Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – February 16, 2022

China’s Foreign Investment Information Reporting System: How Does it Work?
Foreign investors and foreign invested enterprises in China are subject to foreign investment information reporting obligations under the Foreign Investment Law, which came into effect on January 1, 2020. The new foreign investment information reporting mechanism is different from previous record-filing requirements regarding foreign investment upon incorporation and changes to the business.     Considering the penalties for reporting incompliance and the potential impact on the social credit of relevant parties, foreign investors and FIEs are advised to get familiar with China’s latest foreign investment information reporting obligations and manage their compliance in an accurate and timely manner.

China inflation: Beijing on ‘alert’ for rising commodity costs despite easing consumer, factory-gate prices
China’s official consumer price index (CPI) rose by 0.9 per cent in January from a year earlier, down from 1.5 per cent in December  China’s producer price index (PPI) rose by 9.1 per cent in January, down from a rise of 10.3 per cent in December, and to the lowest level since July

With prices in check, mainland inflation eases
Inflation on the mainland slowed in January, official data showed on Wednesday, as the government pledged to keep prices in check in the world’s second-biggest economy.   The producer price index (PPI), which measures the cost of goods at the factory gate, rose 9.1 percent on-year, according to the National Bureau of Statistics, tracking falls in coal and steel prices.  It was below the 9.5 percent forecast in a Bloomberg survey of economists, and marked the third straight month of PPI easing. It was 10.3 percent in December 2021.

What China means when it says it wants “high quality” GDP growth
Over the past year, there has been a lot of buzz in China around the vague notion of “high-quality” economic growth.   It’s a key focus of the country’s latest five-year plan. Chinese leader Xi Jinping has stressed its significance. And prominent Chinese economists argue it’s key to China’s future.    For an authoritarian government whose legitimacy is heavily dependent on delivering sustained economic growth and improving the livelihoods of its populace, the shift in focus towards quality of growth is also a way of managing expectations and also diverting attention away from the many structural headwinds that China’s economy is facing, including an aging population and lagging productivity, said Alicia García-Herrero, chief economist for Asia Pacific at Natixis.

America Is Showering China With New Restrictions
A slew of new measures are fundamentally transforming economic relations. In recent years, Washington’s China policies have expanded rapidly into technology sectors such as telecommunications, semiconductors, data security, and financial services. Growing bipartisan concern about Beijing’s actions and intentions have fueled these developments, with little difference between the Trump and Biden administrations or between the White House and Congress. The result has been a flurry of new restrictions—including on exports, imports, direct investment, and financial securities—that are fundamentally reshaping the U.S.-China economic relationship. Cross-border business travel between the United States and China, essentially halted for the past two years due to the COVID-19 pandemic, is unlikely to fully rebound because of increased caution and suspicion on both sides of the Pacific.

US-China trade: ‘building a wall’ will not address ‘problems posed by China’, Washington warns
Biden administration’s first assessment of China’s compliance with the World Trade Organization says Beijing’s actions ‘cause serious harm to workers and businesses around the world’   New trade report also says China ‘plainly does not hold the same core values’ that the US and its closest allies hold

China has expanded statist economic policies over 20 years in WTO: US
China has not adopted the rules of the World Trade Organization even after 20 years’ membership, the United States said Wednesday, adding that the world’s second-biggest economy had “retained and expanded” its statist approach to the detriment of businesses and workers globally.

US-China monetary policy divergence set to ‘become greater’, will aid yuan stability
US Federal Reserve is expected to accelerate monetary tightening to tame inflation, while the People’s Bank of China needs to use its policy tools to stabilise growth     Guan Tao, a former Chinese foreign exchange regulator, believes US Federal Reserve tightening will reduce foreign capital inflows into China

China’s central bank chief vows support amid ‘weak links’
Governor Yi Gang says China will return to a potential growth rate of between 5 and 5.7 percent in 2022.

East-west divergence in central bank action will not last much longer
Fed shift towards raising rates will make it hard for China and Japan not to tighten monetary policy. Both central banks have good reasons to stay the course. The Chinese economy is decelerating rapidly, and inflation seems to be under control, at least as far as consumer prices are concerned. Such a narrow yield differential does not bode well for China to continue to attract portfolio inflows — at least not fixed income, which accounted for 60 per cent of such investment in 2021. Given the strong renminbi and China’s big trade surplus, one could argue that a reversal of the still strong portfolio inflows cannot hurt the country much. In fact, some renminbi weakening if inflows slow could be handy to boost exports given the expected narrowing of the trade surplus in the course of 2022, as the global economy decelerates.  Still, there are worries in Beijing, as revealed in comments by Chinese policymakers all the way up to Xi Jinping. “If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers,” the president said last month.  In other words, no financial market — even China — is fully insulated from the Fed’s rapid tightening. Indeed, the dollar’s overriding role as reserve currency is key to understanding how the Fed’s “quantitative tightening” may affect China.  As China is a net creditor overall with more assets than liabilities in dollars, a stronger US currency and higher interest rates should create a positive wealth effect for the country despite a lower value for its holdings of US Treasuries.  However, this is not true for corporations. Big companies with access to the offshore market are heavily indebted in dollars, which means that their cost of funding will rise after the Fed tightens, and all the more so if the dollar appreciates with it.    In addition, Chinese banks have stepped up their lending in a large number of emerging and developing economies, most of which is in dollars. The aftermath of the pandemic is bringing to the surface the unsustainability of many of these countries’ debt and the need for them to be restructured. Such trends are clearly not good news for the Chinese economy, which is already experiencing a cyclical, but also structural, deceleration.

China’s Financial Standardization Plan Does Not Reduce Funding Barriers
While the plan is useful in continuing to regulate China’s growing financial landscape, it does nothing to alter China’s trajectory of channeling funds to the state sector.   Under the strategy of lending to support government policy, banks and other financial institutions have preferred to lend to enterprises that carry out state mandates, such as buildup of infrastructure, investment in supported technologies, and poverty reduction. While financial support of policy makes sense, especially for China, often financial risks and economic efficiencies are overlooked in the process. This is how local governments and heavy industry became over-indebted, only to be regulated after they overindulged in easy loans for years.   Rather than opening up to market forces, as China had done for some time before Xi came into office, China’s financial sector is moving in the opposite direction, ignoring risks and opportunities in favor of political and economic safety. China’s debt-to-GDP ratio reflects the inefficiencies associated with such non-market moves. The statistic stood at 285 percent in the third quarter of 2020. About half of the debt is accounted for by state-owned enterprises. SOEs also defaulted on $11.1 billion of debt in 2020, accounting for 51 percent of all defaults.  The Financial Standardization Plan does not support China’s movement away from a state-owned economy. This trajectory coincides with U.S. calls for a more level playing field in its competition with China. The Trump administration had been especially vocal in complaints regarding China’s use of subsidies to support policy-favored firms, and China’s divergence from Western market traditions only underscores the commitment of the Xi administration to China’s own economic model. The question remains, in the face of high debt levels and inefficiencies, will China’s model remain successful?

China to work with Asian neighbours to grow use of local currencies over US dollar in trade, investment
Central bank governor Yi Gang said China will work with Asian countries to strengthen the use of local currencies in trade and investment    Bilateral currency swaps among the Association of Southeast Asian Nations (Asean) regional grouping, China, Japan and South Korea have reached US$380 billion

China’s digital currency racks up ‘a couple of million’ yuan of payments per day at the Beijing Winter Olympics
The Olympic trial is the first time visitors from overseas are free to use China’s digital currency via smartphones and wearable payment devices     No breakdown available for use among international attendees, though it ‘seems all the foreign users are using hardware wallets’, central bank says   In its first-ever research report on a potential US digital currency, the Federal Reserve said a digital dollar would consolidate its international role, but it will not proceed without clear support from the executive branch and from Congress, ideally in the form of a law. Many Chinese academics hope the digital currency will help promote more overseas use of the yuan. China has been collaborating with Hong Kong, Thailand and the United Arab Emirates to explore the use of digital money in international transactions. However, the central bank is reluctant to give a clear timetable for its official launch.
“China is a big economy, so it’s very complex for us to develop such a complicated system. We’ll advance the e-CNY pilots with no preset timetable for the final launch,” Mu said at the webinar.
Criteria like user experience, security and efficiency will be closely watched, he added.

China hot money inflows maintain pace, but risks ahead as US edges towards rate increase
Foreign holdings of interbank bonds reached 4.07 trillion yuan (US$640 billion) at the end of January    But a test is looming as the US Federal Reserve is poised to respond to record inflation with more aggressive rate increases, while China is easing its monetary stance

Chinese language state pumps cash into metaverse stakes
Chinese language native governments and state-backed entities are pumping cash into firms concerned in creating the so-called metaverse, because the nation competes to turn out to be the worldwide centre of the brand new digital craze.  On Wednesday, China’s newly shaped Metaverse Business Committee introduced that 17 firms had been included within the organisation to “promote the wholesome, orderly and sustainable improvement of the metaverse”.    The committee, established in October by the state-owned telecoms firm China Cellular, goals for firms to debate new guidelines, insurance policies and tasks. It is without doubt one of the many initiatives involving state-backed teams and native officers which are additionally searching for stakes in metaverse firms amid an funding frenzy.

Intel’s US$5.4 billion acquisition of Israel’s Tower Semiconductor to help it take on TSMC in contract chip-making
The acquisition gets Intel customers and expertise in the foundry business as it seeks to expand beyond producing its own designs    The chip maker’s recent spending spree, including a US$20 billion plant in Ohio, has put investors on edge as it has weighed on profit margins

What is failing China’s luxury e-commerce unicorn amid a luxury boom?
While China continues to be a bright spot for luxury consumption, Secoo, the early pioneer in luxury resale in the country, is now in decline.   The brand’s current woes are a result of growing competition from global players and China’s e-commerce giants who have been beefing up efforts to draw in more luxury brands.   The fall of Secoo sounds the alarm for others alike that it is crucial for luxury brands to find a balance between their online and offline presence to succeed in China.

Chinese online fashion giant Shein on Singapore hiring spree as it shifts key assets there
A Singapore-registered company is now the legal entity operating Shein’s global website, government filings show  Shein aims to quadruple the number of its Singapore employees by the end of 2022, sources said

Evergrande crisis: auditor resignations trigger alarm bells amid hidden debt at Chinese property developers
PwC resigned from Hopson after being asked to explain about its auditing on China Evergrande, while Deloitte departed from China Aoyuan   Chinese companies are due to report their December year-end results in April, and changes may cause delays

China Courts Freeze $157 Million of Evergrande Assets Over Missed Construction Payments
A Chinese court has ordered the freezing of 640.4 million yuan ($101 million) in assets held by a subsidiary of China Evergrande Group, according to a filing by contractor Shanghai Construction Group.

Cedar struggling to pay overdue debts
Chinese commodities trader Cedar Holdings Group, is struggling to pay RMB 20 billion ($3.1 billion) in wealth management products due to around 8,000 investors, reports Bloomberg. In April last year, the company started delaying redemptions on matured products, only paying interest, and as of last month also stopped making interest payments.     China has been rocked by a string of defaults amid a liquidity squeeze in the property market, with firms including China Evergrande Group and Kaisa Group Holdings angering investors by missing payments. Cedar ranked 359th on the Fortune Global 500 list of companies last year, generating revenue of $33.8 billion.

China govt to help run coal power plants at full capacity
China will help its coal-fired power plants run at full capacity, the government has announced, raising further alarm about the fate of Beijing’s climate pledges.

Xi Jinping urges China to arm itself with stronger laws and better lawyers for ‘international struggle’
President says country should move faster on legislation relating to foreign matters, particularly around sanctions and interference     He also calls for efforts to ensure lawyers ‘voluntarily support the Communist Party and our socialist legal system’

China-Australia relations: icy diplomatic ties leave Australian exporters ‘vulnerable’, despite resilient trade
Australia’s overall exports to China increased 21 per cent year on year to US$133 billion in 2021, according to figures from IHS Markit     But political tensions between the trading partners, which show no sign of easing, remain a source of anxiety for Australian exporters

PLA not yet ready for all-out Taiwan war, island’s military experts say
Mainland armed forces need another 10 to 15 years of reform to launch full-scale cross-strait attack, experts tell Taipei seminar     US-led maritime alliance seen to be a bigger headache for Beijing in the near term

‘No benefit’ for China’s Taiwan claim in Russian war with Ukraine
Chinese observers say there is no link between the two issues but Beijing is closely watching US involvement in Ukrainian crisis    An invasion of Ukraine will add to economic and diplomatic pressure on China from the US and Europe, the experts said

‘Lying flat’: Why some Chinese are putting work second
“I’m continuing to get rid of the negative energy in my life. I think 2022 will be an upgrade on 2021, but I still don’t want to do anything. I will continue to ‘lie flat’. I enjoy this state.”

China makes Olympian effort to cut pollution but remains short of WHO standards
Since Beijing hosted the 2008 summer Olympics 14 years ago, China has taken steps to improve the air quality in its cities, despite remaining the world’s largest emitter of greenhouse gases.  While the country has a long way to go, and continues to build the coal-fired power plants that contribute to the deadly pollution that is the leading cause of global warming, it has made a quantifiable improvement in the past decade.  Starting in 2014, when premier Li Keqiang declared a “war against pollution”, China’s Air Quality Monitoring Network has reported a 40 per cent reduction in the country’s emissions.  This amounts to more than three-quarters of the total global decline during that period in air pollution, referred to as particulate matter, or suspended dirt and soot that can pass through the lungs into the bloodstream.  Although there were improvements made to air quality in preparation for the 2008 summer games, as power plants and factories were closed temporarily, these radical measures were shortlived. Pollution returned to previous levels following the games and peaked in 2013.    However, the co-host city for the 2022 winter Olympics, Shijiazhuang, the capital of Hebei province, has reported a 49 per cent decrease from the 2013 peak.

Covid-19 lockdown in Suzhou, a hi-tech hub in eastern China, disrupts operations at major semiconductor production base
The city’s Covid-19 restrictions have temporarily halted production at major semiconductor foundry HeJian Technology Corp, owned by Taiwanese chip maker UMC    The lockdown in Suzhou reflects China’s steadfast commitment to its zero-tolerance approach to the coronavirus pandemic

Xi Jinping intervention raises threat of ‘more draconian’ Hong Kong Covid measures
China’s president Xi Jinping has told Hong Kong to “take all necessary steps” to contain the city’s biggest coronavirus wave in a rare directive that analysts believe could pave the way for more stringent measures in the Asian financial hub. Chinese government-controlled newspapers in Hong Kong ran Xi’s remarks on their front pages on Wednesday, saying the Chinese leader stressed that the city should “mobilise all possible forces and resources” to protect the health of residents and maintain social stability. Controlling the spiralling outbreak of the Omicron variant, Xi added, should take “priority over everything else” . “[The city must] take every necessary action to ensure the safety and health of Hong Kong residents, ” the newspapers quoted Xi as saying. The comments were made just days after Hong Kong officials met their mainland counterparts over the weekend to devise plans to achieve zeroCovid in the territory

Coronavirus: Hong Kong hotel firms, Carrie Lam to discuss arrangement of another 10,000 rooms for isolation use
Builders and hotel owners that are part of industry group Reda are expected to have an online meeting with Chief Executive Carrie Lam Cheng Yuet-ngor on Wednesday   As citizens, we need to help, says Reda executive

Chinese Children at Risk of Heart Disease, Study Warns
A lack of physical exercise and poor diets during formative years could elevate the risk of the country’s youth developing cardiovascular diseases in the future.

This Is South Korea’s K-pop Soft Power Moment
K-pop offers something different to the nationalism projected by China and the territorial politics of exclusion.

China’s Bean Town: How Shanghai Brewed Up a Cafe Craze
Shanghai’s love for coffee began nearly 200 years ago. It never stopped.

Alain Gillard
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