China Press Review – June 16, 2021

China’s economic growth moderated in May as flattering comparisons to the pandemic-hit economic figures early last year tapered off and Chinese consumers continued to keep a close eye on their pocketbooks.   Factory output, a key growth pillar in China’s pandemic recovery for more than a year, remained resilient last month, but investment and domestic consumption fell short of expectations despite a boost from a long holiday, weighed down by a fresh wave of Covid-19 infections.

Meet the New Chinese Economy, Same as the Old Chinese Economy
The moving parts in China’s latest growth figures are very similar to those in place before the pandemic. Firing up the old industrial model helped the country return to 2019 levels of output while the global economy was still depressed, but it also shows off long-festering fragilities.     Chinese economic data for May came in slightly weaker than economists expected, but still seem strong by Western standards. It is best to compare the numbers released on Wednesday to their equivalents from 2019 for a clear picture, since those aren’t distorted by the extremely unusual economic conditions of early 2020. Industrial production is up 13.6% for the first five months of the year, compared with the same period in 2019. On the same basis, retail sales have risen by 9.3%, fixed-asset investment by 8.5%, and real-estate investment by 17.9%.

China’s retail sales ‘bright spot’ amid uneven economic recovery
Retail sales and industrial production grew by 12.4 per cent and 8.8 per cent, respectively, in May from a year earlier    Fixed-asset investment grew by 15.4 per cent in the January-May period, while the surveyed jobless rate stood at 5 per cent in May, from 5.1 per cent in April   We think there is still scope for strong rises in consumption as the virus situation comes under control and the vaccination roll-out broadens,” Evans-Pritchard said. “Investment and exports are set to cool over the coming months. Consumption [is] a bright spot as momentum elsewhere falters.” China’s retail sales in May grew by 0.8 per cent after being seasonally adjusted from the previous month, a growth rate rebounded from slowing by 0.25 per cent in April. The key indicator of consumption also rose by 4.5 per cent in May on an annualised basis over the last two years, up from 4.3 per cent in April, according to the data released by the National Bureau of Statistics.   Zhou Hao, economist at Commerzbank AG in Singapore, also said China’s economic growth was likely to slow down in the second half of the year, as the recovery had hit a cyclical peak.  He warned that the protracted weak consumption was still a problem and needed more attention, given the difficulties in returning to its normal growth-rate range.   “Not sure if it is due to the chip shortage or any other reasons, the sales of cars, home appliances and mobile phones all appeared to be not good,” he said.    “Whether it would become common place after the pandemic, like less spending on dining out and shopping or just staying at home, this might be the most important issue the market now needs to think about,” he said. “While we do not know how much it will impact the economy.”

China’s factory output, retail sales miss expectations in May
-Growth in China’s factory output slowed for a third straight month in May, likely weighed down by disruptions caused by COVID-19 outbreaks in the country’s southern export powerhouse of Guangdong.

podcast video : BNP Paribas Previews Key China Economic Data
Jacqueline Rong, senior China economist at BNP Paribas, looks ahead to key economic data from China such as May retail sales, industrial production and property investment. The data will provide clues on whether the economy is stabilizing after a record first-quarter expansion. She speaks with Yvonne Man and Haslinda Amin on “Bloomberg Markets: Asia.” (Source: Bloomberg)

New report by Rhodium Group and MERICS: Chinese investment in Europe falls to 10-year low in 2020
FDI activity fails to recover in 2021  As the Covid-19 pandemic hit in 2020, concerns grew that the economic slump might trigger a round of Chinese distressed asset buying worldwide. So far, these fears have proven mostly unfounded. China’s global outbound merger and acquisition (M&A) activity dropped to a 13-year low in 2020, with transactions totalling around EUR 25 billion, down 45 percent from 2019.   The same was true of Chinese foreign direct investment (FDI) in the European Union and the UK. Shrinking M&A activity meant Europe saw a 45 percent decline in completed Chinese foreign direct investment last year, down to EUR 6.5 billion from EUR 11.7 billion in 2019. This took Chinese investment in Europe to a 10-year low. Greenfield investment held up better, reaching its highest level since 2016 at nearly EUR 1.3 billion.

China’s European investments in downward trend, 10-year low amid coronavirus pandemic, political tensions: report
Covid-19 and rising political tensions blamed for 10-year low in Chinese investments in EU countries and Britain Fears Chinese investors would use pandemic to snap up distressed assets prove unfounded, as total global spend drops

China’s anti-sanctions law: how companies can avoid picking a side
If the new law is similar to the European Union’s ‘blocking statute’, it may force companies to choose between the US or the Chinese market or motivate them to lobby the US to lift sanctions on China    A third option might be for companies to split into two separate entities serving both markets   The National People’s Congress Standing Committee passed the new anti-sanctions law at its closing session, writing a new chapter in the ongoing Sino-US clash. While the details are yet unknown, foreign multinationals operating in China are anxious to know how it would affect their future business strategy.
In 2018, then US president Donald Trump began to impose heavy tariffs on Chinese exports, sparking the Sino-US trade war. The battlefield soon shifted, as Chinese tech giants ZTE and Huawei were accused of compromising US national security.  It is likely that the new law will be modelled after those adopted in other regions, such as the European Union. The EU’s “blocking statute” protects EU individuals and companies by “nullifying the effect in the EU of any foreign court ruling” based on certain foreign laws, and allowing them “to recover in court damages caused by the extraterritorial application” of those laws.  This may not be Beijing’s goal, but it is confident that its market is more attractive to multinationals. Indeed, the European Union Chamber of Commerce in China has recently reported that almost 60 per cent of surveyed European corporations intend to expand their operations in China this year. The best-case scenario is that the law would spur those multinationals to successfully lobby the Biden administration to lift the sanctions.  There is, however, a third alternative for multinationals: splitting into two separate entities serving both the American and Chinese markets. This strategy would allow them to reap profits from both markets without being bound by government sanctions. To prevent the entities from being amenable to the other country’s jurisdiction, the two would have no ownership nor management linkage. Absent such a strategy, companies may find themselves caught in an even larger political crossfire when the new law is implemented. Naturally, the US was unhappy, with former secretary of state Mike Pompeo calling these actions “corporate kowtow”.   However, because such a strategy allows multinationals to get around the US sanctions without losing much, the higher the number of companies adopting it, the lesser the actual impact of the US sanctions, to the extent that the Biden administration may lift the sanctions altogether. This is precisely the aim of the new law.

China’s appreciating yuan could ultimately damage economy, says former top financial official
Guan Tao, a former senior official at the State Administration of Foreign Exchange, says long-term appreciation of the yuan could hurt job creation among small exporters   China’s yuan has gained about 12 per cent against the dollar since May 2020, hitting its highest levels in more than three years   Purchasing managers’ indices data   shows the new exports orders index for smaller firms has been below 50 since November, representing a contraction.  China’s yuan has gained about 12 per cent against the US dollar since May 2020, hitting its highest levels in more than three years. Chinese policymakers have recently warned market participants against making one-way bets on the yuan and the People’s Bank of China (PBOC) on May 31  raised the reserve requirement ratio   on foreign exchange deposits for the first time in 14 years.   PBOC Governor Yi Gang reiterated at a financial forum last week that the central bank would keep the yuan exchange rate basically stable, while vowing to further improve China’s exchange rate mechanism.    The yuan’s recent strength has, however, prompted some discussion among academics about its possible benefits in offsetting the rise in global commodity prices.

EU, US launch trade, technology council to outcompete China
A joint EU-US statement says the council would focus on removing trade barriers, setting global standards and promoting joint innovation in key technologies       ‘We commit to building an EU-US partnership on the rebalancing of global supply chains in semiconductors,’ statement reads

Alibaba Victim of Huge Data Leak as China Tightens Security
Alibaba Group Holding Ltd. was the victim of a months-long web-scraping operation by a marketing consultant that siphoned up sensitive data including usernames and phone numbers, according to a court case that wrapped in June. A central Chinese court ruled that an employee of a consultant that helps merchants on Alibaba’s Taobao online mall was guilty of dredging up more than a billion data items on Taobao users since 2019, using that to serve clients. The court imposed jail terms of more than three years on the staffer and his employer, alongside fines totaling 450,000 yuan ($70,260).

Alibaba’s Jack Ma still ‘lying low’, but company has put last year’s regulatory storm behind it, executive vice-chairman says
In wide-ranging interview, Joseph Tsai says billionaire living a ‘normal life’ focused on hobbies and philanthropy after stepping down from chairmanship and CEO role two years ago     The top Alibaba executive also praises stability brought by Hong Kong’s national security law, saying he felt personally unsafe in the city as a Mandarin speaker during 2019’s anti-government protests

China wants to go carbon-neutral — and won’t stop burning coal to get there
walls and ceiling of the Nanshan mine shimmer black, carved straight into a 200 million-year-old coal seam running 1,300 feet underground. Black veins of Jurassic-era coal deposits still thread Shanxi province in China’s north, enriching public coffers and keeping generations of miners steadily employed.    Last year, China committed to going carbon-neutral by 2060, an ambitious undertaking for a country that still relies on coal for more than half its energy needs. The country has invested heavily in solar, wind and nuclear energy. Yet coal-fired heavy industry still made up about 37% of all its economic activity last year, and some provinces are even planning to increase coal-fired power generation.

As China’s population ages, age discrimination in China’s workplace needs to end
  China’s latest census data show that its population is aging fast. Nearly one-fifth of the population in 2020 was aged 60 and above, 5.4 percentage points higher than a decade earlier. At the same time, the working-age share of the population, those between 15 and 59, continues to shrink. To counter the drag of a shrinking working-age population on growth, the government is now planning to gradually raise the legal retirement ages. However, age-based discriminations are prevalent in China’s workplace and are incurring a huge cost to labor market efficiency. Unless the government takes concrete actions to address the widespread age-based discrimination at work, raising retirement ages will only have limited impact on keeping more older workers in the labor force.

China’s shadow banking crackdown continues
China is continuing its clampdown on over $1 trillion in opaque investments that are being funneled through riskier borrowers, such as developers, despite being advertised by banks as low risk and high yield, reported Bloomberg.According to highly-anticipated rules published on Friday, banks and wealth managers are no longer able to use money invested in cash management products to secure long-term debt or bonds rated below AA+. By the end of next year, an estimated RMB 2.5 trillion ($390.5 billion) of the products will become non-compliant, needing to be replaced with lower-yielding, high quality investments.  While the regulatory tightening was flagged 17 months back, China’s lenders have continued to make riskier investments. It is anticipated that we will see a reduction in such investments as returns decline, shrinking the market by 10% and denting bank revenues.

China’s economic planners have wrested control over climate policy from bureaucrats in the environmental department, potentially jeopardizing efforts to meet emissions pledges made by Xi Jinping before the United Nation’s General Assembly in 2020. Addressing climate change is a central plank of China’s domestic and international policy—Xi attended a White House climate summit this April—but it is unclear whether Chinese leaders have the political will, or capacity, to achieve their lofty reform goals. At The Wall Street Journal, Sha Hua and Keith Zhai reported on the developments in China’s bureaucracy, where officials have watered down landmark emissions caps to protect economic growth:

China’s latest Yangtze mega dam powers up all units as country banks on hydropower to curb greenhouse gases
The Wudongde dam is one of the world’s biggest hydroelectric stations and will help meet a pledge to become carbon neutral, according to the project director    The plant on the Jinsha River, as the upper reaches of the Yangtze are known, will help ‘safeguard power supplies’ in the Greater Bay Area

China blames fuel rod damage for nuclear plant issues
A handful of damaged fuel rods is behind a build-up of radioactive gases at a nuclear power station in southern China, authorities said on Wednesday, describing the problem as “common” with no need for concern.   CNN reported earlier this week that the US government was assessing a report of a leak at the Taishan plant in China’s southern Guangdong province, and the station’s French operator Framatome reported a “performance issue”.

Hungary approves land donation for controversial Chinese university
Lawmakers vote overwhelmingly to give planned Fudan campus four state-owned plots earmarked for local student housing    The project has attracted fierce opposition from Budapest’s mayor who wants a referendum on the issue before elections in April

Why Asean-China relations will remain cordial, but not close
As the global geopolitical focus shifts to Asia, Asean takes on greater salience for the major powers, particularly China     While China and Asean have pledged in their recent meeting to take their partnership to ‘new heights’, given China’s actions in the region, Asean’s wariness is understandable  In the last decade, the global geopolitical focus has shifted to Asia, and the Indo-Pacific  has acquired a strategic contour.   Concurrently, China under President Xi Jinping has also pursued creeping maritime assertiveness in the South China Sea and muscular territorial consolidation in relation to India. The South China Sea has become a subregion of discord with some member-states, such as Vietnam, Philippines and most recently Malaysia, feeling the heat of Chinese intimidation.Asean is pivotal in the larger construct of the Indo-Pacific and all the major powers – the US, China, Japan and India – have robust ties with the collective. However, this region is China’s backyard and Beijing would like to ensure that the region acknowledges Chinese primacy.   China has a complex interpretation of its “strategic” partnerships with other countries; currently Russia and Pakistan enjoy the highest degree of trust and cooperation. How the China-Asean strategic partnership will be taken to “new heights”, as envisioned in the Chongqing document, will be shaped considerably by the outcome of US President Joe Biden’s meeting with his Russian counterpart on Wednesday.  The texture of the US-Russia-China triangle will temper the options Asean can explore to retain its own autonomy and political-diplomatic locus in the post-pandemic decade. For now, a subdued Asean-China cordiality will prevail.

China-Japan relations: Tokyo complains to WTO over import taxes on its stainless steel imports
Japan claims the measures imposed in 2019 appear to be inconsistent with various provisions under the General Agreement on Tariffs and Trade (GATT) 1994 and the Anti-Dumping Agreement    Japan’s government confirmed on Friday that it had complained to the WTO over China’s anti-dumping tax for stainless steel products, namely steel billets, hot-rolled coils and hot-rolled plates

China-Australia relations: Canberra to decide ‘very shortly’ on WTO action against wine tariffs
In March, China imposed tariffs of up to 218 per cent on Australian wine for five years, formalising curbs that had been in place for months amid an increasingly fraught relationship with Canberra,   In a radio interview last week, Prime Minister Scott Morrison described the tariffs as ‘completely unconscionable’

‘Chinese people have stood up’: Beijing says it has no fear of US-EU aims to counter rising China
Both the Chinese diplomatic mission at EU and the foreign ministry have rebuked Western powers after they launched trade and technology council    Chinese Defence Minister Wei Fenghe told Asean meeting China was determined to protect sovereignty over Taiwan, Hong Kong, Xinjiang and South China Sea

China, Russia have ‘no choice’ but to strengthen strategic and military ties in face of G7 and Nato, observer says
Biden and Putin will meet in Geneva to discuss deteriorating relationship but expectations are low   Moscow and Beijing could pursue a closer alliance after G7 and Nato took a tough line on both

Politico | Pentagon considers permanent naval task force to counter China in the Pacific
Sources say creating the task force and a named military operation would add muscle to US President Joe Biden’s tough talk on China   This comes as Nato leaders this week declared Beijing a security challenge and said the Chinese are working to undermine global order

The social and geopolitical origins of China’s rise
Review of Ho-fung Hung’s “The China boom”  I read with pleasure the recent book “The China boom: Why China will not rule the world” by Ho-fung Hung. You should not be put off by the silly subtitle (probably added by the publisher to contrast Hung’s book to Martin Jacques’s). The book is much better than its subtitle implies. It gives a historical overview of how China’s economy functioned under Ming and Qing, goes over the well-known themes of how and why capitalists failed to create a coherent class in China (unlike in Europe), and how the paternalistic Qing slowed down that process by often supporting workers in disputes with owners, the very opposite of what capitalist-controlled European states did at the time. I wrote about these themes in my reviews of ArrighiJacques, and Pomeranz, so I will not go back to them.

Coronavirus quarantine waiver: Hong Kong will need weeks to process hundreds of applications, but the plan is ongoing
Hundreds of waiver applications have been filed, requiring time for regulators overseeing those sectors to process, according to people familiar with the matter    The exemptions are not on hold, one person said

Communist Party jargon: from tigers and flies to the Chinese dream, 10 slogans used in the Xi Jinping era
Like others before him, president has popularised terms and phrases to sum up his ideology and policies   They cover everything from corruption to national goals, challenges and global aspirations

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