Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – March 9, 2022

China inflation slowed in February as food prices eased: data
China’s factory-gate inflation eased to its slowest pace in eight months in February as consumer price growth also softened, data showed Wednesday, after new coronavirus curbs and a drop in food prices.   The producer price index (PPI), which measures the cost of goods at the factory gate, rose 8.8 percent on-year, the slowest rate since June last year, according to the National Bureau of Statistics (NBS), tracking a fall in coal prices. It was above the 8.6 percent forecast in a Bloomberg survey of economists, but below the 9.5 percent in January.

China inflation: Ukraine invasion impact starting to show despite factory-gate price growth cooling
China’s official consumer price index (CPI) rose by 0.9 per cent in February from a year earlier, unchanged from January. China’s producer price index (PPI) rose by 8.8 per cent in February, down from a rise of 9.1 per cent in January.

China’s SME development index dips in February
The Small and Medium Enterprise Development Index for February dropped 0.2 point to 89.2 points from January after a three-month rise, according to the China Association of Small and Medium Enterprises on Wednesday. From elements perspective, the fund index saw the largest rise of 0.4 point to 101.3 points; both cost index and input index suffered the largest drop of 0.7 point to 114.6 and 83.1. Labor force index continued to rise to 105.8. Among the eight elements, macroeconomic feeling index, comprehensive business index, market index, input index and benefit index all fell and were below the 100 mark. The association deemed growing complication and uncertainty in the external environment, on-going COVID-19 pandemic, weak global economic recovery and geopolitical risk taking a toll on the development for small and medium enterprises as well as rising labor, financing and logistic costs and shortened work days due to the Lunar New Year holiday.

China has tough targets to meet before Xi’s third term begins
A string of meetings of China’s central leadership in the new year have expressed worries about the state of the country’s economy. The leadership is now eager to contain any unrest over price rise and unemployment at a time when President Xi Jinping is poised to seek a fresh term of power later in the year.

China lawmakers have West’s decline on their minds at ‘two sessions’
Minutes released from the weekend’s group discussions reveal several mentions of the US and its allies. The annual meeting in Beijing is mostly focused on domestic affairs, but Washington is seen as the main source of uncertainty, at home and abroad.

Impact of Russia-Ukraine Conflict on FIEs in China
The immediate impact of the Russia-Ukraine conflict on foreign invested enterprises (FIEs) in China is limited, but the fallout from the conflict may hold various direct and unintended consequences for foreign businesses operating in China. From disrupting trade and global supply chains to causing tension between overseas and domestic consumers, we discuss the obstacles FIEs in China may face in the context of the conflict and international sanctions on Russia.

China sends first shipment of humanitarian aid to Ukraine
Foreign ministry spokesman says food and other necessities have been dispatched from Beijing through the Red Cross Society of China. He also expresses Beijing’s ‘strong opposition’ to the latest sanctions on Russia’s energy sector by the US, European Union and Britain.

Ukraine invasion: China’s economy is not immune from the effects of Western sanctions on Russia
Commodity prices were already high, and the war in Ukraine will make the energy, food and raw materials that drive China’s economy even more costly. Given the risks, Beijing might well conclude that its interests are best served by not going far beyond ‘normal’ trade with Russia.

China warns U.S. against harming its rights, interests over Ukraine
China on Wednesday urged the United States to take its concerns seriously when dealing with the Ukraine issue and relations with Russia, warning against any move that could harm Chinese rights and interests. Zhao Lijian, a spokesperson for the Chinese Foreign Ministry, made the remarks in response to a question about White House Press Secretary Jen Psaki’s comments on Western sanctions against Russia. China will take all necessary measures to protect the legitimate rights and interests of Chinese companies and individuals, he said. “China and Russia have maintained sound energy cooperation,” he said, adding that the two sides will continue to engage in normal trade cooperation in oil and gas as well as other areas.

Russia-Ukraine War: US Warns Chinese Companies Helping Russia Could Be Shut Down
Biden government could ‘essentially shut down’ Semiconductor Manufacturing International Corporation or other Chinese firms that flout US restrictions.

Can China bail out Putin?
Even with help from China, Russia will be unable to mitigate the immediate impact of Western sanctions. Russia does not really need China’s help just yet. However, if the West were to increase the pressure by blocking energy exports, the Russian economy would suffer even with Chinese help. China’s lacks the ability to offer immediate support. Russia lacks the physical connectivity to redirect gas exports from west to east. China’s financial infrastructure is not developed enough: CIPs still depends on SWIFT and is not yet liquid enough. The Chinese digital currency does not yet offer cross-border transactions of any relevance, and Russia has not yet signed up to it. It is hard to imagine that the Bank of Russia will be keen to foster the circulation of a non-convertible currency at a time when the ruble is tanking. In fact, the process of renminbi-isation of the Russian economy would make monetary management in Russia even harder. China could aid Russia by converting Russia’s renminbi reserves into hard currency. But the reputational risk of breaching western sanctions would be huge. Over time, China will be able to support the Russian economy as new pipelines are built to redirect gas from Europe to China and CIPS becomes a credible alternative to CHIPS. But this is clearly more appealing for China than for Russia. China would be able to strengthen its energy security by becoming Russia’s largest – if not only – importer of oil and gas. Second, progress in renminbi internationalisation would accelerate without having to give up capital controls. Beyond its political commitment in the 4 February declaration, China has an economic incentive to support Russia as long as it does not fall afoul of Western sanctions. For Russia however, strong dependence on the Chinese economy and its financial system is to be avoided. This would really be a very distant second best, in terms of Russia’s desired outcomes from its war against Ukraine.

‘It’s going to be a wash’: The Pyrrhic victory of Russian sanctions
Western sanctions on Russia have presented some Chinese companies with an immediate market opportunity. In the coming years, the linkages will grow, stymying future U.S.-led efforts to sanction Russia — and China.

China’s choices and the fate of the post-post-Cold War era
Russia’s full-scale invasion of Ukraine has been heralded as marking the end of the post-Cold War period, and the start of (or return to) a more dangerous era of great power conflict. Given China’s recent reaffirmation of its “no limits” partnership with Russia, and the release of an unprecedented Sino-Russia joint statement just 20 days before Russian President Vladimir Putin’s attack on Ukraine, Beijing’s role in Putin’s war of aggression has rightly come under scrutiny. While it’s still too soon to know how the war in Ukraine ends and what role Beijing will play through its course, China’s choices will be pivotal in shaping not just the outcomes of the immediate crisis, but also the new order that rises from the ashes.

China watches warily as Ukraine makes U.S., EU and Japan strengthen their alliance
For China, the speed and severity with which the U.S. and its allies sanctioned Russia is a warning sign that could guide future economic and foreign policy. “This is a very multilateral moment,” said Reva Goujon, senior manager for the China corporate advisory team at Rhodium Group. Beijing has refused to call Russia’s attack on Ukraine an invasion. China has focused on promoting negotiations between Russia and Ukraine, and it opposes the economic measures that have been taken against Russia.

Ukraine invasion won’t dent China’s push to surpass US, become top economy by 2030: Beijing adviser Justin Lin Yifu
Former World Bank vice-president Justin Lin Yifu reiterated his estimate this week that China will become the world’s top economy by 2030. Overseas investors did sell 67 billion yuan (US$10.6 billion) worth of Chinese bonds last month, taking their holdings to 3.67 trillion yuan (US$580 billion). Beijing set a gross domestic product growth target of “around 5.5 per cent” this year, compared to actual growth of 5.1 per cent over the past two years and a 4.8 per cent estimate for 2022 by the International Monetary Fund. Lin has based his ambitious economic growth estimate on China’s unfulfilled potential, which will guarantee at least 2-3 percentage points of growth more than the US in coming years.
“China has the room to upgrade its traditional industries. As the most populous country, it has comparative advantage and a large domestic market,” he said. “In the area of the new economy, China also enjoys the advantage of being able to change lanes to overtake.” The Development Research Centre of the State Council, a governmental think tank, previously estimated that China will overtake the US in around 2032.

Could China scoop up Russian goods at bargain-basement prices because of sanctions?
Chocolates, biscuits and face masks from Russia have been flying off the virtual shelves of an online vendor on China’s e-commerce giant The online shop, which said it is backed by the Russian embassy in China, thanked Chinese consumers in a video message last week. “Dear Chinese friends, thank you for supporting Russia and the shop during this difficult time,” Sergei Batsev of the Russian Chamber of Commerce said in the video. The “difficult time” he refers to means the sanctions Russia is facing for its war in Ukraine. China has said it is neutral on the conflict but officials have condemned the use of the word “invasion” to describe Russia’s military action in Ukraine, actively censored pro-Ukrainian comments online and have opposed what they refer to as “illegal” and “unilateral” sanctions by the United States and its allies on Russia.

Russia/Payments: China is no shelter from sanction storm
Punitive sanctions unleashed by the west leave Russia increasingly economically isolated. They may have the unintended consequence of drawing Russia and China closer together. This could be accelerated by the two countries’ efforts to create alternative payment systems. But fears that it will give rise to a powerful new economic bloc look overblown. For international transactions, Russian banks say they are looking at issuing cards powered by China’s state-controlled card-payment monopoly UnionPay. But switching over to UnionPay will require the installation of new IT infrastructure and hardware. This will be difficult. More so if US technology companies continue to pull out of the country. UnionPay could become a target of secondary sanctions if it deals with sanctioned Russian companies. China may offer a way for Russia to keep its coffers filled. But it will be in renminbi. Long term that does not look like a viable alternative as long as the greenback maintains its omnipotence in global trade.

As China’s sovereign bonds tumble from No 1 ranking, eyes turn to Russia as possible source of funds exodus
Analysts are speculating on reasons behind a record sell-off in Chinese government debt in recent weeks, but the true cause may not be known for several months. Sanctions from the United States and European Union have cut off the Russian central bank’s access to much of its foreign reserves. “We won’t really know for sure” if Russia’s central bank caused the sell-off in China bonds until toward the end of the year, as it releases its currency composition after a long delay,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking. However, Russia’s aggregate currency-reserves data for end-February could provide some clues, he said. Goldman Sachs lowered its assessment on Chinese government bonds on Monday on expectations that they may come under pressure if funds have to make up for their inability to access Russian investments by selling other emerging-market assets. Developing-market investors added a net US$1.7 million worth of China bonds last week, compared with US$16.2 million in Indonesian bonds and US$13.7 million in Philippine debt, according to exchange-traded-funds flow data compiled by Bloomberg. However, some investors continue to see diversification value in Chinese debt. Global investors are currently under-invested in China bonds, said Jason Pang, portfolio manager of JP Morgan China Bond Opportunities Fund. The asset offers “diversification benefits due to its low correlation with global markets and appealing yield opportunities compared with developed-market bonds”, he said.

Alibaba’s stock blues
Alibaba’s stocks plummeted all over the globe. At such cheap prices, should wary investors cash in?

Two Sessions 2022: electric vehicle bosses propose two different charging solutions as booming industry charts a future course
Lei Jun, a delegate at the National People’s Congress, wants China to develop more high-power charging stations and build new infrastructure. Geely CEO Li Shufu wants China to build more battery swap stations, which negates the need for lengthy charging stops.

China Investors Learning How to Profit From Xi’s New Capitalism
Slowest growth since 1990s leads to greater party intervention Green stocks rally shows following the state can be lucrative. “Ultimately the goal is to achieve a more sustainable model of growth that’s less reliant on debt and property,” said Larry Hu, an economist at Macquarie Capital Ltd. in Hong Kong. “This will be good for China. But common prosperity can’t just be a campaign — it must be a gradual process. You can’t do it all in one go or else you risk scaring off investors and destabilizing the economy.” Some global investors are endorsing Xi’s new model of capitalism. Ray Dalio, the founder of the $150 billion investment firm Bridgewater Associates, recently praised China’s common prosperity drive and urged countries including the U.S. to follow suit. Stephen Jen — co-founder of Eurizon SLJ Capital and former head of currency research at Morgan Stanley — said Xi’s plan will ensure long-term stability and socially responsible economic growth. There are “huge opportunities” if investors remember the party is in charge, said Hugh Young, Abrdn’s chairman for Asia in Singapore. Others are not so convinced. Billionaire philanthropist George Soros, who was upbeat on China’s economy in the aftermath of the global financial crisis in 2009, criticized Xi’s policies in January and even said his leadership was under threat — a claim dismissed by authorities in Beijing. “Beijing will first have to convince international investors that common prosperity is far more powerful and effective than western models of capitalism,” said Garcia-Herrero from Natixis. “That’s a major uphill battle for China.”

China targets 2 million installed 5G base stations this year, expanding world’s biggest next-generation mobile network, as 6G preparations push ahead
The country currently has 1.425 million installed 5G base stations that support more than 500 million 5G users nationwide. While China’s 5G mobile network is already the world’s biggest, MIIT head Xiao Yaqing said the existing number of base stations ‘is not enough. US trade sanctions have barred major telecommunications equipment makers Huawei Technologies Co and ZTE Corp from selling their 5G gear to American mobile carriers, while Washington’s pressure on its economic allies have excluded Chinese suppliers from various 5G network roll-outs in Europe and the Asia-Pacific region. Still, nearly all key indicators support projections that China will dominate 5G development, according to a report published last December by the Belfer Centre for Science and International Affairs at the Harvard Kennedy School, the public policy institution of Harvard University in Cambridge, Massachusetts.
In January, Chinese President Xi Jinping outlined his vision of a digital economy with 5G connectivity and nationwide data management at its core. The State Council, China’s cabinet, published in the same month a new digital economy development blueprint, which seeks a major standards-setting role for the country in 6G mobile technology.

China’s Two Sessions 2022: More 5G, rural e-commerce, semiconductors, and other tech priorities
Beijing this year aims to expand 5G infrastructure, set up a national system of data centers, keep a tight regulatory grip on big platforms, and push e-commerce in rural China, according to goals set forth this week at the annual lianghui (“two sessions”) meeting of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). China plans to bolster the tech sector by increasing state funding in key areas such as chip manufacturing and improving the capital market so more tech firms can raise money domestically. Having a growing and self-sustained tech sector is central to the government’s plan to achieve these set targets, according to government reports presented in the meeting. Given the ongoing surge in the pandemic in China, an economic slowdown, and uncertain global geopolitical pressure, many of the goals for 2022 will be particularly challenging to achieve. The GDP growth target of 5.5% is ambitious, despite being the lowest in a decade (it was 6% last year; no target was set in 2020 due to the pandemic). Members of the NPC and CPPCC, the nation’s top legislative bodies, meeting from March 5 to March 11, emphasized the need for a stable growing economy as China prepares to host the all-important 20th Party Congress in autumn. This year is also the second year in China’s 14th Five-Year Plan (2021 to 2025), which is set to make the country wealthier and more equal, growing China’s per capita GDP to the level of moderately developed nations and expanding its middle-class. Achieving self-sustainability in semiconductors and strategically important areas such as AI, biotechnology, and advanced manufacturing tools and machines are high on the government’s priorities. The government will fund small startups that possess innovative tech in the manufacturing, fostering what they called “little giants,” according to the Ministry of Finance’s report filed to the meeting and released to the press. New energy vehicles will continue to be embraced. The government aims to build more green energy power structures to ease its reliance on fossil fuels. In key growth areas like Beijing, Shanghai, and Guangdong, the state will fund national laboratories and tech innovation hubs to attract tech talents.

Major mainland China markets lead losses in mixed Asia trading day
Shares in Asia-Pacific were mixed on Wednesday, as markets in mainland China and Hong Kong struggled to recover from losses seen earlier in the week. The Shanghai composite in mainland China closed 1.13% lower at 3,256.39 and the Shenzhen component declined 1.122% to 12,107.17. The CSI 300 index, which tracks the largest mainland-listed stocks, shed 0.92% to 4,226.35. All three indexes had earlier fallen more than 3% each. Markets in South Korea were closed on Wednesday due to the country’s presidential election.

Chinese tycoon Xiang Guangda behind big nickel short facing losses worth billions of dollars
Nickel rocketed to a record high above US$100,000 a tonne on Tuesday before trading was suspended   Tsingshan could have suffered well over US$2 billion of daily losses at the most extreme point of nickel’s surge on Monday.

Chinese nickel giant Tsingshan secures lifelines from lenders including JPMorgan and China Construction Bank after short on metal goes wrong
Tsingshan has won credit promises from banks including JPMorgan and China Construction Bank, according to people familiar with the matter. Chinese authorities directed Tsingshan’s domestic banks to offer more credit lines to the company.

Chinese developers speed up asset sales to state firms amid prolonged debt crisis
Hong Kong-listed Yuzhou Group to sell property management services company for US$168 million to subsidiary of China Resources Mixc, which is controlled by state-owned China Resources Land     Chinese high-yield dollar bonds fell for 10th straight day, Hang Seng Properties Index dropped 1.7 per cent in morning trading on Wednesday.

Why Beijing is determined to maintain its hardline property policies, despite the economic pain
Given its size and central role in the country’s economy, China’s real estate sector is ‘too big to fail’ and poses wider risks in the event of a meltdown. The push to see housing as shelter rather than an investment is more in line with China’s long-term growth goals but will not be painless. If the intention was to merely cool an overheating market, those objectives have been achieved. Yet, despite some recent policy fine-tuning, the authorities have kept the most substantive containment measures in place, suggesting a different objective than in previous policy tightening cycles. There seems to be a fundamental shift in Beijing’s attitude towards the housing market. Underscoring this is probably a recognition that the current market development – characterised as reckless and debt-fuelled – is increasingly incompatible with China’s evolving long-term development strategies.
Rapid property price rises have acted as an amplifier of wealth inequality in society, making it an impediment to China’s goal of “common prosperity”. As an investment, property is an unproductive asset that creates no output and employment after completion. If the same resources were used to build a factory, which could be put to productive use thereafter, the economy as a whole would benefit from higher productivity growth. Finally, and perhaps most importantly, fundamental demand for housing has already peaked. China’s demographic and urbanisation profiles suggest that housing demand peaked in 2018 and is expected to slow consistently in the coming decades. While China still has room to build many higher-quality homes to meet people’s need to upgrade, that growth is also expected to slow. The housing market therefore faces a sombre outlook from a demographic standpoint.

Commercial property projects touting ‘preservation’ as underlying theme sprout across China
Developers add some elements of preservation to make projects special and give them a theme, says architectural conservationist Candy Chan. Swire Properties is working on a US$1.58 billion urban regeneration project in the historic mainland Chinese city of Xian.

China hits out at Norway state fund over Xinjiang forced-labour fears
Oslo’s sovereign wealth fund said it would sell its stake in a company implicated in the use of forced labour in the far-western region. The foreign ministry in Beijing said the accusations are a ‘huge lie’ and warned Norway it may suffer ‘unnecessary losses’ as a consequence.

Beijing is re-writing the Ukraine narrative
The Chinese government is scrubbing the country’s media of sympathetic or accurate coverage of Ukraine and systematically amplifying pro-Putin talking points about Russia’s invasion of Ukraine.. China’s wide use of its propaganda and censorship muscle helps insulate Beijing from a domestic backlash against its support for Putin — and leaves its citizens with an airbrushed, false version of events, similar to what’s seen in Putin’s state-controlled Russia.

What Eileen Gu and Gang Chen’s fates reveal about the ‘sin’ of being Chinese-American
Freeskier Gu has been vilified for her decision to represent China in sporting competitions, while MIT scientist Chen was targeted by federal prosecutors under a programme to root out espionage. The double standards applied to them because of their ethnicity hurt American interests – and advance China’s ambition to draw global talent.

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