under the economy, growth should gradually recover from a cyclical trough to average 5 per cent for 2022 before rising gently to 5.3 per cent in 2023.

Chinese consumers don’t really care about sustainability — does Alibaba?
You might have come across lots of fruits produced by Alibaba’s PR labours, parading its sustainability efforts done for this year’s Double 11, which coincided with COP26.  CampaignAsia wrote Double 11 was less about the discounts and that sustainability is top of mind. Other English media outlets such as ReutersSMCPCNBCForbesChina Daily covered it too. Most of them are just mindlessly copy-pasting Alibaba’s press releases, which only tells a bit of the situation.

Global luxury giants LVMH, Hermes eye expansion on China’s Hainan Island in blow to shopping hotspot Hong Kong
Hong Kong’s total volume of mainland consumers will certainly drop as luxury brands are likely to continue increasing investment in mainland, especially Hainan, analyst says    But luxury firms might not open free-duty shops before 2025 as that could negatively impact their stores in other Chinese cities

Why China is warning of yuan speculation when the currency looks so stable
The yuan-dollar rate is stable but the official yuan index has surged against a basket of currencies. There are legitimate reasons for this, such as strong exports   But the concern is of the systemic risk of proprietary carry trades and the massive leveraging at banks and financial firms looking to profit from higher yuan returns   Also likely to have added impetus on the Chinese currency is the positive carry trade in long yuan positions, which allows investors to pocket the difference between the much higher yield on the yuan compared to most of the currencies in its basket. This carry trade, if it prevails, would result in a stronger yuan index.   But in proprietary trading, when banks and financial companies invest their own money rather than their clients’, this kind of carry trade normally involves massive leveraging. From the perspective of China’s financial regulators, this is a very risky activity, particularly when disorderly unwinding happens.  This explains why the Chinese regulators warned against currency speculation in the recent meeting and asked the banks to take a prudent approach to proprietary trading.   However, the PBOC also needs to avoid sending signals that are too strong to the market, in case the foreign exchange market changes expectations overnight and enters crisis mode, like what happened after the 2015 one-off devaluation.  All told, the yuan exchange rate is at a tipping point. From the perspective of economic fundamentals, the strong Chinese yuan is clearly inconsistent with the gloomy growth picture.  From a policy perspective, an over-strong currency would not only reduce export competitiveness, but also dilute the policy target of maintaining a stable yuan vs a basket of currencies. In China’s foreign exchange market, the dominant carry trade has to contend with the risk of an expected rate lift-off in the United States and other major economies.

podcast  :A new consensus for economic resilience
Is there a need for systemic reform of global economic governance? In this episode, Thomas Wieser joins Maria Demertzis and André Sapir to talk about his recent report for the G7 ‘Global Economic Resilience: Building Forward Better‘ in which the authors present a new economic agenda, the Cornwall Consensus, to address the risk to economic resilience: environmental and health, and geo-political and socio-economic.

All new cars in Hong Kong could be electric by 2030, five years ahead of schedule, environment official says
There were nearly 25,000 electric passenger cars on Hong Kong’s roads in October, compared to just 180 in 2010   The government is stepping up policy support to push the adoption of emission-free vehicles, including subsidies for EV purchases and charging infrastructure

China’s Developers Face $12 Billion in Trust Payments This Month
Chinese developers are facing $12 billion in trust payments coming due in December, posing a major challenge for the sector whose liquidity squeeze has spooked global markets.   The firms have already this year defaulted on more than $10 billion of these high-yielding, short-term products, which had been deemed to be a legitimate, safe and predictable place to park money for mainly wealthy Chinese and institutions. That comes on top of at least $10.9 billion of potential losses in other wealth products at developers, including China Evergrande Group, which has angered employees and tens of thousand people across China.

Leading Chinese EV trio Xpeng, NIO and Li Auto post record month, triple-digit rise in November deliveries
The three firms’ performance shows that young drivers are increasingly keen on EVs, analyst says     China Passenger Car Association has forecast that NEV deliveries will top a record 2.4 million cars this year

Despite Xi’s Pledge, China Is Financing Coal Power Plants in Bosnia and Herzegovina
Despite a pledge to stop financing coal power abroad, overseas coal power plants financed by Chinese banks and state-owned enterprises are still moving forward – including in Bosnia and Herzegovina.  The construction of a new coal power plant might also be an unpleasant surprise for neighboring countries. The Espoo Convention, which governs transboundary environmental impacts, expressed “a profound suspicion of non-compliance by Bosnia and Herzegovina” for not having undertaken transboundary consultations. Their investigation is ongoing.

As Singapore becomes the world’s second-most expensive city, what happened to Hong Kong?
The Economist Intelligence Unit (EIU) Worldwide Cost of Living 2021 report put Tel Aviv in top spot, with Singapore and Paris in joint second place  Hong Kong was ranked fifth this year as prices of clothing and personal care, including haircuts, dipped

China’s stuttering housing market shows signs of life as banks make it easier for first-time buyers to get mortgages approved
New home sales increased by a monthly 12 per cent in terms of area in November, according to Central Wealth Securities    It comes after banks were urged to support first-time homebuyers by easing their down-payment ratios and mortgage rates

Hong Kong listings for Weibo, SenseTime, NetEase’s music app seen as test case for China’s new cybersecurity rules
Three Chinese tech companies are poised to float their shares on the Hong Kong stock exchange this month   Their planned listings come after Beijing proposed new rules requiring cybersecurity reviews for certain offshore IPOs, including in Hong Kong    Hong Kong IPO applicants are obliged to seek a legal opinion as to why they think their business will not be affected by any laws and regulations that are expected to become effective in the near term, said Edward Au, southern regional managing partner at Deloitte China in Hong Kong.    “An applicant must stand ready to explain to the Hong Kong stock exchange’s listing division if it views that its business will not be affected by the proposed rules,” said Au.  Even for companies that have already received the green light from the Hong Kong stock exchange to list their shares, mainland regulators could retroactively require them to clear cybersecurity reviews once the regulations have been finalised, according to several bankers who spoke to the Post.
In any case, Chinese companies which have large volumes of Chinese data may be subject to oversight even before the CAC rules are in force, said Pinsent Mason’s Haswell, pointing to last year’s abruptly cancelled Hong Kong listing of Ant Group, the fintech affiliate of Post owner Alibaba Group Holding.
“Remember that Ant Financial had its IPO suspended without the use of any of these new laws and regulations,” said Haswell, using the firm’s former name.

Biden’s China playbook: Cooperation or confrontation?
“Biden was successful in getting Xi Jinping to unlock the Chinese system” to engage on priority issues and “zero in on problem-solving,” said Russel, who is now vice president for international security and diplomacy at the Asia Society Policy Institute, a New York-based think tank.  “One of the problems that the Biden administration had in 2021 is that they could not get any Chinese diplomats, or senior officials, to engage in a constructive way,” Russel said. “It was very frustrating and also very dangerous.” No Chinese official “is going to take any risk and is going to move in dealing with an American counterpart unless they have a strong ‘top cover,’ a signal from the very top,” he said. Meanwhile, Matthew Kroenig, a professor at the Edmund A. Walsh School of Foreign Service at Georgetown University and a former Pentagon senior policy adviser, said the emphasis on engagement and cooperation was not reflective of the current state and that the Biden administration should not look away from the confrontational aspect of the relationship. “If we want genuine cooperation, which we don’t have now, we need to lean heavily on the confrontation piece to get the Chinese Communist Party to a place where cooperation looks more attractive,” he said.”If you actually look at the real cooperation between the United States and China, there’s less and less by the day. If you look at these shared global challenges, almost all of them it’s really China that’s the problem. Saying we’re going to cooperate with China to solve these is kind of like cooperating with burglars to stop break-ins,” he said.

China seeks tripling of big data industry to $470bn by 2025
New five-year plan pushes for wider use of data in government and industry   China aims to triple the size of its big data industry to 3 trillion yuan ($470 billion) in the five years through 2025 under a five-year plan announced Tuesday.   Global competition for big data has intensified as companies and nations try to harness the power of data to make technological and commercial advances. China’s growth target, which translates to an annual growth rate of 25%, reflects Beijing’s big ambition for the field. The industry already swelled to 1 trillion yuan during the previous five-year plan, but China did not make sufficient progress in terms of data technology, markets and security under that framework, the ministry found. With three major pieces of data-related legislation over the past few years — the 2017 Cybersecurity Law and this year’s Data Security Law and Personal Information Protection Law — Beijing has tightened control over data flows and clamped down hard on cross-border transfers. The new plan aims to build a data industry that can withstand headwinds such as foreign sanctions. Noting China’s success in incorporating data into its response to the coronavirus pandemic, the document recommends stepping up the use of data in governance and social administration. Beijing should also establish a nationwide data security monitoring platform and improve systems for classifying and managing information, it says.

China cuts finance pledge to Africa amid growing debt concerns
China will cut the amount of money it supplies to Africa over the next three years by a third in a sign of Beijing’s growing caution over the continent’s indebtedness.  In a video address to the triennial Forum on China-Africa Cooperation being held in Senegal, Chinese president Xi Jinping pledged $40bn to African countries in investment, credit lines, trade finance and special drawing rights.  While this represents a cut from the $60bn pledged at the previous two Focac summits, Xi emphasised his commitment to what he called a “win-win” relationship.   In addition, China’s president promised 1bn Covid-19 vaccine doses, although he provided no timeframe. He also pledged to step up co-operation on solar, wind and other renewable investments and to simplify procedures in order to increase agricultural imports from African states.

China’s diesel exports set to climb after averting supply crisis, domestic stock ‘to build over winter’
China National Petroleum Corporation and China Petroleum & Chemical Corporation, better known as Sinopec, started boosting production in September   Refiners now have a surplus of diesel that can be shipped to international markets   While that is 86 per cent less than the same period a year ago, it is believed some plants had halted exports in November, the industry consultant said.   Vortexa forecast overseas shipments were trending at 55,000 barrels a day last month, which would be the lowest level since January 2015.  The resumption of China’s diesel exports could be another bearish factor for refining margins in Singapore, a proxy for Asia.   Margins are back below double figures after a new variant of the coronavirus raised concerns about global demand. They were as high as US$16.20 a barrel in mid-October.    “China may increase diesel exports from minimum levels seen in November, but export levels will continue to face downward pressure, mainly due to policy constraints in the form of export quota limits,” said Fenglei Shi, associate director of oil markets at IHS Markit.

China’s video game freeze enters fifth month, as NetEase faces challenges over Harry Potter game
NetEase shares plunged by as much as 9 per cent on Tuesday after it suspended emulation software on PC for its hit game Harry Potter: Magic Awakened    Investors hope a big video game industry conference this month will reveal new details about Beijing’s licensing freeze that started in August

China extends battle lines to manage capital outflows as Beijing doubles down on ‘economic security’
Markets tumbled after Federal Reserve chair Jerome Powell said high inflation could persist until the middle of next year and that the speed of US tapering could quicken     Authorities last week arrested the head of Macau’s biggest casino junket operator, signalling a determination to fix all possible loopholes, according to analysts   While strengthening monitoring and risk-control capabilities, China should push forward with institutional opening-up by improving policy transparency and predictability to lure long-term capital, he suggested.   The Chinese authorities have tried to shore up market confidence and manage expectations in the past several months, saying that they have adequate tools and are well prepared for potential headwinds.  China holds the world’s largest foreign exchange reserves totalling US$3.2 trillion, while it remains a magnet for global investors due to its large market and financial opening-up. In a statement issued last week, China’s foreign exchange regulator pledged close cooperation with police, customs, taxation and other departments to actively unearth clues concerning illegal capital transfer activities.Particularly, they ordered banks and payment institutions to take more responsibility to identify violations, while also blocking loopholes.

Hainan Airlines plans to raise US$7.9 billion via a stock sale to slash debt
Most new stock will be gifted to creditors of the carrier    Share issue latest step in efforts to restructure HNA assets    The restructuring also saw HNA bring in strategic investors, including Liaoning Fangda Group Industrial for the airline business and Hainan Development Holdings for the airport unit. The group and 320 related units will become six operations, under airlines, airports, ship manufacturing, hotel, financial services and others. Those units will be held by a parent company that will be managed via a trust with creditors as beneficiaries.  Hainan Airlines reported a third-quarter net loss of 2.56 billion yuan (US$402 million) in October, narrower than a 3.8 billion yuan shortfall the same period a year earlier. Revenue rose 10 per cent.

Former Japan PM tells China, ‘a Taiwan emergency is a Japanese emergency’
Japan and the United States could not stand by if China attacked Taiwan, and Beijing needs to understand this, former Japanese Prime Minister Shinzo Abe said on Wednesday.   Tensions over Chinese-claimed Taiwan have risen as President Xi Jinping seeks to assert his country’s sovereignty claims against the democratically ruled island. Taiwan’s government says it wants peace, but will defend itself if needed.   Speaking virtually to a forum organized by Taiwanese think tank the Institute for National Policy Research, Abe noted the Senkaku islands — which China calls the Diaoyu Islands — Sakishima islands and Yonaguni island are a mere 100 kilometers (62 miles) or so away from Taiwan

China protested Indonesian drilling, military exercises
China told Indonesia to stop drilling for oil and natural gas in maritime territory that both countries regard as their own during a months-long standoff in the South China Sea earlier this year, four people familiar with the matter told Reuters.    The unprecedented demand, which has not previously been reported, elevated tensions over natural resources between the two countries in a volatile area of global strategic and economic importance.

Rules of war need rewriting for the age of AI weapons
Whoever becomes the leader in artificial intelligence “will become the ruler of the world”, Vladimir Putin said in 2017, predicting future wars would be fought using drones. Even then, for all the Russian leader’s own ambitions, China and the US were the frontrunners in developing the technology. Yet four years later, the vision of autonomous fighting units is becoming a reality, with potentially devastating consequences. The computer scientist Stuart Russell — who will devote a forthcoming Reith Lecture on BBC radio to the subject — met UK defence officials recently to warn that incorporating AI into weapons could wipe out humanity.  Whoever becomes the leader in artificial intelligence “will become the ruler of the world”, Vladimir Putin said in 2017, predicting future wars would be fought using drones. Even then, for all the Russian leader’s own ambitions, China and the US were the frontrunners in developing the technology. Yet four years later, the vision of autonomous fighting units is becoming a reality, with potentially devastating consequences. The computer scientist Stuart Russell — who will devote a forthcoming Reith Lecture on BBC radio to the subject — met UK defence officials recently to warn that incorporating AI into weapons could wipe out humanity.  AI promises enormous benefits. Yet, like nuclear power, it can be used for good and ill. Its introduction into the military sphere represents the biggest technological leap since the advent of nuclear weapons. While atomic bombs were used on real cities in 1945, however, it took more than two decades before the first arms control treaties were signed.

Is China capitalist?
President Xi’s policy of ‘common prosperity’ may have significant impact on global economy     Xi has reportedly told fellow party members that the difference between his vision and Western-style capitalism is that in China, “capital serves the people”. Under his policies, he has claimed, low-incomes will be boosted, more citizens will join the middle-income social tier, and high earners will face a greater level of taxation.   There should be “no doubt” that the most rigorous socio-economic change since those brought in under Deng’s leadership “is now under way,” said Time. And the move could have “huge repercussions for the rest of the world”, said the BBC’s Asia correspondent Karishma Vaswani.    “A sort of top-down Utopian China”, the Communist Party now hopes to offer a “viable alternative model” to Western capitalism, wrote Vaswani. But “it does come with a catch: even more control and power in the hands of the party”

Wealthy Asians likely to bequeath US$2.54 trillion to their heirs by 2030, report says
Globally, about 680,000 individuals will transfer a collective wealth of US$18.3 trillion   There are more wealthy Asians than Europeans today, although the average age of wealthy people in the region – bar Japan – tends to be younger   China registered the largest increase of people joining the elite club with 16 per cent growth, followed by Sweden with 11 per cent, and Singapore with 10 per cent.

webinar US-EU cooperation in the Indo-Pacific Friday, Dec 03, 2021 2:30 PM EST – 3:30 PM EST
This week, U.S. Deputy Secretary of State Wendy Sherman and Secretary General of the European External Action Service (EEAS) Stefano Sannino will meet in Washington, DC to co-chair the second session of the U.S.-EU China Dialogue, launch high-level consultations on the Indo-Pacific, and discuss a range of foreign policy issues. On December 3, the Foreign Policy program at Brookings will host a webinar to explore the themes discussed during the U.S.-EU dialogue on China, as well as reflect on U.S.-EU cooperation in the Indo-Pacific. Following brief introductory remarks by U.S. Deputy Secretary of State Wendy Sherman and Secretary General of the EEAS Stefano Sannino, a Q&A moderated by Thomas Wright, director of the Center on the U.S. and Europe at Brookings, will follow.

Alain Gillard
Information Officer
Service Asie Pacifique
Place Sainctelette 2
1080 Bruxelles
Tél 02 421 85 09 – Fax 02 421 87 75
Copyright © 2020 awex, All rights reserved