China’s US$3 trillion stock surge triggers wild volatility reminiscent of 2015 crash

China curbs ‘excessive’ law enforcement in quest to quell private sector doubts; Apple opens its ‘most extensive’ lab outside US in China amid fierce rivalry with Huawei

Welcome to this issue of The China Brief. Today is October 11, 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’s stimulus measures just first step on economic reform journey

South China Morning Post

China's economy is transforming through reforms and stimulus aimed at sustainable growth. Key initiatives include interest rate cuts, tax relief, and a shift from an export-driven model to one focused on domestic consumption and innovation. Structural challenges require demand-side policies to boost consumer confidence and income security. Enhancements in the labor market, urbanization, and environmental sustainability are crucial. Innovation, international engagement, and addressing demographic challenges are also vital for long-term stability. While recent measures have provided short-term relief, deeper reforms are essential for a resilient and balanced economic future.

https://www.scmp.com/opinion/china-opinion/article/3281644/chinas-stimulus-measures-just-first-step-economic-reform-journey?utm_source=rss_feed

China’s US$3 trillion stock surge triggers wild volatility reminiscent of 2015 crash

South China Morning Post

The recent US$3 trillion bull run in Chinese stocks has led to increased volatility, reminiscent of the 2015 boom-and-bust cycle. The CSI 300 Index has experienced significant price swings, with a nearly 9% drop since Tuesday, following a 35% gain over three weeks. Profit-taking by day traders and concerns over fiscal stimulus effectiveness have heightened investor caution. Retail investors, spurred by monetary easing, have exacerbated market fluctuations. While the likelihood of a 2015-style meltdown is considered low, volatility is expected to persist until more fiscal measures are implemented to bolster consumer confidence and market stability.

https://www.scmp.com/business/china-business/article/3282008/chinas-us3-trillion-stock-surge-triggers-wild-volatility-reminiscent-2015-crash?utm_source=rss_feed

China curbs ‘excessive’ law enforcement in quest to quell private sector doubts

South China Morning Post

China is intensifying efforts to protect private businesses from detrimental law enforcement practices, such as arbitrary fines and jurisdiction-breaking detentions, aiming to restore confidence in the economy. Premier Li Qiang emphasized the need to stabilize enterprises to ensure economic recovery, while the National Development and Reform Commission pledged to adopt a more prudent approach to enforcement. Recent statistics show a drop in national tax revenue but an increase in non-tax income from fines, highlighting the financial strain on local governments. The government is also working towards a law to standardize enforcement practices across regions.

https://www.scmp.com/economy/china-economy/article/3281899/china-curbs-excessive-law-enforcement-quest-quell-private-sector-doubts?utm_source=rss_feed

Apple opens its ‘most extensive’ lab outside US in China amid fierce rivalry with Huawei

South China Morning Post

Apple has launched an applied research laboratory in Shenzhen, China, to enhance its commitment to the country's smartphone market amidst increasing competition from domestic brands like Huawei. The facility, which began operations recently, will focus on testing and research for major products such as the iPhone, iPad, and Vision Pro headset, while also strengthening collaborations with local suppliers. Spanning 20,000 square meters, it will be Apple's largest lab outside the U.S. and aims to employ over 1,000 domestic and international talents. Despite efforts to diversify its manufacturing, Apple continues to invest in research in China, its largest market after the Americas and Europe. The company faces rising competition, as Huawei recently surpassed Apple in smartphone sales on the mainland for the first time in nearly four years. Apple's market share in China has declined, dropping out of the top five smartphone vendors and experiencing a year-on-year sales decrease.

https://www.scmp.com/tech/big-tech/article/3282013/apple-opens-its-most-extensive-lab-outside-us-china-amid-fierce-rivalry-huawei?utm_source=rss_feed

Tourism Has Rebounded Worldwide. But Not in Hong Kong.

NY Times

Hong Kong's efforts to revive its international tourism industry, which has been severely impacted by pandemic restrictions and political unrest, have not been very successful. The government allocated around $129 million for initiatives such as airline ticket giveaways and drone shows, but international travel to the city is still lagging compared to other Asian destinations like Thailand, South Korea, and Japan, which are nearing or surpassing pre-pandemic visitor numbers. The decline in tourism has led to the closure of small businesses and empty luxury hotel rooms. Contributing factors include the pro-democracy protests in 2019, strict pandemic measures, an exodus of foreign residents, and local travelers opting for cheaper options in mainland China. Travel expert Gary Bowerman noted that the overall landscape of Asia has changed, impacting Hong Kong's status as a popular cosmopolitan destination.

https://www.nytimes.com/2024/10/11/travel/hong-kong-tourism-pandemic.html

Will China host NBA games again, 5 years after row over Daryl Morey’s Hong Kong tweet?

South China Morning Post

Commissioner Adam Silver is optimistic about the NBA potentially returning to China for games, five years after a controversy arose due to a tweet from then Houston Rockets GM Daryl Morey supporting Hong Kong democracy protests. This led to significant backlash, including the cancellation of broadcasts for preseason games and financial losses for the league. Silver stated at a conference that the NBA remains committed to its values, allowing league members to express political opinions. Following a period of absence, the Chinese state broadcaster resumed airing NBA games in March 2022, and relations appear to be improving, highlighted by Jimmy Butler's recent visit to China. The NBA is also focusing on expanding its global presence with games in various international locations.

https://www.scmp.com/sport/basketball/article/3281999/will-china-host-nba-games-again-5-years-after-row-over-daryl-moreys-hong-kong-tweet?utm_source=rss_feed

ByteDance-owned TikTok slashes hundreds of jobs in shift towards AI content moderation

South China Morning Post

TikTok, owned by ByteDance, is laying off hundreds of employees globally as it shifts towards increased use of artificial intelligence in content moderation. In Malaysia, nearly 500 employees, primarily in content moderation roles, were informed of their layoffs via email. The company confirmed that several hundred jobs will be cut worldwide as part of a broader strategy to enhance its moderation operations, which currently utilize both automated detection and human moderators. TikTok plans to invest $2 billion this year in trust and safety initiatives and is also considering further job cuts next month to consolidate regional operations. These layoffs come amid increased regulatory pressure on social media companies in Malaysia, where the government is pushing for stricter content monitoring.

https://www.scmp.com/tech/big-tech/article/3281982/bytedance-owned-tiktok-slashes-hundreds-jobs-shift-towards-ai-content-moderation?utm_source=rss_feed

Taiwanese Employees of Apple Supplier Detained in China

NY Times

Chinese authorities have detained four employees of Foxconn, the Taiwanese manufacturer of Apple iPhones, for alleged offenses similar to Taiwan's "breach of trust." The Taiwanese government stated that Foxconn did not suffer any losses and suggested that the detentions may be linked to corruption within law enforcement. The specific jobs of the detained employees are unclear. Reports indicate that the detentions may have occurred in Zhengzhou and Shenzhen, with concerns raised about the safety of Taiwanese individuals in mainland China. There has been an increase in the scrutiny of foreign and domestic businesses in China, including tax audits affecting Foxconn. Taiwanese officials have warned against travel to mainland China amid rising incidents of Taiwanese individuals going missing, often related to fraud allegations.

https://www.nytimes.com/2024/10/11/business/foxconn-zhengzhou-china-detentions.html

Old devices, idle servers can be turned to spy on us, China’s top security agency warns

South China Morning Post

China's Ministry of State Security (MSS) has issued a warning that foreign spy agencies are exploiting unused network devices from Chinese companies, such as servers and cameras, to conduct cyberattacks and steal national secrets. The MSS highlighted cases where foreign spies took control of obsolete servers and camera monitoring systems, leading to potential data breaches and manipulation of surveillance tools. The ministry emphasized the need for better management and maintenance of idle equipment, especially in sensitive areas, to prevent security risks. They urged Chinese citizens and organizations to collaborate with national security efforts, enhance cybersecurity awareness, and be vigilant against espionage tactics, including recruitment through deceptive job offers and social interactions. The MSS has previously mentioned the involvement of the UK’s MI6 and the US’s CIA in espionage activities against China.

https://www.scmp.com/news/china/politics/article/3281974/old-devices-idle-servers-can-be-turned-spy-us-chinas-top-security-agency-warns?utm_source=rss_feed

China sends security task force to Pakistan after latest Karachi terrorist attack

South China Morning Post

China has dispatched a task force to Pakistan after a terrorist attack by the Baloch Liberation Army (BLA) that killed two Chinese nationals in Karachi. The group urged Pakistan to enhance security for Chinese citizens and projects, treat the injured, and investigate the attack thoroughly. Pakistan's leaders, including Prime Minister Shehbaz Sharif, pledged to ensure the safety of Chinese personnel and projects, as concerns grow over the China-Pakistan Economic Corridor amid rising violence. Chinese nationals are advised to avoid certain provinces, and security measures will be heightened during an upcoming summit in Islamabad.

https://www.scmp.com/news/china/diplomacy/article/3282024/china-sends-security-task-force-pakistan-after-latest-karachi-terrorist-attack?utm_source=rss_feed

China’s Li Qiang and Japanese PM Ishiba pledge stable ties in first meeting

South China Morning Post

Chinese Premier Li Qiang emphasized the importance of promoting strategic relations with Japan during his first meeting with new Japanese Prime Minister Shigeru Ishiba at the Asean summit. Li called for strengthened dialogue and cooperation amid ongoing tensions, including recent diplomatic issues and military concerns. Ishiba expressed Japan's intent to enhance cooperation without severing supply chains, while also urging Beijing to address security measures and anti-Japanese sentiment following a recent incident involving a Japanese boy. Both leaders recognized the need for continued communication to stabilize ties, with hopes for improved relations and cooperation in various sectors.

https://www.scmp.com/news/china/diplomacy/article/3281969/chinas-li-qiang-and-japanese-pm-ishiba-pledge-stable-ties-first-meeting?utm_source=rss_feed

China’s stocks head for weekly loss as caution prevails before finance minister’s briefing

South China Morning Post

Chinese stocks experienced a decline, with the CSI 300 Index down 1% to 3,957.52, marking a potential 1.6% weekly loss—the first in four weeks. The Shanghai Composite Index fell 0.7%, and a Shenzhen index dropped 2.2%. Investors are cautious ahead of a significant government press conference where Finance Minister Lan Foan may announce a fiscal stimulus package, including government bond sales and consumption subsidies. This announcement is crucial to maintaining the recent stock market rally. Meanwhile, two new companies debuted, with Anhui Strong State New Materials and Tongguan Mines Construction seeing substantial gains. In contrast, other Asian markets were mostly up, with Japan's Nikkei 225 rising 0.7% and South Korea's Kospi up 0.5%, while Australia's S&P/ASX 200 dipped slightly by 0.1%.

https://www.scmp.com/business/china-business/article/3281951/chinas-stocks-head-weekly-loss-caution-prevails-finance-ministers-briefing?utm_source=rss_feed

Tesla CEO Musk unveils two-door robotaxi, seen as key to long-term growth

The Globe and Mail

Elon Musk unveiled the Cybercab, Tesla's robotaxi, featuring gull-wing doors and lacking steering wheels and pedals, during a recent event. Production is set for 2026, with a target price under $30,000 and an operating cost of 20 cents per mile. Musk emphasized the potential for increased vehicle utilization through autonomy. However, challenges in technology and regulation remain, raising concerns among investors. Musk aims to position Tesla as an AI robotics company, while competition in the robotaxi market intensifies, necessitating clear plans for success against rivals like Waymo and Cruise.

https://www.theglobeandmail.com/world/article-tesla-ceo-musk-unveils-two-door-robotaxi-seen-as-key-to-long-term/

What’s behind escalating China-Philippines tensions in the South China Sea?

Al Jazeera

Philippine President Ferdinand Marcos Jr. emphasized the need for urgent negotiations on a code of conduct for the disputed South China Sea, criticizing China for "harassment and intimidation" in the region. During a meeting with ASEAN leaders and Chinese Premier Li Qiang, Marcos Jr. highlighted the importance of managing differences and reducing tensions, noting the ongoing confrontations between China and the Philippines. Despite a 2002 agreement to create a maritime code, substantive negotiations only began in 2017, and tensions have escalated, with multiple confrontations reported in August alone.

China claims nearly all of the South China Sea, conflicting with the territorial rights of neighboring countries, including the Philippines, which has faced aggressive actions from Chinese vessels. The U.S. is also involved due to its mutual defense treaty with the Philippines, raising concerns that rising tensions could draw in American military support. The South China Sea holds significant economic value, containing rich fishing grounds and substantial oil and gas reserves, intensifying the strategic competition among claimant nations.

https://www.aljazeera.com/news/2024/10/11/whats-behind-escalating-china-philippines-tensions-in-the-south-china-sea

Hong Kong fund managers eye Middle East, Southeast Asia investors amid market rally

South China Morning Post

Hong Kong fund managers are targeting investors in the Middle East and Southeast Asia following a recent market rally, according to Sam Yu Chun-sing of the Hong Kong Investment Funds Association. The Hang Seng Index has seen significant volatility but overall investor confidence has risen due to US interest rate cuts and Chinese stimulus measures. Yu emphasized the importance of cross-border trading and plans for Hong Kong fund houses to explore opportunities in the Gulf region and Southeast Asia. Retail fund sales have surged, indicating strong investor interest, supported by recent regulatory relaxations.

https://www.scmp.com/business/markets/article/3281886/hong-kong-fund-managers-eye-middle-east-southeast-asia-investors-amid-market-rally?utm_source=rss_feed

China unpacking economic stimulus in steps to avoid ‘overleveraged’ response: economist

South China Morning Post

China is likely to announce a series of gradual economic revival measures rather than a large stimulus package to prevent market overheating, according to Hoe Ee Khor, chief economist at Asean+3 Macroeconomic Research Office. Previous stimulus efforts, like the 2008 package, led to significant debt issues. Current measures, including bond purchases and interest rate cuts, aim to boost domestic demand and support a struggling property market. Despite past defaults among developers, signs indicate improved stability. Khor also suggests monitoring potential impacts from the upcoming US presidential election on China’s economy.

https://www.scmp.com/economy/global-economy/article/3281873/china-unpacking-economic-stimulus-steps-avoid-overleveraged-response-economist?utm_source=rss_feed

APAC’s market for private capital looks to positive news from China for growth: Preqin

South China Morning Post

The Asia-Pacific private capital sector may benefit from Chinese government stimulus and the development of regional financial markets, according to Preqin. Despite a decline in China's contribution to this market, potential reforms and policy support could boost growth. Preqin forecasts an annualized growth rate of 6.7% for private market fundraising in APAC, with venture capital expected to see the highest growth. Investors are increasingly interested in India, Japan, and South Korea due to their emerging financial markets and stable real estate sectors, amid uncertainties in China’s economy.

https://www.scmp.com/business/banking-finance/article/3281911/apacs-market-private-capital-looks-positive-news-china-growth-preqin?utm_source=rss_feed

Tech war: China sees glut of AI data centres as GPU mismatches exacerbate weak demand

South China Morning Post

China's rapid expansion of artificial intelligence (AI) data centres could lead to an oversupply of computing power, experts warn. Over 250 centres are either built or under construction, focusing on local economic stimulation rather than actual market demand. Despite achieving 246 Eflops of computing power, usage rates for privately-held resources remain below 5%. Many centres are located far from major tech hubs and lack operational plans post-construction. Additionally, US sanctions have pushed reliance on domestic hardware, which complicates large-scale configurations and may exacerbate the oversupply issue.

https://www.scmp.com/tech/article/3281894/tech-war-china-sees-glut-ai-data-centres-gpu-mismatches-exacerbate-weak-demand?utm_source=rss_feed

Rare satellite image shows China's only two operational aircraft carriers together at a base in the South China Sea

Yahoo US

A recent satellite image captured China's two operational aircraft carriers, Liaoning and Shandong, docked together at Sanya Naval Base on Hainan Island after completing exercises in the South China Sea. The Liaoning, China's first carrier, was built from a Soviet-era vessel, while the Shandong is the first domestically-produced carrier. Both feature ski-jump ramps for launching aircraft. Their docking follows increased naval exercises amid tensions with neighboring countries, particularly the Philippines, where Chinese vessels have been accused of aggressive actions in disputed waters. China's new carrier, Fujian, is undergoing sea trials but is not yet active.

https://www.yahoo.com/news/rare-satellite-image-shows-chinas-201008391.html

Donald Trump doubles down on China carmakers being unwelcome in US market

South China Morning Post

Donald Trump, in a speech at the Detroit Economic Club, proposed imposing hefty tariffs on Chinese carmakers to protect the American auto industry, citing potential threats from vehicles made in Mexico under the USMCA. He expressed intentions to renegotiate the agreement to address these concerns and suggested making car loan interest fully tax-deductible to boost domestic production. Trump's economic plan includes tax incentives for U.S. manufacturers and welcoming foreign companies to build in the U.S., while contrasting his approach with that of Democratic candidate Kamala Harris. The race remains tight in key Midwest battleground states.

https://www.scmp.com/news/china/politics/article/3281934/donald-trump-doubles-down-china-carmakers-being-unwelcome-us-market?utm_source=rss_feed

Germany Is Hardening Its Supply Chains Against Chinese Control

Foreign Policy

Germany has shifted its approach to geopolitics and business, particularly regarding its dependence on China for raw materials. The country has established a €1 billion fund aimed at reducing this reliance and enhancing its domestic processing and recycling capabilities. Currently, about 66% of Germany's rare earth imports come from China, with some materials exceeding 90%. This dependency has raised concerns, especially following supply chain disruptions during the COVID-19 pandemic.

German industry leaders emphasize the importance of reducing reliance on Chinese raw materials, citing national security and economic risks. The new fund, managed by the government-owned KfW bank, will provide loans and equity investments to support domestic projects in mining, processing, and recycling. While the fund's scale is modest compared to China's investments in the sector, it represents a significant shift in Germany's strategy.

Recent naval activities, such as the German navy ship's passage through the Strait of Taiwan, reflect a growing willingness to assert Germany's stance on international waters, supported by industry leaders. Overall, the new fund aims to bolster Germany's industrial resilience and contribute to environmental sustainability through enhanced recycling efforts.

https://foreignpolicy.com/2024/10/10/germany-china-supply-chains-de-risking-globalization/

Huawei’s China smartphone sales in August beat Apple for first time in 46 months: report

South China Morning Post

In August, Huawei surpassed Apple in smartphone sales on the mainland for the first time in 46 months, driven by its successful 5G handsets. Foreign smartphone shipments, including Apple's, fell 12.7% year-on-year, while domestic shipments rose 26.7%. Huawei's strong performance is attributed to high demand for its flagship models, accounting for 89% of its global shipments. Apple's market share in China dropped below 14%, with declining revenue amid local brand preference. Despite challenges, Apple maintains its production estimates for the iPhone 16 series, although its AI system's delay in Chinese language support may impact demand.

https://www.scmp.com/tech/big-tech/article/3281858/huaweis-china-smartphone-sales-august-beat-apple-first-time-46-months-report?utm_source=rss_feed

China’s EV war: BYD, peers take discounting to new lows at expense of margins

South China Morning Post

China's electric vehicle (EV) manufacturers are aggressively discounting prices to attract buyers, sacrificing profit margins and facing cash flow issues. From January to September 2024, 124 EV models had price cuts, exceeding the total for all of 2023, according to the China Passenger Car Association (CPCA). Major brands like BYD and Xpeng have led this price war, with discounts averaging 13.5% on all-electric cars. While EV sales surged, concerns grow over the sustainability of the market, particularly for smaller players struggling to remain profitable amidst increasing competition and reduced consumer subsidies.

https://www.scmp.com/business/china-business/article/3281896/chinas-ev-war-byd-peers-take-discounting-new-lows-expense-margins?utm_source=rss_feed

Japan takes steps to protect pharmaceutical supply to forestall any China curbs

South China Morning Post

Japan is taking steps to secure its pharmaceutical supply chain amid concerns that China may use exports as leverage in diplomatic tensions. With past incidents of China halting rare earth shipments in 2010, Japanese officials are urging local companies to bolster investments in essential medicine production. The government has allocated funding to enhance domestic pharmaceutical manufacturing, particularly antibiotics. Analysts highlight the need for Japan to reduce reliance on Chinese imports, viewing this initiative as a crucial economic security measure to ensure consistent access to vital medications.

https://www.scmp.com/week-asia/economics/article/3281913/japan-takes-steps-protect-pharmaceutical-supply-forestall-any-china-curbs?utm_source=rss_feed

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