China Is Decoupling And Setting It’s Own Economic Order
Global attention has been riveted in recent weeks to a raft of new economic and regulatory measures introduced by President Xi Jinping. These include tighter supervision of where Big-Tech firms can list, how they handle customer data, and even restricting the amount of time that students are allowed to play video games. All of these reforms have been wrapped up in an enticing wealth redistribution and social equity package labelled “common prosperity.” Before we dig into the specifics, it is useful to set some historic context to what President Xi is attempting to do, which is a fundamental reordering of China’s post-1979 economic consensus which was built on the proposition that the country’s openness to the tailwinds of globalization, trade and investment would make it gloriously rich. The peak moment of China’s openness was surely the country’s accession to the WTO in the early 2000s and achieving its ambition of becoming the factory of the world. As Xi approaches the end of his second term and (potentially) prepares to start a third, he is attempting to open a new chapter in China’s history by seeking to sustain the Communist Party’s hold on power, while restructuring the economic, social, and political incentives away from winner-take-all capitalism. The President’s pre-occupation with securing domestic political control coincided with a desire to become more assertive on the world stage. The chaos and disruption of the Trump era, when hostilities over trade and investment touched its peak, came as a challenge and a gift to Xi to complete his consolidation over the levers of power. For foreign investors still eager to tap into China’s enormous domestic market, the message from Beijing was clear—you play by our rules or don’t play at all. The rush of global finance into China’s bond market and into wealth management is a sign that Xi’s decoupling strategy is paying off. The rules-based international order which China advocated during an earlier era now essentially boils down to a Xi-based international order. The new anti-sanctions bill slowly making its way will penalize American and European financial institutions operating in Hong Kong who implement western sanctions against Chinese businesses and individuals. This is a single circulation chokepoint for foreign investors in Xi’s grand vision to decouple from the western order and build his own.
Reality check: How welcome are foreign investors in China?
Revisions to China’s Foreign Investment Negative List (FINL) are generally presented as an indication of how far the market is opening up to foreigner investors. However, this list alone gives only a partial picture. Other negative lists can render any opening up practically meaningless. The coming round of FINL revisions will be no different, argues MERICS Senior Analyst Jacob Gunter.
China’s Xi Had a Very Busy Week. Here’s What He Said and Did
Chinese President Xi Jinping has been in the public eye for five days in a row, giving speeches and approving policy closely tied to his drive to revamp broad swathes of the world’s second-largest economy.
Xi Jinping is aiming to redraw China’s social contract
The blizzard of new regulations, speeches and policies emanating from China in recent weeks appears motivated by what Beijing calls “changes unseen in a century”. That is code for the rise of China and the relative decline of US-led western power. The instability that such a shift in the global order may trigger has prompted Beijing to strengthen itself pre-emptively, by addressing internal and external vulnerabilities. A bigger risk is that in the various broadsides against the vibrant tech sector, a prejudice against private enterprise is nurtured. Almost all of the tech companies — such as Alibaba, Tencent, Meituan, Didi and others — that have fallen under regulatory scrutiny in recent weeks are privately owned. A campaign-driven approach to policy can easily spill over into radicalism. Wealth redistribution, for instance, would be better achieved in China by legislation that tweaks the tax code. Levying tax on property sales, inheritance and some other expressions of wealth would be seen to be transparent and equitable. This is a path that Beijing may yet decide to follow. Xi appears intent on redrawing China’s social contract. The old mantra that some will “get rich first” is giving way to a more equitable creed. That may ultimately benefit some 600m Chinese who live off a monthly income of about $154 or less. But if such good intentions are derailed by radicalism, China will face a darker future.
Alibaba Pledges US$15.5 Billion To China’s ‘Common Prosperity’ Push
Alibaba Group has committed RMB100 billion (US$15.5 billion) to finance 10 initiatives promoting “common prosperity” in China, supporting a nationwide push towards a fairer society. To this end, Alibaba has set up a dedicated task force, spearheaded by Group Chairman and CEO Daniel Zhang, to see through each initiative by 2025, the company said in a statement on Friday.
podcast : Listen: What China’s sweeping socialist reforms mean for the economy
China cracked down on the gaming industry this week, the latest in a series of policies aimed at strengthening the public sector and reining in private enterprise. But the reforms could bring short-term economic pain at a time when the country is already struggling with Covid, chip shortages and widespread flooding, as Iris Pang explains in this podcast
Why the world needs Globalisation 2.0, rather than a retreat into protectionism
China and many other developing countries have benefited greatly from growing global interdependence, and the attempt by detractors to turn back the clock, in the name of ‘economic sovereignty’, is wrong Historically, China was a trading nation, and it continues to be one today. China is now the world’s largest trading nation, accounting for 13.2 per cent of global goods exports and nearly 11 per cent of global imports. And that upward trend shows no sign of abating, especially in the Covid-19 era when China’s economy has recovered quickly while many other parts of the world are still battling waves of coronavirus outbreaks. The first half of 2021 saw China’s total trade volume increase by 27.1 per cent, with exports expanding 28.1 per cent and imports by 25.9 per cent. China is also rapidly becoming a major provider of outbound investment funds, as the world’s industrial manufacturing clusters begin to move to countries with lower labour costs. The Chinese stance is an honest admission that globalisation has its problems, but these are problems we can and should address. The world needs to move into phase two of the globalisation process, which I call “reglobalisation”, in which we work on mitigating inequality and strengthening supply chain resilience. A liberal world order needs to be open and inclusive to trade.
The downside of the economics of self-reliance
China’s dominance of the global investment cycle in recent years springs from two trends, both having their roots in the 2008 financial crisis. In the first place, China’s response to that crisis was to stimulate its economy by boosting spending on infrastructure and real estate, ensuring that its economy remained heavily dependent on this kind of activity.
China to draw foreign investors into commodities futures trading
China will launch more futures contracts, including a shipping futures contract, and accelerate efforts to bring in more overseas investors to trade in its futures market, the State Council, or cabinet, said on Friday.
China’s carbon-neutral goal: Sinopec geothermal joint venture expects 25 per cent growth annually over five years as clean heating demand rises
China is adopting geothermal because it is by far the most economic means of heating available, Sinopec Green Energy executive says Company expects to heat floor space the size of Manhattan by the end of the year
U.S. climate envoy Kerry urges China to keep politics out of global warming
U.S. climate envoy John Kerry told Chinese leaders that climate change was more important than politics, he said on Thursday, responding to warnings that diplomatic tensions between the two countries could undermine cooperation on cutting emissions. “My response to them was, look, climate is not ideological, not partisan, and not a geostrategic weapon,” Kerry told reporters after two days of talks with his Chinese counterpart Xie Zhenhua in the northern city of Tianjin
China’s ‘baseless’ challenge to US solar panel tariffs rejected by WTO
Then-president Donald Trump announced four years of import caps and tariffs in January 2018 But China did not establish the safeguards were inconsistent with World Trade Organization (WTO) rules
China’s top chip maker SMIC to build a US$9 billion factory in Shanghai amid Beijing’s push for tech self-sufficiency
Semiconductor Manufacturing International Corporation is pouring US$8.87 into a new chip fabrication plant in Shanghai’s free-trade zone The company has other plants planned for Beijing and Shenzhen as Beijing seeks to advance the country’s semiconductor industry
State capitalism and China’s corporate pecking order
Until late July 2021, China was the global leader in online education and after-school tutoring, spearheaded by US exchange-listed companies such as TAL Education and New Oriental Education. Beijing’s sudden decision to outlaw the business model of online tutoring, accusing the sector of promoting ‘social inequality’, has essentially wiped out this thriving sector. In China’s entrepreneurial sector, the next rectification targets are likely to be other entrepreneurial companies like Tencent Holdings. Its main product, online video games, was labelled ‘spiritual opium’ by a state-owned publication, although the label was later amended. Even as hundreds of thousands of jobs are put at risk by the crackdown on online education and tutoring, with billions of dollars in shareholder value being burnt, the government remains undeterred. It believes that entrepreneurial companies have no choice but to succumb to greater state control. At a recent CCP forum, President Xi Jinping praised the ‘progress’ being made against entrepreneurial capitalism, which he called an ‘irrational expansion of capital’. The future of China’s entrepreneurial capitalism, once brilliant, has turned opaque.
Beijing’s surprise plan for a stock exchange may help Hong Kong’s drive for quality as it keeps smaller companies at arm’s length
The new Beijing exchange, aimed at helping small innovative companies raise funds, would also be an attempt at reforming the NEEQ Established in 2013, NEEQ was akin to a kindergarten for the stock market, where start-ups could raise funds from professional investors before graduating to listings in Shanghai, Shenzhen or even in Hong Kong
New Beijing Stock Exchange could be the financial lifeline China’s small companies are crying out for, analysts say
New exchange would further policy goals of reducing debt levels and creating more mature capital market structure Start-ups and SMEs have struggled to secure financing from China’s bank-dominated financial system
China’s stock trading volume surges above 1 trillion yuan for weeks as other investment options dry up
Chinese investors are turning to mainland Chinese stocks, called A shares, as other investment options like real estate come under tighter government scrutiny. Stock trading volume has held above 1 trillion yuan ($154.56 billion) for the last six weeks and hit a high for the year on Wednesday, according to Wind Information. “Speculating on real estate is definitely out of play,” Schelling Xie, senior analyst at Stansberry China, said in Mandarin, according to a CNBC translation. Since Chinese authorities tightened a ban on cryptocurrency transactions this year, “where does this money go?”
The latest target of China’s tech regulation blitz: algorithms
China’s increasingly powerful cybersecurity regulator last Friday released sweeping draft rules for regulating use of so-called recommendation algorithms. That’s the technology that has helped China’s largest tech companies from e-commerce giant Alibaba to TikTok-owner ByteDance build up their multibillion dollar businesses. The world is watching. The proposed rules, if passed, might require companies to restructure their businesses and give regulators access to proprietary information, Kendra Schaefer, Beijing-based partner at Trivium China consultancy, told CNBC.
The rise of the he-economy: China’s next big market
If you think male Chinese consumers rank low on marketing priority lists, think again. The spending power of female Chinese consumers has often taken precedence, but all this is about to change. A report published by Deloitte and SECOO revealed that Chinese male consumers had surpassed women in terms of online luxury purchases. The rapid expansion of China’s wealth has given rise to the ’mass affluent male class’ (MAC), with massive purchasing power.
After Government Crackdown, What’s Next for China’s Edtech Firms?
With new regulations hitting hard at home, China’s education firms are going global. The business-to-government path within China is also interesting for a growing number of firms. This is a large, untapped, and still unregulated market that involves selling directly to public schools, whose budgets are often controlled by their local governments. With governments at all levels putting more pressure on public schools to fill the gap the regulations are creating in the after-school market, public schools will need to develop capacity in IT services, curriculum design, and sheer workforce. According to the head of sales at KanShan, a bite-size primary education edtech firm, “the new regulations actually provide us with more and more opportunities because… schools will need more excellent content, which requires the assistance of external companies like us Experimental schools, which have more leeway and autonomy in their budgets, may be a good entry point for companies interested in developing their business-to-government revenues. The key question, however, will be how much local governments and public schools are willing to pay, and charge their students, for these services. Despite stringent regulations that have damaged many edtech firms in the market, a sizable number of companies see opportunities for product development. Many are reorienting their customer acquisition strategies through different channels or markets and offering more innovative products. The regulations ousted the newest entrants, but edtech’s largest players may well be poised for the sustainable growth that had eluded them.
Corrupt and competent: A paradox of China’s economic growth Podcast
Unpacking the relationship between corruption and economic growth in China’s Gilded Age.
China anti-corruption probe finds local governments are still ‘fabricating’ economic data
The National Bureau of Statistics (NBS) conducted two rounds of inspections over the last two years, covering 19 of mainland China’s 31 provincial jurisdictions It also included nine departments within the State Council, and found evidence of fraud in various cities across the country This corruption included predesignated monthly growth rates, while some local economic and information technology bureaus would even hold meetings at the beginning of each year to assign statistical fraud tasks, and offer “fraud subsidies” to enterprises. In one case in a city in eastern China, an online group chat involving local officials and enterprises showed that the local government instructed companies to report more than 20 million yuan (US$3 millions) revenue from their main business. In January 2017, the northeastern rust belt province of Liaoning became the first provincial jurisdiction to admit fabricating economic data. It was found that subordinate cities and counties in Liaoning had reported inflated fiscal revenues by 20 per cent from 2011 to 2014. The province then reported a negative gross domestic product growth rate of minus 2.5 per cent in 2016. Since then, various cities and provinces have also revised their previously reported fiscal figures, including Tianjin and Inner Mongolia. “In general, local governments have been paying more and more attention to statistics work, but for some localities, there is still a gap between the implementation and the requirements from the central government,” said An Pingnian, director of the statistics enforcement and supervision department at the NBS.
Sub-Provincial City Cadres: China’s Leadership Cohort for 2027 and Beyond
Sub-provincial city governance positions are often the last policy-testing ground before promotion to ministerial-level cadre rank, and the possibilities of central leadership positions that this brings. Categorizing sub-provincial cadres into factions is often speculative until solid interpersonal bonds can be established. Under Xi, the metric for success was personal knowledge of the person in question, but previous metrics had been provincial and regional economic development success. Membership criteria for entry into factional politics thus changes with the dynamic form of the informal factional system itself. Sub-provincial level cadre leadership, though, is a fraught position; cadres in charge of these jurisdictions are big enough to fall but not strong enough to defend themselves. For most party secretaries at this level in 2022, the only two roads are up to power or down to destruction.
China shuts Japanese-themed complex after just 2 weeks over online backlash, ‘sensitive’ date concerns
The Tang Little Kyoto project, which is located in Dalian’s Jinpu New Area, was opened two weeks ago and had proved popular with domestic tourists In October 2020, the local government in Guangdong closed a similar project as it needed to be ‘corrected and renamed’
Taliban to ‘actively support’ belt and road plan of ‘trustworthy friend’ China
Pledge from deputy head of Taliban office comes as a spokesman highlights Afghanistan’s strategic value to China in terms of regional security Chinese foreign ministry wouldn’t be drawn out on question of recognising the militant group, but said Beijing was watching the situation closely
Explained: Why China is looking at a larger role in Taliban-ruled Afghanistan
Following the withdrawal of US forces from Afghanistan, China has emerged as one of the first nations to develop diplomatic channels with the Taliban. What are its economic interests in the country?
China-Tajikistan: Bilateral Investment and Trade Ties
We discuss the bilateral investment and trade outlook between China and the Central Asian country of Tajikistan. China is currently Tajikistan’s largest source of foreign investment and a significant trading partner. Tajikistan, on its part, is a keen BRI participant as its difficult terrain and connectivity challenges require major infrastructure and construction investment, the cumulative outcome being better economic integration and boost to trade.
China linked to takeover of Italian drone plant
Six managers of an Italian company that makes military-grade drones for Nato have been reported to prosecutors after a lengthy investigation by financial crimes police.
China Bans Artists With ‘Wrong’ Morals and Political Views
The new set of guidelines are the latest measures in the authorities’ clampdown on the entertainment industry.
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