‘Not even one’: China pulls up lower-level corruption fighters over lack of cases;China Scrutinizes PwC Role in $78 Billion Evergrande Fraud Case
With TikTok Under Fire, Brands That Rely on It Worry
Welcome to this issue of The China Brief. Today is March 22, 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.
‘Not even one’: China pulls up lower-level corruption fighters over lack of cases
South China Morning Post
China's Central Commission for Discipline Inspection (CCDI) has criticised lower-level officers for not being strict enough in cracking down on corruption among general Communist Party members. The CCDI said that more than a quarter of China's counties had failed to make even one disciplinary detention each year. The watchdog also called for higher bodies to directly supervise corruption cases in order to counteract the influence of personal connections between accused individuals and investigating officers. The CCDI's article was published in the biweekly magazine's March 15 issue.
China Scrutinizes PwC Role in $78 Billion Evergrande Fraud Case
Bloomberg
Chinese authorities are investigating the role of PwC in China Evergrande Group's accounting practices following accusations that the developer committed a $78bn fraud. The country's securities regulator accused Evergrande's main onshore subsidiary, Hengda Real Estate Group, of overstating revenue between 2019 and 2020. Chinese officials are also examining PwC's involvement in the case. This comes as PwC faces other scandals globally and has been cutting jobs. Evergrande, the world's most indebted developer, began experiencing cash flow issues in 2021 and is now in default. The company is currently undergoing liquidation proceedings in Hong Kong. The regulator's fine of CNY4.18bn ($666m) on Hengda means Evergrande will have even less money to pay off its creditors. PwC was Evergrande's auditor for over a decade until it resigned in January 2023.
With TikTok Under Fire, Brands That Rely on It Worry
NY Times
Many brands in the beauty, skin care, fashion, and health and wellness industries have used TikTok to boost their sales and are now concerned about the possibility of the app being banned in the United States. Companies like Youthforia and Underlinings are considering moving their marketing efforts to other platforms like YouTube and Instagram, while BeautyStat, which sells skin care products on TikTok Shop, cannot fathom the idea of the platform disappearing. TikTok has been a valuable tool for companies to reach potential customers, especially young ones, and they fear losing that access if the app is banned.
In One Key A.I. Metric, China Pulls Ahead of the U.S.: Talent
NY Times
China has surpassed the United States as the largest producer of artificial intelligence (AI) talent, according to a study by think tank MacroPolo. The research found that China generates almost half of the world's top AI researchers, compared to 18% from US undergraduate institutions. The findings indicate a significant increase for China, which produced around a third of the world's top AI talent three years ago. The study is based on the backgrounds of researchers whose papers were published at the Conference on Neural Information Processing Systems, a leading AI conference.
China’s Big CEO Summit Clouded by Doubts Over Policy, Access
Bloomberg
China's annual China Development Forum, which aims to woo top global executives, is already being overshadowed by speculation over which top leaders they will meet. International CEOs including Apple's Tim Cook, Pfizer's Albert Bourla, and FedEx's Raj Subramaniam are expected to attend, but it is unclear whether Premier Li Qiang will hold a meeting with business chiefs. President Xi Jinping is expected to meet with a number of American business chiefs after the event. The uncertainty comes as the ruling Communist Party's opaque policymaking unsettles investors and as moves to delay or restrict some economic data make it harder for executives to assess China's economy.
Singapore still Asia’s top financial hub, beating Hong Kong on competitiveness
South China Morning Post
Singapore has maintained its position as the top financial centre in Asia, outranking Hong Kong by just one point, according to the Global Financial Centres Index. Singapore and Hong Kong ranked third and fourth globally, behind New York and London. The study, which covers 133 financial centres, found that Singapore performed better than Hong Kong in all five criteria used to assess competitiveness: business environment, human capital, infrastructure, financial sector development, and reputational and general. In terms of future significance, Asian cities dominated, with Seoul receiving the most mentions followed by Singapore, Dubai and Hong Kong.
What we know about China’s new ‘ultra-long’ special bonds to stabilise economy
South China Morning Post
China's government is planning to issue 1 trillion yuan ($139bn) worth of "ultra-long-term special government bonds" this year as part of an effort to step up fiscal spending. The bonds are expected to have durations of 30 to 50 years and will primarily support areas such as scientific and technological innovation, integrated urban-rural development, coordinated regional development, food and energy security, and the high-quality development of the population. The issuance of the bonds will help to increase official government debt but will not be included in the official fiscal deficit. The move is seen as a response to growing debt risks facing many of China's local-level governments. Default risks among local government financing vehicles have increased significantly in recent years, prompting concerns that large-scale defaults could impact the country's state-dominated financial system. The bonds could help to improve the overall debt structure, reduce funding costs in the public sector and provide a confidence boost to investors.
Former executive given death sentence in poisoning of founder of high-flying Chinese gaming company
Associated Press
A former executive at Yoozoo Games, Xu Yao, has been sentenced to death for poisoning the company's founder, Lin Qi, in December 2020. The Shanghai First Intermediate People's Court stated that Xu poisoned the food due to a dispute over the running of the business. Lin died about 10 days later, and Xu was detained by police shortly after. Four other individuals fell ill but did not die after Xu poisoned beverages in the office. Yoozoo Games owns the film rights to the best-selling Chinese science fiction trilogy, "The Three-Body Problem," and Xu was in charge of the subsidiary responsible for related business. The company granted Netflix the rights to produce an adaptation of the trilogy in September 2020. Yoozoo Games is also known for developing the game "Game of Thrones: Winter Is Coming."
Meituan’s Revenue Beats Estimates After Staving Off ByteDance
Bloomberg
Meituan reported a 23% increase in quarterly revenue, reaching CNY 73.7bn ($10.2bn), surpassing the average projection of CNY 72.7bn. Net income was CNY 2.22bn, better than consensus estimates. Meituan, the dominant player in China's food delivery market, is exploring international expansion due to a slowdown in its home market. The company is battling against ByteDance's Douyin and Alibaba's Ele.me as it continues to spend heavily to protect its user base from new entrants, impacting its margins. Meituan is also investing in artificial intelligence initiatives and has ramped up investments in grocery retailing, group-buying, and live-streaming.
China Urges Lilly to Boost Investing Amid US Cutoff Threat
Bloomberg
China's Commerce Minister, Wang Wentao, has urged Eli Lilly to increase its investment in the country, promising significant opportunities for international pharmaceutical companies. Wentao said China wants Lilly to provide more high-quality medical products and services to the country's pharmaceutical market. Eli Lilly CEO David Ricks stated that the company values the Chinese market and will increase its research and development efforts there. The meeting took place amid efforts by US lawmakers to reduce the country's reliance on the Chinese biotechnology sector.
China’s Central Government Steps Up Spending to Bolster Economy
Bloomberg
China's central government has increased spending at the beginning of this year, which indicates that it is taking on more financing responsibility to support the economy and prevent further local government debt risks. General public expenditure rose 14% from a year earlier to CNY 482.8bn ($66.8bn) in January and February combined, the fastest pace in five years. This move is part of Beijing's strategy to shift the responsibility of supporting economic growth from local officials to the central government, in order to maintain investment levels and reduce local debt risks. The central government is also trying to contain credit risks at local government financing vehicles by encouraging them to sell assets and swap liabilities into government bonds.
China Stocks Rebound Cools as Earnings Disappoint, Yuan Weakens
Bloomberg
Chinese stocks experienced a decline on Friday, marking a possible end to a five-week rally. This was due to losses in Hong Kong-listed technology shares and disappointing earnings reports. The CSI 300 Index fell by as much as 1.6%, while the Hang Seng Tech Index tumbled by as much as 4.4%. The sudden drop in the yuan to a four-month low also impacted equities. The rebound in Chinese equities that began in February seems to be losing momentum, with investors looking for strong corporate performance to sustain the rally. However, disappointing earnings results have done little to ease investor concerns. Shares of Li Auto Inc., a Chinese electric vehicle maker, fell after it lowered its guidance for the first quarter. Additionally, Ping An Insurance Group Co. and CK Asset Holdings Ltd. reported worse-than-expected results, adding to worries about earnings from other major financial institutions and property developers.
China’s promising pancreatic cancer treatment heads for clinical research trials
South China Morning Post
A new cancer drug called HLN601 is set to enter clinical trials in China after receiving approval from the country's regulatory authority. The drug, which is being developed by the Shanghai Institute of Materia Medica, holds promise as a treatment for pancreatic cancer, one of the deadliest forms of the disease. Pancreatic cancer is rarely diagnosed in its early stages, when the chances of a cure are greatest, and has a five-year survival rate of less than 10%. The HLN601 drug is a liposomal treatment that has displayed "significantly superior efficacy" in preclinical studies compared to current treatments.
South Korea Targets Multi-Country Talks for Chip Export Controls
Bloomberg
South Korea is using a multinational framework, the Wassenaar Arrangement, to review export controls for sensitive products such as semiconductor-related equipment. This approach could complicate US efforts to limit China's influence on global technology supply chains, as the US is seeking to reduce China's access to advanced chip-making gear. South Korea, which is both a key US ally and heavily reliant on China as its biggest trading partner, is under pressure to navigate this delicate situation. South Korea's Trade Minister, Cheong Inkyo, stated that it will take months for South Korea to implement any export controls, and that such controls wouldn't necessarily mean a ban. He emphasized that South Korea is not targeting China or any other country. The country is seeking to minimize the impact on its domestic industries while fulfilling international obligations. This multilateral approach reflects a cautious stance among Korean policymakers about imposing curbs without wider consultation.
Lam Research eyes Vietnam chip supply chain as China curbs bite
Nikkei Asia
U.S. chip equipment maker Lam Research is looking to diversify its supply chain and warned of a hit to its China business from U.S. export controls. The company's Group Vice President of Global Operations, Karthik Rammohan, visited Vietnam's prime minister, Pham Minh Chinh, to evaluate opportunities to diversify its supply chain and support its manufacturing operations in Asia. Vietnam is urging the company to invest $1 billion in local production. Lam Research is also said to be working with South Korean business Seojin, a supplier to Samsung and Intel, to expand its operations in Vietnam. The company currently sources tin and tungsten from eight companies in Vietnam but has no immediate plans for expansion.
China’s envoy says ‘significant gap’ between Kyiv and Moscow on peace talks
Al Jazeera
China's special envoy for Ukraine, Li Hui, has stated that there is still a "significant gap" between Russia and Ukraine in peace talks to end the ongoing conflict. However, Li emphasized that both sides agree that negotiations are the best way to resolve the crisis. China has positioned itself as a mediator in the conflict, releasing its own 12-point plan for a political settlement and holding talks with both Russia and Ukraine. While China claims to be neutral, it has faced criticism for deepening its relationship with Russia despite its invasion of Ukraine. Li stated that all parties recognize the danger of the situation deteriorating further and expect China to play a more constructive role. Ukraine hopes that China will attend a peace conference it is organizing, but Russia has stated that the effort will fail without its participation.
US says Chinese firm SMIC’s Huawei chip ‘potentially’ broke American law
South China Morning Post
Chinese chip maker Semiconductor Manufacturing International Corporation (SMIC) may have potentially violated US controls if it manufactured a processor for sanctioned telecoms giant Huawei, according to Under Secretary of Commerce for Industry and Security Alan Estevez. SMIC reportedly made a 7-nanometre processor for Huawei, which has raised concerns about the company’s ability to produce advanced chips at scale. The Biden administration has introduced restrictions on Chinese companies purchasing advanced chips and chipmaking gear from US firms, and is considering sanctioning Huawei’s chipmaking partners.
US must bolster its shipbuilding ports as China keeps strengthening: analysts
South China Morning Post
The US-China Economic and Security Review Commission (USCC) has been warned not to misinterpret the teachings of Sun Tzu's The Art of War, as policymakers face China's growing military strength. While the ability to subdue an enemy without fighting is considered the highest form of skill in warfare, witnesses have argued that this does not mean China is unlikely to launch pre-emptive attacks. Instead, it suggests China is building up its military and technology to strike C4ISR "systems of systems" before the enemy can respond. Witnesses have called for the US to be "visibly prepared for a protracted war" and to reestablish its shipbuilding ports.
Chinese tech giants tout advancing AI models in race to catch up
South China Morning Post
Chinese tech giants Tencent and Kuaishou are ramping up efforts to develop and use large language models (LLMs), the basis for the next generation of AI tools. Kuaishou's KwaiYii LLM has reportedly outperformed OpenAI's GPT-3.5 and is approaching the performance levels of GPT-4, while Tencent's Hunyuan LLM is said to be among the world's best. Both companies are exploring ways to integrate AI technology into their businesses, with Tencent using its LLM for tasks such as coding and content generation, while Kuaishou is using its LLM to enhance customer service and improve content creation.
China sees rise of humanoid robots as ‘disruptive innovation’, economic boon
South China Morning Post
The Beijing Humanoid Robot Innovation Centre, which includes Xiaomi, UBTech, and Jingcheng Machinery Electric, plans to release a general-purpose humanoid robot prototype in a bid to boost China's technological innovation and high-end manufacturing capabilities. The centre, established late last year, aims to create a common technological platform, a public service platform, and regulatory standards for the humanoid robot industry. The release of a humanoid robot prototype will help advance China's self-reliance and home-grown innovation as it competes with the US in important tech areas.
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