China Press Review – July 4, 2019

Press review

China and the world: Inside the dynamics of a changing relationship
The relationship between China and the world now is changing. The McKinsey Global Institute’s (MGI) new China-World Exposure Index shows that the world’s relative exposure to China has increased, while China’s to the world has fallen. Accompanying this shifting exposure are the signs of stresses in the relationship. Trade disputes are making daily headlines, new rules are emerging to evaluate technology flows, protectionism is on the rise, and geopolitical tensions are becoming more heated. The way ahead is uncertain. Could we be at peak integration between China and the world after the years of deepening ties? Conversely, what opportunities could more engagement offer? What value could be at stake for all players?

U.S. trade deficit surges to five-month high as imports soar
The U.S. trade deficit jumped to a five-month high in May as imports of goods increased, likely as businesses restocked ahead of an increase in tariffs on Chinese merchandise, eclipsing a broad rise in exports.

China: When its current account turns deficit…
China’s long-lasting “twin surplus” of both current and capital account have already changed when capital flows become more unpredictable in the aftermath of 2015 “811” RMB devaluation. Recently, the surplus of the current account also narrowed significantly. Looking ahead, a combination of “current account deficit” and “capital account two-way fluctuation” could become a “new normal” for China’s Balance of Payments (BoP). The US-China trade war negotiation (i.e. China will buy more US goods and reduce its trade surplus against the US), the continuing expansion of service trade deficit, the shrinking saving-investment gap due to aging population will all contribute to this change. This new situation is set to bring new challenges to Chinese policymakers in maintaining domestic financial stability and pushing forward necessary financial liberalization reforms.

Moody’s affirms China’s A1 ratings; maintains stable outlook
agency Moody’s affirmed China’s rating at A1 with a stable outlook on Thursday, citing the country’s financial and policy means to contain any rise in its economy-wide leverage and mobilise resources to support its stressed public sector entities and maintain financial stability.

China insists US must remove all trade war tariffs as part of deal, says commerce ministry spokesman
US President Donald Trump previously said that he wanted some tariffs to remain in place for a ‘substantial period of time’, even extending beyond any agreement Washington also urged to fulfil its promise made at the G20 summit to allow American firms to resume selling products to telecommunications firm Huawei

US-China trade talks to resume by phone in coming week, Donald Trump’s chief economic adviser Larry Kudlow says
Trump and Xi Jinping agreed to restart negotiations at G20 summit in Japan, marking truce in trade war Kudlow says officials on both sides are having ‘lots of communications’ and will schedule face-to-face meetings

Trade war truce does little to boost public confidence in China due to lack of trust in ‘flip-flopping’ Trump
President Xi Jinping and US counterpart Donald Trump agreed to a truce in the trade war at the G20 summit in Osaka, Japan, on Saturday Trump also said some restrictions against Huawei would be eased, but the moves did little to alleviate fears of online users, exporters and manufacturers

Three key issues to look out for as the US and China fumble towards a trade deal
Investors worried about economic uncertainty should consider that if the talks can separate out contentious issues like technology, the chances of a deal will be higher
However, the US presidential election may encourage a harder stance on China, while a sharp rebound in markets may remove the urgency for a quick agreement

US should start manipulating the dollar, Donald Trump says, accusing China and Europe of playing ‘big currency manipulation game’
Such a move would directly contradict official US policy not to manipulate dollar’s value to gain trade advantages Treasury Department earlier found no country meets criteria for being labelled a currency manipulator, but put China and eight other countries on watch list

Trump’s trade war with China is damaging the US economy: top economist
“I don’t think the nominal truce President Trump and Xi agreed to this past weekend is going to reduce the uncertainty that many large companies face,” Zandi cautioned. “As long as they are uncertain what products are going to have tariffs, they are not going to be out there hiring people. So I think the trade war will continue to do damage to the labor market.”

US actions hurting relations with China, 100 academics, policy advisers say in open letter to Donald Trump
Signatories, including former assistant secretary of state for east Asian and Pacific affairs Susan Thornton, say they are ‘deeply concerned about the growing deterioration’ of ties between the two countries US ‘cannot significantly slow China’s rise without damaging itself’, they say

These are 4 winners of the US-China trade war
Vietnam, Taiwan, Bangladesh and South Korea are coming out as victors in the US-China trade war.

Making Taiwan Great Again For Investors Amid U.S.-China Trade Tensions
As the largest private employer in China, Foxconn founder Terry Gou certainly caught many off guard when he recently urged his biggest client to place more of its investments in a different location.

Taiwan tech firms set to join exodus from China amid trade war, says Citibank research
Assuming between 30 to 50 per cent of Taiwanese tech firms leave China, up to 3 million jobs could be lost, according to Citibank Taiwanese tech firms employ some 10 million people on the mainland

Samsung and other South Korean companies’ exodus from China sets an example to Western firms fleeing trade war tariffs
Lotte, Kia and Hyundai are also gradually winding down their China business due to political risks, tariffs and losing market share Western companies fleeing Donald Trump’s tariffs may not have luxury of a managed exit, but should look at the South Korean case studies closely, experts say

Microsoft, HP, Dell to shift production away from China
A new set of companies which produce notebooks, game consoles, e-readers, home assistants, and smart speakers plan to join the exodus from China, Nikkei Asian Review reported citing anonymous sources. Microsoft, HP, Dell, Sony, Nintendo, Google, and Amazon think the renewed promises of reconciliation coming from last week’s G20 meeting are too uncertain, the report said. Lenovo and Asustek are also considering similar moves. Meanwhile rising labor costs in China have already lowered production demand and will continue to do so. Companies are eyeing Southeast Asia as an alternative.

Briefing: Microsoft, HP, Dell to shift production away from China

Are China’s capital flight controls raising investment risks and cutting returns for Chinese investors?
Asian Development Bank Institute’s CEO Naoyuki Yoshino warns that Chinese citizens’ asset risks cannot be mitigated with limited investment channels at home Despite the US-China trade war truce, slowdown in economic growth is expected to continue till 2020, according to analysts

This Fourth of July Marks the Week China Became the Most Powerful Economy in the World
Two years ago, the US had three ways of dealing with the spectacular rise of Chinese capitalism. One was to reduce the economy’s influence in its own region (this was Obama’s plan, which had its origins in the Bush administration and took the form of a trans-pacific trading arrangement anchored by the US consumer market). The second was to reject globalization as constructed by the neoliberal program and revert to a New Deal-like project that heavily invested in US research/education, enhanced controls on finance, increased government revenue, strengthened social safety, and massively upgraded infrastructure (this was Bernie Sanders’s position).

Dollar dips after Trump says US should play ‘currency manipulation game’ like Europe, China
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Trump said on Twitter.The U.S. Dollar Index, a basket of the greenback vs. major currencies, slid into the red following the Trump tweet.
“We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games,” he added.

China says won’t engage in competitive currency devaluation
China will not engage in competitive currency devaluation, its Foreign Ministry said on Thursday, a day after U.S. President Donald Trump renewed his criticism of Beijing’s foreign exchange policy

US confirms Huawei ban following Trump statement for reprieve
The US Commerce Department said on Wednesday that requests from American companies seeking to export products to Huawei were being reviewed “under the highest national security scrutiny” since the company is still blacklisted, Reuters reported on Thursday.

US confirms Huawei ban following Trump statement for reprieve

Chinese tech giants form alliance to help advance industrial internet technologies
The Shenzhen Industrial Internet Union aims to help drive the development of new technologies for the industrial internet era

5G to cover 15% of world’s population by 2025 but uncertainty remains, says industry insider
Gorman said initially a lot of 5G subscribers would come from China because the ecosystem in the country is starting to take off. A recent report by research firm Canalys said 5G-enabled handsets would reach nearly 800 million units by 2023, and Greater China, which includes mainland China, Hong Kong, and Taiwan, will account for more than one-third of those shipments.

Handshake: 5G to cover 15% of world’s population by 2025 but uncertainty remains, says industry insider

Why China’s opening up to more foreign investment is unlikely to narrow its trade differences with the US
Beijing and Washington are misdiagnosing each other’s complaints as economic in nature rather than political, and China’s new ‘negative list’ of restricted sectors is a continuation of this trend

Setting Up a Joint Venture in China
Joint ventures are a commonly used company structure in China: many of the most well-known companies, such as McDonald’s, Starbucks, and most recently the Chinese ride-sharing unicorn Didi Chuxing have all adopted a joint venture (JV) company structure in China. For foreign investors, there are two distinct reasons that a company may choose to enter into a joint venture.

China’s ‘AmCham’ trademark case sheds light on Beijing’s intellectual property protection progress
US lawyer Edward Lehman sued the American Chamber of Commerce in China in an attempt to regain control of trademarks he first registered in 1998 Since Donald Trump took office as president of the United States, the issue of intellectual property theft has played a major role in the ongoing trade war

Why I’ve Lost Faith in China’s Private Sector
With corporate-governance scandals piling up, there’s little to inspire confidence as the economy weakens.

China Appeal Fading for Japanese Companies
Japanese companies are finding China less attractive as a base, due to rising labor costs and concern over trade friction.

Southeast Asia: A choice between two models
Location and history link Southeast Asia equally to China, India, and the West. Now enjoying catch-up growth, the region is both poised for fast development—and gets to start fresh with little infrastructure, or dominant players, set in stone. The region will not follow the same path, or use the same companies, but the way it is like China 10 years ago is that it’s choosing among models that have gone before. So far, we can say Silicon Valley is winning social and search, Chinese-inspired (and funded) local players are winning e-commerce and payments, and transportation—like many other fields—is a local synthesis of both.

INSIGHTS | Southeast Asia: A choice between two models

China’s busy roads getting busier
Country has 422 million drivers licensed to take to the highways, ministry announces

China’s automobile population totals 250 million units by June 2019
China has had 340 million motor vehicles as of the end of June 2019, according to China’s the Ministry of Public Security. By the end of June 2019, China’s automobile population reached 250 million units, accounting for 74.58% of total motor vehicle volume. Of that, 198 million units are from private cars.

China paralyzed its auto market by fast-tracking stricter car pollution rules
China’s latest attempt to clean up car pollution is throwing the auto industry into a tailspin, at a time when sales are slowing in the world’s largest auto market. Starting Monday (July 1), 17 Chinese cities and provinces implemented an emission standard which requires cars to have better filtering systems for particulate matters and for trapping exhaust gases, state media outlet Xinhua (link in Chinese) reported. The move is the sixth stage of an emission standard rolled out in 2001 by Beijing in a bid to push the country’s auto industry to catch up with Europe’s.

After drying off, Robin Li unveils Baidu’s AV unit updates including Geely deal
A dousing of Baidu CEO Robin Li in water on stage Wednesday did little to damp the a raft of updates for the company’s autonomous driving business announced at the Baidu Create AI Developer Conference, including a strategic partnership with China’s largest privately held automaker, Geely.

After drying off, Robin Li unveils Baidu’s AV unit updates including Geely deal

Chinese company earnings could be about to surprise on the upside, after troughing in the second quarter
Shanghai brokerages say mainland companies will reveal improving earnings in upcoming quarters Appliance manufacturers, electronics makers, chemical firms and media companies are best poised for improved earnings growth, one broker says

Chinese officials report slowdown in African swine fever
Just 44 new cases recorded in first six months of 2019 Farmers say many outbreaks are not reported, with local officials unwilling to verify the disease

Budweiser to focus on growing high-end beer market, acquisitions in Asia
The largest beer company in Asia-Pacific by sales last year is in the process of raising up to US$9.8 billion in a Hong Kong IPO Shares to debut on July 9

WATCH: China’s Three Biggest Automated Ports
China is the strongest country in the maritime world, boasting six out of the ten busiest ports in the world and close economic connections with the three of the remaining four – Singapore, Busan and Hong Kong.

What China’s Retail Expansion and Disruption Means for Luxury Brands
Despite China’s overall retail growth is set to slow down in 2019 amid geopolitical and economic uncertainties, the expansion will continue to be extremely strong online. These days, retail growth in China is occurring online and on mobile. Driven by the country’s e-commerce leaders, such as Alibaba and, and social commerce platforms like Little Red Book, WeChat, and Pinduoduo, consumers are used to purchasing goods online, even some big-ticket luxury products. The latest study by the market research firm eMarketer uncovers that despite China’s overall retail growth is set to slow down in 2019 amid geopolitical and economic uncertainties, the expansion will continue to be extremely strong online.

What China’s Retail Expansion and Disruption Means for Luxury Brands

Tod’s Made a Killing from Mr. Bags Collaboration, Racking up over 4.7 Million RMB
In the latest collaboration with Mr. Bags, Tod’s sold out 470 “Unicorn D Styling” limited edition handbags, garnering approximately $1.02 million in sales

Tod’s Made a Killing from Mr. Bags Collaboration, Racking up over 4.7 Million RMB

Tech Thursday: The Great Robo-Shop Flop Is this the end of China’s brief experiment with self-service stores?
It wasn’t that long ago that retail analysts were all over “smart shops”—that is, supermarkets that use facial recognition, mobile payment apps, and AI to stock, maintain and sell produce without need of human staff. The so-called New Retail was once hailed as the future, with China supposedly “set[ting] the pace for the rest of the world.” Now, two years on from the initial hype, along with the all-too-familiar “the robots are coming” doom-mongering, those who were initially more skeptical about the need for these smart shops—not to mention their profitability—are being proven largely correct. Funding has dried up, bankruptcies are on the increase, and many of the smaller chains are facing a bleak future.

Tech Thursday: The Great Robo-Shop Flop

Walmart’s China Investment May Not Be A Good Idea
The real question is, is China still worth the investment? Walmart’s stake holding in JD aside, we don’t think its R.O.I. in China is worth the risk, and here is why:

Welden teaches global execs about ‘new retail’
Previously, designers had to guess what consumers might want months ahead of the season or rely on costly focus groups for consumer research. Now, real-time engagement with Chinese consumers allows her to tailor new products to their liking, down to details as small as the strap length of a bag and making red more available as a color choice to suit to meet demand in China. Following its success its China, Welden expanded to Taiwan and Japan. Now, 20% of its business is generated outside of the U.S. The takeaways from Welden’s growth from Connecticut startup to international brand are as relevant to large companies as they are to small businesses.

Oreo, Forbidden City make cookies fit for an emperor 
Oreo cookies, which may be as American as apple pie, are now getting the royal treatment in China.
Oreo has launched six new imperial-inspired flavors that were created in collaboration with Beijing’s Forbidden City, formally known as the Palace Museum, as part of its latest Tmall Super Brand Day campaign. The cookie brand released flavors such as “Green Tea Cake,” “Red Bean Cake” and “Hawthorn Berries,” as well as “Lychee-Rose Cake,” which was said to be a favorite of the Qing emperor Kangxi. For more-adventurous snackers, Oreo offers savory options, such as “Cantonese Barbequed Pork Pastry” and “Spicy Pepper Pastry.”

What neighbours can expect from Modi’s second term
Second, the Modi administration is more open to developmental partnerships — ostensibly in a bid to balance growing Chinese influence in the region. This is expected to increase as China’s Belt and Road Initiative continues to gain traction. Modi is already transforming India’s traditionally lethargic approach to neighbourhood commitments into one based on speedy delivery. China’s expanding engagements and developmental lustre has inadvertently — perhaps serendipitously for South Asian states — resulted in the Indian age-old backyard edifice crumbling. Consequently, Modi is breaking Indian bureaucratic habits and correcting delivery deficits — observers say there are convincing indications that his second term will see India addressing the capability deficit that has seen it fail to live up to its economic potential. Chinese investments have clearly altered the economic balance of power, prompting Modi to forge ahead in the quest to preserve India’s position pre-eminence in South Asia by making it a truly worthwhile developmental partner.

What neighbours can expect from Modi’s second term

Economic Survey 2018-19: Rival or role model? CEA Subramanian draws copious lessons from China
The CEA mentioned China numerous times to drive home what our giant neighbour has done right or wrong.

China Work Culture
I was interviewed the other day by a reporter working on an article on why Chinese companies so often fail outside China. I think the thesis of the article will be cultural differences. After we spoke, this reporter sent me links to some of what he had read for background and particularly liked.
I read the links and enjoyed them as well. The below comes from Quora and is entitled What’s the difference between working in Japan vs. in China? I have edited it a bit (without changing any of its substance) to shorten it and to make for smother reading. Being a Chinese who has working experience in both China and Japan, here are some of my personal observations. Please take this with a grain of salt

China Focus: China’s sci-tech innovation persistence pays off with great human progress
In 2018, research and development spending in China rose 11.6 percent to more than 1.96 trillion yuan (285.3 billion U.S. dollars), accounting for 2.18 percent of GDP. Patent applications numbered 4.32 million, up 16.9 percent.

The Current Business Environment on the Ground in Hong Kong
Hong Kong’s politicians and business community need to step up and start to take responsibility for its own future

It’s been a bumper six months for stocks and bonds – except in underperforming Hong Kong, where the free market is now under attack
From Wall Street and Europe to Shanghai and Shenzhen, markets have enjoyed a spectacular rise – setting the stage for a big correction. In Hong Kong, rising instability could cause lasting damage to the city’s free and open economy

Why are the UK and China arguing about Hong Kong?
Hong Kong is at the centre of a diplomatic row between the UK and China. The UK has shown support for pro-democracy protesters in Hong Kong, a former colony. It says the “one country, two systems” approach – giving Hong Kong citizens different rights and laws to those on the Chinese mainland – must continue. In response, China has accused the UK government of meddling in internal affairs.

How young people turned into thugs
Despite forcing the suspension of extradition bill, clueless political elders refused to tell those who protested they had won, leading to vandalism of legislature

How Britain’s capitalist experiment has shaped Hong Kong’s attitudes and values, from education to health care and urban planning
Under the British, a policy of laissez-faire capitalism plus the strong Chinese work ethic made the dreams of Hongkongers a reality. Today, however, the endless toil is taking its toll as the city struggles to safeguard the wider public interest

Hong Kong protests: Jeremy Hunt warns China against ‘repression’
The UK foreign secretary has continued to warn China it could face “serious consequences” over its treatment of protesters in Hong Kong.

Britain summons Chinese ambassador over ‘unacceptable, inaccurate’ remarks on Hong Kong
Liu Xiaoming condemns what he called Britain’s interference and backing of ‘violent lawbreakers’ Prime Minister Theresa May calls for Beijing to respect Sino-British Joint Declaration

America’s Blueprint for War in the South China Sea
The United States has been systematically preparing the ground, make that archipelago, for a military confrontation with the South China Sea and exploit China’s shaky legal standing down there. How systematically? Well, since January I did four major segments on my China Watch show at Newsbud about the unfolding US plan and I’ve reproduced the scripts for those shows below.

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