Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – March 16, 2022

Beijing’s “First-Store Economy”: What Are the New Incentives?
Beijing is optimizing its first-store economy support policies to streamline the procedures for companies that want to open their first store in the city. Financial support measures have also been clarified. Through the 2022 Measures, Beijing’s government expects that more than 3,000 first stores representing domestic and foreign brands will open here by 2025. Companies are advised to take full advantage of this pro-business policy if they have plans to enter the Chinese market.

The EU answer to great power competition
China’s Belt and Road Initiative (BRI) has led to an increased focus on the Indo-Pacific region. Development initiatives, including the BRI, the United States’ BUILD Act and the EU Global Gateway, have all been accompanied by security-oriented policies and initiatives. The ongoing geostrategic competition in the region will have major implications for the future balance of global power. The United States and China have been competing for geostrategic advantage in the Indo-Pacific, leading the EU to leverage the resulting geopolitical gaps and opportunities. China has adopted a forward-leaning posture in the South China Sea while the United States has led the Quadrilateral Security Dialogue and the AUKUS arrangement. EU member states have sought to enhance their naval presence through the EU Strategy for Cooperation in the Indo-Pacific.

As China floods the economy with stimulus to boost growth, can it avoid US levels of inflation?
While the PBOC resisted following the US Fed in enacting monetary easing at the start of the pandemic, it must now change course to meet its ambitious 2022 growth target of 5.5 per cent. As the Fed prepares to tighten policy to tackle high inflation, it may be a sign of things to come for Beijing. This year’s GDP target will also need to be supported by robust infrastructure stimulus at a local level. Provincial governments have historically been a large driver of borrowing for major infrastructure projects – there are some indications this is picking up, for example in renewed spending on metro systems. Regardless, a supportive monetary backdrop isn’t enough to boost the economy sufficiently – businesses will need to respond with increased credit appetite to fund real commercial activities. So far, there have been mixed signals on this; bank lending actually slowed slightly in January versus last September, although credit data demand showed a slight improvement in the fourth quarter of 2021.  As always, sustainable growth comes from economically productive investments. Spending will continue to flow to high-end manufacturing, technology, alternative energies, services and a strong domestic consumption base. How long can the stimulus continue without a concerning rise in inflation? The war between Russia and Ukraine has thrown a wrench in this calculation with a rapid rise in commodity prices and a major repricing of risk. Faced with similar challenges to the Fed, the PBOC must also navigate massive economic forces that are conspiring to complicate well-laid plans. Given that China has almost always met or exceeded its GDP growth targets, history is on its side.

Chinese Vice-Premier Liu He vows support for economic growth, capital markets amid mounting headwinds
China will stabilise markets and take ‘substantial measures’ to shore up first-quarter economic growth, vice-premier says. Stocks in China and Hong Kong rallied on Wednesday following Liu’s comments, with the CSI 300 Index jumping more than 4 per cent.

China’s new home prices show signs of improvement following Beijing’s easing measures, but Covid-19 lockdowns could hurt recovery
Narrower decline of 0.1 per cent in February shows ‘easing measures did help’, analyst says. But resurgence of Covid-19 infections in first-tier cities could sap some demand. To stop the cracks in the sector from widening, China cut the mortgage rate and took the loans developers used for mergers and acquisitions out of the calculation of their debt. Local authorities too eased policies to help the real estate industry recover. Earlier in February, Heze became the first city in China’s northern Shandong province to introduce easing measures, with four major banks lowering the minimum deposits for home purchases to 20 per cent from 30 per cent. Within the next two weeks, eight more cities including Nantong in the eastern Jiangsu province and Foshan, part of the Greater Bay Area, too lowered their down-payment requirements.

How sanctions on Russia could push countries to diversify foreign reserves, leading to increased yuan demand
Western sanctions cutting Moscow off from its foreign reserves give China a greater incentive to move away from the US dollar and euro, and may push other countries to follow suit. Beijing may also be tempted to buy discounted Russian commodities as prices surge elsewhere.

Digital renminbi will not help Russia evade sanctions
At the Winter Olympics in Beijing, China’s government unveiled two initiatives. One was the statement by presidents Xi Jinping and Vladimir Putin declaring that China and Russia have a friendship with “no limits”. The other was a trial of the digital yuan, or e-CNY, which was offered for use by both domestic and foreign athletes and spectators. Following Russia’s invasion of Ukraine, and the imposition of harsh financial sanctions by the US and its allies, it is reasonable to ask whether China’s digital currency paves the way for a new, dollar-free global monetary system that would enable countries to evade American sanctions. In the short run, the answer is clearly no. For one thing, while China has complained about the sanctions, it has largely abided by them. Its companies and banks are avoiding business with sanctioned Russian firms, for good reason. China’s economic relations with the US and its allies in Asia are far greater and deeper than those with Russia. In 2021, nearly half of China’s $3.3tn in exports went to the US, EU, UK and US treaty allies in Asia; only 2 per cent went to Russia. China’s technology industries still depend heavily on equipment and knowhow supplied by the US and its friends.

Volkswagen and China: the risks of relying on authoritarian states
Nowhere is this prediction more true than at VW, the world’s second-largest carmaker by volume. It employs roughly 500,000 people in Europe and runs the continent’s largest auto plant in Wolfsburg, 125 miles west of Berlin. But beneath the hood, in terms of revenues and profits, VW is more Chinese than German. The German company was one of the first multinationals to enter China in the early 1980s, after Beijing relaxed rules on outside investment. The country, in the words of the then chief executive Carl Hahn, quickly became VW’s “motor for global [economic] expansion”. Amid the political tensions, VW insists its Chinese business is showing signs of a recovery. VW is currently selling 15,000 electric vehicles in the country per month, which puts it on track to exceed internal targets of selling at least 140,000 battery-powered vehicles this year. Software updates in the coming months will bring many missing features to Chinese VW drivers. It has built 125 showrooms for the ID range in major cities, often placing them in the midst of shopping malls, and hopes to have around 200 in total by the middle of the year. But with increased competition, especially in electric vehicles, the decades-old strategy of expanding in China may no longer be a reliable one for VW, says Dunne. “For the first time it’s unclear whether or not [VW adding capacity] is going to work.” Diess disagrees. “I still think it’s an asset, China will be by far the biggest growth market for the foreseeable future,” he says, pointing out that VW still has double the market share in China of its nearest competitor. “[For] autonomous driving, connected cars, electric cars — they will be the main market.” Even as VW’s rivals jostle for position, there is plenty of room for expansion. Roughly 200 in every 1,000 Chinese people own a car, compared with more than 650 in Europe. That opportunity, VW executives calculate, is worth the risk of doing business in China.  “If you are not in China, you have a problem,” Diess told the FT. “If you are in China, you have a chance.”

Sunac China bonds sink deeper into distress on Fitch’s second downgrade amid refinancing woes
Most-active dollar bonds fell to less than a fifth of their face value, signalling heightened default risks      Downgrade reflects increasing uncertainty over access to capital market to repay maturing debt, Fitch says. Bonds sold by Sunac China slumped deeper into distressed levels after Fitch Ratings downgraded the developer’s creditworthiness for a second time this year on concerns about its access to fresh funds to repay onshore and foreign creditors.

How much can — and will — China help Russia as its economy crumbles?
Russia’s remaining FX reserves after sanctions are in gold and Chinese yuan, effectively making China Moscow’s main potential source of foreign exchange to back up the spiraling ruble. China could essentially provide a major buffer to the Russian economy. But whether that’s entirely in Beijing’s interest to do is another matter. Beijing likely seeks a “third way somewhere between the binary choice of supporting Russia or refusing to do so,” analysts at New York-based research firm Rhodium Group wrote in a note in early March. That middle path involves “quietly maintaining existing channels of economic engagement with Russia … while minimizing the exposure of China’s financial institutions to Western sanctions.” Indeed, in early March, the chairman of China’s banking regulator Guo Shuqing said that China opposed “unilateral” sanctions and would continue normal trade relations with the affected parties. But maintaining that kind of economic engagement with Russia will be “hard to conceal under the current sanctions architecture,” Rhodium’s analysts wrote. Could Beijing keep letting Russia access and trade with its yuan reserves, which total around $90 billion, or about 14% of Russia’s FX reserves? Yes. But what if Beijing allowed Russia’s central bank to sell yuan-denominated assets for dollars or euros? That would likely expose it to sanctions. China can still trade with Russian firms in rubles and yuan through the Russian banks that haven’t yet been sanctioned. But despite many years of working to increase bilateral trade in their own currencies, the vast majority of that trade – including 88% of Russian exports – is still invoiced in dollars or euros. Not only that, but China could be essentially catching a falling knife by taking on the credit and sanctions risks of Russia’s rapidly deteriorating economy. “China could alleviate the vast majority of the pain,” Hess said. “But if they offered those swap lines and everything, effectively they’d be taking all the liabilities and risks of the Russian economy onto their own balance sheet at a time when the Russian economy is at its weakest in decades.” “So that’s maybe not the wisest move economically,” Hess said. “But politics are different decisions.”

Don’t Count on China to Mediate the War in Ukraine
This doesn’t rule out the possibility of China’s changing its position on Ukraine. But thus far Beijing has talked about a mediating role without pursuing one. In the Chinese political system, Mr. Xi can never be wrong. The problem for those advocating a substantive change of course on Ukraine within the system is that China’s position on Russia and Ukraine is driven from the top. Mr. Xi’s nature has never been to back down. But a protracted war in Ukraine poses a danger for Mr. Xi. Some in the Communist Party are questioning his strategic judgment by departing from Deng Xiaoping’s foreign-policy wisdom of keeping a low profile. Others have challenged his economic judgment because of his moves against the Chinese private sector, which has powered Chinese growth for 35 years. Still others are watching and waiting for an explosion in Covid cases across the mainland emanating from Hong Kong, which would undermine Mr. Xi’s domestic political claim over the past two years that China got the pandemic right and the U.S. and the West got it radically wrong. Together these would make a powerful political cocktail by the 20th Party Congress this fall, where Mr. Xi seeks to ratify his rule. And were Mr. Putin himself to fall as a result of Ukraine, the political pressures on Mr. Xi would be formidable indeed.

Russia’s war will remake the world
In the aftermath of the fall of the Soviet Union, many hoped for a world guided by co-operation and mutually beneficial exchange. But great power conflict was always waiting to break through. The US was inebriated by its “unipolar moment”. China grew more powerful and authoritarian under Xi Jinping. Putin chewed on his resentments, finally invading a country he thinks he owns. We hear echoes of the first world war. Then, it was Austria, the weaker partner, not Germany, that began the conflict. Today, it is Russia, the weaker partner in its alliance with China. China’s promised support risks turning the dangers created by Russia’s war into a catastrophe. It would transform the world into two blocs, with costly economic and security consequences. Yet a mobilised west is still far stronger. The impact of western sanctions demonstrates this. A unified west dwarfs Russia on all measures, except military personnel and nuclear warheads. Even with China added, the west is significantly more powerful, except in numbers. Nevertheless, a long-term clash between the west and an authoritarian bloc of Russia and China must be prevented if at all possible. It would be hugely dangerous. Today, then, we see a transforming world. Consider the challenges ahead. Most obviously, there must be an end to the war in Ukraine, which is an assault simultaneously on a peaceful country, on a democracy and on the world order. China should seek to help extricate Russia from its quagmire. It is not hard to understand why it backs Putin. Among other things, its leaders surely share his contempt for democracies. Yet these are huge mistakes. As history has often shown, free societies are powerful, once mobilised, because they enjoy the support of their people.

China risks ‘losing the west’ over Ukraine
As Russia shells residential neighbourhoods in Kyiv, the quest for a ceasefire in Ukraine is ever more urgent. But western hopes that China may be able to use its influence as Russia’s “strategic partner” remain so far unfulfilled. A seven-hour meeting late on Monday between Yang Jiechi, China’s top diplomat, and Jake Sullivan, the US national security adviser, ended without word of an agreement to work together towards a cessation of violence. In fact, a write-up of the meeting in China’s official Xinhua news agency mentioned Ukraine only in passing as one of a number of “international and regional issues”. It said that discussions had focused on how US-China relations could return to the “correct track” and reported that Yang criticised Washington for not adhering to the “one China principle”, which Beijing says recognises its sovereignty over Taiwan. A senior US official said the meeting included an extensive conversation about Russia and Ukraine. China and Russia have developed a similar world view, chafing at US dominance and efforts to spread liberal democracy. Both have been wrongfooted by the strength and unity of the western response to Vladimir Putin’s invasion of his neighbour. China is not nearly self-sufficient in energy or food. It is only too well aware of the vulnerabilities inherent in its supply routes through Asian seas dominated by the US navy. The possibility of naval blockades, however remote, is matched by US capacity to freeze a large portion of China’s foreign reserves held in US Treasury bonds. It may well be that — for all Russia’s professed friendship with Beijing — Putin cannot be deflected from his purpose to subjugate Ukraine under the boot of his authoritarian regime. Even if this is the case, Beijing’s refusal so far to put clear daylight between Russia’s invasion and its own position is inviting western governments to associate it with Putin’s war.
Beijing’s best interest lies in exerting pressure on Putin and redoubling its efforts to bring about a ceasefire. China may share the Russian regime’s perception of the western world. But it would not want to be on to the “wrong side of history”. In a concrete sense, as Hu Wei, a prominent Chinese academic argued in an extraordinary article this week, Beijing’s main aim should be to avoid Russia from dragging it into the war, and to act to prevent escalation.

China must make Moscow see sense
The writer is Ukraine’s ambassador to Japan and visiting professor at Kobe Gakuin University. Beijing’s slow reaction to this crisis is probably the result of faulty prewar analysis which overestimated Russia’s ability to take Kyiv in 48 hours. More than two weeks after invasion this has still not happened, and it is not going to happen in 48 days either. China has been even slower to grasp that its ambitious Belt and Road infrastructure initiative will be dead if Putin is not stopped. Unprecedented sanctions, the interruption of supply chains, shortages of agricultural products and significant disruption of the international financial system will make the continued construction of an international trading infrastructure considerably more difficult, if not impossible. Sanctions and a solidly unified position against the invasion among almost all of China’s other major trade partners will make Beijing’s stance uncomfortable sooner or later. Russia’s war on Ukraine is the end of an era in geopolitics. No theory of international relations and no expert predicted a brutal unprovoked was launched by a nuclear power against its peaceful neighbor. Until recently, many believed that a new world order would be shaped by competition between the US and China. It is now clear that the question of which side to take in the battle between Ukraine and Russia will be crucial. It is time for China to make a choice.

China makes rare intervention to bolster confidence after market rout
China’s top economic official intervened on Wednesday to reassure investors, saying Beijing would take measures to support the economy and financial markets after a sharp sell-off that has accelerated in the wake of Russia’s invasion of Ukraine. Liu He, a vice-premier and President Xi Jinping’s closest economic adviser, said the government would take measures to “boost the economy in the first quarter”, as well as introduce “policies that are favorable to the market”. He did not elaborate on what specific measures would be taken. Liu made the comments after convening a special meeting of the State Council’s Financial Stability and Development Committee, which he chairs, according to a summary of the meeting published by Xinhua, China’s official news agency. The FSDC oversees the country’s main financial regulators, including the central bank and securities watchdog, and meets regularly but such a wide-ranging statement to boost confidence is rare.

Hong Kong’s Hang Seng index surges 9% as Tencent, Alibaba jump more than 23%
Shares in Asia-Pacific were higher in Wednesday trade, as Chinese stocks saw a strong rebound following recent heavy losses. Hong Kong’s Hang Seng index closed 9.08% higher on Wednesday but remains down more than 2% for the week after seeing heavy losses on Monday and Tuesday. The U.S. Federal Reserve is set to announce its latest interest rate decision. The central bank is widely expected to raise rates by a quarter point, its first hike since 2018.

China says it will support Chinese IPOs abroad, calls for closure on tech crackdown
Chinese and U.S. regulators are progressing toward a cooperation plan on U.S.-listed Chinese stocks, state media said, citing a financial stability meeting Wednesday chaired by Vice Premier Liu He. Days of worries about U.S. delisting risks, on top of existing concerns about economic growth, had sent Chinese stocks plunging in New York and Hong Kong. Hong Kong’s Hang Seng Index surged in Wednesday afternoon trading, after closing Tuesday at fresh lows not seen in more than six years.

Hong Kong can take advantage of any ‘mass delisting’ of Chinese firms in US, Financial Secretary Paul Chan says
Hong Kong could capture ‘at least 90 per cent’ of delisted Chinese firms’ market capitalisation, Chan tells Post seminar. Several New York-listed Chinese companies have been tipped for secondary listings in the city.

Guangdong releases promising import, export data
Guangdong, the country’s biggest foreign trader, sold 789.23 billion yuan worth of products abroad in the first two months, a year-on-year increase of 4.8 percent, while purchasing goods valued at 450.18 billion yuan from foreign nations and regions, up year-on-year by 4.2 percent. Import and export volume from general trade increased year-on-year by 9 percent in the two months ending February to account for 55.3 percent of the province’s total, while foreign trade from processing industry witnessed a reduction of 2 percent year-on-year representing 25.1 percent of the total. Guangdong’s trade with ASEAN, its biggest trading partner, was worth 186.28 billion yuan in the first two months, up year-on-year by 3.2 percent and representing 15 percent of the province’s total. The province’s imports and exports with the Hong Kong Special Administrative Region saw a year-on-year reduction of 0.7 percent to hit 155.56 billion yuan. Guangdong’s trade with the United States, European Union and Taiwan enjoyed a year-on-year growth of 9 percent, 6.6 percent and 13.7 percent respectively from January to February. ASEAN, Hong Kong, the United States, EU and Taiwan are traditionally the top five trade partners of Guangdong.

China tech rout: views diverge on market purge of ‘uninvestable’ stocks as ‘fear feeds on itself’
Investors face a roller-coaster ride as Chinese tech stocks rebounded amid speculation China will step in to help instil confidence. Views diverge among money managers and seasoned China analysts in one of the wildest swings in recent market history.

Apple supplier Foxconn partially resumes production at ‘closed-loop’ Shenzhen campuses amid tech hub’s Covid-19 surge
The iPhone manufacturer said Shenzhen factories will resume work while keeping employees confined to company campuses. Foxconn suspended operations on Monday, when Shenzhen initiated a citywide lockdown to fight its worst Covid outbreak in two years.

China’s COVID-19 Cases Double, Sparking Fears About Economic Fallout
The growing lockdowns in response to the Omicron outbreak raise the threat of trade disruptions.  Shenzhen, a city of 17.5 million people, is home to some of China’s biggest companies including Huawei, BYD Auto, Ping An Insurance Co. of China, and Tencent Holding, operator of the popular WeChat message system. Taiwanese-owned Foxconn, which assembles Apple’s iPhones, has its China base in Shenzhen. Foxconn assembles some smartphones and tablet computers in Shenzhen but has moved most production out of the city. Other manufacturers also have shifted to less expensive parts of China or abroad. They keep research and development, finance, and marketing in Shenzhen – functions that can be done by employees working from home. “Manufacturing is in other places, so unless all of China is affected by COVID, it is not going to be really a shortage of particular goods. For example, phones,” said ING’s Pang. Also, authorities appear to be trying out a “dynamic ‘zero COVID’ policy” that still aims to keep out the virus but uses “targeted lockdowns” to try to reduce the economic and social cost, said David Chao of Invesco. “Many see this as a huge COVID risk that could potentially cause further weakness in the Chinese economy,” said Chao. “But I think this gives policymakers the opportunity to evolve their pandemic policies.”

Coronavirus China: Tesla shuts down Gigafactory 3 for two days for Shanghai to mass test workers to push back against Covid-19 relapse
Production of Tesla’s Model 3 electric sedans and Model Y sports-utility vehicles (SUVs) will be halted on Wednesday and Thursday. Typically, a venue is sealed off for 48 hours to enable residents and employees in the area to undergo two nucleic acid tests.

China lockdowns create latest supply chain shock to global tech
China’s latest attempt to suppress an outbreak of Covid-19 with lockdowns in several cities has disrupted global supply chains, which is likely to lead to lower growth and profitability across the technology industry. Apple supplier Foxconn said on Wednesday its revenue could contract by up to 3 per cent this year and it might struggle to raise its operating profit margin as component costs rise and the pandemic persists. “2022 is a very challenging year,” Liu Young-way, Foxconn chair, told investors on an earnings call, adding that the continued spread of the coronavirus imposed “very big uncertainty”. The warning follows a local government order in Shenzhen on Monday for all but essential factories in the technology manufacturing hub to stop production for a week. After the new restrictions were announced, more than 70 Taiwanese companies operating in the city and dozens of local Chinese manufacturers said they had suspended production.

Does China’s Omicron Outbreak Represent a COVID Turning Point?
The Chinese mainland has been battling a new outbreak of COVID-19 in recent weeks, with a surge in cases of the Omicron variant. It represents the country’s worst outbreak since the Sars-Cov-2 virus first spread across China in early 2020. Make no mistake, China is still implementing its “dynamic zero-COVID” policy which seeks to eliminate the virus rather than “live with it.” That’s why schools in Shanghai have gone online, why tens of thousands of people were locked into an exhibition center in Guangzhou, and why Shenzhen, a city of more than 17 million people, has imposed a city-wide lockdown with public transport temporarily closed.

China’s Covid resurgence is part of the reason oil prices plummeted from record highs
The Russia-Ukraine war, now into its third week, has caused oil prices to be volatile in the past week or so. Crude prices fell back drastically in the beginning of this week, dropping more than 27% below recent highs to less than $100 a barrel. China has started to clamp down on the Covid spike – the worst since 2020 – ordering lockdowns and a pause in manufacturing in some cities. Markets probably also took into account Russia’s Foreign Minister Sergei Labrov indicating that Moscow would allow the Iran nuclear deal to go ahead — that would allow the resumption of oil supply into the market.

Ukraine Invasion a Wakeup Call for Taiwan
An island bristling with defensive missiles. “Using Taiwan-based long-range missiles to attack mainland targets must be very carefully planned and implemented, as any civilian death on the Chinese mainland as a result would lose Taiwan some international sympathy or support, so the only legitimate target that Taiwan can strike on the mainland would be military installations and staging grounds for an assault on Taiwan,” Tsang said. “Taiwan will also need to train its forces to use foreign, mostly US-made missiles of these types, as Taiwan is likely to run out of their domestically produced missiles quickly in the event of a Chinese invasion.”Taiwan, he said, “needs to have a contingency plan to ensure the manufacturing facilities in Taiwan can be put on a war-production footing very quickly and turn missiles out in large numbers very quickly because otherwise, they cannot resupply wartime usage.” According to a new report by Sweden-based think tank SIPRI, Taiwan’s arms imports shrank by 68 percent between 2012–16 and 2017–21 but are scheduled to increase significantly in the coming years as China grows increasingly belligerent.

China’s ‘she economy’ booms as young and financially independent women spend for themselves
Female millennials and members of Gen Z increasingly find happiness and self-fulfillment on their own terms, and it has reshaped China’s economy. Chinese women comprise the world’s third-largest consumer market, close to the combined retail markets of Germany, France and the United Kingdom.

Alain Gillard
Information Officer
Service Asie Pacifique
Place Sainctelette 2
1080 Bruxelles
Tél 02 421 85 09 – Fax 02 421 87 75
Copyright © 2020 awex, All rights reserved