China eyes tech and economic goals for at third plenum, but few drastic changes expected; The risk of a euro crisis is rising
Geely looks ready to ride tariffs storm; ASEAN wage hikes worry industries benefiting from supply chain shift
Welcome to this issue of The China Brief. Today is July 2, 2024. Here at The China Brief, we bring you the latest news on China's politics, economy, and society from global media sources, along with exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
China eyes tech and economic goals for at third plenum, but few drastic changes expected
South China Morning Post
China's ruling Communist Party will meet next month for the long-awaited third plenum, where the country's economic and tech development goals for the next decade will be discussed. The meeting is expected to focus on deepening reform, advancing Chinese modernisation, expanding international tech exchanges, and attracting overseas talent. The plan also aims to improve governance while maintaining firm control by the party. However, few expect major changes to occur during the plenum. Frictions in international trade and weak demand at home pose significant challenges for China's economy. Despite a long list of issues to address, analysts say the meeting will be worth watching. Rural land reform and fiscal policy are not expected to see major changes, and focus is likely to remain on the domestic market through China's "dual circulation" drive.
https://www.scmp.com/economy/china-economy/article/3268795/china-eyes-tech-and-economic-goals-third-plenum-few-drastic-changes-expected?utm_source=rss_feed
The risk of a euro crisis is rising
Reuters BreakingViews
Risks of a new crisis in the euro zone are rising due to high debts, pressing spending needs and low growth at a time of rising nationalism and geopolitical conflict, but these risks are not yet ripe to trigger one, according to Breakingviews. While France's political instability is adding to the single currency's fragility, it is unlikely to cause another meltdown. Investors have shown little concern over the French elections, with the yield spread on French bonds over German bunds rising to 85 basis points from 49 basis points since President Emmanuel Macron called the election. The contagion to Italy has been limited, with the yield spread on Italian bonds relative to German bunds increasing to 162 basis points from 133 basis points. However, the medium-term outlook for the euro zone is worrying. High debts, pressing spending needs and low growth in many countries at a time of rising nationalism and geopolitical conflict are storing up trouble.
https://www.breakingviews.com/columns/the-risk-of-a-euro-crisis-is-rising/
Geely looks ready to ride tariffs storm
Reuters BreakingViews
Chinese automaker Geely Auto has reported strong earnings in Q1 2024, with sales of EVs, hybrids, and traditional cars all growing. The company's parent, Zhejiang Geely Holdings, has protested EU duties that will come into effect on Thursday, which will impose additional levies on battery-powered exports to the bloc. However, Geely Auto can likely absorb the impact of the tariffs or delay its European expansion. The company's sales of EVs and hybrids have seen significant growth, and its gas-powered vehicles are also selling well. Additionally, Geely Auto holds a stake in Horse, a joint venture with Renault that sells technology for internal combustion engines. Geely Auto's European-bound EVs account for a small portion of its business, and the company can afford to wait for the EU market to develop.
https://www.breakingviews.com/considered-view/geely-looks-ready-to-ride-tariffs-storm/
ASEAN wage hikes worry industries benefiting from supply chain shift
Nikkei Asia
Southeast Asia's major manufacturing hubs are raising their minimum wages in the second half of this year, potentially forcing companies to rethink their strategies as the region draws more investments and becomes a larger part of the global supply chain.
https://asia.nikkei.com/Economy/ASEAN-wage-hikes-worry-industries-benefiting-from-supply-chain-shift
UN adopts Chinese resolution with US support on closing the gap in access to artificial intelligence
Associated Press
The United Nations General Assembly has adopted a resolution, with US support, calling for developed nations to help close the gap between wealthier and poorer nations in the field of artificial intelligence (AI). The resolution follows the adoption in March of the first UN resolution on AI, led by the US and co-sponsored by 123 countries including China. Both the US and China are keen to shape the future of AI and have been cooperating on this issue. The resolutions are non-binding and show the widespread global support for the two nations' leadership in the field.
https://apnews.com/article/un-china-us-artificial-intelligence-access-resolution-56c559be7011693390233a7bafb562d1
Can AI boom drive Nvidia to a $4tn valuation despite investor doubt?
Guardian
US chipmaker Nvidia is on track to reach a valuation of $4tn, as the company continues to benefit from its role in the artificial intelligence (AI) boom. Despite a recent share price slide, Nvidia remains one of the best ways for investors to buy into the AI market, as it continues to sell its top-end chips faster than it can produce them. However, the company faces challenges, including increasing competition from other chipmakers and potential disappointment with new AI models. Additionally, Nvidia relies on external semiconductor foundries to produce its chips, meaning that if demand outstrips supply, profits could be affected.
While Nvidia is a leader in the AI chip market, it faces competition from the likes of Google, Meta, Amazon, and Intel. Smaller businesses are also developing specialised products that outperform Nvidia's offerings in certain areas. To reach a valuation of $4tn, Nvidia would need to continue selling a large number of chips each year at a high profit margin. The company's profit margin may also be impacted by supply chain issues, as it relies on external foundries to produce its chips.
Despite these challenges, the AI market is expected to continue growing, which bodes well for Nvidia. However, the pace of the company's growth may slow as demand levels out. While Nvidia is currently valued at $3tn, it remains to be seen whether it can continue its rapid growth trajectory and reach the $4tn milestone.
https://www.theguardian.com/technology/article/2024/jul/02/can-ai-boom-drive-nvidia-to-a-4tn-valuation-despite-investor-doubt
Russia seeking China’s help to develop Arctic shipping route – is it worth it for Beijing?
South China Morning Post
Russia is seeking China’s help in developing the Northern Sea Route (NSR) in the Arctic, which could significantly reduce journey times between Europe and Asia. The NSR is currently only passable for a short period of time each year, but as global warming causes more of the Arctic’s ice to melt, the route could eventually be extended to Scandinavia. Travelling between Shanghai and St Petersburg along the NSR would take a cargo ship around 20 days, compared with around 36 days via the Red Sea and Suez Canal. The route could carry up to 270 million tonnes of cargo by 2035, according to the Russian agency that oversees the sea lane. China relies on the sea to transport more than 60% of its trade by volume, so the route could help offset the risk from using existing routes. However, Russia is more motivated than China to develop the route, as the Arctic region is a top strategic and economic priority for Russia. China sees the NSR as a valuable alternative to traditional shipping routes, but it is just one of many emerging strategic areas for the country. The two countries have agreed to set up a committee to develop the NSR into an important international transportation corridor and increase shipping traffic and infrastructure. However, there are still major hurdles to overcome in developing the route, including the harsh environment, short shipping window, specialised equipment and lack of infrastructure. China and Russia could instead focus on developing waterways in continental Eurasia to link China to the NSR via Siberia’s great rivers, but this would be expensive.
https://www.scmp.com/news/china/diplomacy/article/3268761/russia-looking-chinas-help-develop-arctic-shipping-route-it-worth-it-beijing?utm_source=rss_feed
A Norwegian citizen has been arrested on suspicion of spying for China, a report says
Associated Press
A Norwegian citizen has been arrested on suspicion of spying for China, according to Norway’s domestic security agency. The suspect, who has not been named, was arrested on Monday and will face a court hearing in Oslo on Tuesday. The individual is accused of serious intelligence activities involving state secrets. The arrest comes after Norway’s domestic security service warned in February that China would be a significant intelligence threat in 2024.
https://apnews.com/article/norway-china-spying-arrest-a965800c5a97d41abad2d0d5442dedf7
Chinese official calls for Japanese investment, reaffirming vow to widen market access
South China Morning Post
China has called for Japanese businesses to invest in the country. The Chinese vice-premier, He Lifeng, made the appeal during a meeting with a Japanese trade relations group. He Lifeng suggested that Japan should increase investment and cooperation in China and that the Japanese Association for the Promotion of International Trade should continue to serve as an advocate of China-Japan friendship. The appeal for investment comes as Beijing is attempting to attract more foreign capital and improve its business environment ahead of the Communist Party's third plenum.
https://www.scmp.com/economy/china-economy/article/3268873/chinese-official-calls-japanese-investment-reaffirming-vow-widen-market-access?utm_source=rss_feed
Chinese and Philippine officials meet for South China Sea talks after series of recent clashes
South China Morning Post
Chinese and Philippine officials have met to discuss the South China Sea in Manila, despite recent tensions over the disputed waters. The meeting is the first since January and Philippine Foreign Affairs Secretary Enrique Manalo said he was “hoping for the best”. The two sides have been involved in a number of confrontations this year, including an incident where Chinese coastguards intercepted a Philippine naval mission on June 17. In the most recent incident, China accused the Philippines of “undermining peace and stability” by sending supplies to a coastguard vessel stranded at Sabina Shoal.
https://www.scmp.com/news/china/diplomacy/article/3268871/chinese-and-philippine-officials-meet-south-china-sea-talks-after-series-recent-clashes?utm_source=rss_feed
Hong Kong IPOs: PwC cuts 2024 fundraising prediction by 20% to US$10.2 billion
South China Morning Post
PwC has revised its outlook for Hong Kong's IPO market, predicting that 80 companies will list on the stock exchange this year and raise up to HKD 80bn ($10.2bn), significantly lower than its forecast of over HKD 100bn in January. The accounting firm attributed the downgrade to the high interest rate environment and cautious investor sentiment in the city. However, PwC said it is "cautiously optimistic" that activity will pick up in the second half of the year, driven by the expected flow of global capital to Asia and the listing of Chinese concept stocks and technology companies.
https://www.scmp.com/business/markets/article/3268864/hong-kong-ipos-pwc-cuts-2024-fundraising-prediction-20-us102-billion?utm_source=rss_feed
If a phone rings in a forest and no one answers, is it a hotline?
Japan Times
US Deputy Secretary of State Kurt Campbell has warned that inadequate military crisis communication systems between the US and China could lead to "inadvertent escalation" in the Indo-Pacific region. Poor communication and miscalculations are seen as the biggest risk in the region, and both governments have pledged to address the issue but have made little progress thus far.
https://www.japantimes.co.jp/commentary/2024/07/02/world/us-china-hotline-crisis-communications/
Chinese e-commerce giant JD.com pursues budget-minded consumers in slow economy
South China Morning Post
JD.com is reportedly strengthening its budget shopping platform Jingxi to target consumers in smaller towns with limited spending power. The move is seen as a response to competition from rival PDD Holdings, which has found success with low-cost pricing. JD.com will take full control over Jingxi's operations, logistics, and after-sales services, aiming to better serve price-sensitive consumers. The e-commerce giant plans to expand Jingxi's partnerships to cover over 10,000 factories by the end of the year.
https://www.scmp.com/tech/big-tech/article/3268853/chinese-e-commerce-giant-jdcom-pursues-budget-minded-consumers-slow-economy?utm_source=rss_feed
China urges ‘severe punishment’ for killers of citizen in Philippines
South China Morning Post
China has urged the Philippines to find and "severely punish" the killers of a kidnapped Chinese citizen. The Chinese embassy in Manila said it had been informed a few days ago that the person had been kidnapped in the Philippines, and it had assisted the family in reporting the case to the Philippine National Police’s Anti-Kidnapping Bureau. It also intervened through diplomatic channels in an effort to secure a rescue and ensure the person's safety. However, both victims were eventually killed.
https://www.scmp.com/news/china/diplomacy/article/3268849/china-urges-severe-punishment-against-killers-citizen-philippines?utm_source=rss_feed
China charms Hong Kong with economic boosts, from pandas to visas
Nikkei Asia
The Chinese government has implemented measures to boost Hong Kong’s economy, including visa-free access to the mainland for non-Chinese permanent residents and an extension of duty-free spending limits for visitors from the mainland. Hong Kong Chief Executive John Lee thanked Beijing for the measures, highlighting that it was the result of his suggestions. The measures aim to strengthen Hong Kong’s role as a hub for China business. Lee said the move will “enhance the special position and advantages of Hong Kong” and is one of the best examples of the “one country, two systems” formula in action.
https://asia.nikkei.com/Economy/China-charms-Hong-Kong-with-economic-boosts-from-pandas-to-visas
Demand for mainland China travel permits surges as Hong Kong minority groups hail move
South China Morning Post
An online booking quota for Beijing’s new five-year multi-entry mainland China travel permits for Hong Kong permanent residents holding foreign passports is almost full, the city’s leader has said, amid praise by ethnic minority members that the new measure enhanced their sense of belonging.
https://www.scmp.com/news/hong-kong/society/article/3268836/online-demand-mainland-travel-permits-surge-hong-kong-minority-groups-hail-move?utm_source=rss_feed
The Looming Crisis in the Taiwan Strait
Foreign Affairs
The new president of Taiwan, Lai Ching-te, declared his support for Taiwan's sovereignty and independence in his inaugural speech, marking a departure from the more conciliatory approach taken by his predecessor, Tsai Ing-wen. Lai's firm stance has angered Beijing, which has responded with military exercises and economic pressure. The United States must now navigate the increasingly tense situation and encourage Taiwan to strengthen its defenses while also increasing diplomatic contacts with Beijing to reduce tensions. However, China's uncompromising approach and growing aggression pose challenges to managing the situation and prevent further escalation.
Lai's speech and Beijing's response highlight the growing divide between Taiwan and China. Lai's firm stance on independence reflects the negative views of the people of Taiwan towards China and the increasing pressure from Beijing. China's aggressive military exercises and economic measures demonstrate its intent to undermine Lai's administration and exert influence over Taiwan's domestic politics. The United States must carefully manage the situation, supporting Taiwan's defense capabilities while also encouraging dialogue and diplomatic contacts between Taiwan and China to prevent further escalation.
The Biden administration has already shown support for Taiwan through arms sales and warnings to Beijing, but more proactive measures are needed. The United States should help Taiwan establish a robust civil defense program and strategic reserves of food and energy to bolster deterrence and enable Taiwan to hold out in the event of an invasion. Active diplomacy is also crucial, with the United States urging China to recognize the consequences of escalating pressure on Taiwan and encouraging the resumption of dialogue between the two sides. The United States must also caution Taiwan against engaging in activities that could escalate aggression from China. By pursuing a combination of deterrence, dialogue, and maintaining the status quo, the United States can work towards managing the situation and preventing conflict in the Taiwan Strait.
https://www.foreignaffairs.com/taiwan/looming-crisis-taiwan-strait
Hong Kong stocks jump after holiday as traders react to upbeat Chinese manufacturing data
South China Morning Post
Hong Kong stocks rose on Tuesday morning following upbeat Chinese manufacturing data. The Hang Seng Index climbed 1.4% to 17,963.22, rebounding from a two-month low. The Tech Index gained 0.9% and the Shanghai Composite Index was little changed. Electric car makers Li Auto and Geely Auto led gains, rising 5.8% and 2.8% respectively. Insurer Ping An rallied 3.1% and property developer Longfor surged 6.3%. The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 51.8 in June, exceeding analysts’ forecasts of 51.2.
https://www.scmp.com/business/markets/article/3268800/hong-kong-stocks-jump-after-holiday-traders-react-upbeat-chinese-manufacturing-data?utm_source=rss_feed
Biden, Trump and the evolving Taiwan 'strategic ambiguity' debate
Nikkei Asia
The US Presidential election has brought the issue of Taiwan to the forefront of US foreign policy discussion. One of the major questions is the issue of "strategic ambiguity", which has been a hangover from the Cold War era. In a bid to deter both China and Taiwan, the US had long been coy about whether it would respond to a conflict in the region. However, in recent years this has fallen out of favour and there has been increasing calls for "greater clarity" from Washington. Presidential candidate Joe Biden has made it clear that his administration would come to Taiwan's defence, and this has been welcomed by Matt Pottinger, who served as Deputy National Security Adviser under President Trump. Pottinger said that Biden setting out his policy so clearly was "an important new standard in American foreign policy". However, other critics have worried that such statements risk provoking China. Lauren Dickey, a non-resident senior associate to the China Power Project at CSIS, said that it is important to pay attention to what a president or candidate says about Taiwan, but that it does not necessarily mean a new era of strategic clarity.
https://asia.nikkei.com/Politics/International-relations/Taiwan-tensions/Biden-Trump-and-the-evolving-Taiwan-strategic-ambiguity-debate
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