Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – March 15, 2022

China’s retail sales, industrial data soundly beat expectations
China reported Tuesday better-than-expected growth in retail sales, fixed asset investment and industrial production to start the year. The data releases combine the two months of January and February as is the Chinese statistics bureau custom to avoid distortions from the Lunar New Year holiday, which can fall in either month depending on the year. Retail sales grew by 6.7% year-on-year, topping expectations of analysts polled by Reuters for growth of 3% from a year ago.

China: Retail sales strength enables PBoC pause
All three activity data releases were better than expectations, but the highlight for us was the strength of retail sales. This is even more notable during a period of strict people flow control during the Chinese New Year holidays. This better-than-expected news has enabled the PBoC to hold policy rates steady.

Economic indicators in first 2 months better than expected
January-February readings for China’s major economic indicators came in better than expected, despite headwinds amid the challenging external environment and COVID-19 cases at home, the National Bureau of Statistics said on Tuesday. NBS said the nation’s economy sustained steady recovery in the first two months, laying a solid foundation for a good start in the first quarter. The country’s value-added industrial output rose by 7.5 percent year-on-year in the January-February period, 3.2 percentage points higher than in December, NBS said. Retail sales grew by 6.7 percent in the first two months on a yearly basis, compared with 1.7 percent in December, the bureau said. Fixed-asset investment rose by 12.2 percent year-on-year in the January-February period, up from 4.9 percent for the whole year of 2021.    The surveyed urban jobless rate came in at 5.5 percent in February, matching the same period last year, the bureau said.

China’s economy had a surprisingly good start to the year, but it may not last
China’s economy started the year on a bright note, with several major indicators beating forecasts. But as Covid cases in the country spike, keeping up the same pace of growth in the coming months may prove difficult. Retail sales rose 6.7% in the first two months of 2022 compared to a year ago, according to data released by the National Bureau of Statistics (NBS) on Tuesday. That was well above the estimated 3% increase in a Reuters poll of economists. Industrial production jumped 7.5% during the same period, surpassing the forecast of 3.9%. And investment in fixed assets, such as infrastructure and machinery, jumped 12.2% from a year earlier.

As China’s infections rise, economic prospects take another hit and stock sell-off worsens
Beijing scrambles to contain the worst outbreak China has seen since Wuhan in early 2020, as daily infections surpass 5,000. Lockdowns in coastal cities, including the first imposed on Shenzhen, prompt warning that situation has ‘deteriorated at an alarming pace’, with big economic hit expected.

The Chinese Yuan Moves Toward Independence
Because of the increasingly complicated worldwide geopolitical issues, as well as the economic and financial repercussions, the RMB exchange rate has gradually increased since the second half of last year. Even with the U.S. Dollar index breaking above 97 highs, the renminbi yuan maintained a stable and upward trend against the U.S. dollar. The interest of market institutions and researchers is piqued while this pattern is shifting between the RMB and the USD. Some financial media outlets, notably Nikkei, have highlighted the yuan’s growing status as a reserve currency in Asia.

China holds off on policy rate cut despite concerns over economic slowdown, but it’s ‘only a matter of time’
People’s Bank of China (PBOC) keeps rate on 200 billion yuan (US$31.44 billion) worth of one-year medium-term lending facility (MLF) loans unchanged. Rate on the loans to some financial institutions remained at 2.85 per cent despite concerns over a slowdown in the world’s second-largest economy.

China’s central SOEs see steady revenue, profit growth in first 2 months
China’s centrally administered state-owned enterprises reported steady revenue and profit growth in the first two months of 2022, according to the country’s top state asset regulator. The combined revenues of 97 central SOEs reached 5.7 trillion yuan ($894 billion) from January to February, up 17.6 percent year-on-year, the State-owned Assets Supervision and Administration Commission of the State Council said in a statement on Tuesday. During the period, the total profits of these companies hit 367.87 billion yuan, expanding 20.6 percent year-on-year, with net profits growing 20.4 percent to 282.17 billion yuan.

How can Asia embark on a sustainable growth path?
I’ll make five points. First, the net zero equation doesn’t close. What I mean by that is that while 90 percent of the world’s GDP has made a commitment to net zero, either in 2050, 2060, or 2070 like India has recently at COP 26, we are, with those commitments, still on a path to cross 1.5-degree temperature rise for the Earth by 2050. The second point I would make is that the demand for decarbonized products is already beginning to exceed the supply of decarbonized products. Just as an example, green steel demand by auto makers in Europe for making less carbon cars will very soon exceed the availability and the supply of green steel. Asia’s place in this is unique and is different. First, a large proportion of the billion climate refugees that we expect to see with the temperature rise are going to be in Asia, a lot of them actually in India, about 40% of those. And there’s a very substantial investment that Asian countries will have to make to transition their economies towards net zero. Just to give a sense, the world’s own overall investment in land systems, mobility systems, and energy systems will have to be around 7.5 percent of the global GDP over the next 30 years. In Asia it differs, it’s about 4 to 5 percent of China’s GDP. And for a country like India, it’s about 11 percent. So, a substantial amount of investment is going to go.

China’s nuclear energy goals unlikely to be upended by safety concerns amid Russia’s invasion of Ukraine
Beijing is positioning nuclear energy ‘as a key option to replace coal power in the coming decades’, Wood Mackenzie analyst says. The cost of nuclear power in China is competitive with coal power, and about half the cost of building new units in the US, UK or France.

China’s digital yuan could challenge the dollar in international trade this decade, fintech expert predicts
China’s digital yuan is set to challenge the dollar’s domination as the currency of choice in international trade settlements, predicts author and financial technology consultant Richard Turrin. China has been ramping up efforts to roll out its central bank digital currency, and is currently far ahead in the space as compared with its global peers. Nations are likely to look for alternative payment systems as part of a “risk management exercise” to reduce their current dependence on the dollar, says Turrin.

China Stocks in U.S. Tumble Again on Russia, Regulatory Woes
U.S.-listed Chinese stocks sank again on Tuesday, following a brutal rout in Asia, amid concerns that China’s ties with Russia may bring sanctions to Beijing, while persistent regulatory pressures also weighed.

China’s reputation is at risk if Beijing were to help Russia in its war on Ukraine
China risks paying “high reputational costs” should it decide to assist Russia in its war against Ukraine, according to one political analyst.Even if China wanted to “bail out” Russia — either financially or economically — its capacity to do so is very limited, said Robert Daly, director of the Kissinger Institute on China and the U.S. On Monday, U.S. national security advisor Jake Sullivan held an “intense” seven-hour meeting with China’s top foreign policy advisor Yang Jiechi in Rome.

China says it wants to steer clear of U.S. sanctions over Russia’s invasion of Ukraine
 “China is not a party to the crisis, nor does it want the sanctions to affect China,” Foreign Minister Wang Yi said Monday during a call with Spanish counterpart Jose Manuel Albares to discuss the crisis in Ukraine. “China has the right to safeguard its legitimate rights and interests,” Yi said. Since Russia’s attack on Ukraine, Beijing has refused to call it an invasion and said China would maintain normal trade with both countries.

Six reasons why backstopping Russia is an increasingly unattractive option for China
China has too much to lose from aligning with Russia over Ukraine. Providing support for Russia might allow China to acquire some Russian assets on the cheap, but the Chinese leaders know this would be unpopular with the Russian public and could generate a dangerous political backlash. Worse, China would be faced with a Russian expectation of massive economic assistance, with uncertain likelihood of repayment. To be sure, even if China recalibrates its balance of interests, it will not join quickly with the US and EU in supporting Ukraine. China has recently been the target of US and European sanctions, and of US tariffs. It bears scars from what it views as over a century of domination and humiliation by the West and Japan, from 1840 to 1949. But China has also become too large and visible to maintain a neutral stance. It can deprive Russia of support without ostensibly coordinating its action with the United States. Chinese rhetoric and propaganda may continue to take Russia’s side on the initial causes of the invasion. But what China does is more important than what it says. Time is not on China’s side in terms of offering support to President Putin. Continuing Russian atrocities against civilians in Ukraine will be further enabled if China sides with Moscow. That would increasingly derail a return to the conditions that made China’s economic growth possible – a global trading system based on non-discrimination that welcomed China as a participant. A misreading of the pro-Ukraine camp’s resolve could impair China’s economic prospects to an extent that cannot be possibly offset by reliance on domestic (or Russian) demand. Rather than the US rolling back some of the Trump-era anti-China tariffs, these could become a foundation on which new restrictions are built, and could be emulated by other economies. China has demonstrated pragmatism over time in building its economic position in the world. Prolonging its embrace of Russia would be a major misstep, with likely massive economic costs.

U.S. holds ‘intense’ 7-hour talks with China amid Russia’s war in Ukraine
A senior administration official described the talks, which were held in Rome, as “intense” and spanning at least seven hours. The official, who spoke on the condition of anonymity, said national security advisor Jake Sullivan conveyed to the Chinese delegation that the U.S. is concerned Beijing may attempt to help Russia blunt global sanctions.Sullivan’s trip comes on the heels of reports that Moscow requested that China provide military equipment for its war in Ukraine, which is now in its third week.

Sullivan, Yang Talk Ukraine, Taiwan in ‘Intense’ China-US Meeting
The 7-hour talks covered a range of bilateral and international issues, but the U.S. and China chose to focus on very different things. China reacted with predictable pushback: “China opposes all forms of unilateral sanctions and long-arm jurisdiction of the U.S., and will resolutely defend the legitimate rights and interests of Chinese companies and individuals.” Also just ahead of the meeting, U.S. media – citing U.S. officials – began reporting that Russia had asked China for military assistance. On Monday, China’s Foreign Ministry spokesperson Zhao Lijian accused the U.S. of “maliciously spreading disinformation targeting China.” He added, “China’s position on the Ukraine issue is consistent and clear. We have been playing a constructive part in promoting peace talks.” Yang made that point again in the talks with Sullivan, saying that China “firmly opposes any words or actions that spread false information or distort or smear China’s position.” Clearly, China is not happy with the spate of U.S. officials commenting on the latest developments in China-Russia relations vis-a-vis the Ukraine invasion. Neither Yang nor Zhao, however, explicitly denied that China was considering providing support to Russia. On the same day as Sullivan met Yang in Rome, Chinese Vice Foreign Minister Ma Zhaoxu and Russian Deputy Foreign Minister Sergey Vershinin held a virtual meeting to discuss “multilateral affairs between China and Russia.” According to China’s Foreign Ministry readout, “Both sides agreed to uphold the spirit of China-Russia comprehensive strategic partnership of coordination for a new era, jointly uphold true multilateralism, strive to promote world peace and development, and safeguard the common interests of both countries.

Ukraine war: China going its ‘own way’ on peace process, says foreign minister
Wang Yi tells Spain’s foreign minister that since Ukrainian crisis started, Beijing aimed to foster talks as a Permanent Five member of the UN Security Council. Wang repeats China’s objections to Western sanctions: ‘China is not involved in the crisis and we do not wish to be affected by the sanctions’.

China ‘impartial’ on Ukraine, denies aiding Russia
Beijing said on Tuesday its stance on the Ukraine conflict is “completely objective, impartial and constructive”, and repeated assertions that the US is spreading misinformation over reports China had responded positively to a Russian request for military supplies.

Indo-Pacific watch: Lessons from Ukraine for the Indo-Pacific
China’s response to Russia’s invasion of Ukraine shows that this war is not just a European crisis. It’s no longer possible to consider Europe and the Indo-Pacific as two separate, siloed theaters, says Helena Legarda. China’s response to the crisis, a result of its close relationship with Russia, should serve as evidence that this war is not just a European crisis, and that it is no longer possible to consider Europe and the Indo-Pacific as two separate, siloed theaters. Beijing’s position has been one of apparent rhetorical neutrality, but in reality of tacit support for Moscow’s positions: China opposes NATO enlargement, blames the US for inciting tensions, and stands by Russia’s demands that its “legitimate security concerns” must be respected. Meanwhile, Beijing has refused to call this a “war” and leaked documents show that official Chinese media have been asked not to use any pro-Western language in their coverage. For the Chinese leadership, this is not just about the future of Ukraine. It plays into larger questions about geopolitical competition and about how China wants to position itself vis-à-vis Russia and the West now and in the future. And Beijing seems to have made a call. This prioritization of its strategic partnership with Russia over improving ties with the West is likely to have a negative impact on China’s relations with Europe and other Western partners.

Can the Russo-Ukrainian War cause a paradigm shift in global politics?
China, which is another emerging player of international politics, has been seen modernizing its military for long. The expanding naval capabilities, its disagreements with the US on issues related to Taiwan, and its presence in the South China Sea. This shows that China’s stance on issues of its concern will be firm and unshakable. China’s role in Russo-Ukrainian War has been diplomatic. On one side it has shown willingness to initiate peace talks between Russia and Ukraine, whereas on the other it has refrained in UN meeting to vote against Russian invasion. As per the Chinese leadership, their relations with Russia have “no limits”. Both the states have stood by each other on many global issues and have good military, political, social, and economic ties. Keeping in view the current scenario and relations among states, it is comprehensible that if the Russo-Ukrainian crisis results in a paradigm shift of global politics China and Russia will be strong allies, leading the bloc.

Ukraine invasion: China smartphone maker says it is using yuan payments to keep its Russian operations afloat
Transsion Holdings said in a message to investors that they have started settling transactions in Chinese yuan to sustain Russia operations. Move illustrates one path open to Chinese businesses that want to keep businesses going in Russia amid imposition of sanctions by the west.

War of attrition
As Russia’s invasion of Ukraine continues, the international legal community has condemned Vladimir Putin’s regime not just with words, but by boycotting Russian business and transactions. George W Russell explores the ramifications. China has been the largest and most influential country opposed to sanctions. Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, reportedly said at a news conference in Beijing on 2 March: “As far as financial sanctions are concerned, we do not approve of these, especially the unilaterally launched sanctions, because they do not work well and have no legal grounds.” Beijing strongly hinted that it would be business as usual. China and Russia issued their joint statement on 4 February, indicating that the “friendship between the two states has no limits, and there are no ‘forbidden’ areas of co-operation”. As a result, neither China, nor Hong Kong and Macau, have imposed unilateral sanctions. A foreign ministry spokesman said China and Russia would “continue to carry out normal trade co-operation in the spirit of mutual respect, equality and mutual benefit”. However, the US has now indicated that should China seek to evade the sanctions, there will be consequences. The South China Morning Post on 3 March quoted the US Department of State counsellor Derek Chollet as saying: “China, if it were to seek to evade the sanctions, or somehow dividing the sanctions, they would be vulnerable.” He added: “Any country that tries to evade these sanctions will also face the consequences of its actions. I don’t want to speculate what that would be.” Bradley, at Ravenscroft & Schmierer, says: “It seems likely, therefore, that the sanctions will be having a deleterious impact for many investors and businesses in the region doing business with Russia, or with sanctioned persons. The sanctions are also relevant considerations for our wealth management industry and legal community in Hong Kong, to the extent it may be administering assets for, or interests in, sanctioned persons, and providing related legal advice.” Bradley says the lack of local sanctions presents commercial risks for Hong Kong businesses that may have binding contracts for delivery of goods or services, or hold assets of sanctioned persons. “They are faced with the competing priorities of avoiding penalties for non-performance of contracts and business interruption costs, or avoiding potential exposure to reputational damage and secondary sanctions if they perform existing commitments or enter into new commitments.” In 2020, several Hong Kong companies were the subject of secondary US sanctions because of trade with Iran, Bradley notes. “Those subject to implementing primary sanctions normally have a wind-down period during which they have time to supply under contracts concluded before the sanction was incepted,” she says. “Traders in Asia concerned about the potential for secondary sanctions should have regard to these rules and review their contractual arrangements carefully.”

Investors in Taiwan seek to hedge against risk of conflict with China
International investors are seeking to hedge against the possibility of military conflict between China and Taiwan, as Russia’s invasion of Ukraine drives a reassessment of risk in one of the world’s most dangerous geopolitical flashpoints. While a Chinese assault on Taiwan is still considered a “tail risk” among investors, the rising concerns about an attack are underscore.

Alain Gillard
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