Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – January 7, 2022

Is China decoupling from the global economy? Evidence shows otherwise
The divergence of China’s economic policies and performance from the rest of the world, particularly the West, has fed the decoupling narrative. But global trade and investment flows show the opposite is happening – foreign businesses and funds remain highly invested in Chinese markets.

Beijing’s ‘re-innovation’ strategy is key element of U.S.-China competition
It wasn’t long ago that many U.S. government officials and China experts still clung to the idea that Chinese innovation was mostly based on copying U.S. methods and technology. To some extent, they weren’t entirely wrong. As the analyst Arthur Kroeber argues in China’s Economy, Chinese firms are good at “adaptive innovation”—the concept of “taking existing products, services, or processes and modifying them to make them more receptive to China’s economic and military needs.” So when China’s People’s Liberation Army unveiled its J-20 stealth fighter in 2011, it caused an uproar in U.S. defense circles because of its similarity to American equivalents and seemed to confirm the perception of China as reliant on copying the work of others. Indeed, whether by theft or forced transfer, the acquisition of foreign intellectual property has served as a key component of China’s technological forward march.

China’s zero-Covid policy under renewed scrutiny as economic challenges mount
While the strict disease prevention strategy proved a success early in the pandemic, economic risks are growing and so is public dissatisfaction      The policy will further weigh on consumption and economic growth, and may prove ineffective in containing a more transmissible virus variant, economists say

China’s Economy Is in for More Pain as Virus Cases Persist
China’s strict Covid strategy is set to inflict more economic pain, potentially curbing consumer spending and disrupting production and shipping as virus outbreaks persist, economists say. 
The zero-tolerance policy on Covid-19 means any cases will be met with strong containment measures that stifle consumer spending, Bloomberg Economics said in a report Friday. Retail sales growth could weaken to as low as 3.7% this year from an estimated 13% in 2021 if there are more flare ups, economists Chang Shu and Eric Zhu estimate. China’s strict virus containment strategy is already threating to cut a portion of the world’s computer memory production capacity given that Xi’an is one of the major production bases globally, Bank of America Global Research economists wrote in a Thursday report. They estimate a potential 5% impact on global memory volume if the Xi’an lock-down is extended to March, leading to possible supply shortages. Raymond Yeung and Zhaopeng Xing wrote in a Thursday report that the Ningbo outbreak could once again disrupt logistics at the world’s third-busiest port. Delays and backlogs at the port exacerbate the inflation in shipping costs as well as exert pressure on export volumes, they wrote. “The current coronavirus resurgence presents large downside risks to China’s economic recovery due to stricter containment measures amid the government’s zero-tolerance approach,” they said.

podcast : Common prosperity means closer alignment with CCP goals for private companies, with Isabella Weber and Jacob Gunter
With the concept of “common prosperity” set as a key goal of the Communist Party, China’s economic model seems to be heading for a big shift in the coming years. Already Beijing is introducing policies aimed at aligning the market with thwe Chinese Communist Party’s ideology and broader goals. Can we expect to see a shift away from the pragmatic economic state-planning of the last decades towards a more ideologically driven development? And what would that imply for the role of private companies in China?   We will discuss these questions with Isabella Weber and Jacob Gunter. Isabella Weber is the Research Leader for China of the Asian Political Economy Program at the Political Economy Research Institute and an Assistant Professor of Economics at the University of Massachusetts. She is the author of the book How China Escaped Shock Therapy: The Market Reform Debate, which was published in 2021. Jacob Gunter is a Senior Analyst focusing on China’s economy at MERICS.

Shimao’s debt woes deepen concerns over cash crunch in Chinese property
The Shanghai Stock Exchange suspended trading in several bonds of Chinese property developer Shimao, a day after the company’s failure to make a loan payment increased fears that a cash crunch will spread more widely across the country’s embattled real estate industry. Trading in three renminbi-denominated bonds from the residential developer, which unlike many of its struggling peers recently held an investment-grade credit rating, was temporarily suspended after sharp falls followed reports on Thursday of the missed payment

China’s easing of ‘three red lines’ loan rules for property sector won’t have immediate impact on struggling developers, analysts say
China plans to exclude debt raised by a developer to acquire distressed assets of another home builder when calculating their ‘three red lines’ compliance      The three red lines that define thresholds on borrowings were outlined by Beijing in August 2020

China to ease debt rules for state-led distressed M&A, source says
China will make it easier for state-backed property developers to buy up distressed assets of debt-laden private peers, a source with direct knowledge said on Friday, another step by policy-makers to avert a liquidity crisis in the sector.     State-owned developers acquiring distressed assets will not have those loans counted as debt under rules that cap borrowing. The “three red lines” policy restricts the amount of new borrowing property developers can raise each year by placing caps on their debt ratios

China’s slow motion financial crisis
For most of last year, the biggest financial story was China’s real estate debt crisis — until the collapse of Evergrande was pushed out of the cover by a global inflation panic. Still, Evergrande remains a huge and moving story. The latest sub-chapter was rolled out this week when another major Chinese developer, Shimao Group Holdings, unit defaulted on a loan from China Credit Trust Co. This year Shimao’s dollar bonds went from $ 71 to $ 48. Another developer, Guangzhou R & F Property, said it could miss repayments next week. The bond, which had already been traded at a fraction of the par, was hit hard again. If you thought all the bad news about real estate in China was priced, you were wrong. We are still looking for the bottom.

For first time, Beijing’s GDP tops 4 trillion yuan
Beijing’s annual gross domestic product exceeded 4 trillion yuan ($630 billion) for the first time in 2021, a year-on-year increase of 8.5 percent, Chen Jining, mayor of the capital, said on Thursday at the fifth session of the 15th Beijing Municipal People’s Congress.

China stock rout not just about tech crackdown as earnings model shows 70 per cent odds of sharp contraction
Earnings model shows 70 per cent chance of a significant contraction in the coming 12 months: BCA Research   Stocks may see a tactical bounce in the next two to three months on policy stimulus bets, but a legitimate improvement in fundamentals is needed for an upgrade call

China woos new digital yuan users in major push ahead of Lunar New Year, Winter Olympics
A new policy plan by China’s State Council encourages the wider adoption of e-CNY  WeChat Pay and now include the digital yuan as a payment option

Alibaba Tops Greenpeace’s Climate Action Rankings Among China E-Commerce Platforms
Alibaba Group has taken the lead among Chinese e-commerce platforms in combatting climate change, according to climate activist Greenpeace. The Hangzhou-headquartered e-commerce platform pledged in December to reach carbon neutrality by 2030 and said it would slash carbon emissions by 1.5 gigatons across its digital ecosystem by 2035.

The ‘China shock’ of trade in the 2000s reverberates in US politics and economics – and warns of the dangers for fossil fuel workers
Like the China trade shock, the decline of the coal industry in the U.S. beginning in 1980 and the Great Recession, from 2007 to 2009, were also mass layoff events.   Although local economies exposed to the Great Recession recovered their pre-recession employment rates quickly, the decline of coal and the China trade shock both gave rise to long-lasting job losses, reduced incomes, and slow population declines.  Policymakers could apply the lessons learned from this trade shock to respond effectively to the next likely mass layoff event.   As economies transition out of fossil fuels, we will continue to see job losses in the coal mining and oil industries.  Although the increased use of renewable energy is likely to generate new jobs, there is no guarantee that they will be anywhere near where the localized job losses are occurring. Hence, the prospect of large-scale, localized job losses remains. And new policies are needed to enhance employment growth in regions hurt by prolonged joblessness.   The evidence in the U.S. and Europe shows that political support for populist nationalists tends to be greater in regions that have suffered large, trade-led job losses.  If policies that promote job growth in distressed regions

China is injecting $188 billion into its economy as the Evergrande crisis comes to a head
China’s central bank is injecting $188 billion into a faltering economy to support lending.   It comes after struggling real-estate giant Evergrande said there’s “no guarantee” it can meet debt repayments.   A later statement from a meeting of China’s leaders emphasized “growth stability” as a priority.

China regulator recovers US$47 billion after audit review, warns officials to ‘keep their eyes open’
The National Audit Office recovered 304 billion yuan – some of which were used for major projects – in the first 11 months of 2021 after an audit      A Xinhua News Agency report on Thursday did not say where the funds had gone to, but added that about 23,000 cadres were reviewed as part of an audit

Tencent speeds up overseas investment with British Monzo becoming the latest beneficiary
Recently, Chinese tech giant Tencent has taken a stake in a leading online bank Monzo in the UK, as part of a $100 million top-up to its latest funding round, showing once again the efforts to which Tencent is rapidly rising on the international stage. Monzo is one of the earliest app-based retail banks that compete with traditional banks in the country. This move follows a series of overseas fintech investments that Tencent completed over the past year, including German digital bank N26, Singapore-based Tyme, and other financial management platforms.   This increased attention on the overseas market is interpreted to be a response to Beijing’s tighter anti-monopoly regulations, with Tencent seeking to gain an international foothold as well as diversify its revenue in global firms where Beijing’s new laws have minimal effect.  As a matter of fact, Tencent has been building its global investment empire over the past decade. In the first six months of 2021 alone, this tech behemoth made 34 foreign investments across several cutting-edge industries, with these not solely financial-based ventures but a mix of markets as they look to monopolise in several key areas

Alibaba China tech investment
Chinese tech giant Alibaba announced a major organizational reshuffle on Thursday with the goal of further integrating its core domestic e-commerce businesses. Why it matters: This is the first organizational reshuffle since Trudy Dai, a founding member of Alibaba, was named last December as head of the tech giant’s China Digital Commerce unit. The unit manages the company’s domestic commerce platforms such as Taobao, Tmall, Alimama, Taocaicai, and Taobao Deals, as well as its B2C retail business. The adjustment comes as Alibaba faces headwinds on multiple fronts from increasing competition, a regulatory crackdown, and a slowing economy.

Alibaba reorganises back-end operations of core Chinese online retail platforms Taobao, Tmall amid increased competition
Three new operation centres have been set up for both Taobao and Tmall, focused on platform strategies, user expansion and industrial development for merchants    This marks the first major initiative by Trudy Dai Shan, head of Alibaba’s new China digital commerce unit

Will Amazon pull Kindle out of China?
Recently, Kindle (Amazon’s E-book device and service) is rumoured to be withdrawing from the Chinese market, as some of its signature product models are out of stock. In addition, people have also noticed that Kindle’s flagship store on T-mall shut down quietly last October, further adding to the notion Amazon are either downscaling or pulling out of China altogether with this product line.
On 4 January, Amazon responded to the rumour, “we are committed to our customers in China, who can continue to purchase Kindle e-readers from offline and third-party online retailers.” Nevertheless, no explanation is given in terms of the flagship closedown and with the statement only mentioning third party purchasing it leaves consumers in the dark as to whether Amazon will offer the services themselves within the country

Fuzzy Logic: China’s Second Order Foreign Policy
China’s foreign policy specialists are struggling to satisfactorily explain China’s rise or how it is likely to behave as a prominent global leader.  In short, “international leadership with Chinese characteristics” is a model that neither satisfactorily explains China’s rise nor how it is likely to behave now that it occupies numerous leadership positions in international institutions. Its proponents identify that there can be conflicts between China’s global governance efforts and how it behaves domestically – take the case of the country’s support of liberal free trade when attending international forums and indicated by its application for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which runs counter to its more dirigiste approach to domestic economic management – but has not yet proposed viable solutions to these conflicts.   China’s second-order foreign policy wants and needs are harder to pin down than those issues where territory is up for dispute. One can speculate that this is because Beijing is not 100 percent sure what they are either. China may now be a decision-maker in global affairs, but explaining how it got there and how it can make the most of this situation will require a lot more work by Chinese scholars.

Japan-Australia defence deal could add fuel to China-US rivalry, analysts say
Agreement will ease the way for deployment of Australian and Japanese forces and is expected to herald more joint military exercises    Conditions could conspire to force more countries in the region to take sides, observer says

Global and domestic challenges clash in Taiwan
Taiwan’s international profile rose significantly in 2021, as shown by a sensationalist cover page from The Economistlabelling it ‘the most dangerous place on earth’ due to increasing Chinese pressure. The tilting of the cross-Strait balance in Beijing’s favour led to reassessments of when China could invade Taiwan and whether the United States and its allies could credibly deter it from doing so.   But Taiwan will have to weigh the impact of its heightened status in US–China strategic competition on its domestic politics.
For instance, while Taiwan was globally hailed as a success at pandemic management, this was not felt locally due to relaxed quarantine measures, testing complacency and a slow vaccine rollout. And a December referendum on banning pork imports containing the additive ractopamine on safety grounds was defeated. Yet the outcome was not based on public health concerns, but fears it could create another obstacle for Taiwan to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and block a free trade deal with the United States (which uses ractopamine).
This dilemma will impact Taiwan’s dominant role in the supply of the world’s advanced semi-conductors and perversely influence domestic policies. Taiwan’s worst drought in 50 years led to water-rationing of homes and farmlands despite a stable water supply being ensured for semi-conductor manufacturing.
Two island-wide power outages within five days created rolling blackouts to households but only a minor dip in supply to the Taiwan Semiconductor Manufacturing Company (TSMC) and no impact on other firms. A referendum on the relocation of a liquid natural gas power station stressed not environmental concerns, but the dilemma of whether Taipei could achieve net-zero emissions by 2050 while doubling the power supply to new foundries that could produce next-generation two-nanometre chips.   Despite these challenges, Taipei will need to protect its near-monopoly on this critical technology. It might deter China from a military attack, and motivate the United States and its partners to guarantee Taiwan’s independence. Concerns about ensuring supply chain resilience due to the pandemic and to ensure economic security led to the courting of TSMC to establish foundries in the United States, Japan and possibly Germany. But success in reducing supply chain vulnerability in these ways could have the unintended consequence of reducing Taiwan’s geopolitical significance.
Taiwan’s political parties will find it hard to establish bipartisan agreements that balance domestic socio-economic interests and Taiwan’s rising role in US–China competition. Whatever the outcome for Taiwan’s 2022 mayoral elections and 2024 presidential elections, any future administration will face difficult trade-offs.

The powerful Chinese megawatt laser ‘small enough for a satellite’
Chinese team says its 1.5kg pulse device is possible because of breakthroughs allowing critical components in solid state lasers to be much smaller    A laser scientist with the Chinese Academy of Sciences says the device is not a weapon – but a larger version in future could be

Chinese Foreign Minister Wang Yi visits Sri Lanka amid cash crisis, oil tank deal with India
Colombo is saddled with debt and desperately in need of money to pay for imports while grappling with Covid-19    Visit comes as Beijing seeks to balance US and Indian influence in the Indo-Pacific region during a pivotal political year for China

In China, beauty is only skin deep in the ‘micro-procedure’ craze
Lunchtime facelifts and micro-procedures are expected to be worth US$46 billion in China this year thanks to social media and other pressures to look good    The Communist Party has banned industry advertising practices adding to ‘appearance anxiety’, such as before-and-after images

Alain Gillard
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