China Press Review – June 18, 2021

Debt, not demographics, will determine the future of China’s economy
In May, Beijing belatedly released its latest 10-year census data, setting off warnings in China and abroad that the country was facing a demographic crisis. But the world may be misreading the implications of China’s population changes. This matters when we project China’s long-term growth rates. Beijing announced last year that it expected to double China’s real GDP in the next 15 years. This requires average real GDP growth of 4.7% a year. Yet a declining working population means that China’s productivity per worker must increase at a faster rate: 5.2% to 5.3%, rather than the 4.5% it would have needed when the working population was still rising. The opposite is true with a declining working population. Total debt in China represents at least 280% of China’s GDP, according to government figures. If China’s future GDP growth requires the same level of credit growth as it has in the past, then China’s debt-to-GDP ratio must rise to somewhere between 400% and 500%: an unprecedented level of debt, especially for a developing country. Adjusting for a declining working population makes the numbers even worse. As the working population declines by 0.5% to 0.6% a year, the amount of debt per worker rises by an additional 2% to 3% of GDP every year.  These are bad numbers, but they do not in themselves represent a crisis. This is because China’s debt trajectory was already unsustainable, and the main impact of China’s adverse demographics will be to accelerate the adjustment. That is why China’s leadership must either resolve its overreliance on debt or—like most countries that have followed a similar growth model—be forced to do so in a way likely to be economically painful. Unless we believe that China can allow its debt to rise at its current rate for many more years—which would be both unlikely and historically unprecedented—the four paths outlined above are logically the only ways in which the Chinese economy can adjust before it is derailed by debt. Each requires such a major transformation of the economy that it would outweigh the effect of its declining population on China’s economic future. In fact, the main effect of deteriorating demographics is to reduce the amount of time China has to address its debt, thus making an adjustment all the more urgent.   China’s deteriorating demographics worsen an existing problem, but do not fundamentally change anything.

China”s shadow bank crackdown is finally working
It’s not quite a People’s Bank of China taper, but Beijing’s crackdown on shadow banks is suddenly getting as creative as it could be impactful.    Over the last week, Chinese regulators detailed plans to limit what mainland banks and wealth managers can do with so-called ” cash-management products .” It’s a nearly US$1 trillion segment, one that involves investing in assets that must be traded for lower-yielding, higher-quality assets by the end of 2022. It’s a pivotal sector. While only about $400 billion of these products are currently in circulation, their placement in assets rated lower than AA+ – often supporting riskier borrowers like property developers – is a vital lubricant keeping mainland credit markets liquid and agile.    Yet it is also a source of market froth that authorities want to tame. Beijing is now taking direct aim at these opaque investments by forcing banks and wealth managers to avoid sub-AA+ rated bonds and longer-term debt.  This step could address two of President Xi Jinping’s top 2021 goals: reducing runaway leverage and incentivizing Chinese borrowers to improve credit quality in ways that stabilize the broader economy.

Swiss-China relations: testing times lie ahead
Beijing’s reaction to Switzerland’s new China strategy is symptomatic for deteriorating Europe-China relations, says Tashi Götzmann. Bilateral relations have to mature.
Switzerland has long been a pioneer of European economic cooperation with China. The countries forged a free trade agreement in 2014, for example, and are pursuing bilateral talks on expanding financial market cooperation. Indeed, Switzerland has come to serve as China’s reliable proxy to test the viability of new forms of economic involvement with all of Europe. But recently even Swiss-China relations appear to have followed the disheartening pattern familiar from China’s confrontations with other European countries. The Bern-Beijing strains signal that testing times lie ahead for European relations with China.

The compromises that US companies make to do business in China
Doug Guthrie spent 1994 riding a single-speed bicycle between factories in Shanghai for a dissertation on Chinese industry. Within years, he was one of America’s leading experts on China’s turn toward capitalism and was helping companies venture East. Two decades later, in 2014, Apple hired him to help navigate perhaps its most important market. By then, he was worried about China’s new direction. China’s new leader, Xi Jinping, was leaning on Western companies to strengthen hi ..

Beijing can stay calm amid new EU-US pact as interests of Washington, Brussels are not aligned
The EU-US Trade and Technology Council was launched on Tuesday to serve as a forum for the two sides to coordinate their efforts amid the challenge from China     It marked the latest salvo by the Biden administration against Beijing during his recent European tour       Other analysts see China as having many advantages in its trade and tech rivalry with the US, especially around the latest cutting-edge technologies.   “The reality is that today when it comes to AI5G and EVs, along with its mainstay chip supply chain … in Asia, the tech power race has clearly tilted towards Beijing,” said Daniel Ives, managing director for equity research at New York-based Wedbush Securities.   To be sure, the exclusion of Huawei Technologies Co and ZTE Corp from supplying their 5G gear to major telecommunications network operators across Europe shows that the US does not need a high-level council to push its anti-China agenda.   The Trump-era 5G foreign policy strategy started with smaller, Eastern European and Baltic countries, then moved last year to bigger countries like France and Britain. This is likely to continue under Biden.  Commenting on the new EU-US pact, Zhu Yun, an associate professor in economics and finance at St John’s University in New York, said that initiative relies on how much Brussels can trust Washington’s policies to continue, which could lead to new geopolitical moves.   “A stronger transatlantic partnership may further push Moscow to Beijing,” said Zhu, without elaborating.

A huge backlog at China’s ports could spoil your holiday shopping this year
coronavirus outbreak in southern China has clogged ports critical to global trade, causing a shipping backlog that could take months to clear and lead to shortages during the year-end holiday shopping season      “With sustained strong demand for ocean shipping around the globe, we will continue to see constrained ocean shipping with higher-than-normal rates and more than usual cargo rollovers,” Joshi said, referring to shipments that have to be booked on a future voyage because they can’t be loaded onto the original ship.   Demand is likely to shift somewhat as countries loosen Covid-19 restrictions and people start spending less on household appliances and other products and more on outdoor experiences again. But the constraints on the global supply chain are unlikely to go away soon.
“More recently we have seen extended fatigue in the global supply chain adding further to already existing challenges,” Sand from Bimco said, adding that the strains will likely continue to be felt “for up to a year.”

China ‘ahead of US’ in monetary policy adjustments, as US Fed revamps interest rate predictions
Chinese financial officials have long talked about spillover effects from US Federal Reserve policy moves – such as pressure on the yuan exchange rate   US Fed policy tends to impact the global forex market and cross-border capital flows, and Beijing paid a hefty price in the last cycle of rising interest rates

China-EU deal crucial to stop Europe’s declining investment
China’s investment in Europe hit a 10-year low in 2020, a recent report showed, citing reasons including EU’s tighter scrutiny and the COVID-19 pandemic. It predicted that the trend may continue this year.    The 27 EU members together with the UK saw a foreign direct investment (FDI) decline of 45 percent from China in 2020, down to euro 6.5 billion ($7.77 billion) from euro 11.7 billion in 2019, revealed the report issued by the US-based research consultancy Rhodium Group and the Germany-based think tank Mercator Institute for China Studies (MERICS).

Flagging yields amid rising inflation raise fears the bond market is broken
Rather than a signal to intervene, the fall in yields might be a sign that messages around the transitory nature of inflation are starting to sink in     The onus is on the US Federal Reserve to justify its accommodative stance and lean into its guidance that it will tolerate higher inflation before raising rates

China’s Position on the Digital Service Tax
China’s digital economy currently accounts for one third of its GDP. According to the estimation by the China Academy of Information and Communications Technology, in 2019, China’s digital economy reached US$5.52 trillion, accounting for 36 percent of its GDP, making it the world’s second largest digital economy.   The COVID-19 outbreak has further boosted this digital economy. According to the State Statistics Bureau, from January to November 2020, China’s total retail sales fell by 4.8 percent year-on-year, but online retail sales increased by 11.5 percent year-on-year.  Given the large scale and rapid growth rate of China’s digital economy, how to tax it is an important concern for the government but it is not simple. It involves tax equity between the real economy and the digital economy, as well as the fair sharing of the ownership and value of user data between the public and internet platforms.

How China is targeting Big Tech
The country’s previously dormant antitrust regulators are fighting for power to discipline the sector Lawyers and tech insiders said the wave of antitrust activity had come partly in response to public anger over the enormous power of some tech companies  The sudden burst of activity from the State Administration of Market Regulation (SAMR) has rattled the tech sector. “It’s the speed of the U-turn that has surprised everyone: in China, regulators can move very quickly. In fact, China is catching up to the regulatory norms of the US and EU — the direction is right,” Antitrust could be a useful tool to keep these tech giants disciplined,” she said. In March, Li Shouzhen, a member of China’s government consultative committee, told state media that China was shifting from the. “Chinese government departments at all levels relentlessly compete for policy control,” she said. “The antitrust regulators definitely see the current campaign against Big Tech as the perfect opportunity to step back into the limelight, allowing its small bureau to request more budget and personnel.” The sharpest stick that SAMR has is the antitrust law, which allows for fines of up to 10 per cent of a company’s domestic annual revenue, the same penalty proposed by the EU’s Digital Markets Act. But investigations under this law can be slow, and its main purpose is deterrence In April, Tencent said it would spend Rmb50 billion ($7.7 billion) in social and environmental initiatives. Pony Ma, Tencent’s founder, also pledged $2bn of his shares to charity. Other tech executives are stepping out of the limelight Oliver Rui, professor of finance at China-Europe International Business School in Shanghai, warned that tighter controls over data collection would be the top risk for the companies — much as Apple has hurt the global advertising industry through tighter controls on tracking. Investors remain confident in backing the current industry leaders. “These companies are leaders because they have built steep competitive moats. Their platforms still have significant centralising power, and they will continue to be the leaders,” added Cai, the venture capitalist.

TikTok Owner ByteDance’s Annual Revenue Jumps to $34.3 Billion
ByteDance’s gross profit rose 93% to $19 billion last year, according to a memo to staff

Alibaba Shrinks Carbon Footprint During China’s 6.18 Online Shopping Bonanza
Alibaba Group’s carbon footprint shrank during China’s mid-year shopping festival, part of the internet platform’s efforts to zero in on carbon neutrality.     The world’s largest retailer by some measures said that the carbon emissions per order during China’s second-largest online shopping bonanza, known as 6.18, fell 18% on a daily basis compared with during the event last year, the Chinese internet giant said on Friday. Hangzhou-headquartered Alibaba shared its greenness measurement for the first time but did not reveal the total level of carbon emissions for the period of intense computing activity between June 1 and June 20.     “We have been working on both the back-end infrastructure and front-end application, with a mission of making the 6.18 sales a low-carbon event and achieving carbon neutrality for our business in the near future,” said Li Cheng, Alibaba’s Chief Technology Officer in a statement announcing the reduction.

Chinese retail investors reminded about embracing value investing by ‘Millionaire Yang’, ex-factory worker lionised by Beijing
Yang Huaiding, better known as ‘Millionaire Yang’ and lionised by the state as a trailblazer among retail investors, died on Sunday at 71      Yang urged investors to discard junk, shun speculative stock rallies and embrace fundamentals and value investing

Ma Jun: “There is a green momentum in China. We had no choice but to change our model”
“We had realised that we had no choice but to change our production model. China now burns half the world’s coal and it would likely have doubled the amount before peaking. Neither China nor the world could afford that,” says Ma Jun from his office in Beijing.

Why Taiwan’s Covid-19 disruptions may give mainland Chinese chip makers more pricing power
The Covid-19 impact on Taiwan’s chip production has so far been limited, but the fact that it comes on top of a global chip shortage has only exacerbated the supply situation      King Yuan Electronics Co, the world’s 8th-largest IC package and testing firm, suspended all of its foreign migrant workers at its main Taiwan plant for two weeks on June 7

Baidu to deploy 1,000 budget robotaxis on Chinese roads as it seeks ways to monetise autonomous driving technology
Baidu’s fifth generation Apollo Moon has a per-vehicle cost of under 500,000 yuan (US$77,665), compared to 1 to 2 million yuan per vehicle previously      In May, the search giant launched China’s first paid robotaxi service in Beijing’s Shougang Industrial Park

Alibaba Rolls out Hypermarket Chain ‘Store X’ to Cater to Affluent Urban Families in China
Alibaba Group opened two more stores in its members-only hypermarket chain ‘Store X’ on Friday to serve a burgeoning class of affluent families in Chinese cities.     The world’s largest retailer by some measures said it plans to add eight more Store X locations this year, bringing the total to 11 since its launch of the chain last October.

3 Ways Foreign Luxury Brands Can Tap Into China’s Guochao Trend
So far, guochao has mainly been associated with Chinese brands. But Western brands can take advantage of this trend if they follow these three rules.   International luxury brands are shying away from guochao because of fear of repercussions, yet it represents lucrative potential. Brands must be authentic and humble while showing respect for China’s recent history in their nostalgic marketing.  Luxury labels can leverage a large Chinese audience and an in-depth cultural/ historical understanding by partnering with Chinese brands and creators.

Optimistic outlook for Chinese investment into Luxembourg in post-Covid times
Marcus Peter and Kate Yu Rao of GSK Stockmann provide an update on Chinese investment into Luxembourg, looking at fund structuring and investment structures. They explain that despite the slowdown in Chinese foreign direct investment into the EU, the outlook for Luxembourg remains optimistic.

Tapping into China’s Space Program
China’s space program clocked another achievement as it successfully sent its first group of three astronauts to the country’s under-construction space station. China aims to have a fully functioning station by 2022.

Are Asia’s Covid ‘winners’ entering shaky new territory?
Australia. New Zealand. Singapore. Vietnam. Japan. Hong Kong. South Korea. Taiwan.

China ‘regrets’ Japan’s decision to complain to WTO over stainless steel anti-dumping duties
Japan confirmed last week it had complained to the body, with the request for consolation officially circulated to World Trade Organization members on Tuesday      China is already set for a showdown with Australia at the WTO over anti-dumping and anti-subsidy duties imposed on Australian barley in May

The G7’s jumpstart for multilateral cooperation
The 47th G7 Summit was held between 11–13 June 2021 in the United Kingdom. Global problems need global solutions and the G7 is one of the most important platforms for galvanising multilateralism. The G7 convenes some of the world’s largest and most advanced economies, which cumulatively account for 40 per cent of global GDP. Outcomes of the meeting can set the direction of responses to transnational issues.   Admittedly, G7 members differ in their bilateral approaches toward Beijing. Yet, the summit outcomes expressed the grouping’s united front against China. The communique mentions ‘China’ four times and connotes that the pact does not agree with China’s approaches in different areas. Unsurprisingly, this drew criticisms from Beijing. As soon as leaders called out China for human rights violations, the Chinese Embassy in the United Kingdom urged the G7 to stop interfering in China’s internal affairs.   Beijing sees the US-inspired B3W initiative as a response to its own Belt Road Initiative (BRI). The BRI has come under fire from several Western states for its lack of transparency, debt trap risks and overwhelming involvement of Chinese state-owned enterprises. The call for a second WHO COVID-19 origins investigation will also further deepen rifts between Beijing and G7 members, especially the United States.  Overall, the summit demonstrates that multilateralism is alive, with the G7 being a platform through which collective action can be coordinated to tackle global issues. But the bloc’s confrontational stance towards China may not only enrage Beijing but also make it more difficult for other non-G7 states to navigate a more divided international environment. How the outcomes of the meeting will be carried forward in other international forums remains to be seen.

China has lost Australia
Anyone wondering why the Liberal-National Federal Government did a U-turn on Australia’s relations with China over recent years?  Wonder why Australians still aren’t enamoured with the ALP opposition, despite a government coming across as misogynist, incompetent, and prone to pandering to the whims of corporate Australia and the 1%?    Ironically, the barely concealed CCP propagandist outfit at UTS, Australia-China Relations Institute, has nailed the answers.  This week a new report on Australian views on the Australia-China relationship’ reveals that Australians are seeing through the Chinese propaganda with laser-like vision.  Scott Morrison, the man from Marketing, has obviously twigged, but the focus group results for the ALP must still be waiting on the line.

Biden-Xi meeting ‘likely’ at October G-20 summit, US says
A meeting between U.S. President Joe Biden and Chinese President Xi Jinping will likely take place in October at the Group of 20 summit, the White House said on Thursday, noting Western countries’ increasing alignment on China.   Biden “will look for opportunities to engage with President Xi going forward,” U.S. national security adviser Jake Sullivan said on a briefing call when asked if such a summit is in the picture after Biden concluded his first trip abroad as president to Europe on Wednesday. The most recent high-level correspondence between Beijing and Washington took place just ahead of the G-7 summit, when U.S. Secretary of State Antony Blinken spoke by phone with Chinese foreign affairs chief Yang Jiechi, who is a Politburo member and the director of the Office of the Foreign Affairs Commission.    Sullivan said a major area of progress out of the G-7 meeting this week was “convergence among like-minded countries, among the world’s democracies, on China.”  This includes the start of a new infrastructure initiative billed as a high-standard and transparent alternative to Beijing’s Belt and Road Initiative, directly addressing the challenge of China in a NATO communique for the first time, as well as the launch of the U.S.-EU Trade Technology Council, which seeks to coordinate response to China’s nonmarket economic practices, he said.”Obviously, we take seriously the concern that the Taliban or other elements in Afghanistan will attack the Western — or the international — presence, diplomatic presence or security presence in and around Kabul,” he continued. “That’s why we are putting together a detailed and effective security plan.”

Mapping China’s growing global influence
As of 1980, China was the most influential player in just one country: Albania. Now, China is the leading power across most of sub-Saharan Africa and Southeast Asia and is catching up to the U.S. in its own hemisphere.

podcast Chinese diplomat vows to ‘keep striking’ Western public opinion
“Westerners criticize us for being undiplomatic,” Chinese Ambassador to France Lu Shaye told Chinese media. “We will not stop doing what we are doing simply because foreigners don’t like what we do.”

China’s Wolf Warrior diplomacy is our justified defence – get used to it, says outspoken diplomat
Chinese ambassador to France Lu Shaye says striking back embodies the ‘achieve something’ mantra of Deng Xiaoping    His remarks come after President Xi Jinping called for top party officials to build a more ‘respectable’ image of China

MERICS Web Seminar: Presenting the latest MERICS Paper on China    The CCP’s next century
As it approaches its 100th anniversary in July, the Chinese Communist Party (CCP) appears stronger and more confident than ever. In the latest MERICS Paper on China “The CCP’s next century: expanding economic control, digital governance and national security” our experts cover three key aspects of CCP governance: the integration of the economy under politics, the role of digitalization and the new foreign policy paradigm that puts China’s national security first. In this web seminar the authors presented their analysis and were joined by seasoned China experts for an inspiring discussion.

Queues form at newsstands as readers snap up half a million Apple Daily copies
Hongkongers queued from around Friday midnight to grab freshly printed copies of Apple Daily in bulk, shrugging off a warning by the city’s security minister for the public to “keep a distance” from the newspaper after an obtrusive police raid on its headquarters the day before. In response to the Thursday operation of more than 500 police officers, Apple Daily produced 500,000 copies of its Friday issue.  The extra printing notwithstanding, newsstand vendors were left clamoring for more as some readers placed reservations worth as much as a few thousand dollars with them to buy the newspaper.

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