Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – December 8, 2021

China 2021 Recap: Overview of a Pivotal Year
A China 2021 recap looking at the year’s major developments that will affect the country’s investment prospects going into 2022. Foreign stakeholders with business interests or operations in China will benefit from monitoring the economic developments, policy impulses in education and green industries, and implementation of new data and cybersecurity regulations. Given that the COVID pandemic is still ongoing, US-China rivalry refuses to abate, and global supply chains remain stressed – there will be plenty of internal and external variables to account for in the new year. Besides this roundup, we also look at what lies behind China’s impetus of ensuring ‘common prosperity’.

podcast : What to watch in 2022: China’s economic outlook
Our end of 2021 recap of China’s economic activities.2021 has been an eventful year for China and the world, to say the least. Bruegel has been following China’s economic developments with our monthly China Newsletter Zhonghua Mundus, and in this last episode of the year, we feel the need to provide a bigger picture of its macroeconomic outlook.  Sitting in Shanghai, J.P. Morgan’s Chief China Economist Haibin Zhu joins Giuseppe Porcaro and Alicia García-Herrero for a summary of China’s economic activities in the past year and what to expect in the future, namely the impacts of ‘common prospective’ narrative, market regulations, pandemic restrictions and decarbonisation.

China politburo’s economic plan for 2022: “Stability”
The Politburo of the Communist Party of China (CCP), China’s top policymaking body, has revealed its economic plans for 2022. Unlike the previous year, the focus appears to be on financial stability and prudence as the country faces slowing growth. Technological self-sufficiency and innovation still remain a core priority as pressure from Washington continues.   On Monday the 25-member Politburo, chaired by President Xi Jinping, met to discuss economic development and anti-corruption plans for 2022. The meeting notes were published by state-run news outlet Xinhua and highlighted that “actions should be taken to safeguard macroeconomic stability, keep major economic indicators within an appropriate range and maintain social stability to prepare for the Party’s 20th National Congress.”   The CCP further emphasised that economic plans for 2022 should prioritise stability and prudence, noting that China will “continue to adopt proactive fiscal policies and prudent monetary policies.”

China’s Factory Inflation Seen Easing From Peak in November
China’s factory inflation may have peaked and started slowing in November, providing some relief for companies and making room for the central bank to do more to support the economy. The producer price index is forecast to have climbed 12.1% in November from a year earlier, slower than the 26-year high of 13.5% in October, according to the median estimate in a survey of economists. Despite the retreat, the projected increase would still be the second fastest in 26 years. Faster inflation in China in recent months fanned stagflation concerns amid a domestic economic slowdown and worries about persistent global inflation. It also increased the challenge for the People’s Bank of China on how to stimulate growth without adding to inflationary pressures, so slower price rises may make it easier to add stimulus

The Global Gateway: a real step towards a stronger Europe in the world?
On 1 December 2021, the European Union unveiled the Global Gateway, its plan to support infrastructure development around the world. This would mobilise €300 billion between 2021-2027 for connectivity projects, notably in the digital, climate and energy, transport, health, education and research sectors.  The rationale behind this initiative is clear: the world needs major infrastructure investments. The World Bank estimates that to achieve the goals of climate and environmental protection, universal access to energy, water and sanitation, greater mobility, and improved food security, the world must invest around €1.3 trillion per year in infrastructure.Alternatives to the Belt and Road Initiative China understood the strategic importance of global infrastructure development when it launched the Belt and Road Initiative in 2013. To provide an alternative to the Chinese approach to global infrastructure development, some G7 leaders committed in June 2021 to a values-driven, high-standard, and transparent set of infrastructure partnerships: the US’s Build Back Better World, the UK’s Clean Green Initiative and the EU’s Global Gateway.   The European Commission pitched the Global Gateway as a template for how Europe can build more resilient connections with the world, but critics quickly attacked the initiative, claiming it represents a repackaging of existing instruments rather than fresh EU cash.

China’s BRI ‘Go’ Game Aid Trap – OpEd
China’s Belt and Road Initiative (BRI) has left a large number of poor income countries burdened with heavy ‘hidden debts’ totaling $385 billion, according to new findings of a report published by AidData, based in Virginia. American statesman John Adams, who served as president from 1797 to 1801; “There are two ways to conquer and enslave a country: One is by the sword; the other is by debt.”   According to this report, China has used debt rather than aid to establish a dominant position in the international finance market. President Xi Jinping’s BRI plan, launched in 2013, has changed China’s overseas lending. The big difference between China and other sources of financing is that Chinese banks have used ‘Debt rather than Aid’ to establish a dominant position in the Global finance market”. BRI is part of a grand strategy to build alliances, project influence, and reshape the international balance of power in Beijing’s favour in all spheres.

China Increasingly Obscures True State of Its Economy to Outsiders
New data restrictions have made it harder to get details on what’s happening inside the country   The opacity is likely to increase tensions between China and the U.S. in both the short and long term, according to political analysts and U.S. officials.

China’s yuan strengthens as trade surplus hits US$72 billion in November amid robust export growth
China’s foreign reserves rose to US$3.222 trillion at the end of November, up US$4.8 billion from a month earlier The dollar-denominated value of exports increased by 22 per cent on year last month, the second highest rise of 2021

How US-China monetary policy split could drive dollar gains against the yuan
While the US central bank is waking up to the need to respond to rising inflation, China looks set to stick with supportive monetary policy  If this divergence continues, it could erode the yield differential that currently favours the renminbi over the US dollar

China tech: blacklist could hurt homegrown start-ups most
China may soon severely restrict how local start-ups raise funds from foreign investors. For Beijing sanctions would offer a way to enforce its strict capital controls and protect sensitive data of local companies. While US investors will miss out, China’s own tech industry could end up suffering the most.
A blacklist is planned to target new companies in sensitive sectors that use so-called variable interest entities to structure their China businesses. This popular legal structure gets around foreign ownership restrictions. More than a third of US-listed mainland companies use VIEs. Restrictions would probably hit China’s data-intensive sectors or those causing national security concerns.

Explaining China’s Climate Cop Out
Domestic factors continue to hold back the implementation of the Chinese government’s ambitious climate promises.   What’s more, China’s coal-producing regions are critical to the political coalition Xi has cobbled together since assuming power in 2012. It is also likely not entirely coincidental that his anti-corruption campaigns have ensnared by far the most targets in this region, or that favorable news coverage of Xi frequently emphasizes the time he spent as a young man in the coal-producing region of northern Shaanxi Province. Political support from sectors like coal, dominated by state-owned industrial behemoths, is also seen as key. Unlike his predecessors, who actively looked to jettison aging state enterprises and their workers while aggressively pursuing China’s integration into the global economy, Xi likely cannot afford to lose the support of state-owned enterprises, especially as he continues to alienate many regions and sectors with stronger links to globalization and international trade.    Then there is the question of consumption. China has sought for decades to reduce the share of aggregate investment in its GDP, relative to consumption. Returns on investment are among the lowest in the world, rates of savings are generally seen as excessively high, and consumer sentiment has long been relatively anemic. Further increasing investment in transitioning away from coal, while potentially also pushing up consumer prices, is thus not as attractive to Chinese leaders as it may appear  from a distance.  Delivering consistently high rates of GDP growth and demonstrably improving living standards for citizens and consumers is at the core of the CCP’s strategy of “performance legitimacy.” But China’s development model has been decreasingly effective since at least the 2008 global financial crisis. Grasping for new tactics and strategies for growth, while also endeavoring to maintain its grip on power and transition to a new era of entrenched (and increasingly personalistic, even charismatic) authoritarianism, the party is loath to commit to anything so risky as faster achievement of climate goals – even if that may mean more islands become submerged by rising seas before it finds the stones it is feeling for in the proverbial river.

What China’s plans to decarbonize its economy mean for Canada’s energy exports
For scholars who have been following China’s climate politics closely, this news reaffirms China’s resolution to rapidly decarbonize its economy. This resolution, however, has been largely neglected by Canadian policy-makers and investors in the oil and gas sector, in part because the Canadian mainstream media has underreported China’s evolving climate governance. Regrettably, such neglect entails significant economic risks for Canada: China’s increased decarbonization efforts will cast shadows on the future of Canada’s fossil fuel exports.  To begin with, the report’s data on natural gas demand in Asia-Pacific markets ends in 2018, prior to the macroeconomic shock caused by the COVID-19 pandemic. The International Energy Agency estimates that “the COVID-19 crisis will result in 75 billion cubic metres of lost annual demand by 2025.” This poses a significant challenge to future plans for Canadian LNG exports.Second, the report’s economic projections are based on the development of LNG export capacity of 56 million tonnes of gas per year. For reference, Phase 1 of LNG Canada, with a planned in-service date in 2023, will only be able to export 14 million tonnes per year. In other words, for B.C. to realize the proposed economic benefits, it must not only secure enough investment to quadruple its LNG production over the next few decades, but it must also find ways to sell its LNG at competitive prices to rapidly decarbonizing economies such as China. Such economic calculations are unlikely to work.  During COP26, Justin Trudeau announced Canada will cap emissions from the oil and gas sector. Yet, there is a more fundamental question that merits broader public conversations: do we want to spend more of Canada’s already limited carbon budget on the fossil fuel sector, which is declining and poses increasing economic risks?

China’s Shandong enlists state-run coal miner to help fund mega refinery complex
China’s Shandong province, the country’s main independent oil refining hub, has turned to a deep-pocketed state-run coal miner to help fund a petrochemical complex it sees as key to the region’s industrial future, sources and local state media said.    Shandong Energy Group, a provincial government-backed coal producer and utility operator, is set to take a 46.1per cent stake in the US$20 billion Yulong Petrochemical plant, becoming the second-largest stakeholder in the project led by privately run aluminium smelter Nanshan Group, three sources said

China is reportedly tightening its grip on tech start-ups trying to tap foreign funding
China is said to be drawing up a blacklist that will make it harder for new technology companies to raise foreign funding and list overseas, according to the Financial Times.  The blacklist could be published as early as this month, according to the report, which cited unnamed people familiar with the matter.
It will include start-ups in sensitive sectors that use the so-called variable interest entity structure, the FT reported.

China’s biggest liquidity injection in three years not a game changer for BCA while HSBC fund sees muted impact
RRR cut is not a game changer for the economy as credit growth and investment, key drivers of business cycle, have yet to rebound decisively: BCA Research    Channel checks suggest Chinese banks have no aim to change their full-year credit plans at the end of 2021, Morgan Stanley says

International investors firmly focused on China’s market reforms, growth potential, HKEX’s Aguzin says
China attracted US$142 billion of foreign direct investments in the first 10 months this year, 23 per cent higher compared to a year ago     As China’s reforms continue to progress, international investors are becoming more closely integrated with the mainland market, says HKEX CEO Nicolas Aguzin

China Evergrande shares hit new low amid debt crisis
China Evergrande Group’s shares hit a record low on Wednesday after a missed debt payment deadline put the developer at risk of becoming the country’s biggest defaulter, even as hopes of a managed debt restructuring calmed fears of a messy collapse.    So far, any Evergrande fallout has been broadly contained, and with policymakers becoming more vocal and markets more familiar with the issue, consequences of its troubles are less likely to be widely felt, market watchers have said.   Failure by Evergrande to make $82.5 million (€72.9 million) in interest payments due November 6th on some US dollar bonds would trigger cross-default on its roughly $19 billion of international bonds, with possible ramifications on China’s economy and beyond.

HNA Group divests aviation unit to strategic investor in business break-up as bankruptcy reorganisation progresses
The handover of aviation unit to strategic investor Liaoning Fangda forms part of HNA’s break-up under its bankruptcy reorganization    Founder Chen Feng and CEO Adam Tan were arrested by Chinese police in September for undisclosed ‘suspected crimes’

Mainland Chinese stocks bounce more than 1%; Chinese social media giant Weibo debuts in Hong Kong
Chinese social media giant Weibo made its market debut in Hong Kong on Wednesday, in a secondary listing at an offer price of $272.80 Hong Kong dollars per share.    Japan reported that its economy shrank 3.6% in the third quarter, worse than the initial estimate of a 3.0% contraction, revised government data showed on Wednesday.

Some Hedge Funds May Have Lost Millions on Bets on China’s Didi Global
Several hedge funds may have been bruised by bets on Didi Global Inc, filings showed after the shares tumbled since the Chinese ride-hailing company announced plans to withdraw from the New York Stock Exchange.    Didi’s shares have tumbled 56.8% from their June 30 IPO price. The slide accelerated after the company said on Friday it planned to delist from the New York Stock Exchange and pursue a listing in Hong Kong, bending to Chinese regulators angered by its U.S. debut.   Hedge funds were invested in 94.4 million shares of Didi at the end of September, down 13.2 million shares from the previous quarter, according to U.S. 13F filings compiled by industry tracker Symmetric.

Trading in embattled Chinese developer Kaisa suspended over new default concerns
The company is facing repayment on a US$400 million bond due Tuesday, after it failed to win approval for a bond swap that would have extended the deadline    New Money Consortium, which owns more than 50 per cent of the outstanding bond, earlier offered about US$2 billion in new funds to finance Kaisa, sources said

US-China tech war: Washington, Taipei agree to strengthen cooperation on semiconductor policy
While China was not named in the statement, closer coordination between the US and Taiwan in semiconductor policy could have implications for Beijing    The latest agreement between Washington and Taipei comes at a time when the US is trying to strengthen its domestic chip manufacturing industry

China’s rise in semiconductors and Europe: Recommendations for policy makers
Semiconductors are on the mind of many European policy makers, not least because of the intensifying US-China technology rivalry and the chip shortages that forced most European car makers to temporarily stop production from 2020. As a result, the European Commission is working on an EU Chips Act, a draft of which is scheduled to be ready in mid-2022. Europe’s semiconductor industry has not received this level of attention from policy makers in a long time, and the EU has now a window of opportunity to substantially invest in its semiconductor ecosystem and strengthen international partnerships. The only questions are what, how and where?  In our previous report of June-2021, “Mapping China’s semiconductor ecosystem in global context”, we argued that Europe is already highly dependent on Chinese companies in certain value chain steps and that this dependence will likely grow over the short-term future. As China is now considered from a European viewpoint to be an “economic competitor” and “systemic rival” as well as a “cooperation partner”, these dependencies must be assessed across different dimensions of the national interest: national security, technological competitiveness and supply chain resilience. Based on these assessments, we argue that EU’s forthcoming semiconductor strategy should include three focus areas.

China’s Xi says US businesses are welcome, but politicising bilateral economic issues is not
As it adopts a more self-reliant dual-circulation economic strategy, Beijing also speaks of building a more market-oriented and law-based business environment   Foreign business communities want China to loosen border controls to improve people-to-people exchanges, but Beijing has stuck with its zero-tolerance approach to the coronavirus

Tim Cook ‘signed $275 BILLION deal with Chinese authorities in 2016’
Apple CEO Tim Cook personally met with Chinese officials in 2016 and forged a secret five-year, $275billion deal with Beijing allowing the iPhone maker to freely do business on the mainland in exchange for helping it develop its technology sector.   Cook visited China in 2016 after government regulators began to pass a series of measures that hampered the tech giant’s activities in the country, according to The Information.

China’s Xi Jinping vows to focus on judicial cooperation in multilateral ties
Wider law enforcement and judicial cooperation in bilateral and multilateral ties are important for national security, Chinese president tells Politburo    Beijing has grown increasingly wary of its drawbacks in the international legal arena

Europe’s Global Gateway: Complementing or Competing With BRI?
The EU’s enhanced infrastructure connectivity strategy is often framed as being in competition with China, unnecessarily making Global Gateway an instrument of geopolitical rivalry.    Unlike others, China has repeatedly emphasized its willingness to cooperate. Just as Global Gateway is intended to synchronize with B3W, Global Gateway should not be Europe’s challenge to the BRI but a natural complement. Europe should find ways to coordinate and synergize various national and supra-national projects and share best practices and information. It can also prioritize areas less penetrated by the BRI, especially India and Eastern Europe.     Old myths die hard. But the myth that the BRI is a predatory and unsolicited instrument is a particularly resilient one. Not everything needs to be seen through the lens of binary competition, and not everything Beijing does is ipso facto bad simply because Beijing does it. The increasingly tense nature of geopolitical great power competition is having negative spill-over effects, which may cloud judgment and complicates the enormous task of plugging the world’s infrastructure gap. The EU can do better than that.

This Is What U.S.-China Decoupling Looks Like
U.S.-China relations have deteriorated, but what does that mean for the economic relationship?
 Decoupling is the buzzword in U.S.-China relations. Harvard Business Review carries a feature story, “The Strategic Challenges of Decoupling from China.” A leading think tank, the Center for Strategic and International Studies produces a paper, “A Targeted Approach to U.S.-China Decoupling.” The U.S. Chamber of Commerce weighs in with a 92-page paper, “Understanding U.S.-China Decoupling.”    This sentiment should not be a surprise, nor is concern about U.S.-China relations unwarranted. Geopolitical issues have been added to the long-simmering trade issues to produce additional uncertainty in the relationship. Human rights issues are also added to the mix, as well as considerations over supply chain disruptions, sometimes Covid-related. Add to that a more robust nationalism in China’s economic engagement, such as requiring Chinese companies to delist from overseas stock exchanges. Businesses want a predictable, controversy-free operating environment, so all of these issues contribute to a relative decline in appetite for China among U.S. businesses. But is this relative decline in a China orientation the same as decoupling? A relative decline does not necessarily mean a deterioration in absolute terms. However “decoupling” suggests a deliberate desire to cease China activities, even when those activities are advantageous.

Macro Trends and Industry Impacts Finally, policymakers need a clearer timeline for adjustments to the U.S.-China relationship. Trying to decouple this extensive relationship overnight would lead to counterproductive economic hardship. The U.S. and China share a combined $737 billion in two-way trade (in 2018) and more than 100,000 discrete cross-border investment transactions built up over decades. Vast amounts of IP are at work in these transactions and indirectly in commercial arrangements flowing through third-party locations from Ireland to Hong Kong to Bermuda. U.S. policymakers should take the time necessary to collect data, set priorities in light of that data, consult with industry as needed, and draw together like-minded policymakers from other nations to address shared concerns about the choices Beijing has made in recent years.

Joe Biden must build on his dialogue with Xi Jinping
In the aftermath of the recent video conference between US president Joe Biden and President Xi Jinping of China, Washington faces a dilemma: how to engage Beijing when Biden’s leading officials have declared that engagement has failed? US political opinion ranges from fearing China’s rise to warning of Beijing’s internal weaknesses, but either way, the prevailing consensus from both parties is to do battle. National Security Council strategists Jake Sullivan and Kurt Campbell sought during the run-up to the 2020 election to distance themselves from previous Clinton-Obama ties with China. And the NSC’s China expert, Rush Doshi, published a book this year preaching a doctrine of diplomatic predestination: China has had a decades-long plan to achieve global hegemony, leaving no prospect for the US to work with it.

A New Direction for the China-US Phase One Deal?
Enforcing the deal could ironically prove to be its undoing. What options does Washington have?  Clearly, measures such as bilateral voluntary export restraints, orderly marketing agreements, and similar measure that limit imports of certain products are prohibited under WTO rules.    Putting aside the political rhetoric, opening the Phase One deal to re-adjustment and negotiations seems the most plausible option in the short term. The agreement has been a success, despite the numbers and flaws in the deal’s text. No country should be forced to import from another country, but China was willing to import from the U.S. in increased quantities.  In the short term, both the U.S. and China will continue to exempt on an ad hoc basis certain goods and services from harmful tariffs and other trade practices by both countries. As that continues, Washington should give diplomacy and negotiations another try.

China’s Outbound Investment Strategy Changes As The Belt And Road Initiative Becomes Futuristic
The Chinese invested Colombo Port City and Electric Air Mobility vehicles are showing the way ahead as the Belt and Road Initiative goes new hi-tech

China-Pakistan Belt and Road Initiative hits buffers
In Gwadar, a developing port town in south-west Pakistan, Adam Qadir Baksh has been hoping for a major leap forward in his automobile spare parts business since 2015, but it has not happened in the absence of the vital Chinese tailwind once promised. “There has been no benefit from the China-Pakistan Economic Corridor for local parts vendors and other suppliers,” Baksh said. His unhappiness goes back six years to Chinese president Xi Jinping’s visit to Pakistan and the official launch of bilateral infrastructure development projects under the Belt and Road Initiative. Baksh said Pakistan had not benefited because for CPEC projects virtually everything was imported from China. “China only procures sand and gravel locally for construction projects,” said Nasir Sohrabi, president of Gwadar’s Rural Community Development Council. “All other raw materials are imported from China, leaving very little for local industry.” CPEC is a $50bn flagship BRI component that includes power plants, industrial clusters and road and rail upgrades. About half of the money pledged by China has already flowed in with investments and intergovernmental lending, pushing Pakistan’s economic growth above 5 per cent in 2017 and 2018. But those who have yet to benefit from Chinese largesse are losing hope and becoming restive.  The main road leading to Gwadar Port has been blocked since November 15 by thousands of locals in a sit-down protest. They are demanding basic amenities, including water and power, as well as access to the sea for fishermen. “If our demands are not met, we will close down CPEC

China is biggest captor of journalists, says report
A new report by Reporters Without Borders (RSF) says China is “the world’s biggest captor of journalists” with at least 127 reporters currently detained.

Shanghai Reports New COVID-19 Case – Limits Large Events
One new locally transmitted COVID-19 case has been confirmed by the Shanghai Health Commission. At a press briefing this morning, Wu Jinglei, head of the Shanghai Health Commission, announced that, according to the requirements of the guidance on the prevention and control of the epidemic, Shanghai will implement strict limits on the holding of artistic performances, sports events, festivals, activities, meetings or celebrations. Large-scale gatherings will be canceled or delayed, or held with a strictly controlled number of participants.  Residents should avoid non-essential trips, he added.

The West Now Has New COVID-19 Cures. How About China?
Drugs designed for the coronavirus could make infections less severe. Will they allow the country to open back up

Alain Gillard
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