China should focus on fighting deflationary pressure, former central bank governor says;China brokerage merger to create new top dog as market flounders
New AI supply chain standard brings together Ant, Tencent, Baidu and Microsoft, Google, Meta
Welcome to this issue of The China Brief. Today is September 6, 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 should focus on fighting deflationary pressure, former central bank governor says
CNBC
SHANGHAI — China's policymakers need to focus on boosting domestic demand, Yi Gang, former head of the People's Bank of China, said Friday at the Bund Summit in Shanghai.
"I think right now they should focus on fighting the deflationary pressure," Yi said, adding that "the key word is: how to improve domestic demand, how they can successfully deal with the situation of the real estate market as well as the local government debt problem, and influence the confidence of society."
"At this point, proactive fiscal policy and accommodative monetary policy are important," he said.
In contrast to high inflation in the U.S. and Europe, China's consumer prices fell in 2023 and have only picked up marginally so far this year as domestic demand remains lackluster.
The latest CPI read, due out on Monday, is expected to tick up from 0.5% year-on-year growth in July to 0.70% in August, according economists polled by Reuters. That would still be only the fastest since February's 0.7% CPI increase.
Yi said he expected the consumer price index to "converge above zero by the end of the year," while the producer price index would likely reach zero, after negative prints in recent months.
The core CPI, which strips out food and energy prices, rose by 0.4% in July from a year ago, down from 0.6% in June and May.
Yi was PBoC governor from March 2018 to July 2023. Pan Gongsheng is the current head of China's central bank.
Zou Lan, director of the PBoC's monetary policy department, told reporters Thursday the central bank still had room to lower the reserve requirement ratio, which determines the amount of cash banks need to have on hand. It is just one of the PBoC's several monetary policy tools.
In July, Chinese policymakers announced major support for a trade-in policy to boost consumption. While central and local authorities have also taken steps to bolster the massive real estate market, sales and investment in new properties have still fallen.
"The challenge for Chinese policymakers is to manage the housing crisis, and to ensure that there is enough domestic demand to maintain the high level of economic growth," Jeffrey J. Schott, senior fellow at the Peterson Institute for International Economics, told reporters Thursday.
"That is so important for the Chinese economy and for moving more and more people up to higher standards of living," he said.
Chinese consumption has remained lackluster since the pandemic. In the major cities of Beijing and Shanghai, retail sales fell by 3.8 % and by 6.1%, respectively, in July from a year ago, official data showed.
Major factors behind low consumer sentiment include uncertainty about future income and the wealth impact from the real estate market slump.
"Central banks should avoid prolonged deflation even if it is mild, that could affect wage determination," Haruhiko Kuroda, former head of the Bank of Japan, said during the same panel session as Yi.
Kuroda pointed out that China's current deflationary situation has been far shorter than what Japan faced. But he said that 15 years of deflation in Japan prevented wages from going up significantly, until the last year or two.
— CNBC's Sonia Heng contributed to this report.
https://www.cnbc.com/2024/09/06/ex-pboc-head-china-should-focus-on-fighting-deflationary-pressure.html
China brokerage merger to create new top dog as market flounders
Nikkei Asia
China's Guotai Junan Securities and Haitong Securities plan to merge, potentially creating the largest brokerage in the country with over 1.620 trillion yuan in assets. This move follows two years of declining profits in China's brokerage industry due to a sluggish market. Both firms have seen significant drops in net profits and trading volumes, prompting speculation about further consolidation in the sector. The merger is awaiting regulatory approval and is viewed by some as a necessary response to industry challenges, while others question its potential success amid ongoing market difficulties.
https://asia.nikkei.com/Business/Finance/China-brokerage-merger-to-create-new-top-dog-as-market-flounders
New AI supply chain standard brings together Ant, Tencent, Baidu and Microsoft, Google, Meta
South China Morning Post
China's Ant Group, Tencent, and Baidu have collaborated with US companies like Microsoft, Google, and Meta to create the first international standard for large language model (LLM) security in supply chains. Announced at a conference in Shanghai, the "Large Language Model Security Requirements for Supply Chain" aims to manage security risks like data leaks and model tampering. This initiative is part of the World Digital Technology Academy's broader AI Safety project, reflecting growing global concerns over AI governance. The standard was developed with input from various tech firms and academic institutions, emphasizing the need for international cooperation in AI standards.
https://www.scmp.com/tech/big-tech/article/3277447/new-ai-supply-chain-standard-brings-together-ant-tencent-baidu-and-microsoft-google-meta?utm_source=rss_feed
China Stops Foreign Adoptions, Ending a Complicated Chapter
NY Times
China has announced a ban on most foreign adoptions, ending a practice that saw tens of thousands of children sent overseas over the past three decades due to the one-child policy. The Chinese government stated that the decision aligns with global trends, allowing exceptions only for stepchildren and children of relatives. This move has left many families in the U.S. uncertain about their ongoing adoption processes. Historically, China was a leading source of international adoptions, with over 160,000 children adopted since the early 1990s, but the program faced criticism due to corruption and the legacy of its strict birth control measures. Experts view this ban as a significant shift, marking the end of a controversial chapter in China's social policies.
https://www.nytimes.com/2024/09/06/world/asia/china-foreign-adoptions-ban.html
The U.S. and China Are Clearing Up Their Deportation Fights
Foreign Policy
The long-standing tension between the United States and China over the repatriation of Chinese deportees may be easing, as Beijing recently permitted the U.S. to fly back hundreds of Chinese nationals who were illegally in the country. This shift in cooperation coincides with an unprecedented wave of Chinese migrants crossing into the U.S., driven by economic challenges and political repression in China. The U.S. government noted a significant increase in illegal crossings, with over 24,000 Chinese migrants reported in the 2023 fiscal year alone, a stark rise from previous years.
The renewed cooperation on deportation is seen as a potential avenue for both nations to address broader concerns in their bilateral relations. However, the upcoming U.S. presidential race, particularly if Donald Trump were to win, could complicate these efforts. Trump has pledged to initiate a large-scale deportation operation, which could impact the current negotiations and lead to increased uncertainty regarding the treatment of undocumented Chinese migrants in the U.S. The dynamics of illegal immigration from China have evolved, with many migrants resorting to perilous routes through South America and Central America to reach the U.S.
Experts suggest that while recent deportation flights may reflect a political gesture from both governments, they alone will not address the underlying issues driving migration. There is skepticism about the sustainability of this cooperation, especially considering the potential escalation of U.S.-China tensions. Any long-term resolution would require tackling the economic conditions and the smuggling networks that facilitate migration, rather than solely relying on deportation agreements. The situation remains fluid, with the possibility that geopolitical rivalries could derail current progress in law enforcement collaboration.
https://foreignpolicy.com/2024/09/05/immigration-united-states-china-deportation-flights-cooperation/
3 years after Evergrande crisis, China’s key banks struggle to cap property risk exposure
South China Morning Post
China's systemically important banks are struggling with high levels of bad assets in their property loan portfolios due to an ongoing real estate downturn. The median non-performing loans (NPL) ratio in the property sector among the top 18 banks is 2.79%, with the "big four" state-owned banks averaging 5.2%. Despite a slight decrease from previous levels, these figures remain concerning compared to the overall NPL ratio of 1.56%. Experts predict continued economic challenges, with UBS lowering China's GDP growth estimate due to persistent declines in property activities and prices.
https://www.scmp.com/economy/china-economy/article/3277442/3-years-after-evergrande-crisis-chinas-key-banks-struggle-cap-property-risk-exposure?utm_source=rss_feed
Chinese developer Country Garden drops PwC as its auditor
South China Morning Post
Country Garden, a troubled property developer, has dismissed PricewaterhouseCoopers (PwC) as its auditor due to delays in financial reporting, marking another loss for PwC amid the fallout from China Evergrande's collapse. Country Garden has appointed Zhonghui Anda CPA as its new auditor. The developer's financial situation is deteriorating, with contracted sales dropping 57% year-on-year in August. Additionally, it has postponed payments on several notes due to insufficient funds and faces a liquidation petition over a $205 million loan. PwC is also facing significant penalties related to the Evergrande scandal.
https://www.scmp.com/property/article/3277435/chinese-developer-country-garden-drops-pwc-its-auditor?utm_source=rss_feed
U.S. rolls out new chip-related export controls as China makes industry advances
CNBC
The Biden administration is rolling out new export controls on critical technologies, including quantum computing and semiconductor goods, as China makes advances in the global chips industry.
Released by the U.S. Department of Commerce on Friday, the rules cover quantum computers and components; advanced chipmaking tools; some components and software related to metals and metal alloy; as well as high-bandwidth chips, a critical component for AI applications.
The department cited "national security and foreign policy reasons" for the move, and said it was the product of extensive discussions with international partners.
These restrictions cover worldwide exports, but adds exemptions for countries that add similar controls, such as Japan and the Netherlands have done in the past. The department's Bureau of Industry and Security (BIS) expects more countries will move to impose similar measures.
"Today's action ensures our national export controls keep step with rapidly evolving technologies and are more effective when we work in concert with international partners," Alan Estevez, under secretary of the bureau, said in a statement.
"Aligning our controls on quantum and other advanced technologies makes it significantly more difficult for our adversaries to develop and deploy these technologies in ways that threaten our collective security," he added.
Officials will hold a 60-day public comment period before issuing a final ruling.
Along with semiconductors, both China and the U.S. seek to be leaders in quantum computing, which they see as a potentially transformative technology.
Though China is not explicitly named in the documents, the controls are in line with a series of moves the Biden administration has taken to limit Beijing's developments in areas such as AI and computing.
BIS also said it is also continuing to strengthen relationships with its allies to boost the effectiveness of export controls aimed at degrading Russia's military capabilities, as well as its "enablers" such as Belarus and Iran.
Amid increased restrictions and tech sanctions from the Washington, Beijing has ramped up its sufficiency push, setting up billions in investments in critical technologies to strengthen its chip-making industry.
A recent analysis of China's semiconductor technology, by Tokyo-based semiconductor research company TechanaLye, found that Chinese-made processor chips are approaching a level just three years behind the industry leader, Taiwan Semiconductor Manufacturing Co Ltd , according to Nikkei Asia.
As the U.S. continues to step up controls, the global industry has shown a degree of reluctance.
China is the largest semiconductor market in the world, and its firms remain key clients of many of the world's leading semiconductor companies, including those in the U.S.
On Wednesday, the chief executive of Dutch chip equipment giant ASML, which is restricted from providing its industry-leading advanced semiconductor equipment to China, reportedly said that the U.S.-led restrictions have become more "economically motivated" over time, adding he expects more push-back.
The Dutch government has said it will take ASML's economic interests into account when deciding whether to tighten semiconductor export rules further.
Meanwhile, South Korean Trade Minister Cheong Inkyo reportedly said this week that the U.S. should offer more incentives if it wants Seoul to comply with additional export curbs on China's semiconductors.
Beijing has long maintained that the U.S. and its allies' chip restrictions are anti-competitive and hurt the global semiconductor supply chain.
https://www.cnbc.com/2024/09/06/us-china-quantum-chip-related-export-controls.html
Japan Tries to Reclaim Its Clout as a Global Tech Leader
NY Times
China's successful use of industrial policy to boost its economy and green manufacturing has sparked a global race among nations to support and protect their own businesses. This situation mirrors past anxieties about Japan's economic rise, which peaked in the 1990s when many Americans viewed Japanese investment as a threat to U.S. economic independence. However, Japan's economy has since faced stagnation, leading to a renewed industrial policy aimed at revitalization and innovation. The current competitive climate reflects a significant shift towards government intervention in free-market economies, reminiscent of previous concerns about foreign economic dominance.
https://www.nytimes.com/2024/09/06/business/economy/japan-industrial-policy-rapidus.html
Nvidia’s AI chips are cheaper to rent in China than US
Financial Times
The cost of renting Nvidia’s AI chips is lower in China than in the US, indicating that despite US export restrictions, these advanced processors are readily available in the Chinese market. Small cloud providers in China charge around $6 per hour for servers with eight Nvidia A100 processors, compared to $10 in the US. The widespread availability of these chips, often procured through smuggling, undermines US efforts to hinder China’s AI advancements. Larger Chinese cloud operators charge significantly more, while smaller vendors benefit from lower operational costs. Compliance concerns hinder big players from utilizing smuggled chips.
https://www.ft.com/content/10aacfa3-e966-4b50-bbee-66e13560deb4
Fugitive former mayor Alice Guo back in the Philippines to face Senate
Al Jazeera
Alice Guo, a former mayor of Bamban, Philippines, has returned to the country after fleeing amid allegations of connections to Chinese organized crime. Guo was arrested in Jakarta for immigration offenses and arrived in Manila with security officials. At a press conference, she expressed concerns about death threats and maintained her innocence against claims of involvement in cyberscam operations. The Philippine Senate is set to question her on September 9 regarding these allegations, which include money laundering charges linked to illegal gaming activities in her town. Guo, who served as mayor in 2022, was removed from her position in August due to accusations of grave misconduct.
https://www.aljazeera.com/news/2024/9/6/fugitive-former-mayor-alice-guo-back-in-the-philippines-to-face-senate
Chinese stocks advance on PBOC’s hint of easing, Hong Kong closed due to typhoon
South China Morning Post
Chinese stocks experienced a rise following indications from the central bank of potential monetary policy easing to support economic growth. The Shanghai Composite Index increased by 0.4% to 2,799.93, although it has decreased by 1.5% over the week. Meanwhile, Hong Kong's market was closed for the morning session due to Typhoon Yagi, which also affected local transportation and services. The Hang Seng Index has dropped 3% this week amidst concerns over China's weak economic data and disappointing earnings.
In terms of monetary policy, the head of the People's Bank of China suggested that a reduction in banks' reserve-requirement ratios could be possible, despite challenges related to banks' profit margins. Additionally, the announcement of a merger between Guotai Junan Securities and Haitong Securities to form the largest brokerage in China led to significant gains for brokerages, with Sealand Securities hitting the daily limit increase.
In other Asian markets, Japan's Nikkei 225 fell by 0.3%, South Korea's Kospi decreased by 1%, while Australia's S&P/ASX 200 rose slightly by 0.2%. The market sentiment was mixed ahead of the upcoming US non-farm payrolls report.
https://www.scmp.com/business/china-business/article/3277409/chinese-stocks-advance-pbocs-hint-easing-hong-kong-closed-due-typhoon?utm_source=rss_feed
Tesla says 'Full Self-Driving' will be ready for Europe and China in early 2025
Yahoo US
Tesla has outlined its roadmap for the remainder of 2024 and early 2025, indicating that its Full Self-Driving (FSD) software could be available in Europe and China in early 2025, pending regulatory approval. Elon Musk anticipates receiving clearance from regulators by the end of this year, with preliminary approval already noted in China. Musk also expressed hopes for FSD approval in Right-Hand Drive markets, such as the UK and Hong Kong, by early 2025. Additionally, FSD will soon be available for Cybertrucks, and new features like unpark, park, and reverse will be added in October. The FSD software comes at a cost, either as a one-time purchase of $8,000 or a $99 monthly subscription in the US.
https://www.yahoo.com/news/tesla-says-full-self-driving-will-be-ready-for-europe-and-china-in-early-2025-033012374.html
Former Taiwan presidential candidate suspected in corruption case is sent back to jail
Associated Press
Former Taiwanese presidential candidate Ko Wen-je has been returned to custody amid a corruption investigation linked to illegal favors and payments tied to an urban redevelopment project during his time as Taipei mayor. Detained incommunicado, Ko's case reveals serious allegations involving substantial funds and potential collusion with other political figures. Despite the media attention, the situation does not appear to impact Taiwan's democratic processes significantly. Ko, who garnered support from young voters in recent elections, has denied wrongdoing and can remain in custody for up to four months as the investigation proceeds.
https://apnews.com/article/taiwan-corruption-ko-detention-cf2a8e014ffa81cb708e0570be7be7e2
TikTok’s possible US ban losing support among Americans, Pew survey finds
South China Morning Post
A recent Pew Research survey reveals that American support for a TikTok ban has decreased significantly over the past 18 months. Only 32% of US adults now favor a ban, down from 50% in March 2023 and 38% last fall. Half of the respondents believe a ban is unlikely. This shift in opinion follows President Joe Biden's law requiring TikTok's Chinese parent company, ByteDance, to divest its ownership or face a ban by January 2024. While concerns about privacy and security persist, opinions on TikTok are divided along party lines, with Republicans being more likely to view it as a national security threat. Despite the potential ban, many politicians, including Biden and Vice President Kamala Harris, have created TikTok accounts. TikTok has also initiated legal action against the US government regarding the law. The survey included 10,658 adults and has a margin of error of 1.2 percentage points.
https://www.scmp.com/news/world/united-states-canada/article/3277394/tiktoks-possible-us-ban-losing-support-among-americans-pew-survey-finds?utm_source=rss_feed
China eyes medical tourism boost, but still a long way to go amid regional competition
South China Morning Post
China has not typically been regarded as a premier destination for medical tourism, but Renji Hospital in Shanghai aims to change this perception. Established in 1844, Renji has emerged as a leading facility for pediatric liver transplants, attracting numerous foreign patients, particularly from Southeast Asia. The hospital's deputy director, Sun Yun, emphasizes that boosting international medical tourism is a top priority, aligning with a Shanghai government initiative designed to promote healthcare services for foreign patients. With a growing reputation and a significant expatriate population, Shanghai is poised to tap into the multibillion-dollar medical tourism market.
Despite recent advancements in China's healthcare system, observers note that it faces stiff competition from established medical tourism destinations in neighboring regions. For instance, Thailand and South Korea have well-established reputations for quality services and competitive pricing, which continue to attract international patients. While cities like Boao in Hainan and Shenzhen are also making strides in the medical tourism sector, they still lag behind other countries in terms of both quality and affordability. Sun Yun states that Shanghai's experienced medical professionals and advanced technology could serve as key differentiators to attract medical tourists.
However, challenges remain for China’s healthcare facilities, including language barriers and relatively high costs that deter potential patients. Many prospective medical tourists from countries like Indonesia and Korea prefer closer and cheaper alternatives in Malaysia or Singapore. Taiwan also presents a competitive edge with its cost-effective healthcare solutions. While Renji Hospital has begun to establish itself as a key player in the medical tourism landscape, other hospitals in Shanghai still face hurdles in attracting foreign patients, indicating that the initiative is still in its early stages.
https://www.scmp.com/economy/global-economy/article/3277309/china-eyes-medical-tourism-boost-still-long-way-go-amid-regional-competition?utm_source=rss_feed
China’s economic coercion evokes greater scrutiny and resentment, senior US officials say
South China Morning Post
Two senior US officials criticized China's coercive behavior towards smaller nations, particularly regarding recent incidents involving the Philippines. Ambassador Nicholas Burns emphasized the US's commitment to defend the Philippines, while State Department official Jose Fernandez highlighted China's economic coercion tactics. Both officials noted a global pushback against China's pressure strategies, despite challenges in reshaping supply chains and potential backlash against US allies. They underscored the importance of collaboration with allied nations to counter China’s influence, especially as the US aims to reduce reliance on Chinese technology and resources in critical sectors.
https://www.scmp.com/news/china/diplomacy/article/3277393/chinas-economic-coercion-evokes-greater-scrutiny-and-resentment-senior-us-officials-say?utm_source=rss_feed
What does China’s $50bn package mean for Africa and the West?
Al Jazeera
China has pledged $50 billion in loans and funding to African nations during a summit of leaders in Beijing, reinforcing its status as the leading investor in the continent. The investment raises important questions about its implications for Africa, China, and its Western competitors. The discussion includes insights from experts such as Hannah Ryder, Sanusha Naidu, and Einar Tangen, focusing on the potential impact of this financial commitment on development and international relations.
https://www.aljazeera.com/program/inside-story/2024/9/5/what-does-chinas-50bn-package-mean-for-africa-and-the-west
Yuan’s overseas status rising, but nowhere near China’s economic ‘heft’: ex-official
South China Morning Post
Former Chongqing mayor Huang Qifan stated that China's push for yuan internationalisation is not aimed at replacing the US dollar, but rather to enhance global supply chain stability. Huang predicts the yuan's global payment share will rise steadily and expects it to reach parity with the euro. While the yuan's international presence has increased, it remains modest compared to China's economic status. Huang emphasized the importance of expanding the yuan's use in cross-border trade and developing offshore markets, while also balancing financial liberalisation with security. Currency stability and controlled fund flows remain priorities for Chinese authorities.
https://www.scmp.com/economy/global-economy/article/3277359/yuans-overseas-status-rising-nowhere-near-chinas-economic-heft-ex-official?utm_source=rss_feed
China detains five AstraZeneca staff over ‘data privacy and import breaches’
Guardian
Chinese police have detained five current and former employees of AstraZeneca as part of an investigation into potential breaches of data privacy and the importation of unlicensed cancer medications. The inquiry, led by police in Shenzhen, focuses on whether AstraZeneca staff were involved in importing a liver cancer drug not approved for distribution in mainland China and scrutinizes the company's patient data collection practices for possible violations of Chinese privacy laws. AstraZeneca confirmed awareness of the investigation but refrained from providing further details. This investigation is part of a broader anti-corruption effort by Beijing, targeting malpractices in the pharmaceutical and healthcare sectors. AstraZeneca, which employs around 16,000 people in China, has considered various strategies for its operations in the country, including a potential spin-off and listing of its business in Hong Kong or Shanghai to mitigate geopolitical risks. The situation comes amid rising tensions between China and the US, further complicated by the upcoming US presidential election.
https://www.theguardian.com/business/article/2024/sep/05/china-detains-five-astrazeneca-staff-in-investigation-over-data-privacy-and-import-breaches
Tech war: China buys US$12 billion worth of chip-making equipment in second quarter
South China Morning Post
China has emerged as the largest and fastest-growing market for semiconductor manufacturing equipment, with sales in the second quarter surging 62% year-on-year to over $12 billion. This growth is driven by China's push for technological self-sufficiency amid US sanctions. Despite a contraction in major markets like South Korea, Taiwan, and North America, global semiconductor equipment sales rose 4% to $26.8 billion. Japan also saw a 6% revenue increase to $1.6 billion. SEMI projects global sales will reach a historical high of $109 billion in 2024, with continued growth expected in 2025. However, China may face a sales decline after significant investments in recent years, amidst ongoing tensions with the US that impact its technological advancement and access to critical equipment from companies like ASML.
https://www.scmp.com/tech/tech-war/article/3277354/tech-war-china-buys-us12-billion-worth-chip-making-equipment-second-quarter?utm_source=rss_feed
Why is Beijing interested in a mid-level government aide in New York State?
Associated Press
New York prosecutors have charged Linda Sun, a former aide to the governor, with acting as an illegal agent for the Chinese government, raising concerns about China's influence on U.S. politics. Sun is accused of promoting Chinese interests, including blocking Taiwanese representatives from meeting state officials. This case highlights China's efforts to cultivate relationships at the state level amid worsening U.S.-China relations. Experts note that as federal ties deteriorate, China's influence in local politics has grown, necessitating a more strategic U.S. approach to counteract Beijing's outreach efforts.
https://apnews.com/article/linda-sun-chinese-influence-new-york-328b9d2862dac908a827f18f106e258e
Stay informed about the latest news, analysis, and policy briefs from across the globe related to China with the China brief. Our team aggregates, synthesizes, and summarizes the most important information from various sources, including media outlets, think tanks, government agencies, and industry experts.
Our mission is to provide you with easily accessible and critically valuable information tailored to your specific field of interest. We understand the significance of staying up-to-date on developments related to China and aim to make this information comprehensible for our readers.
Join the conversation and stay informed about the latest news and developments related to China by visiting our website at www.6dobrief.com