Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – October 21, 2021

Have we reached peak China?
Beijing’s growing influence on the global stage masks an overlooked insecurity.  Chinese President Xi Jinping would like the world to think he has good reason to be confident about the state of international affairs. But look a little closer, and China, it seems, is far more fragile than it would like to project.     Much ink has been spilled about the shockwaves created by the controversial AUKUS defense pact between Australia, the United Kingdom and the United States, and what it means for France and the transatlantic alliance. Much less has been written about what it means for China. And yet, Beijing’s response to the deal, which aims at hemming it in, and the reactions of other countries in the region speak volumes about China’s position internationally.    There’s an important takeaway from all of this: The narrative that the world is facing a new Cold War between China and the West needs a reality check. A Cold War needs two powerful protagonists able to act on the global stage. And while China may be growing into an economic, military and technological giant, the “hegemon in the making” is much more vulnerable and isolated than it likes to pretend.

China’s ‘unfair trade practices’ draw heavy fire at WTO trade review
The United States, European Union, Japan, Britain, Australia and Canada all criticise China’s trade actions    The tone was markedly sharper than in China’s last review in 2018, when nations spoke positively of Beijing’s engagement on trade issues

Shipping container prices tumble for first time this year as China’s Christmas exporting season slows
Average sale price of a 40-foot container in China has plunged by 22.5 per cent since the end of September      The price correction in container markets coincided with a fall in the shipping freight costs between China and the US

Xinhua: China needs Big Tech to grow but companies should avoid ‘winner takes all’
A commentary by the official Xinhua news agency urged tech giants to refrain from taking advantage of smaller businesses    Beijing seeks to strike a balance between regulating and promoting the country’s tech industry, as authorities shore up confidence after a regulatory crackdown

China to pursue digital trade expansion under new five-year plan as cross-border data flow restrictions remain in place
China’s Ministry of Commerce has pledged to support the expansion of digital trade under its 14th five-year plan for trade in services      The country’s digital trade volume reached US$294.76 billion in 2020, up 47.4 per cent from US$200 billion in 2015    The nation’s digital economy was worth 39.2 trillion yuan (US$6.1 trillion) last year, a 3.3 trillion yuan increase from 2019, according to a white paper published by the China Academy of Information and Communication Technology, a think tank affiliated with the Ministry of Industry and Information Technology (MIIT).    While China’s digital economy has vastly expanded over the years to become a global force, the country has not been as competitive in digital trade, according to Li Jun, director at Mofcom’s digital trade research centre, in an interview last month with state-run daily newspaper China Economic Times. Li indicated that China’s digital economy remained insufficient in terms of “going global and bringing in [more business]”. Questions have also been raised on how China’s digital trade can expand under its strict rules on cross-border data flows.  he country’s Data Security Law (DSL), which was rolled out in September, and the Personal Information Protection Law, which will take effect on November 1, both impose tough penalties for the unauthorised collection, processing, storage and use of data generated in the country.  The DSL requires the protection of certain “core data”, which involve national and economic security, people’s welfare or an important public interest. Earlier this month, the MIIT drew up new regulations that will prevent crucial industrial and telecommunications data from leaving the country. “One [challenge for industries] is not enough openness, especially in terms of regulations on cross-border data flows,” Chen Hongna, researcher at the Development Research Centre of the State Council, said in a report published by China Economic Times last month. Chen said the situation could adversely afect efforts to “cultivate and attract high-quality multinational internet companies” in China. Beijing’s bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a multilateral trade pact covering modern issues such as digital trade, could also prove complicated because of China’s new data security laws that restrict cross-border flows of information, according to an MIIT researcher.  With various data localisation policies, China has become the most restrictive country when it comes to cross-border data flows, according to a report in July by Washington-based think tank Information Technology and Innovation Foundation.

Artificial Intelligence and Big Data in the Indo-Pacific
What is the impact of artificial intelligence (AI) and big data on societies in the Indo-Pacific?  How are countries using AI and big data to enhance their national security and advance their national interests? And what are the major regulatory issues? For a perspective on these and other matters, Jongsoo Lee interviewed Simon Chesterman, dean and provost’s chair professor of the National University of Singapore Faculty of Law and senior director of AI Governance at AI Singapore.  The importance of technological innovation to economic development has long been a feature in Asian tiger economies. Wealthy, internet-savvy countries like Japan, South Korea, and Singapore leveraged the benefits of high tech and consumers embraced it. More recently, China made AI a strategic priority and that was a game changer.  China’s size, its growing cohort of tech unicorns, and a relaxed approach to the personal data of its citizens quickly saw it overtake the United States in terms of research papers published and patents filed. Early definitions of “success” focused very much on growth. Indeed, it was striking that China’s 2017 strategy talked about having regulations to govern AI – by around 2025. I think that view of AI is changing now, with a more nuanced vision of success encompassing scale but also responsible deployment of the technology. That’s certainly how Singapore has been trying to position itself.

ANALYSIS-China’s silence on yuan’s swift gains keeps markets buzzing
As China’s yuan climbs rapidly to its strongest levels in six years against the currencies of the country’s trading partners, a notable absence of concern and intervention by the authorities is unnerving investors.     Beijing has so far not intervened directly or verbally during the yuan’s CNY=CFXS ascent since early September, which took it to 4-month highs and past 6.4 per dollar this week. The head of the currency regulator, the State Administration of Foreign Exchange(SAFE), said on Wednesday authorities will keep the yuan stable.   That silence, amid growing signs of weakness in the economy, has analysts guessing that the People’s Bank of China (PBOC) is keeping to its word about letting market forces dictate the yuan’s trajectory.

Analysis-What lies beneath? Hidden debt fears feed China’s property woes
Numbers don’t lie, you just need to be looking at the right ones. That’s the problem for investors searching for the next trouble spot in the Chinese real estate sector as industry giant China Evergrande Group lumbers towards what is expected to be the country’s largest-ever corporate default. The figures on the books sometimes don’t tell the full story.   Since Beijing started clamping down on corporate debt in 2017, many real estate developers have turned to off-balance-sheet vehicles to borrow money and skirt regulatory scrutiny, analysts and lawyers say.    Joint ventures are a popular choice because, unless a company holds a controlling interest in one, it can keep details of it and the debt it acquires off its balance sheet.

China Evergrande shares plunge 12.5%, after $2.6 billion asset sale falls through
Heavily indebted Evergrande was in talks earlier this month to sell part of its services unit to Hopson Development Holdings, its smaller rival.   Hopson said Wednesday that talks fell through to purchase just over half of shares issued by Evergrande Property Services.  The collapse of the Hopson deal comes as Evergrande faces the end of a 30-day grace period on Saturday for a closely watched $83 million interest payment to investors in an offshore U.S. dollar-denominated bond.

Evergrande is ‘just the beginning’: Professor says more firms must exit China’s property sector
China’s real estate sector has to be “substantially smaller” to keep the overall economy healthy and stable, said Li Gan, economics professor at Texas A&M University. “We have too big of a risk in the sector. We built too much housing, so the stabilization first has to come [from] trimming the sector,” said Gan. Gan estimated that about 20% of China’s housing stock is left vacant, yet developers continue to build millions of new units each year.

Evergrande crisis: developer Modern Land (China) cancels US$250 million bond repayment plan on liquidity issues
Modern Land had intended to repay a portion of its US$250 million bond due October 25, extend the deadline on the balance by three months      The decision puts further stress on the China property market amid concerns about default risks at Evergrande, other developers

China’s Evergrande is in trouble. But so is China’s top-down political economy.
4 things to know about the distortions behind the real estate crisis.   China’s government-directed economic growth model has left property firms, local governments and urban households deep in debt. The system has also resulted in over-supply of housing, reflected in vacancy rates around 20 percent in lower-tier cities and many empty high-rise developments evocatively referred to as “ghost cities.”
The Chinese government response, beginning in late 2020, was to ease the real estate bubble by targeting developers with restrictions on borrowing, captured in the slogan “three red lines.” The “red lines” set limits on firms’ liability-to-asset ratio, net-debt-to-equity ratio and cash-to-short-term borrowing ratio. Companies like Evergrande that fail on all three of these measures have been barred from receiving additional bank loans. For Evergrande, this policy intervention triggered the current liquidity crisis and potential default.  My research on China’s political economy shows that China’s interrelated land, fiscal, financial and political systems constitute the backdrop for Evergrande’s rise. But these government-directed systems are also a reason why the Chinese government isn’t likely to let Evergrande collapse completely. Failure in this sector of the economy would hurt urban homeowners and local governments as much as private developers.

IMF Says China Has Policy Options to Cushion Economy’s Slowdown
While the world’s second-biggest economy remains on track to grow around 8% this year, Rhee expects that pace to slow in the years ahead given challenges that include deleveraging and an aging population.  “A slowdown of China’s growth is inevitable, you cannot grow close to 8% forever,” Rhee told Bloomberg Television’s Kathleen Hays in an interview. “We have to expect China’s growth rate will moderate.” Economists downgraded their forecasts for China’s economic growth for this year after data Monday showed a weakening in the third quarter and signs there could be a further slowdown in coming months.  Rhee said the potential spillover to international capital markets from the crisis hitting China Evergrande Group appears to be limited, but the fallout may have a broader impact on China’s domestic economy.  For the Asia region more broadly, Rhee warned of a deepening divergence between those countries with high vaccination rates and those that are lagging, a gulf that is especially acute between advanced and developing economies. How the Federal Reserve’s planned taper of its bond buying program impacts Asia largely depends on why it has to taper, Rhee said. If the U.S. central bank is forced to respond due to robust economic growth, that will offset the negative impact of tapering or rising interest rates.  “But on the other hand, if the U.S. is raising interest rates due to a supply side shock and higher inflation, then I think the impact will be larger for countries with more external debt and domestic debt,” Rhee said.

Happy Mood Music in Markets Is Ignoring China Troubles
Records for the Dow and bitcoin strike a jarring note with the second-largest economy entering its worst slowdown in a generation.    How great are Chinese political risks? For more than a generation now, the country has continued to call itself communist while being unabashedly pragmatic, and allowing the profit motive to help achieve many aims. Rothman of Matthews Asia, a former U.S. diplomat in the country and a long-time bull on Chinese assets, makes the case that political risks are now overstated in his blog, which you can find here. He reads Xi’s “common prosperity” program as an attempt to avoid the polarization and inequality that have come to plague the West, rather than a return to ham-fisted Leninism. His main point is that China has come far too far on the back of entrepreneurship to turn back now: this perspective is based on the uncertainties caused by the rapid and chaotic roll out of new regulations, rather than on the long-term objectives announced by leaders of the Chinese Communist Party (CCP). Market-based reforms and the private sector have created the economic growth which has kept the CCP in power for far longer than most other one-party, authoritarian regimes. Reversing these reforms would destroy China’s economy, which would destroy popular support for the CCP. Why would Party leaders take what would clearly be a politically suicidal path? There is sense to this, and China’s political risks look to have been well priced. But for the time being it will be difficult to spark much investment into China itself. The risk that isn’t yet priced, and looks harder to avoid, is that slowing Chinese growth will have negative effects in the West.

China-EU relations: Beijing calls on European business group to help ‘clear up doubts’ tarnishing economic relations
Commerce minister Wang Wentao met with Joerg Wuttke, president of the European Union Chamber of Commerce in China, to discuss China-EU economic ties     Wang reassured European firms that China was not closing its economy under ‘dual circulation’ and was committed to providing more investment opportunities

China’s National Emissions Trading Scheme is Just One Piece of the Mitigation Puzzle
On July 16, 2021, after nearly two decades of research and preparation, China finally opened what is now the world’s largest national emissions trading scheme (ETS). The much anticipated move follows the central government’s ambitious pledge to reach peak CO2 emissions before 2030 and achieve carbon neutrality before 2060. Several Chinese cities and provinces, including Shanghai, have been operating ETS pilots for several years. For Shanghai, the rollout of China’s national ETS bolsters its existing carbon marketplace and complements the multitude of other local and national decarbonization initiatives the city is undertaking. The national scheme is an encouraging step in China’s climate action, but on its own it is not a silver bullet to decarbonize the economy.

Climate change: BIS to create Asia-focused green bond fund for central banks
Green bond fund will be the third in two years created by Basel, Switzerland-based BIS, provider of financials services to central banks    Newest dollar-denominated fund will include green bonds offered by commercial banks for the first time

China Makes Cryptocurrency Transactions Illegal: An Explainer
On the September 24, 2021, 10 government authorities, including the People’s Bank of China (PBOC), jointly issued a notice to clarify that cryptocurrency is not a legal tender. Further, all cryptocurrency transactions in China are considered illegal, including offshore exchanges to provide services to Chinese citizens. The authorities stated that China-based employees of offshore crypto exchanges or any companies providing services to them will be investigated and prosecuted.   On the same day, the National Development and Reform Commission (NDRC) and 10 other authorities issued another circular (the NDRC circular) to local governments on how to wind down cryptocurrency mining activities in their areas.  China joins a growing list of countries where cryptocurrencies are banned or restricted. Egypt, Indonesia, and Nepal are among where these restrictions exist.  China has one of the world’s biggest cryptocurrency markets, which is why global price of cryptocurrencies is affected by fluctuations in the Chinese market. With the announcement of the banning of cryptocurrencies, the price of bitcoin fell by more than US$2,000. This ban is part of a national crackdown on the currency form. The Chinese government sees it as a volatile investment and have concerns about it being used to launder money. The People’s Bank of China said of “[cryptocurrency] seriously endangers the safety of people’s assets”

Leverage your role’: China tried to sway EU-Taiwan vote
Chinese ambassador lobbied European Parliament president before lawmakers decided on non-binding report on Thursday   Report calls on European Commission to urgently begin preparation for a bilateral investment deal with the island

The Biden Administration Has Shown Unwavering Support for Taiwan
Building on the Trump administration’s tough line, President Joe Biden and his cabinet have missed no opportunity to reiterate the U.S. commitment to Taipei.   Finally, it is important to highlight that throughout its time in office, the Biden administration has demonstrated U.S. military resolve to defend Taiwan if needed by routinely dispatching warships to transit the Strait. To date, the U.S. has sent 10 warships, one for every month thus far including most a joint U.S.-Canadian transit late last week. Biden is persisting in a Trump administration trend which saw 13 such transits in 2020.  All of these positive words and deeds from the Biden administration should assuage any remaining concerns Taiwan might have about American security commitments, particularly since the fall of Afghanistan and Beijing’s stepped up military aggression toward the island. That said, there is ample reason for Taipei to continue to be vigilant about trends in U.S.-China relations and the potential implications for Taiwan.
As I have discussed previously, the Biden administration has gone from a seeming no holds barred “extreme competition” against China, to a more recent approach that seeks “guardrails” in the relationship. It remains to be seen whether the Biden administration might seek cooperation with Beijing in exchange for a softer approach on Taiwan, most notably for example on climate change. This is highly unlikely, however, given the robust track record the Biden administration has in supporting Taiwan and the continued deterioration of U.S.-China ties.

Joe Biden’s Taiwan strategy on brink as China invasion fears explode
JOE BIDEN’S foreign policy on Taiwan is potentially in jeopardy as state and private US-based multi-national interests differ in opinion over relations with China

What Do People in Taiwan Think About Their Military?
As the perceived threat from China rises, people in Taiwan are reevaluating long-held negative views of their military.

China-Africa trade bouncing back from Covid-19 impact, figures suggest
Two-way trade for the year to the end of August shows 40 per cent rise from coronavirus-hit 2020    South Africa is the biggest trade partner, rallying after easing strict pandemic measures, while China is actively buying African agricultural products

China ‘may be drawn’ into US-Russia nuclear competition
As non-proliferation treaties have fallen by the wayside over the years, the three powers are modernising their capabilities      A Chinese nuclear strategist has warned the unrestrained competition between Washington and Moscow could also bring in Beijing

China: The patriotic ‘ziganwu’ bloggers who attack the West
The bloggers’ rise in fame on Chinese social media has been linked to the ascendancy of Chinese nationalism     With her reassuring smile, Chinese blogger Guyanmuchan cuts a friendly figure on Weibo.

Beijing updates list of approved news sources, tightening its control over internet content
The Cyberspace Administration of China has updated a list of state-run media outlets and government websites from which others are allowed to republish    Beijing has tightened its grip on online content this year, targeting citizen journalists and financial news media

Alain Gillard
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