China Press Review – July 9, 2021

China inflation: factory-gate prices remain high but fall slightly as global commodity prices level off
China’s official producer price index (PPI) rose by 8.8 per cent in June from a year earlier, compared with 9 per cent in May. The consumer price index (CPI) rose by 1.1 per cent from a year earlier, compared with a 1.3 per cent.

China flags import diversification, greater scrutiny of foreign investment in latest five-year commerce plan
China’s commerce ministry has released its latest five-year plan, setting priorities for the period between 2021-25     Unlike previous years, it focuses on controlling risks associated with imports amid increasing ‘trade frictions’   China will further diversify agricultural and energy imports, boost trade with Russia and step up scrutiny of foreign investment over the next five years, the commerce ministry said in a new five-year plan.The document sets out the ministry’s priorities for the period between 2021-25, and includes goals to push developed countries to relax export controls against China, reduce the size of its    negative investment list  and build pilot zones to facilitate trade amid external uncertainty. The 42-page document follows the release in March of Beijing’s  14th five-year plan , which sets out the country’s main economic and political goals for the next five years, as well as its 2035 vision. The complex international environment has brought new challenges for economic development and uncertainty has increased significantly, the commerce ministry said in the plan published on Thursday.  Ultimately, Beijing wants to enhance international cooperation and encourage developed Western nations to ease export controls on China.   On ties with the European Union, the commerce ministry said Beijing would build an institutional framework for cooperation with Brussels and push for the ratification of the EU-China Comprehensive Agreement on Investment. In May, the European parliament  suspended ratification of the deal  amid deteriorating geopolitical relations.  The the document was silent on the phase one deal and, unlike the 13th five-year plan, it did not mention the US-China Strategic Economic Dialogue, the US-China Joint Commission on Commerce and Trade and bilateral investment treaties. There was no mention of the ongoing trade dispute with Australia

China’s Ministry of Commerce plans to scrutinize foreign investment more closely
The commerce ministry’s priorities for the next five years — released publicly this week — include reference to the “Measures for Security Review of Foreign Investment” that took effect in January.   While the brief mention of the review system doesn’t necessarily represent new action by Chinese authorities, the reference does indicate foreign investment into China can face greater scrutiny.   The ministry forecast average annual growth of 5% in retail sales through 2025, with the portion sold online growing at a slightly faster 7.6% pace.

China to free up 1 trillion yuan to support economic recovery with ‘routine’ reserve ratio cut
People’s Bank of China confirmed on Friday that it will cut the reserve requirement ratio (RRR) for financial institutions from next Thursday to support the real economy    The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend or invest

The Chinese Tech Crackdown Is Intensifying This Seismic Capital Wave
There’s a reason I recommended investors get out of Chinese stocks

China’s Big Tech crackdown: How an obscure office in Beijing’s cybersecurity administration has struck fear into the country’s tech giants
The Didi move, the first time Beijing publicly launched a probe into a tech company on national security grounds, triggered a global sell-off in Chinese tech stocks     While the Cyber Security Review Office remains opaque, there is little doubt it will play a significant role in supervising China’s internet industry

One of the largest ‘Made in China, sold on Amazon’ companies had 340 stores closed, US$20 million in funds frozen amid crackdown
Stores run by Shenzhen Youkeshu Technology were shut down for allegedly violating Amazon’s rules    The affected stores made up 30 per cent of Youkeshu’s total retail presence on the e-commerce platform

Is China’s Affordable Luxury Market Dying?
ffordable luxury had a great run in China, but some factors have led many to believe that this market is tanking post-COVID-19.  In 2019, the value of the global affordable luxury market ballooned to $137.8 billion. Coach and Longchamp are two companies that are well-positioned to navigate the changes in the Chinese market.     Casual wear and fast-fashion disruptors are improving their value proposition to become rivals of affordable luxury brands.

Major US stock indices to remove more Chinese companies following order by Joe Biden
Move by S&P Dow Jones Indices comes after executive order by Biden administation banning investment in businesses thought to have ties to Chinese military    FTSE Russell is also planning to drop another 20 Chinese businesses from its benchmarks

US-China relations: Joe Biden’s embrace of post-pandemic ‘industrial polices’ shows ‘bust of Washington Consensus’
Biden administration’s willingness to harness power of federal government to compete with China is a tick for Beijing’s economic governance, new report says    China should remain on alert for spillovers of US stimulus policies and particularly its China containment strategy, which is a key pillar of ‘Biden Economics’   He estimated the American economy would grow by about 2 per cent annually over the next five to 10 years, which, compared to China’s forecast 5-6 per cent annual growth over the next five years, means a further narrowing of bilateral strength.   “The China-US rivalry may have substantially changed by 2025,” Liu said.  Chinese GDP was about 71 per cent of the size of US economic output last year. Some Chinese economists, such as Peking University professor Justin Yifu Lin, believe China’s economy will surpass the US in 2028.   Chinese financial officials have been on guard for spillover effects of the large US stimulus and the Federal Reserve’s earlier-than-expected policy tapering.
Guo Shuqing, party secretary of the People’s Bank of China and chairman of national banking regulator, has said US and European stimulus policies had ramped up global inflation risks.   China’s own stimulus, although more moderate than most developed Western nations, has also stoked inflation, with factory-gate price prices hitting a 13-year high last month and manufacturers now passing on surging raw material costs.  To curb inflation, the government has warned it will crack down on speculation in the commodities market and auctioned metals from its state reserves. The report comes at a delicate time for relations between the world’s two largest economies, as they clash on a range of geopolitical and economic issues.   Although there is no sign of official bilateral talks on the horizon, Vice-Premier Liu He has spoken to both US Trade Representative Katherine Tai and US Treasury Secretary Janet Yellen since May. Last month, Commerce Minister Wang Wentao also spoke with his American counterpart Gina Raimondo.

Didi the latest casualty as China tackles tech’s ‘barbaric growth’
Analysis: multiple state agencies have been drafting rules to regulate China’s booming, anarchic tech sector

China seems intent on decoupling its companies from Western markets
Nearly $2trn dollars in shareholder wealth are on the line   All told, Chinese firms have raised $13bn in America so far this year, and $76bn over the past decade. Around 400 Chinese companies have American listings, roughly twice as many as in 2016. In that period their combined stockmarket value has shot up from less than $400bn to $1.7trn. Those investments are now in peril. On July 6th Chinese authorities said they would tighten rules for firms with foreign listings, or those seeking them. It is the starkest effort yet to disconnect China Inc from American capital markets. Besides regulating what corporate data can and cannot be shared with foreigners, the new rules would target “illegal securities activities” and create extraterritorial laws to govern Chinese firms with foreign listings. According to Bloomberg, a news service, Chinese regulators also want to restrict the use of offshore legal structures that help Chinese companies skirt local limits on foreign ownership. Nearly all Chinese tech giants listed in America, including Alibaba, a $570bn e-merchant, as well as Didi, use such “variable-interest entities” (vies). A vie is domiciled in a tax haven like the Cayman Islands, and accepts foreigners as investors. It then sets up a subsidiary in China, which receives a share of the profits of the Chinese firm using the structure. China’s government has long implicitly supported this tenuous arrangement, upon which hundreds of billions of dollars of American investments rely. Now it wants Chinese firms to seek explicit approval for the structure. The assumption is that Beijing would be hesitant to grant it. Existing vies may also come under scrutiny. The Chinese Amazon Is One Of The Best Ways To Play China’s Expanding Economy
JD is basically the Amazon of China and with China’s economy on the rise presents an interesting investment opportunity.    JD’s growth continues to explode and they now operate a logistical network with over 1,000 warehouses with a reach that exceeds 21 million square meters.  JD is China’s largest retailer and largest e-commerce platform with same/next day delivery to most areas in China, which is essential to support China’s economic growth.   If you had another chance to invest in Amazon before its share price reached triple digits, would you act on it? I think JD is severely undervalued and underestimated in the markets. JD’s numbers reflect a tremendous growth spurt and there not stopping. China has the largest population globally, and by the end of this decade, it is projected to have the world’s largest economy. JD’s current growth rates are about to be amplified by the economic tailwinds coming out of China. JD has put all of the pieces together perfectly for this very moment. They are operating the largest retailer with the largest and most sophisticated logistics network in China and possibly anywhere in the world. They are positioned to facilitate all of the growth China will experience and play a critical role in facilitating the Chinese retail needs. I plan to buy more JD and hold throughout this decade as I want the Chinese AMZN in my portfolio.

China overhauls Germany to become world’s top machinery exporter
Chinese exports topped US$195 billion and report from German Engineering Federation said the country’s faster recovery from Covid-19 helped it take top spot    European firms urged to improve competitiveness but says there are opportunities in China’s need to catch up in sectors such as industrial robotics    “Germany and the EU should not call for protectionism, however, but meet this challenge with market-based measures,” said Ackermann. “They should improve their competitiveness, and the EU should realign trade policy instruments to protect the domestic market from subsidised competitors from China and take measures to open up Chinese markets for public procurement.”  China still lags behind its international competitors in sectors such as industrial robotics, the report said, and the need to catch up could benefit foreign manufacturers.    However, the association said Beijing’s striving for technological autarky in mechanical engineering creates additional challenges.  “Nevertheless, it should not be forgotten that China, in its pursuit of technological self-sufficiency, is increasingly influencing framework conditions, technological developments and even individual market segments, which pose additional challenges for our medium-sized companies now and in the future,” the report said.

China car sales hit by chips shortage, down 12.4 per cent in June, but new energy vehicles still strong
China’s overall sales stood at 2.02 million vehicles in June, according to data from the China Association of Automobile Manufacturers (CAAM)     Chen Shihua, a senior official at CAAM, said that the global auto-chip supply shortage hit China’s production hard last month

China has 292 million cars by mid-2021
China’s motor vehicle parc amounted to roughly 384 million units by the end of June 2021, 292 million units of which were automobiles, according to China’s Ministry of Public Security (MPS).

China’s Cosmetic Surgery Trends Are Getting Riskier — and Weirder
Chinese clinics are pushing women to undergo increasingly invasive procedures to obtain the perfect body. But the treatments can have serious side effects.

Why has China’s poorest province just built world’s largest wind farm?
Gansu had to fight to complete the farm after past oversupply issues, with remoteness and desert landscape among the challenges     Local official says the plant ‘turned the lifeless Gobi Desert into an unlimited chamber of treasure’, but much depends on demand for its electricity

China opens more research centres dedicated to Xi Jinping Thought
The latest institution, dedicated to ‘ecological civilisation’, is the 18th established to promote his ideology and cement his grip on power     The Chinese President’s consolidation of power means he has to show he is a ‘great leader with great ideas in all areas’, according to one observer

China’s pig farmers suffer again as African swine fever surge hits Sichuan
Virus wiped out half of the country’s hog herd in 2018 and 2019, and now resurgence threatens recovery     Cases spreading in southwestern province of Sichuan, which accounts for a tenth of China’s herd

US gives glimpse of new B-21 bomber amid China, Russia ‘threats’
Air Force releases artist rendering of the warplane, saying it is designed to be ‘effective as the threat environment evolves’    Its development could have been accelerated by the PLA’s H-20 project, according to defence analyst

US signals it’s still not ready to cross Beijing’s red lines over Taiwan
Recent comments by senior White House official Kurt Campbell restating US opposition to independence show the limits of Washington’s support for the island    Beijing has repeatedly insisted such a move would mean war and Xi Jinping recently vowed to crush any attempts to stop reunification

European Parliament adopts resolution on Hong Kong press freedom in response to Apple Daily closure
Measures are not binding, but are a set of recommendations to the European Commission and the Council of the European Union     The resolution urges the EU to do more to help journalists and pro-democracy camp politicians and activists to settle in the bloc

How to tell the China story
China’s strategic thinkers expend a lot of time and a lot of ink these days on the question of how the country can project a positive image across the world. The basic idea is that if China can strengthen its “discourse power” (话语权) by “telling China’s story well” – Xi Jinping’s catchphrase in the arena of public diplomacy and soft power – then its strategic priorities globally can move ahead smoothly.

Coronavirus: Sinovac is world’s most used vaccine, but how good is its Delta protection?
Chinese-made shots have prevented much hospitalisation and death, but experts want to know more on effectiveness against variant     Demands for further research in Indonesia where deaths are rising, including among health care workers

Xi’s new slogan for China’s trajectory: “Time and momentum are on our side”
The CCP’s leader has hailed the country he leads as the sole global champion and staked a claim to being the sole eternal helmsman in the party’s history. All the while, says our guest author Johnny Erling, Xi is steering the People’s Republic into ever-greater isolation.   In dozens of speeches, Xi has since invoked the parallels between the two stages to justify his repressive and ideologized authoritarian rule. In a speech to encourage the study of party history on February 20, 2021, he urged constant vigilance: “At the moment, my country’s development is exposed to unforeseen risks and challenges at home and abroad, traditional and non-traditional, in the political, economic, cultural and social fields, as well as in the natural environment. ‘Black swans’ [disasters that strike wholly unforeseen] and ‘gray rhinos’ [known longer-term problems whose potential risks are downplayed or ignored] can strike us unexpectedly.”      Since March, the Xi personality cult has been rekindled, propaganda used to bolster patriotic and ideological education in schools and society, censorship tightened. The glorification of the CCP on its 100th birthday and the taboo against critical appraisal of the past call into question Beijing’s stated ambition of becoming a responsible world power. In January, Xi boasted time and momentum were on China’s side. That may prove to have been a premature hope in the face of international headwinds.

Communist Party’s next generation must be loyal and competent, mouthpiece says
Loyalty to the party comes first for young cadres so they can meet future challenges using the party’s political wisdom, People’s Daily says    Young cadres born in 1970s and 1980s have been identified as party seeks to nurture future leaders, sources say

EU votes for diplomats to boycott China Winter Olympics over rights abuses
Non-binding resolution also calls for governments to impose further sanctions on China as tensions rise

China-EU relations: Beijing urges both sides to repair damaged ties and ‘eliminate interference’
Chinese Foreign Minister Wang Yi tells his EU counterpart Josep Borrell China and the EU have no major conflict or geopolitical struggle    The Chinese mission to the EU said China opposed politicising sport after the European Parliament suggested boycotting the Beijing Winter Olympics

podcast : Helena Legarda on China’s new concept of comprehensive national security
The leadership of the Chinese Communist Party (CCP) considers itself as being in the midst of the most challenging period of its rule. In the eyes of party leaders, potential threats to regime security wait behind every corner and all matters are, therefore, seen through the prism of national security. This behavior is no longer limited to the domestic sphere but has expanded to the international stage. In this episode of the MERICS Podcast, Helena Legarda explains what drives China’s international behavior. Helena is a Senior Analyst at MERICS and an expert on China’s foreign and security policies.    She has analyzed CCP securitization of international relations in a chapter for the new MERICS report on China’s Communist Party that is available here.

How to Protect Your Intellectual Property Rights in China?
Intellectual property (IP) protection is a longstanding and critical concern for companies operating in China, which has also been a key point of contention in the US-China trade war.   China has already made strides in recent years to improve IP protection as the government seeks to spur domestic Chinese innovation and improve business environment for investment, such as revising its IP laws and establishing a new national IP appeals court. However, challenges remain, as counterfeiters and infringers in China are getting increasingly sophisticated. For example, infringers may take advantage of procedural loopholes and proactively seek to invalidate legitimate IP rights.     Companies are thus suggested to develop a comprehensive strategy to identify and protect their IP in China. This includes enhancing internal controls and making the best use of external resources.

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