Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – February 21, 2022

China’s industrial subsidies: what are they and why are they a source of tension with the West?
Subsidies are widely used by different levels of government in China to aid economic development, but they are a long-standing source of tension with the West. Beijing has defended its subsidy policies, a legacy from its days as a planned economy, saying the issue is being used to block China’s development

Revising down our China GDP forecast
We are revising down China’s GDP forecast as monetary and fiscal policy is insufficient to make up for shortfalls elsewhere – consumption is lacking a growth driver.

China’s Great Economic Weakness
China’s economic system, especially as recently hardened under Premier Xi Jinping, has three salient characteristics: The first is how Beijing controls every major aspect of economic development and direction through large-scale interventions frequently through massive state-owned enterprises (SOEs). The second is a seeming openness to foreign investments but only so long as they serve the developmental goals identified by Beijing’s planners. The third element is how the first two. But for all the awe China’s approach creates, it is at base less efficient than it seems and often extremely wasteful. The problem is that not even China’s planners can see the future. They choose directions that seem highly appropriate on the morning when they are announced – artificial intelligence, for instance, or electric vehicles. And such common mistakes are the root of evident waste. The Evergrande fiasco is a case in point. Of course market economies have no special ability to see the future either. China’s openness to foreign investors would seem to be a way for its system to coopt the advantages of more diverse market economies. Especially coupled with Beijing’s insistence that foreign investors share their technologies and business secrets with a Chinese partner, the approach does open China to others’ innovations. But such coercive technology transfers also ensure that China at best will be taking today’s and more likely yesterday’s technology, both of which, given the speed at which technology changes, will soon be superseded by something new. This reliance on copying or what is effectively theft is the “innovative” approach of a less developed economy. None of this is to discount what China has accomplished in the past few decades. Nor is there any attempt here to ignore China’s apparent strengths and advantages, especially its jewel, China’s large, intelligent, well-educated, and disciplined population. It also has natural and geographic resources and an impressive national spirit. But recognizing all this should not blind people – Chinese and foreign alike – to the weaknesses implicit in China’s centralized, top-down directed system or the dangers to China implicit in Premier Xi’s seeming determination to harden it.

China’s Provinces Brace for Weak Revenues in Hit to Economy
China’s provincial governments are bracing for a tough year, predicting income growth from taxes will slow and land sale revenue will fall, putting them under severe fiscal pressure as they try to spend more to support a faltering economy. Some local authorities are predicting their general revenue this year will be significantly weaker than an expected national economic growth target of at least 5%, according to an analysis of budget reports released by 30 of China’s 31 provinces. In addition, the housing market slump will likely continue to take a toll on income from land sales in large swathes of the country, with the wealthiest provinces among the worst hit. The income drop will complicate China’s plan to drive economic growth with infrastructure investment this year, and it means local authorities will have to borrow more to help fund new projects, exacerbating the debt burden that they are keen to shrink. Susan Chu, senior director at S&P Global Ratings, was cautious about expectations for a large boost to economic growth from government investment in infrastructure. Even though the authorities repeatedly emphasized infrastructure investment in their reports in the past two years, their actual spending and deficits were not as high as people had expected as expenditure has been “subject to increasing scrutiny,” she said. “Unless the economic situation gets worse than in 2020, I don’t think fiscal deficits will be more aggressive than what we saw two years ago,” she said. “The central government wants economic growth — it also wants systemic stability and financial risks in check.” However, the government still has about 2.5 trillion yuan in money left over from last year to help fund spending, according to an estimate by Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “Even if this year’s debt issuance size stays unchanged from last year or a bit lower, fiscal spending can still maintain rather fast growth,” he said.

US-China trade: as barriers remain to a trade solution, analysts stress need to get on the same page
Trying to impose one’s economic will on another country will get them nowhere, experts say. In the end, they say, both sides will do what they feel is best for their country and people.

Is China’s health care industry the next regulatory flashpoint under Biden’s administration?
Administrative decisions on WuXi Biologics, Innovent Biologics and other Chinese firms have knocked at least US$9.8 billion from their market value. China contributed 6 per cent to the number of new drugs launched worldwide in 2020, trailing the US with 67.6 per cent and Japan’s 13.3 per cent.

Don’t ignore supply shortages, rising costs or the tectonic economic shifts behind them
The underlying structural issues and their effects promise to disrupt everything from inflation and stock prices to wages and taxes for a long time. Yet many policymakers prefer to take refuge in the fiction that cyclical factors and the pandemic are the culprits. Unless we are going to descend into a third world war (not impossible given the rapid rise in Russo-US and Sino-US tensions when civil economics is forced to take a back seat to priorities), leaders should be focusing laserlike on what lies behind supply shortages. Supply shortages have been a major factor behind inflation and here, too, the “ignore and it will go away” syndrome prevailed initially. Central banks are now gearing up – the US Federal Reserve among the most aggressive – to fight inflation with interest rate increases but the cost of the cure might be worse than the disease if tightening triggers a financial collapse. The global economy is in a bind and instead of looking closely at the structural problems that underlie this, many policymakers prefer to take refuge in the fiction that cyclical factors and the pandemic are the culprits. Worse, they seemingly wish to rattle sabres against created “enemies” rather than acknowledge the need for concerted remedial action. The “adults” in the room are behaving like children.

It’s not just the economy, stupid
President Bill Clinton’s successful 1992 campaign against George H W Bush. The upshot is that the old line isn’t holding as true as in the past. I suspect if Carville was on Biden’s team today, he might come up with a different phrase for the next election cycle: “It’s geopolitics, stupid.” As has been apparent for a couple of years now, the world is changing — and the change isn’t going to stop when the pandemic is finally over. That’s because Covid-19 is a scrim that has been lifted up over the new realities of the post-neoliberal world, one in which politics, not just “efficient” markets, matter. This shift is for all sorts of reasons. One is politics — witness China becoming a more inwardly focused “dual circulation” economy as well as its growing use of supply chains as political leverage in places like Lithuania and Germany. Another is a result of shifts in wage and energy arbitrage — there’s just no point in shipping low-margin products such as furniture or textiles all over the world. A third is due to a push for higher environmental, social and governance standards. All point to the conclusion that regionalisation, not globalisation, is the future. That will mean a profound change in how business operates, though the largest and most powerful multinational companies are desperately trying to buck this trend and pretend they can be apolitical. Electric vehicle group Tesla is continuing its push into China despite concerns about human rights abuses in Xinjiang. Tech giant Apple has compromised on privacy under pressure from Beijing.

Asia’s business news agenda in 2022
For Asian business news and trends, 2021 was a complicated year of recovery, surprises, and setbacks. As the world prepares for the next normal, what else will change and how must we adapt?

China hits back at ‘irresponsible’ US report labelling it top market for fake and pirated goods
The US named six online and nine bricks-and-mortar Chinese platforms in its 2021 Review of Notorious Markets for Counterfeiting and Piracy. China ranked 12th on 2021 Global Innovation Index, commerce ministry points out in calling for an objective approach from the US.

EU loses patience on patents with China
Huawei may be in decline, but other leading Chinese handset makers — Xiaomi, Oppo, Vivo, Realme and Honor — are becoming significant forces behind Apple and Samsung in smartphone shipments, with a major presence expected at Mobile World Congress in Barcelona at the end of the month. But according to the EU, they are enjoying huge cost advantages because of Chinese courts pricing patent licences at half the levels paid in the west.

Chinese-Danish study takes CO2 a step closer to raw material for carbon neutral push
Electrochemical reduction could enable the capture, storage and use of carbon dioxide, helping countries to push towards net-zero emissions. Study sheds light on process that turns greenhouse gases into chemicals and fuels. “The idea of taking CO2 with electricity, which we can get from wind turbines or solar cells, is to have a sustainable way to produce plastics and other products that we use that have carbon in them,” Seger said. To achieve that, carbon dioxide must be converted to carbon monoxide using an efficient catalyst, he added. However, the reaction mechanism is not well understood, which the Chinese-Danish study sought to address. “We expect this finding to provide guidance for improving electrochemical reduction of CO2,” the study concluded. State-run Science Daily quoted Deng Wanyu, lead author of the study and a PhD student at Tianjin University, as saying “the results provide new insights into the reaction mechanism”. Seger said that the project could lead to real-world applications. “One direction is we are trying to scale this stuff up,” he said. “We understand this [mechanism]. Can we make a device that we can sell to the companies using the knowledge we gain?” The technology was starting to move beyond the laboratories into the hands of small start-up companies, he added. In 2020, German speciality chemicals firm Evonik, along with Siemens Energy, commissioned a pilot plant that used carbon dioxide and water to produce chemicals. The German Federal Ministry of Education and Research contributed funding. Green power was used to turn CO2 and water into a gas consisting of carbon monoxide and hydrogen, which was then converted into chemicals such as hexanol and butanol, according to Siemens Energy.

British sports car marque Lotus eyes IPO as it seeks to extend Chinese parent Geely’s EV empire
British carmaker hopes to float shares in two years. Company has ambitions of selling 100,000 vehicles globally in 2028, an about 60-fold increase over last year.

China plans to feed 80 million people with ‘seawater rice’
New salt-tolerant rice strains have been developed by Chinese scientists in the hope of ensuring food security that’s been threatened by rising sea levels. Test fields in Tianjin recorded a yield of 4.6 metric tons per acre last year, higher than the national average for production of standard rice varieties.

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