Belgian-Chinese Chamber of Commerce (BCECC)

China Press Review – October 28, 2021

China sees sharp slowdown in online commerce growth in coming years, as market matures and focus shifts to rural economy
The slowdown in China’s e-commerce growth rate was partly expected, as deceleration has already started. The government will encourage enterprises to use short videos and live streaming to promote e-commerce ecosystems for the countryside.

Xi’s China cracking down on economy reporting. Caixin lost status, investors like Alibaba
China also asked top social media platforms such as WeChat, Weibo, Douyin and Kuaishou to control the ‘illegal release of financial news’.

Coronavirus, power crisis send China vegetable prices soaring, but inflation risks set to be temporary
Wholesale vegetable prices in China have surged to their highest level since February, with officials pledging to crack down on hoarding and ensure a stable supply     Economists expect the boost to inflation to be temporary, with prices likely to remain high for a few months until demand eases during the Lunar New Year in February   Consumer-price growth slowed to 0.7 per cent in October, with JPMorgan predicting 0.9 per cent for the full year, well below the government’s official target of 3 per cent. Economists surveyed by Bloomberg project a 1.1 per cent rise in 2021 and 2.2 per cent in 2022.    The Securities Times, a newspaper managed by the official People’s Daily, said the vegetable price surge will have a limited impact on consumer inflation. The weighting of vegetables in China’s consumer price index (CPI) is low, it said in a report citing retailers and analysts from China Minsheng Banking Corporation    Consumer demand is also picking up, as a recent rebound in the services industry shows, while stores and restaurants are stockpiling ahead of winter.    Economists do not expect the central bank to react to the higher inflation, given it is likely to be temporary.     Zhu said the People’s Bank of China is likely to keep banks’ reserve requirement ratio and policy interest rates unchanged for the rest of the year, and instead use open market operations and its medium-term lending facilities to keep market liquidity ample.      It could also continue to use targeted instruments to support sectors like green projects and small businesses, he said.

What do rising energy prices mean for inflation in China and the US?
While energy and commodity investments are a good hedge against inflation, recent prices have been very high    It’s likely that the worst of the energy crisis is behind us in China, though the near-term outlook is less certain in the US and Europe

Without China, Efforts to Reverse Deforestation Will Fail
Demand — for lumber, meat, soybeans, and other goods — is driving deforestation around the world. And China is a major customer.     In the long term, Chinese consumers’ appetite for these unsustainably sourced commodities may well contribute to collapsing the ecosystems that supply them. Deforestation in the Brazilian Amazon is pushing the rainforest toward an irreversible tipping point that, if crossed, could cause it to dry out, releasing billions of tons of carbon dioxide, disturbing weather patterns across South America – where half of all soybeans are produced – and decimating agriculture. It would send shock waves through global supply chains.    This is not inevitable, but the Chinese government needs to address its own enormous contribution to the problem. It should adopt legislation that would restrict the import of agricultural commodities linked to illegal deforestation, and rigorously enforce it. This would create a powerful incentive in favor of sustainability, pressing producers to green their supply chains. Some officials in China’s environment ministry have in fact already made this case, but the issue is yet to reach the higher echelons of power.    To be clear, it is not only China that should do this – other major markets should too. And some are. In the United Kingdom, a law that restricts such imports is already being debated by Parliament. The European Commission is expected to present draft legislation at the end of the month. And in the United States, lawmakers recently introduced a robust proposal in Congress. The Chinese government should not lag behind

Is China Ready to Commit to a Green Energy Future?
The economic behemoth brings a mix of strengths and weaknesses to COP26   China has spent the better part of the last decade galloping ahead of the rest of the world in its efforts to green its economy. The results are stunning. In 2020, China brought online more new wind power than the rest of the world combined. The country is the leader in solar energy production, generating three times more power from the sun than the next closest nation. China already generates double the hydropower of Brazil, the country in second place. And the country leads the world in EV battery technology and vehicle sales; 50 percent of all EVs are bought and sold in China.    There is a simple reason why China continues to successfully scale up its energy transition: The ruling Party is convinced that building the ‘Chinese Dream’ is based on green development that will give China a 21st-century economic edge and increase the country’s global position and power.    However, despite the progress that has been made, China’s transition is rife with tensions, and several huge challenges could force it off the rail

China’s tech hub Shenzhen, home to Huawei and Tencent, wants to become a ‘unicorn’ paradise
The city plans to grow more highly valued tech start-ups and help them seek funding on stock exchanges, officials said in a new proposal      President Xi Jinping hand-picked Shenzhen to become a model socialist city in innovation

Large Chinese Tech Firm Raided by the FBI After Accusations of Aiding Cyberattacks
A prominent Chinese tech firm that sells hardware to companies throughout the world is currently under investigation after being accused of facilitating cyberattacks on various American and European targets.

With Tech-Driven Rebound, Asian Markets Turn Corner on Evergrande Crisis
After a tumultuous third quarter, Asian markets appear to be embarking on recovery following fears of an Evergrande default.

China rations diesel amid fuel shortages
Petrol stations in many parts of China have begun rationing diesel amid rising costs and falling supplies.

China’s power crisis sends magnesium prices skyward, choking supply chain and leaving Europe desperate
Global automotive industry depends on magnesium, but China has nearly a complete monopoly on the industry, producing 87 per cent of the world’s supply    Magnesium production is power-intensive and emits five times more carbon pollutants than steel production, meaning some smelting plants may be shut down for several months

Why China’s economic downturn warrants more than a shrug from global investors
Investors may claim they are increasingly concerned about China, but important measures of sentiment suggest otherwise     The failure to reckon with a much sharper than expected slowdown in China is a grave mispricing of risk at a time when global growth is slowing sharply and central banks are preparing to tighten monetary policy  Although markets have proved remarkably resilient to all sorts of pre- and post-pandemic threats, the failure to come to terms with a much sharper than expected downturn in China constitutes a grave mispricing of risk at a time when global growth is slowing sharply and leading central banks are preparing to tighten monetary policy.  First, China’s growth is hugely important to the world economy. Over the past two decades, the country has been the single most important contributor to global growth, accounting for a much bigger share than either the United States or the European Union. The world has grown accustomed to Chinese annual growth rates in excess of 7 per cent for most of the past 20 years. A steep deceleration is a shock for China, but an even bigger one for the rest of the world. Second, China’s downturn is mostly policy-induced. While this is a source of comfort to those investors who believe Beijing will soon be forced to take action to stimulate growth, it is also the main reason economic risks in China are being underpriced.    The main threats to the economy – the energy crisis, the pandemic and the property slowdown – are exacerbated by deliberate policy choices that significantly worsen the outlook for growth.   The zero-tolerance approach to the virus, efforts to reduce the country’s dependence on coal and the campaign to curb leverage in the housing market are politically driven decisions that amount to a regime shift in Chinese economic policy, one that markets have yet to grasp. Third, while the hawkish tilt by the Federal Reserve has focused attention on the risks of tightening policy in the face of weaker growth, the withdrawal of stimulus by the Fed pales in comparison with the level of retrenchment in China over the past few years, even in the teeth of the trade war and the pandemic.   While the woes of China Evergrande Group have dominated the headlines, it is the new policy framework that gave rise to the developer’s liquidity crisis that should be of greater concern to investors.  As JPMorgan noted in a report published in August, industrial and regulatory policies in China are no longer supporting macroeconomic ones in order to prioritise structural and financial objectives. This makes it much less likely that Beijing will ease policy significantly, increasing the scope for a sharper slowdown.    There are many examples of asset prices being disconnected from fundamentals. The one that is the most concerning right now is the mispricing of Chinese economic risk in global markets.

China Unbound: The implications of China’s expanding influence
Joanna Chiu’s debut book examines China’s rise in the context of the global village. What are the various tensions and conflicts arising from China’s return to international preeminence?   But more than that, such sedulous duplicity demonstrates China’s refusal to alter its self-conception as at the center of its universe. Even with a long history — 5,000 years, you may have heard it said — marked by humbling setbacks — most recently under Mao when its economy nearly collapsed — China has yet to lose its sense of itself as a world power. It’s significant that China sees its rise as a return to preeminence, the reawakening of a sleeping giant. It wants the return of the tributary system, in political rather than economic terms, with itself at the center and lesser surrounding nations paying obeisance to its majesty. In a more democratic age, values, rather than deference to power displays, are the key driver of alliances — though perhaps this is a more Western concept, and the Chinese vision may yet win out in Asia.  If journalism is history’s first draft, books such as China Unbound are its first redraft. Chiu’s book clearly advances on newspaper reports and ties them into a larger, and more troubling, pattern of behavior from those helming the Chinese nation. But we demand more of a revision. We expect a stronger, more cogently argued thesis; we want less chronology and more analysis. This may sound like nitpicking about a book that is timely and in its way important, but if you want to boldly go into print, you gotta really think big.

Finding the right role for NATO in addressing China and climate change
The primary geostrategic competitor of the future — for the United States at least — is China. But while China presents a complex set of economic, political, technological, and military challenges for which developing common trans-Atlantic positions is proving challenging, it is also very unlikely to trigger NATO’s Article 5 collective security provision.  Meanwhile, the primary existential threat faced by allies is climate change, which will of course affect NATO operations (including through its impacts on low-lying military bases) and the livelihoods — and potentially political systems — of NATO nations. The alliance is but one forum, however, that ought to be utilized to curb greenhouse gas (GHG) emissions to combat human-induced global warming. Moreover, mitigating the impacts of the climate crisis will require cooperation with China even as the strategic rivalry between the West and China intensifies. How the alliance plans to address China and climate change remains far from clear — as does NATO’s approach to these two issues as member states continue to calibrate their national positions. Nonetheless, the June 2021 NATO summit communiqué made clear that the alliance intends to tackle both of these security challenges as it develops its new Strategic Concept.  In this paper, we examine how NATO might usefully contribute to the trans-Atlantic response to the China challenge and climate change, while stressing why the United States and Europe will need to look beyond NATO to strengthen other frameworks — particularly the U.S.-European Union and NATO-EU relationships — as they seek to develop trans-Atlantic responses to these increasingly complex twin challenges.

China and the US expected to strike conciliatory chord at G20 summit amid need for global economic cooperation
Chinese Vice-Premier Liu He and US Treasury Secretary Janet Yellen exchanged views about further cooperation under G20 framework in virtual meet     This weekend’s leaders meeting could see could see historic agreement on a long-awaited global minimum corporate tax    Economists said that the impact on the Chinese economy of the new global corporate tax rules would likely be limited, as the country’s corporate income tax rates mostly stand at 25 per cent, higher than the proposed 15 per cent.   However, the new rules would likely force leading multinational companies registered in “tax havens” to restructure their global supply chains, which could impact Hong Kong as the city’s effective corporate income tax rate is lower than 15 per cent, said Li Chengjian and Li Ruolin, analysts at China’s Development Research Center of the State Council, an advisory body that is affiliated with the central government.    “The two sides have agreed to continue communication at all levels on next steps, and to advance pragmatic cooperation and resolve specific problems from the perspective of benefiting both the two countries and the world,” added Shu. “We have always maintained an open attitude towards dialogue and communication between Chinese and US commerce ministers.”    Despite the positive note struck by Shu, there was a recent escalation in China-US trade tensions after the US Federal Communication Commission (FCC) revoked the license of China Telecom on Tuesday.
Commenting on this topic, Shu said the US move had “generalised the concept of national security, abused state power, maliciously suppressed Chinese enterprises in the absence of a factual basis, violated market principles and undermined the atmosphere of bilateral cooperation.”   “The Chinese economic and trade team has made solemn representations to the US side in this regard,” added Shu.

The Latin American element in China’s CPTPP bid
China’s bid for membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a multifaceted move. An overlooked aspect of it is the fact that the CPTPP is the first major free trade agreement established on a trans-Pacific scale and that three of its four members on the eastern side of the Pacific happen to be Latin American countries.   China’s application was presented to the CPTPP Commission the same day that the United States, the United Kingdom and Australia announced AUKUS — a security alliance that unabashedly seeks to bring about a new balance of power in the Pacific.  The Latin American country that would give China the warmest welcome is Mexico, especially given the openly anti-US stance Mexican president Andres Manuel Lopez Obrador has adopted since Biden took office, Mexico’s membership in the US–Mexico–Canada Agreement (USMCA) notwithstanding. In fact, visible signs of mutual empathy have been sent from both sides.  If Biden decides to join the CPTPP, Washington would surely do what it could to make Beijing’s accession difficult. One way of doing this would be to press Canada and Mexico to force China to satisfy more and harder-to-meet requirements. Another would be to invoke the USMCA’s Article 32.10.5, the so called ‘poison pill’ clause, and threaten to walk away from the agreement. Mexico and Canada signed the CPTPP in March 2018 and the USMCA eight months later. If China were accepted to the CPTPP, neither would be signing a new agreement with a ‘non-market’ economy but simply abiding China’s admission into a multi-country trade agreement of which they happen to be members already. If the ‘poison pill’ were invoked, then Canada or Mexico would have to agree on exiting the USMCA and promptly sign a bilateral pact with the United States. This seems highly unlikely given the strong trade links among these three countries and the deeply entrenched continental supply chains they share.

If China Attacks Taiwan, What Will Europe Do?
Any decisions made in the event of a Chinese attack on Taiwan are likely to determine Europe’s place in the world for decades to come. Even if the Netherlands and Europe take all these measures, the choice between either supporting the United States or staying away from confrontation will affect Europe’s security and prosperity for decades. A decision on this must therefore be taken long before a crisis erupts, with broad political and social support, and should be coordinated by European states. As a first step, this subject must be included on the European Council agenda in the near future. A decision of this magnitude is too important to be left to politicians in the middle of the night.

China Blasts Taiwan’s Acknowledgement of U.S. Military Presence
Beijing issued perhaps the clearest threat yet that it’s willing to use force to reunify what it considers a renegade province as the U.S. ramps up military and diplomatic support.

Taiwanese minister’s covert trip to Brussels adds to EU-China tensions
Joseph Wu has also infuriated Beijing with his trip to the Czech Republic and Slovakia.

China to Defer Tax Payments for Manufacturing MSMEs, Coal-Fired Power Plants, and Heating Firms
China plans to allow small and medium-sized manufacturers, individual businesses, certain unincorporated firms like sole proprietorships and partnerships, as well as coal-fired power plants and heating firms to defer their tax payments in the fourth quarter.   The decision was made at an executive meeting of the State Council chaired by Premier Li Keqiang on October 27, 2021, as Beijing seeks to cushion the impact of rising commodity prices and production costs to help small businesses, especially manufacturers, tide over difficulties.   The meeting also decided to extend tax incentives for overseas institutional investors investing in China bond market.

China’s small manufacturers see taxes deferred as Beijing vows ‘timely and targeted’ economic adjustments
State Council will study ‘large-scale tax-reduction policy for market entities’   Manufacturers that make up to 400 million yuan (US$62.6 million) a year will see their taxes entirely or partially deferred for the next three months

Stagflation in China is a ‘very real’ risk in the next couple of quarters, says analyst
The risk of stagflation is “very real” in China over the next couple of quarters, said Charlene Chu, senior analyst for China macrofinancial at Autonomous Research.   A high producer price index and power crunch have made it difficult for Beijing to stimulate the economy aggressively, said Chu.   The slowdown in the real estate sector has “very severely” hit China’s economic growth, but confidence in the primary property market is not yet collapsing, she said.

How China’s hottest online celebrity fell out with her agent, burning tech giant ByteDance in the process
Li Ziqi was seen as a Chinese soft power ambassador on YouTube with over 16 million subscribers, a feat that got her into the Guinness World Records    The reasons for the break-up are unclear, although profit sharing and Li’s reluctance to over-monetise her online presence could be factors   Li said she would like to promote China’s non-material heritage, and she advised China’s young people not to try to become online influencers.   In the interview, Li did not mention Weinian. Instead, she said her talents and influence would be used in serving the country’s goal of rural development and “common prosperity”. There have been similar disputes between first-tier influencers and their agents,” said Li Chengdong, chief executive of e-commerce consultancy Dolphin Think Tank. “It’s understandable that creators want more independence and benefit after gaining popularity, but they should also attribute their success to the agencies’ expertise and resources. They need to stick to the spirit of the contract.”   However, Li kept posting videos under her own name until three months ago. The joint venture business has trademarked Li’s name, which is licensed to producers of instant rice noodles, canned chicken soup, and sweet potato-flavoured sponge cake.

Alain Gillard
Information Officer
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