China Says It Launched a Rocket With a Dummy Warhead Into the Pacific;Is China’s new stimulus a strategic pivot in policy or a tactical move?
Welcome to this issue of The China Brief. Today is September 25, 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 Says It Launched a Rocket With a Dummy Warhead Into the Pacific
NY Times
China conducted a test launch of an intercontinental ballistic missile (ICBM) carrying a dummy warhead, which landed in the Pacific Ocean, as announced by the country's defense ministry. This marks the first public announcement of such a test in 44 years and is part of President Xi Jinping’s efforts to strengthen China’s missile capabilities amid recent internal challenges. The missile was launched by the People’s Liberation Army Rocket Force and hit the "high seas," though specifics about its model and launch location were not disclosed.
The Chinese government emphasized that the launch was routine and not aimed at any particular target, noting that they had informed "relevant countries" about the test. Despite these assurances, experts expressed concerns regarding the implications of the launch, as ICBMs can deliver nuclear warheads over great distances. China currently has approximately 134 ICBMs capable of deploying around 240 warheads. Analysts suggest that the launch serves as a signal to adversaries about China’s military capabilities and its perceived vulnerabilities.
https://www.nytimes.com/2024/09/25/world/asia/china-missile-rocket-force.html
Is China’s new stimulus a strategic pivot in policy or a tactical move? Analysts weigh in
South China Morning Post
Beijing is shifting its macroeconomic policy to combat fears of an economic downturn, moving from incremental support measures to a coordinated stimulus package. Key actions include cutting interest rates and mortgage requirements, aimed at boosting consumption and investment. Analysts believe these measures are insufficient to address the severe economic challenges, highlighting the need for more aggressive fiscal stimulus. While the policy changes signal a growing urgency among leaders to tackle deflation, experts warn that current measures may not adequately support households and smaller businesses, necessitating further reforms to enhance liquidity distribution.
https://www.scmp.com/economy/policy/article/3279798/chinas-new-stimulus-strategic-pivot-policy-or-tactical-move-analysts-weigh?utm_source=rss_feed
China’s yuan continues upward climb after Beijing’s stimulus roll-out
South China Morning Post
The Chinese yuan has reached its highest value in over a year, surpassing the 7 per US dollar mark for the first time since May 2023. This increase follows significant policy changes by the People's Bank of China (PBOC), including a cut in the benchmark policy rate and a reduction in the reserve requirement ratio aimed at supporting the struggling property sector. Analysts attribute the yuan's appreciation to improved market expectations regarding economic fundamentals and the impact of recent US Federal Reserve interest rate cuts. PBOC Governor Pan Gongsheng noted that the depreciation pressure on the yuan has decreased, leading to a shift towards appreciation. He emphasized the need to maintain a stable exchange rate while cautioning against one-sided market expectations. The PBOC may intervene if the yuan appreciates too rapidly but is unlikely to take excessive measures during moderate appreciation.
https://www.scmp.com/economy/china-economy/article/3279884/chinas-yuan-continues-upward-climb-after-beijings-stimulus-roll-out?utm_source=rss_feed
Beijing encourages investment in struggling start-ups, but are big banks ready?
South China Morning Post
Beijing is urging large commercial banks to invest more in unlisted companies to support struggling start-ups. The National Administration of Financial Regulation announced increased investment limits in private equity funds and on-balance-sheet equity investments. However, analysts question if major banks possess the necessary expertise and willingness to engage in private equity, given their traditional reluctance. Despite a significant drop in start-up funding this year, state-affiliated investors may become more prominent. The effectiveness of the new policy hinges on related capital regulations, as higher equity investments could impact banks' capital ratios and risk management.
https://www.scmp.com/business/banking-finance/article/3279859/beijing-encourages-investment-struggling-start-ups-are-big-banks-ready?utm_source=rss_feed
Taiwan and U.S. work to counter China’s drone dominance
Japan Times
American and Taiwanese companies, along with government officials, are collaborating to enhance the manufacturing of drones and sea vehicles, critical for Taiwan's defense amid concerns over China's dominance in drone production. Over a few days of discussions in Taiwan, over two dozen U.S. drone and antidrone technology firms met with Taiwanese companies seeking American expertise and market access. This trade mission, organized by the U.S. International Trade Administration, highlights the growing partnership between the U.S. and Taiwan in response to China's status as the leading global manufacturer of commercial drones.
https://www.japantimes.co.jp/news/2024/09/25/asia-pacific/politics/taiwan-us-china-drone-dominance/
China threatens sanctions on Calvin Klein owner over Xinjiang cotton boycott
CNN
Beijing is investigating PVH Corp, the owner of Calvin Klein and Tommy Hilfiger, for its refusal to source cotton from Xinjiang, which could result in sanctions against the company in China. This comes shortly after the Biden administration proposed a ban on the import of smart vehicles using certain Chinese or Russian technologies due to national security concerns. The Chinese Commerce Ministry accused PVH of violating market principles and suggested it could be added to an "unreliable entities list," which would restrict its business operations in China. PVH has stated it complies with all relevant laws and has guidelines against sourcing from Xinjiang, where human rights abuses have been reported against Uyghurs and other ethnic groups. The company relies heavily on the Chinese market, which has seen significant growth. Other Western fashion brands have faced similar backlash in China for their stance on Xinjiang cotton.
https://edition.cnn.com/2024/09/25/business/china-calvin-klein-sanctions-xinjiang-boycott-hnk-intl/index.html
China’s first lady Peng Liyuan reaches out to US students during Beijing sports event
South China Morning Post
China's first lady, Peng Liyuan, emphasized the importance of youth exchanges in nurturing a "tree of friendship" between China and the U.S. during a basketball match at Beijing No. 8 High School. She welcomed American students from Washington who recently toured China, encouraging them to share their experiences to foster positive bilateral relations. The event, part of President Xi Jinping's initiative to invite 50,000 young Americans to China, aims to enhance mutual understanding. Peng highlighted that the future of China-U.S. ties depends on youth engagement and cultural exchanges.
https://www.scmp.com/news/china/diplomacy/article/3279897/chinas-first-lady-peng-liyuan-reaches-out-us-students-during-beijing-sports-event?utm_source=rss_feed
Why falling FDI in China may be no bad thing
South China Morning Post
China's foreign direct investment (FDI) dropped 31.5% year-on-year to 580.2 billion yuan in the first eight months of 2024, continuing a declining trend from 2023. While this raises concerns about China's economic growth, the country remains a net importer of investment and was the second-largest FDI recipient in 2023. Chinese companies have become more competitive, diminishing foreign firms' profitability, and advancements in indigenous technology reduce reliance on foreign expertise. The withdrawal of foreign investment reflects market dynamics, and China's economic challenges stem more from structural issues than the decline in foreign investment.
https://www.scmp.com/opinion/china-opinion/article/3279867/why-falling-fdi-china-may-be-no-bad-thing?utm_source=rss_feed
Huawei heats up global smartwatch market with new GT 5 series to challenge Apple Watch
South China Morning Post
Huawei Technologies has launched its new Watch GT 5 series, enhancing competition with Apple in the smartwatch market. The series features a slimmer design, improved battery life, and health-monitoring systems, priced from 1,488 yuan (US$212) in China and €249 (US$279) internationally. Despite US sanctions, Huawei has seen growth, leading the global wrist-worn device market with a 20.3% share and significant sales in China. While Apple remains the top smartwatch vendor, Huawei's advancements and market expansion efforts reflect its strategy to boost revenue amid rising demand for smartwatches.
https://www.scmp.com/tech/big-tech/article/3279918/huawei-heats-global-smartwatch-market-new-gt-5-series-challenge-apple-watch?utm_source=rss_feed
How China’s diversifying overseas investment has swung open doors into the Global South
South China Morning Post
Hutchison Port Holdings' foresight in investing in Mexico and Indonesia two decades ago has paid off, according to managing director Eric Ip. This strategic decision aligned with China's shift in overseas investments away from North America towards regions like Latin America and Southeast Asia, driven by geopolitical factors and the need for new seaport infrastructure. As Chinese companies expand into less-developed countries to tap into new markets, they benefit from lower operational costs and avoid Western trade sanctions. In the first half of 2024, Chinese non-financial direct investment surged by 16.2% to US$83.55 billion, with significant funds directed toward countries participating in the Belt and Road Initiative. Countries like Cambodia are attracting Chinese investments in various sectors, including manufacturing and renewable energy. As China’s economic growth slows, foreign markets in Southeast Asia, Africa, and South Asia are increasingly vital for sustaining demand. Hutchison Ports plans to expand aggressively in Egypt, Pakistan, and Mexico, anticipating that China's export patterns will continue to evolve towards these regions. The firm has seen its port business in Mexico and Indonesia grow by 20% from 2019 to 2024, highlighting the shift in trade dynamics.
https://www.scmp.com/economy/global-economy/article/3279911/how-chinas-diversifying-overseas-investment-has-swung-open-doors-global-south?utm_source=rss_feed
China is churning out AI research but ‘decoupled’ from global networks, report finds
South China Morning Post
A report by the Nature Index highlights that while China's artificial intelligence (AI) research output is increasing rapidly, it remains "decoupled" from global collaboration networks predominantly led by the US. From 2019 to 2023, six of the top ten rising AI institutions are in China, but its international research connectivity lags behind the US, Britain, and Germany. Although there is no formal ban on collaboration, China's weaker international ties may indicate lower research quality, as higher-quality work is often associated with international collaboration. The US leads in AI research, involved in nearly half of the top 40 bilateral collaborations and home to prestigious institutions like Harvard and MIT. However, the gap between the US and China is narrowing, with the Chinese Academy of Sciences ranking just behind Harvard. Other notable Chinese institutions include Peking University and Tsinghua University. Germany is also gaining prominence, with institutions like the Max Planck Society making strides in AI research. The Nature Index is recognized as a key indicator of global high-quality research output and collaboration.
https://www.scmp.com/news/china/science/article/3279907/china-churning-out-ai-research-decoupled-global-networks-report-finds?utm_source=rss_feed
Outrage after China firm fires woman for refusing to buy breakfast for boss, results in reinstatement
South China Morning Post
A woman named Lou in Shanghai was fired after refusing to buy breakfast for her boss, Liu, which sparked public outrage on social media. Lou, a new employee at an educational institution, revealed that Liu demanded a hot Americano and an egg every morning, along with a bottle of water. When Lou raised concerns about these unreasonable demands, she faced reprimand and was eventually terminated without compensation. The incident gained significant attention, leading to widespread condemnation of workplace bullying. In response, the company reinstated Lou and fired Liu for abusing her authority. The incident has raised awareness of workplace bullying in China, where a 2020 survey indicated that 64% of respondents had experienced such behavior. Legal experts suggest that employees document evidence of bullying and seek legal advice if necessary, as Chinese law does not clearly define workplace bullying.
https://www.scmp.com/news/people-culture/trending-china/article/3279487/outrage-after-china-firm-fires-woman-refusing-buy-breakfast-boss-results-reinstatement?utm_source=rss_feed
Chinese stock regulator urges listed firms to revamp assets, boost market value
South China Morning Post
China is implementing measures to encourage listed companies to enhance their asset quality and market values as part of a broader stimulus initiative aimed at revitalizing economic growth and boosting the attractiveness of its $8.4 trillion stock market. The China Securities Regulatory Commission (CSRC) has suggested that companies engage in mergers and acquisitions and develop strategies to monitor and improve their market capitalizations. This announcement comes after a significant drop in the benchmark stock index and disappointing economic data in August.
The recent half-point interest rate cut by the Federal Reserve has provided China with more flexibility to loosen its policies without negatively impacting the yuan or causing capital outflows. Analysts are optimistic about the potential for increased fund inflows, stock buy-backs, and improvements in corporate governance as a result of these announcements. The CSI 300 Index has seen gains following the news.
The CSRC is advocating for the capital markets to facilitate mergers and acquisitions and support the integration of quality assets into listed companies. Companies are encouraged to focus on technological innovation and industry upgrades during these efforts. Additionally, companies with significant market capitalization and strong information disclosure ratings will receive expedited regulatory approvals.
To boost their market values, publicly traded companies can explore various strategies, including mergers and acquisitions, stock incentives, dividend payouts, and improved investor relations management. Corporate boards are advised to set long-term market value goals while considering investor returns and avoiding reckless expansion. The CSRC also emphasizes the need for contingency plans in case of significant stock price declines.
https://www.scmp.com/business/china-business/article/3279869/chinese-stock-regulator-urges-listed-firms-revamp-assets-boost-market-value?utm_source=rss_feed
Country Garden unit sells stake in China’s largest mall operator for US$447 million
South China Morning Post
Country Garden Services (CGS), the property management arm of the financially troubled Chinese developer Country Garden, has sold a 1.49% stake in Zhuhai Wanda, a major mall operator, for 3.14 billion yuan (US$447 million). This transaction follows a previous sale of a 1.79% stake to the same parties, Dalian Wanda and Zhuhai Wanying, in December for 3.07 billion yuan. After the latest sale, CGS will retain a 0.31% stake in Zhuhai Wanda. The proceeds will be used for general working capital and are expected to increase CGS's net asset value by nearly 461.1 million yuan.
Country Garden is facing severe financial difficulties, with total liabilities reaching 1.36 trillion yuan as of June 30, 2023. The company has postponed payments on bonds due to a dramatic decline in home sales, which have dropped 78% year-on-year. Following a default on a dollar-denominated bond, the Hong Kong High Court granted the developer a six-month reprieve to create a restructuring plan. The company has also listed several properties for sale in an effort to repay its debts. Its shares are currently suspended from trading due to failure to file earnings reports.
https://www.scmp.com/business/article/3279870/country-garden-unit-sells-stake-chinas-largest-mall-operator-us447-million?utm_source=rss_feed
China’s Soft Sell of Autocracy Is Working
Foreign Affairs
The United States has long been a proponent of democracy worldwide, but with the rise of competition from China, concerns have emerged regarding whether Beijing is attempting to promote its authoritarian model abroad. Although Chinese leader Xi Jinping has stated that China does not seek to export its political system, the Chinese Communist Party (CCP) has been actively engaging in public diplomacy to shape global perceptions in favor of its governance style. This soft-sell approach involves training and workshops aimed at foreign leaders, particularly in developing countries, where the appeal of China’s economic successes is strong.
The CCP has effectively framed its political system as responsive and meritocratic, focusing on its economic growth and achievements in poverty alleviation. Official messaging emphasizes the party's role in lifting millions into the middle class while downplaying its authoritarian nature. Additionally, the CCP promotes the idea of "whole process democracy," suggesting that its governance is more representative than Western democracies. This narrative is supported by a robust global media presence, including the establishment of CGTN and partnerships with international media outlets to disseminate pro-CCP content.
In contrast, the U.S. has struggled to present a coherent message about its political system, especially in the developing world, where it risks ceding influence to China. American messaging has been scattered and less effective, failing to highlight the merits of democracy and the U.S. economy. To counter China's influence, the U.S. must enhance its public diplomacy, support independent media, and emphasize the advantages of democratic governance. By showcasing its successes and addressing the complexities of its system, the U.S. can better position itself in this ongoing ideological competition.
https://www.foreignaffairs.com/china/chinas-soft-sell-autocracy-working
‘Absolute positive’ rescue package set to trigger big China stock rally: Wall Street banks
South China Morning Post
China's recent stock market rescue package, which includes an 800 billion yuan stock-buying facility from the central bank, has sparked optimism among Wall Street analysts regarding a potential relief rally. This unprecedented move aims to stabilize the market and restore investor confidence amidst a prolonged slump caused by weak consumption and a property crisis. The People's Bank of China is also introducing measures for public companies to borrow for share buybacks. While the stimulus could trigger a bounce in the market, analysts caution that sustainable recovery hinges on broader economic improvements.
https://www.scmp.com/business/markets/article/3279807/absolute-positive-rescue-package-set-trigger-big-china-stock-rally-wall-street-banks?utm_source=rss_feed
How China’s can-do attitude on canals opens the door to white elephants
South China Morning Post
China is entering a "grand canal era," with a surge in infrastructure projects aimed at enhancing its waterway transport system. Following the successful development of extensive high-speed rail and expressway networks, the government is now focusing on constructing canals to connect various waterways across the country. Significant projects include the 134.2km Pinglu Canal in Guangxi and the Jianghuai Canal in Anhui, with proposals for additional canals exceeding 545 billion yuan in planned investments. As China's economy grapples with slow growth and a property crisis, these canal projects are being promoted as vital for economic stimulation and improved logistics.
The historical significance of canals in China is notable, with ancient constructions like the Lingqu and the Grand Canal showcasing the country's early engineering prowess. Modern proposals, such as the Hunan-Guangxi Canal and an extensive 1,988km waterway in Jiangxi, aim to replicate this legacy and facilitate trade connections while lowering logistics costs. However, analysts express concerns regarding the cost-effectiveness of these ambitious projects, especially in light of existing transport infrastructure, and the potential environmental impact stemming from increased extreme weather events.
Critics argue that the geographical challenges faced by new canal projects, such as crossing the Nanling Mountains, could render them impractical. They suggest that enhancing existing waterways and integrating them with rail and road networks might better serve economic and logistical needs. The government’s support is crucial for financing these massive undertakings, raising concerns that local governments may prioritize canal construction to secure funding, potentially leading to inefficient allocation of resources. Ultimately, while the vision for a new canal network could drive development, its practicality and sustainability remain contentious issues.
https://www.scmp.com/economy/global-economy/article/3279772/how-chinas-can-do-attitude-canals-opens-door-white-elephants?utm_source=rss_feed
Canada aims to match US on banning Chinese-made car software
South China Morning Post
Canada is considering banning Chinese-made software in vehicles, following similar actions by the US. Finance Minister Chrystia Freeland emphasized the government's concerns over security threats from China and announced tariffs on Chinese EVs and materials. While the potential ban aims to mitigate national security risks associated with data collection by connected cars, the government may need new legislation, complicating the process amid looming elections. There is strong political support for the ban, with calls from industry leaders to align with US measures. Currently, few Chinese electric vehicles are in Canada, but interest from companies like BYD Co. is growing.
https://www.scmp.com/news/world/united-states-canada/article/3279819/canada-aims-match-us-banning-chinese-made-car-software?utm_source=rss_feed
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