Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – January 27, 2022

Here’s why Morgan Stanley is cutting its forecast for China’s first quarter GDP
The economic costs of China’s zero-Covid policy is increasingly expected to outweigh its benefits, according to investment bank Morgan Stanley.  The bank has now cut its forecast for the first quarter GDP to 4.5%.  “At this point, we think investors are still being too bullish with their expectation about corporate earnings,” said Laura Wang, chief China equity strategist at the firm.

China’s 2022 Economic Outlook Based on GDP and Economic Indicators from 2021
China’s economic outlook for 2022 will depend on exports performance, pace of recovery of the property industry, and whether domestic consumption can rebound. China’s economy is mainly driven by exports and industrial production and its services sector, domestic consumption, and investment have not yet fully recovered. Latest economic data from 2021 show that the country is facing mounting downward pressures, mainly due to a property downturn, shrinking demand, and diminished support from exports. The Chinese real estate sector continues to struggle under the government’s deleveraging efforts. COVID-19 and sluggish household income growth are weighing on consumption. Exports performed strong in 2021 but started to show signs of a slowdown in Q4.

pdf : China’s Economy at a Glance – January 2022
China enters 2022 with relatively weak momentum and considerable uncertainty: • China’s economy grew by 8.1% in 2021 – marginally stronger than our forecast of 8.0%. By quarter, year-on-year growth peaked in Q1 at double digit rates (driven by base effects related to the initial COVID-19 outbreak) before trending lower over subsequent quarters. • The outlook for China’s economy has considerable uncertainty – particularly related to the impact of the Omicron variant of COVID-19 and the policy responses (including public health, fiscal and monetary policies) of authorities.

U.S. and China Rush in Opposite Directions to Save the Global Economy
The People’s Bank of China’s newfound autonomy may prove to be an unlikely source of support for the recovery. The firebreak between mounting economic threats and a continuation in the global recovery: an imposing concrete and glass structure in the heart of Beijing’s financial district, elephant statues guarding the door, the Chinese flag flying above. That’s the headquarters of the People’s Bank of China which, in contrast with the U.S. Federal Reserve, has shifted to stimulus mode to shield the world’s biggest growth engine from the Evergrande property slump, virus lockdowns and higher global borrowing costs as the Fed tightens. Tasked with staving off destabilizing unemployment and a debt implosion, Governor Yi Gang’s PBOC has a newfound autonomy unthinkable a decade ago that may prove crucial in keeping China’s expansion humming above 5% this year. Diverging PBOC and Fed policies reflect diverging trajectories for the Chinese and U.S. economies.  In the U.S., the combination of high energy and food prices, supply shortages, and rising rents has pushed the consumer price index to 7% year on year. Markets now view a first Fed rate hike in March as close to a certainty, with the hawkish tone from Chair Jerome Powell at the January FOMC press conference confirming the view. Bloomberg Economics forecasts four more over the course of the year, as well as a speedy start to running assets off the bloated balance sheet. The PBOC is moving in the opposite direction. Its 10-basis point cut in borrowing costs last week and a pledge to use additional tools was a clear signal that the priority has shifted away from reining in financial risks and toward supporting growth.. For the central bank, the best chance of steering a path away from such dire scenarios lies in harvesting the fruits of past reforms.  It’s an idea from the academy that — from former Governor Zhou Xiaochuan to his successor Yi — has held an enduring fascination for top PBOC officials: the impossible trilemma. That’s the theory that an economy can’t control its exchange rate, open to cross-border capital flows and set its own interest rates at the same time — it must pick two of the three. In 2002, when Zhou took over at the helm of the central bank, China’s yuan was pegged to the dollar. The capital account was closed in theory, but in practice it was easy to dodge controls and move funds in and out of the country. As a result, the PBOC found itself on the horns of the trilemma, with limited monetary policy independence. Set interest rates too high relative to the Fed, and there would be massive capital inflows. Too low, and capital would flow out.With the yuan undervalued, interest rates confined within a narrow range, and crude credit quotas the main instrument for managing the ups and downs, the economy ran hot and asset prices soared. The seeds of later problems — like the Evergrande property bubble — were sown.

China tells US ‘stop looking for excuses’, correct trade wrongdoings after WTO ruling
The World Trade Organization authorised Beijing to impose compensatory tariffs against the US following a decade-long case centred on alleged subsidies    China went to the WTO in 2012 to challenge anti-subsidy tariffs the US imposed on 22 Chinese products from solar panels to steel wire between 2008-12   The United States should take immediate action to correct wrongdoing in trade practices against China, the commerce ministry in Beijing said on Thursday, after a World Trade Organization (WTO) ruling that let China impose tariffs on US goods.      “The deeply disappointing decision by the WTO arbitrator reflects erroneous Appellate Body interpretations that damage the ability of WTO members to defend our workers and businesses from China’s trade-distorting subsidies,” Adam Hodge, spokesman for the US Trade Representative’s Office, said in a statement.  China had initially asked the three-person WTO panel to award it the right to impose tariffs on US$2.4 billion of US goods.  The actual award is dwarfed by US tariffs on more than US$300 billion of Chinese goods imposed by former US president Donald Trump, most of which are still in place. However, the ruling is another symbolic victory for Beijing at the Geneva-based trade body. In November 2019, the WTO awarded China the right to retaliatory tariffs of US$3.58 billion after finding fault with the way Washington determined whether Chinese products are being dumped on the US market.

EU challenges China over ‘discriminatory trade practices against Lithuania’
Brussels says it will launch a World Trade Organization (WTO) case to challenge China’s alleged “discriminatory trade practices against Lithuania”.  The European Commission said China’s trade practices were harming Lithuanian exporters and touching other exports from the EU’s single market. “Launching a WTO case is not a step we take lightly,” said European trade commissioner Valdis Dombrovskis in a statement.

EU launches WTO case against China over Lithuania embargo, as row over Taiwan office continues
Brussels says it has ample evidence of China blocking Lithuanian and other European exporters from its market    Responding to the filing, China said Brussels should be ‘wary of Lithuania’s attempt to kidnap China-EU relations’

Climate Change: China’s new wind and solar capacity makes up over half the power industry total as nation seeks to cut carbon footprint
Wind and solar farms accounted for more than half of the new power capacity added in mainland China last year, official figures show    Generating more low-carbon energy is one of the pillars of Beijing’s strategy to decarbonise its economy

China’s industrial firms see profits grow at slowest pace since April 2020
Profits rose by 4.2 per cent year-on-year in December, the slowest rate since April 2020, to 734.2 billion yuan (US$116 billion), compared with a 9 per cent gain in November     For 2021, industrial firms’ profits rose by a whopping 34.3 per cent year-on-year to 8.7 trillion yuan (US$1.38 trillion)

‘Ice-breaking spirit’ advances China-UK ties
President Xi Jinping has urged farsighted businesspeople from China and the United Kingdom to uphold the “ice-breaking spirit”, and keep expanding mutually beneficial cooperation between the two countries to help promote bilateral ties.    Xi made the remark in a congratulatory message delivered to the “Icebreakers” 2022 Chinese New Year Online Celebration hosted by the 48 Group Club, a London-based nonprofit organization dedicated to promoting trade between China and the UK, on Wednesday. The event was supported by the China Chamber of Commerce in the UK, and the China-Britain Business Council.

China’s online retail sales of physical goods topped 10 tln yuan in 2021
China’s online retail sales of physical goods exceeded the 10-trillion-yuan (1.58 trillion U.S. dollars) threshold to hit 10.8 trillion yuan in 2021, the Ministry of Commerce (MOC) said on Thursday.   In 2021, China’s online retail sales reached 13.1 trillion yuan, MOC spokesperson Gao Feng told a press briefing.  Online retail sales of physical goods accounted for 24.5 percent of total retail sales of consumer goods and contributed 23.6 percent of the growth of retail sales of consumer goods in 2021, Gao said.  He added that the steadily growing online retail market has become an important force keeping growth, employment and consumption stable.  China’s consumption market saw an upgrading trend last year, with healthy, green and high-quality goods increasingly favored by consumers, Gao said. Data shows that sales of smart home devices surged 90.5 percent year on year in 2021, and sales of organic vegetables skyrocketed 127.6 percent year on year.

China’s luxury spending hit $73.6 billion in 2021, on track to be the world’s No.1 luxury market by 2025
China has logged a new height of luxury consumption, with more than 471 billion RMB ($74.2 billion) spent on luxury goods in 2021, a 36% rise from the year before, and almost double compared to that of 2019, as according to the latest China Luxury Report revealed by Bain & Company earlier in January. This is a strong growth despite continuous disruptions from the ongoing pandemic, showing the resilience of the Chinese luxury market and keeping the country on track to be the world’s largest luxury market by 2025; casting further eyes on what is already a booming luxury economy.Brands saw a varied performance in 2021, with growth rates ranging from 10% to 70%, but importantly most of them were able to improve upon the previous years and so did categories of luxury products. Leather goods were the fastest-growing, with a year-on-year growth rate at about 60%, followed by fashion products (up by 40%) and jewellery (35%).

Want to Buy a House in a Big Chinese City? Try Winning the Lottery First
A short supply of new houses has would-be buyers struggling to find developers willing to take their money.  A decades-long real estate boom has made property in China’s cities hugely expensive, and has prompted fears of a bubble. Despite years of effort to control the market, which has pushed some debt-ridden developers close to failure, Shanghai property prices soared in 2020, with prices in central districts jumping 8 percent in a year.  The local government responded with price caps: A new house in a good location can cost no more than 80,000 yuan ($12,600) per square meter, while in the same area on the resale market, houses can cost more than 100,000 yuan per square meter. Sales must be approved by the local government, which limits the rate at which houses go onto the market.

How China’s New Lifestyle Trends Will Affect Luxury in 2022
What new lifestyles are young Chinese choosing? And more importantly, do they offer luxury brands a new path for their future marketing plans in China?  Long hours of working and staying indoors (due to the pandemic) have made people yearn for fresh air. But when people started going outdoors again, they wanted to participate in active hobbies like camping, paddle boarding, and ultimate frisbee. In 2021, posts about living an outdoorsy life on Xiaohongshu increased by around five times, year-on-year. This trend continued offline at the 2021 International Trade Show for Sports Equipment and Fashion Shanghai, with the camping section of the show expanding by ten times that of the previous year. In terms of market size and consumer discussion frequency, outdoor activities have increasingly become a way to deal with post-pandemic life and have been welcomed in China.  Urban outdoor activities like skiing and camping are becoming an attractive way for young generations to spend their leisure time, and luxury brands can leverage this new lifestyle by enriching the outdoor product lines for a supplementary source of revenue.

Why ecommerce livestreaming will survive Beijing’s crackdowns
China’s ecommerce livestreaming industry is now a mainstay in Chinese consumers’ lives. But the government’s latest scourge against celebrity influencers has thrown the booming ecosystem into uncharted territory.

Evergrande aims to unveil debt restructuring in six months’ time after bond defaults as creditors begin to lose patience
Evergrande says it ‘will continue to listen carefully to the opinions and suggestions of the creditors’ and will formulate a preliminary restructuring plan    Company tells investors on a call that it will treat onshore and offshore bondholders equally

What’s On the Cards for Retailers in 2022? Consumers Demand Work-Life Balance
Our series on the consumer tribes reshaping retail continues with The Great Life Refresh  24% of consumers prioritized time for themselves last year vs 12% in 2015, says Euromonitor

EV battery maker LG Energy Solution becomes South Korea’s second most valuable firm in IPO debut
The world’s second-largest EV battery maker after Chinese CATL raised 12.8 trillion KRW ($10.8 billion), valued the company at $59 billion, last week in South Korea’s largest IPO.  LG Energy has approximately 23% of the global EV battery market with customers including Tesla, General Motors, and Volkswagen, according to a sector analyst. In comparison, China’s CATL topped with about 35% market share. The analyst also noted that Japan’s Panasonic and Chinese BYD account for roughly 13% and 7% share, respectively.

Tencent vows to improve work-life balance after fresh 996 criticism over a worker’s 20-hour shift
Tencent managers thanked an employee for raising awareness of work-life balance issues after he lambasted them for praising a colleague’s excessive schedule    The employee’s account of the event online sparked new discussions about the tech sector’s notorious 996 work culture that has drawn scrutiny in recent years

RCEP starts golden era for SMEs in Zhejiang province
With the implementation of the Regional Comprehensive Economic Partnership agreement on Jan 1, numerous development opportunities at home and abroad await small and medium-sized enterprises in East China’s Zhejiang province.   With the world’s largest small-commodities supermarket, Zhejiang’s Yiwu is expected to provide a more convenient and broader market for trade by enterprises, as RCEP promotes regional and multilateral trade integration.   Wada Taro, general manager of Yiwu Goldbach Trading Company Ltd, said his company was among the first to enjoy RCEP benefits as a recent batch of clothing, valued at $76,000, was shipped to Japan and enjoyed 3,000 yuan ($473.1) in tariff reductions and exemptions since the company received the first RCEP certificate of origin issued by the Yiwu Council for the Promotion of International Trade.

How the ‘Metaverse’ Could Become China’s Next Bubble
The government finally cracked down on the property bubble. Now investors are speculating on virtual land.

Chinese Big Tech firms led by Tencent, Baidu among world’s top-ranked filers of VR, AR patent applications as metaverse interest surges
Tencent filed a total of 4,085 virtual reality and augmented reality patent applications in 2020 and 2021, ranking second in the world behind Samsung   Baidu took the No 3 spot with 3,094 VR and AR patent applications in the past two years

China debt: Beijing offers support to indebted Guizhou to ensure cash flow, boost investor confidence
Guizhou in southwest China has struggled to raise funds in recent years in capital markets as a result of its deteriorating credit profile    Guizhou is reported to have defaulted on at least 68 debt products since 2018, which is the most of all of China’s 31 provinces

US chipmaker shuts down Shanghai team
Micron Technology, a US computer chip maker, plans to close down its DRAM design team in Shanghai by late 2022, reports Caixin. The decision has been made after several of Micron’s Shanghai engineering team members were poached by domestic competitors, and will serve as a precautionary measure to prevent technology leaks to competitors. Micron is not the first US chip company to scale back its research and development teams in China. US chip designer Advanced Micro Devices has also said it plans to downsize its Shanghai research center, prompting some employees to leave the company.  The exodus is being accelerated by a wave of investment in the domestic chip industry under Beijing’s “Made in China 2025” plan, which aims to upgrade China’s manufacturing to be more globally competitive, especially in high value-added sectors like microchips. Many US companies haven’t signed noncompete agreements with Chinese employees, making it easy for Chinese competitors to poach talent, industry participants said.

Crazy rich Asians: Young and focused on education but less generous than their North American and European peers, survey finds
The region’s super-wealthy trail their peers when it comes to parting with their money for a good cause, a survey by Wealth-X suggests     Their younger average age and a less developed not-for-profit sector may help explain the discrepancy

Japan and South Korea lead declines across Asia-Pacific as investors digest Fed remarks
Asia-Pacific markets declined on Thursday as investors digest an overnight update from the U.S. Federal Reserve.  The Federal Open Market Committee said a quarter-percentage point increase to its benchmark short-term borrowing rate is likely forthcoming.   Inflation stateside is running at its hottest level in nearly 40 years.

Hong Kong stocks sink as Alibaba hits record-low amid price downgrades, Fed concerns while city battles Covid-19 outbreaks
More than 20 analysts have trimmed their price targets for e-commerce group over the past month, including at least three this week, according to Bloomberg data      Goldman Sachs downgrades Alibaba Health to neutral from buy as stock declines by almost 10 per cent this year

China urged to enhance security, economic ties in Eurasia as tensions with West grow
President Xi Jinping on Tuesday pledged US$500 million in aid and 50 million Covid-19 vaccine doses to Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan   Analysts say China can ‘shape’ the security environment on its northwestern frontier and bolster economic influence with closer ties to the five nations

As the UK opens up, other major economies will follow the path to post-pandemic normality
The Omicron wave is likely to peak soon, and as more people are vaccinated, life might finally be returning to normal, albeit with adjustments   Most importantly, social restrictions including those on travel will gradually be lifted, with massive positive knock-on effects on economies

House Republicans bash Democrats’ China competition bill
The bid by House Democrats to win Republican support for sweeping legislation to counter China’s economic influence has quickly fallen flat, as GOP lawmakers wasted no time panning the proposal as a partisan creation cobbled together by Speaker Nancy Pelosi (D-Calif.). Introduced Tuesday evening, the massive package is designed to boost U.S. innovation, promote the domestic production of scarce computer chips and thaw the supply chain freeze that’s led to skyrocketing inflation.

China coking coal imports down 25 per cent due to Australia, Mongolia ‘gap’ caused by unofficial ban, border closure
China imported 54.7 million tonnes of coking coal – an essential ingredient in the production of steel – last year, down by 24.6 per cent from 2020    China only started to allow Australian coking and thermal coal that had been stranded at its ports due to an unofficial ban to be imported in the final three months of 2021

Lifting travel ban would be ‘catastrophic’ for China: Covid-19 expert
Epidemiologist and senior adviser to Beijing, Zeng Guang, says the country must not ‘blindly’ follow a WHO recommendation to ease restrictions    He recommends preparing the public psychologically for reopening once vaccination coverage in China is sufficiently high

Covid cases fall in Beijing, but rise at Games
Beijing has limited the movement of people in more parts of the capital, even as it reported fewer Covid-19 cases on Thursday, in a bid to lower virus risk just over a week before the opening of the 2022 Winter Olympics.    Beijing’s Fengtai district said late on Wednesday residents in more areas should not leave their residential compounds for unnecessary reasons and must have a daily Covid test. The district, which has reported more local virus cases than other districts in the current outbreak in Beijing, had already locked down some residential compounds, impacting tens of thousands of people.

Hong Kong’s Contested Academic Freedom
While outright censorship is still rare, subtler forms of control and coercion have severely restricted academic freedom in Hong Kong.   But in today’s Hong Kong, open resistance, whether by university administrators or faculty members, is futile. University leaders risk their own livelihood and the remaining degree of a university’s institutional autonomy if they do not suppress academic freedom in critical moments, such as when the central government’s media outlets in Hong Kong go on a rampage. The only choice is to exit or to lie low and collaborate. The presidents of three of Hong Kong’s eight universities have chosen to exit, HKUST’s president even before his contract ended. In the case of City University’s president, a council member reportedly said that the next president would have to be a Chinese national deemed “loyal to Beijing”; foreigners or those with ties to Taiwan or the United States would not be considered.

How to Navigate the Ethical Risks of Doing Business in China
Xi Jinping’s China is different than the country companies dealt with in the 1990s and 2000s. China’s size, state capacity, and specific policies create unique ethical risks; companies can inadvertently become involved in human rights violations or military… For decades, companies have poured into China to take advantage of the country’s manufacturing prowess and to serve its enormous market. While firms were largely aware of potential business risks, like intellectual property theft and the need to navigate corruption, executives have been less concerned about risks to their firms’ ethics and reputation. But in recent years the situation has changed dramatically, and companies such as Google, Disney, and the NBA have to steer through a much more perilous, and in some cases impassable, ethical landscape. There are two factors that are driving this changing context. First, instead of becoming more democratic as the country grew richer, the Chinese party-state has grown increasingly repressive. And second, instead of becoming a responsible member of the liberal international order, This has created an unprecedented dilemma. China is America’s largest supplier of imports. American businesses have invested over $275 billion in the country since 1990. And investor holdings of Chinese equities and bonds are steadily rising. For the moment, most companies navigate the challenges of operating in China on an ad-hoc, per issue basis. Google, for example, pulled out of the country in 2010 over censorship concerns. Yet it later founded an AI research center in Beijing and worked on a censored Chinese search engine, code-named “Dragonfly,” which it was forced to suspend after outraged employees protested in 2018. This ad-hoc approach only increases the risks companies face. Right now, Western companies need a clear set of principles to guide their actions and limit ethical risks. Just like other risk-management schemes, these principles should answer complex questions — recognizing that complex political-economic dynamics, ethical blind spots, investment implications, and personnel considerations at play. Despite growing commitment to business ethics and corporate social responsibility — including environmental, social, and governance (ESG) standards — there is little public discussion among Western companies about the ethics of operating in China.  Doing business in China ethically is likely to get harder and harder going forward given Xi Jinping’s expanding mandate and agenda. Executives should utilize the five principles above and remember, as George Magnus, former chief economist at UBS, writes, “As a more restrictive regulatory and governance system is brought to bear on everything from Chinese schools and universities to companies, media and entertainment, and often abruptly and without recourse to appeal, investors in Chinese assets will have to weigh the risks more carefully.”   All of this suggests that the narrative on China ought to change among executives. Too many companies are operating as if it is still 2005 — as if the market was full of rich pickings, the government was increasing people’s freedoms, and doing business in the country did not pose so many moral questions.

Why China cares about the label of democracy
If you access any Chinese state media or pro-state social media published in late 2021, you will be bombarded with attacks on US President Joe Biden’s ‘Summit for Democracy’ and relentless insistence that China is the world’s largest democracy. Beyond the fear of geopolitical containment, it is puzzling why China cared about Biden’s democracy summit.   Despite skepticism aboard, China’s endeavour to redefine democracy in its image has a receptive audience domestically. As long as enough of the Chinese public recognise their country as a ‘democracy’, there is no urgency for Chinese leaders to seek out risky alternative concepts of legitimisation.   While it remains advantageous for China to cling to the label of democracy in the short term, China’s claim to the label is risky. It is difficult for Beijing to redefine democracy in its own image internationally. And claiming to be a democracy makes China’s political system more vulnerable to Western critiques. By clinging to the democratic label, China risks falling into the rhetorical trap of having to keep defending how democratic it is.  Unless the Chinese state offers official backing to an alternative theory of legitimacy for its political system and provides more space for political theory and alternative discourses within China to flourish, it is unlikely that China can escape this rhetorical trap anytime soon.

Analysis: If Xi secures just 5 more years, he loses
The leader can only maintain grip if subordinates feel he’ll stay    The show touts the anti-corruption campaign as the Xi administration’s biggest achievement and warns that the Xi administration will tighten its political stranglehold in the run-up to the national congress.  The successful fight against corruption is about Xi’s only achievement. And with the Chinese economy slumping, Xi has no choice but to barrel ahead with his signature campaign to take down enemies.   If the administration succeeds again, Xi will be able to not only secure another five-year term but also have the power to name the new lineup of the Politburo Standing Committee in a way that is favorable to himself.   If people feel Xi will reign as China’s top leader for at least another 10 years, or even for life, he can avoid becoming a lame duck.   In the summer of 2017, shortly before the party’s last national congress, Sun Zhengcai, then the top official of Chongqing and a Politburo member, was abruptly purged. He had been tipped as the front-runner in the race to someday step into Xi’s shoes.   There is a good chance that another influential figure will be purged this year.

Xi Seeks to Quell Internal Rebellion
Faction of former top Chinese cop threatening Xi   A faction linked to a disgraced former senior Chinese police official is posing such a serious threat to Chinese President Xi Jinping that China’s Ministry of Public Security has formed a team to crush it. This faction may possibly be attempting a coup against Xi, judging by the urgency with which the Public Security Ministry is seeking to nip this rebellion.  The documentary left out a crucial piece, where Sun once served as secretary to Meng Jianzhu after the latter became the Minister of Public Security in 2007, wrote Wang Xiangwei in a South China Morning Post column on January 22. Sun’s career and influence grew fastest between 2012 and 2017 when Meng was China’s highest-ranking official in charge of law and order, added Wang, a former chief editor of the Hong Kong newspaper.    Over the past few years, Xi removed four vice ministers of Public Security including Sun, said the professor. “But there is suspicion that cadres higher up the political security chain of command and the Shanghai Faction might be the real masterminds.”  Several sources in mainland China refused to comment on the political situation in Beijing. They are too scared to speak because the current situation is volatile and something dramatic may happen in the near future, the risk consultant explained

Alain Gillard
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