Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – July 15, 2021

Why China is still the world’s factory, only upgraded
Despite rising costs, a US trade war and the Covid-19 outbreak, China’s resilient supply chain has prevailed and enabled its economy to move up the value chain. China remains an export powerhouse reshaping the landscape of global trade. China’s emergence as an export powerhouse also reshaped the landscape of global trade. Our study shows that developed economies – led by Japan and the US – have lost significant market share to China in the medium to highly skilled export segments.   On the flipside, China has lost market share in some low-skilled and labour-intensive sectors in recent years – due to rising wage costs – to emerging markets such as Vietnam. However, China has retained many critical supply chains locally, making it necessary for others to cooperate with it, and so allowing it expand, instead of relocating, its production network beyond its borders. This strategy has helped China to establish an inclusive and enduring production ecosystem, which may prolong its days as the “world’s factory”.

China GDP: economic growth slows to 7.9 per cent in second quarter, 12.7 per cent in first half of 2021
The economy grew by 7.9 per cent in the second quarter of 2021 compared to a year ago, while in the first half of the year, it grew by 12.7 per cent year on year    Beijing has set an economic growth target of ‘above 6 per cent’ for 2021 after it grew by 2.3 per cent last year overall

China warns of economic uncertainty despite moderate recovery in Q2
The pace of China’s economic recovery rose modestly in the second quarter after signs of sluggishness in the world’s second-biggest economy had stoked expectations of greater policy support.
On a quarter-on-quarter basis, China’s gross domestic product grew 1.3 per cent in the three months to the end of June, up from a revised 0.4 per cent expansion in the previous quarter, the National Bureau of Statistics said on Thursday. Economists had predicted quarter-on-quarter growth of 1 to 1.2 per cent, according to polls by Bloomberg and Reuters. Second quarter GDP was 7.9 per cent higher than a year earlier, compared with year-on-year growth of 18.3 per cent in the first quarter. The high growth in the first quarter reflected the halt in economic activity in early 2020 after the Covid-19 pandemic erupted in central China and forced the government to impose a nationwide lockdown.
The NBS data release comes at a tense juncture for China’s economic planners as they try to balance financial stability with growth.

China’s Big Tech sector urged to abide by Karl Marx’s ideals, do away with 996 work culture
An opinion piece by the CPPCC Daily called on Big Tech firms to get rid of their gruelling 996 culture – referring to working 12 hours a day, six days a week.      The article echoed President Xi Jinping’s speech in 2018 on how Marxism can help the country   The opinion piece marks a rare instance for the CPPCC Daily to highlight the state of labour relations in the companies run by China’s billionaire businessmen, many of whom are admitted into the Communist Party and selected as “people’s delegates”.    It also echoes President Xi Jinping’s belief on how Marxism can help China at this time. “We must continuously improve the ability to use Marxism to analyse and solve practical problems,” Xi said
The article from Ling, who had worked at the general office of the Chinese Communist Party Central Committee for more than three decades, comes amid Beijing’s increased scrutiny of the country’s technology sector, which is being called to align with national strategies and bear greater social responsibilities.   Still, there have been some efforts to correct the 996 practice.   ByteDance and Kuaishou Technology, which operate China’s two leading short video-sharing apps, recently announced the end of their gruelling overtime policy.   Meanwhile, Tencent Holdings-backed video games developer Lightning & Quantum Studio Group now encourages employees to go home at 6pm under a new policy to counter the 996 work culture.

Alibaba, Tencent move closer to cooperating in user services under Beijing’s antitrust pressure
Alibaba flagged the idea of launching a mini app for its Taobao Deals on Tencent’s WeChat, allowing merchants to use WeChat Pay       The two internet giants have built their empires via huge investments into various industries such as education, on-demand services and entertainment     The Wall Street Journal reported this week, citing sources, that the two Chinese internet giants are “considering moves to gradually open up their services to one another”. Initial steps from Alibaba could include introducing Tencent’s WeChat Pay to Alibaba’s e-commerce marketplaces, Taobao and Tmall, while Tencent could make it easier to share Alibaba e-commerce listings on its WeChat messaging app, or allow selected Alibaba services to access WeChat users via mini-programs, the newspaper said.    Cao Lei, director of the Hangzhou-based China E-commerce Research Center, said the advantages of breaking down the existing barriers now outweigh the potential losses if they do nothing.   The potential tie-up between the two giants comes as the country is tightening antitrust regulations to rein in the unchecked growth of China’s Big Tech. Alibaba was hit with   a record fine of US$2.8 billion in April     for monopolistic behaviour, including the practice of “picking one from two”, where online merchants are forced to choose one platform as their exclusive distribution channel.   Tencent also came under antitrust scrutiny, with its US$5.3 billion deal to merge game streamers   Huya and Douyu blocked by regulators in July.   Zhai said in terms of antitrust, the behaviours that have received widespread attention in China’s platform economy over the past few years include “picking one from two”, banning links and services from competitors, and price discrimination based on big data.   “Now that ‘picking one from two’ is officially deemed as a monopolistic behaviour, banning links and services from competitors will be at the centre of the [antitrust] storm now,” Zhai said.

Chinese semiconductor buyout fund says it follows ‘market logic’, not Beijing’s orders, as US reviews its South Korean chip deal
The Beijing-based firm came under the spotlight after it announced its intention to purchase South Korea’s Magnachip Semiconductor for US$1.4 billion    Wise Road Capital said it does not have a specific strategy of moving production into China after acquiring foreign semiconductor assets    China, the world’s largest market for chips thanks to its domestic auto plants, smartphone makers and home appliance producers, has embarked on a nationwide drive to improve its semiconductor supply chain.      The country relies on imported semiconductors to meet about two thirds of its demand. China imported 51.9 billion semiconductor devices in June, the third-highest in a single month after March and April, and its spending on semiconductors is now nearly double what it outlays for imported crude.

China’s semiconductor output hits record high as Beijing boosts local production amid intensifying US-China tech war
China’s integrated circuit output surpassed 30 billion units in June, a 44 per cent increase over the previous year   Demand for advanced chips from overseas remains high, with imports up nearly 30 per cent for the month, as Beijing pursues semiconductor self-sufficiency   The surge in new chip companies and output comes on the back of a wave of investments in the sector, thanks in part to Beijing’s generous subsidies and other incentives.     China’s semiconductor industry has been hit with a slew of US sanctions imposed by Washington over national security concerns. Mainland foundry Semiconductor Manufacturing International Corp (SMIC) – which has been sanctioned for its alleged ties to the military, a charge it denies – is far behind Taiwan Semiconductor Manufacturing Co (TSMC) in fabrication of advanced chips, while China has been blocked from acquiring advanced lithography tools from Dutch industry leader ASML.

US, China assaults on Big Tech add fear and risk for global investors
The increased scrutiny of ride-hailing service Didi Chuxing is just the latest tale in a global movement to avert and break up monopolies   Monopolies being broken up are not always bad news for investors, but the actions taken by governments suggest scant regard for the rights of shareholders   China’s actions towards its technology champions have been surprisingly draconian, more capricious than the moves in the West. It is true that antitrust movements often have scant regard for the rights of shareholders, but to have no regard is not the way to attract future investment. Investors like to see some boundaries to action and to be able to put a rough floor on what they might lose, but the Chinese actions seem bottomless and almost an own goal.  They engender fear, not confidence, and add risk premium to what should be a nice long-term earner for investors. International investors in Chinese stocks like to see themselves as minority partners sharing in the economics while the Chinese authorities see share ownership as power and control. It is another gulf in philosophy that is splitting the global economy in two.

Alternatives to China’s tech authoritarianism a priority for transatlantic action
A world where Chinese technology is used for digitalization creates acute risks for safety, privacy, and freedom of expression, says Rebecca Arcesati. She argues that transatlantic alignment is needed to provide alternatives that protect rights and strengthen democratic governance.

China Inc’s new inconspicuous expansion
DEEPGLINT, A CHINESE facial-recognition firm, was one of 14 companies slapped with American sanctions on July 9th for alleged links to human-rights abuses in China’s far-western region of Xinjiang. It is also a globally recognised leader in its field and has raised money from Sequoia Capital and other big American investment firms. DeepGlint’s founders, who graduated from Stanford and Brown universities in America, must now discuss with their foreign backers the prospect of decoupling from the Western commercial sphere. Many Chinese companies have been forced to hold similar talks.  BeiDou, China’s state-owned answer to America’s GPS satellite-navigation system, was used by more than 100 countries in 2020, according to EY, a consultancy. Chinese telecommunications services cover more than 170 countries with a population of 3bn people. Regardless of American sanctions, Huawei remains a popular choice for 5G networks even in parts of Europe. Horizon Robotics, which develops self-driving systems, counts Germany’s Volkswagen and Bosch among its partners.   And new Chinese stars are rising all the time. Few fashionistas probably realise than Shein, a fast-fashion darling beloved of the hip TikTok set, is Chinese. The company boasts the top shopping app in 50 countries—including America, where it was downloaded on more iPhones than Amazon in June. OneConnect, a financial-technology platform owned by Ping An, a big insurer, is selling a number of digital-banking products developed for China to banks and other firms across Asia and beyond. It recently designed an artificial-intelligence fraud-prevention system for a Sri Lankan lender. These subtle corporate conquerors could still be stymied—by the heavy hand of China’s Communist rulers or America and its allies, which are bound to keep an ever beadier eye on Chinese commercial incursions. The go-getting Chinese multinationals would then need to adapt once again. They have shown themselves to be more than capable of doing so

Why a slowdown in China’s economic recovery is no cause for market jitters
Worries about global growth stem mainly from economic and virus-related developments in the US and Europe rather than Chinese weakness    Rather than signal growth is under threat, monetary easing in China is part of policymakers’ economic balancing act of supporting growth while curbing financial risks  Still, even though threats to growth have become more pronounced, markets are overreacting. Inflationary pressures have hardly subsided. Data published this week showed that core inflation in the US rose to 4.5 per cent last month, its highest level in 30 years. The Fed’s view that the surge in prices 
is temporary   is being challenged more forcefully.  Moreover, the post-pandemic recovery remains robust. While growth rates are slowing, they are coming down from the stratosphere as the explosion of pent-up demand gives way to a more sustainable expansion. The International Monetary Fund still expects brisk   global growth   of 4.4 per cent next year.  China’s economy faces severe challenges, but the problem right now is market expectations. Excessive exuberance has given way to undue pessimism.

Hong Kong stocks reach one-week high as China injects US$17 billion into slowing economy while Alibaba, Tencent power tech gains
Government reports signal a slowdown in China’s economic activity last quarter, while the central bank injects US$17 billion into the system  BYD slips after major shareholder Himalaya Capital cut its stake in Chinese carmaker’s H shares again

China coal imports unlikely to increase, state reserves release aimed at steadying prices amid strong activity
China will release more than 10 million tonnes of coal from its state reserves, the National Development and Reform Commission (NDRC) said on Thursday   On Thursday it was confirmed that industrial production in China grew by 8.9 per cent in the second quarter from a year earlier

China’s tech ‘not state-of-the-art’, but it is what emerging markets can afford, and China is already there
Ambitious and far-reaching Belt and Road Initiative has China well-placed to take advantage in emerging markets, leaving the West scrambling to catch up     Multibillion-dollar plan is frequently criticised by the United States and others who point to soaring debt, environmental concerns and national security risks  Matthew Mingey, senior analyst at Rhodium Group, said he believes China will focus on policy priorities when it comes to its outbound investment amid G7’s “Build Back a Better World” plan, which is aimed at countering the Belt and Road Initiative in emerging markets.    Rhodium Group’s research showed that Chinese policy bank loans in funding belt and road projects are way down from their peak in 2016, largely because of growing debt concerns.   “But there are indications that other types of finance are filling in some of the gaps, like foreign direct investment and commercial-term loans. These trends are likely to persist whether the G7’s (belt and road) alternative happens or not,” Mingey said. “The direction and scope of China’s outbound finance depend way more on China’s policy priorities, on Chinese firms’ international strategies, and on country-risk conditions than on the G7’s positioning. That’s if Build Back a Better World actually materialises, which is very much an open question.”

EU, China Unveil Sweeping Plans to Cut Greenhouse-Gas Emissions
The European Union and China presented sweeping plans to limit greenhouse-gas emissions that will increase costs for industry and consumers, but they drew criticism from environmentalists as not going far enough to slow climate change.   China plans this week to launch an emissions-trading system focused only on its own companies, establishing the world’s largest carbon market and doubling the share of global emissions covered under such programs. Emissions-trading systems put a price on the greenhouse gases generated by industry, increasing the cost of products with the intent of promoting efficiency and cutting emissions. China’s plan will help it achieve its goal of reaching peak emissions before 2030 and carbon neutrality, or net zero emissions, by 2060, officials said at a news conference Wednesday. China is the world’s largest carbon emitter. Invitations for launch ceremonies set for Friday were sent out, according to people familiar with the situation. The trading program will initially involve 2,225 companies in the power sector. Those companies are responsible for a seventh of global carbon emissions from fossil-fuel combustion, according to calculations by the International Energy Agency.
China’s officials have signaled that they plan to add the cement, aluminum and steel sectors to the trading system next year. The program is expected to adopt stricter caps in the future, although the timing and scope haven’t been determined, say people familiar with the situation.

China’s Belt and Road Initiative Confronts Deglobalization
Evidence-based studies reveal why China and most Belt and Road countries remain committed to pursuing greater economic integration even with the forces of deglobalization in the form of the US-China trade war and ongoing geopolitical tussles.

China widens crackdown on cryptocurrency miners, shrinking country’s share of global bitcoin network
At least three more provinces in China have moved to shut down cryptocurrency mining operations, following Beijing’s crackdown    That has removed a vast number of mining machines in the global network used to perform the calculations that verify transactions and create new bitcoin

China’s New Stamp Tax Law: What are the Changes?
China’s new Stamp Tax Law takes effect July 1, 2022 – there will be some updates to the existing system of taxation, such as the simplification of tax compliance, changes to some tax rates, and new exemptions.  On June 10, 2020, the Stamp Tax Law was passed by the Standing Committee of the 13th National People’s Congress at the 29th session, which will take effect from July 1, 2022.

Will the time ever be right for Joe Biden and Xi Jinping to sit down together and talk?
An explosive meeting between senior US and Chinese officials in Alaska earlier this year highlighted the deep divisions between the two sides   The earliest opportunity for a face-to-face meeting between the two leaders is at the G20 summit in October, but expectations are low    China’s foreign ministry spokesman Wang Wenbin said China had always thought that “dialogue is better than confrontation, but that it required both sides to both put in effort”.  Tsang, from the SOAS China Institute, cautioned that China’s approach to diplomacy had become increasingly ideological, but there should not be preconditions for diplomacy.   “For all the competition, rivalries and rhetoric, they need to engage with each other if the world is to avoid a slow build-up of tension that can result in a war,” he said. “Diplomacy is needed the most between rivals and in a tense situation.”

In A Warning To China, Japan’s New Strategy Paper Mentions Taiwan For The First Time
Japan’s annual defense white paper for the first time stresses the importance of Taiwan to the peace and security of the Asia-Pacific region.    It should come as no surprise that the paper, an English-language summary of which the government in Tokyo released Tuesday, highlights Taiwan. Japanese leaders in recent months have been seeding mentions of Taiwan in official statements, laying a rhetorical foundation for a possible shift in Tokyo’s policies regarding China and Taiwan.

China grants tax breaks, policy leeway to turn Shanghai into powerhouse for AI, chips, planes and pharmaceuticals
Key companies will enjoy a corporate income tax of 15 per cent, nearly halved from a rate of 25 per cent   Guideline will boost the morale of local businesspeople and foreign investors who hope to tap the country’s vast market, analyst says   .The city is also home to the world’s busiest deepwater container port, the planet’s second tallest super skyscraper, and it is where Elon Musk chose to build his first assembly for Tesla electric cars  outside the United States. The Shanghai government is pulling out all stops to draw foreign investment to its Lingang free-trade zone, with the aim of driving up its annual industrial output to 600 billion yuan (US$86.7 billion) by next year.The city was looking to better use existing preferential policies – lower corporate income tax, duty-free customs zones and flexible land distribution – to unlock Lingang’s potential and attract top companies from home and abroad, Chen Yin, Shanghai’s executive vice mayor, said in August last year. Shanghai wants to draw 400 billion yuan in investments to the manufacturing sector by 2022.In June, the National People’s Congress, China’s top legislature, authorised Shanghai to draw up local rules that might not comply with national laws and regulations, a move that will grant the city greater freedom in conducting reforms.
The guideline released on Thursday also said that the local stock and futures exchanges would be encouraged to deregulate markets to launch more derivatives and bring in market makers.
Pudong will also be the pilot zone for exploring the possibility of making the yuan fully convertibility, the document added.

US ban on all products from China’s Xinjiang nears as Senate passes forced labour bill
Uygur Forced Labour Prevention Act would create a ‘rebuttable presumption’ assuming goods manufactured in Xinjiang are made with forced labour    The bill must still pass the House of Representatives before it can be sent to the White House for President Joe Biden to sign into law

TikTok tops 3 billion downloads worldwide, the first non-Facebook app to do so
The short video app was also the most downloaded and highest-grossing in the first half of this year    Although installs were down in the first six months year on year, user spending soared by 73 per cent

China is keeping its borders closed, and turning inward
Zero tolerance for the virus, combined with rising nationalism, breed isolationism

Alain Gillard
Information Officer
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