Why China Won’t Give Up on a Failing Economic Model

Chinese factory activity expands ahead of expected economic support package；North Korea launches suspected ICBM days ahead of US election

Welcome to this issue of The China Brief. Today is October 31, 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.

Why China Won’t Give Up on a Failing Economic Model

Foreign Affairs

In response to disappointing post-pandemic growth figures, the Chinese government has initiated a series of economic stimulus measures, including stock market support, monetary easing, and the recapitalization of state-owned banks. While the full details of the fiscal stimulus will be disclosed after the U.S. election, Vice Finance Minister Liao Min has indicated that it will be substantial. This shift signifies an acknowledgment from Beijing of the serious economic challenges facing the nation, which threaten President Xi Jinping's ambitious "China Dream" of doubling the economy by 2035. The effectiveness of these measures remains uncertain, particularly as they lack direct assistance to households.

The primary issue troubling China's economy is weak domestic demand, largely due to declining consumer confidence. As households hoard cash instead of spending, the resulting savings glut contributes to long-term problems like industrial overcapacity. Despite the government's assertions that the latest stimulus aims to bolster consumption, the plans largely favor state-directed investment rather than direct support for consumers. This reluctance to provide cash handouts reflects broader anxieties among Chinese citizens about their financial future, with growth in disposable income slowing significantly since 2017, leading to diminished expectations for economic opportunity.

Beijing's stimulus appears chiefly aimed at restoring confidence among business elites rather than addressing the root causes of consumer hesitancy. The People's Bank of China has adopted quantitative easing strategies to support financial markets without significantly improving consumer demand. While some measures, such as mortgage refinancing, may help households financially, the government's historical aversion to direct cash support limits the potential for genuine economic recovery. As the Chinese middle class grapples with economic insecurity and diminished prospects, the current stimulus is seen as insufficient for long-term rebalancing. Ultimately, if conditions worsen, the potential for a shift in Xi's policies could arise, prompting a reevaluation of U.S.-China relations as Washington navigates this complex landscape.

https://www.foreignaffairs.com/china/why-china-wont-give-failing-economic-model

Chinese factory activity expands ahead of expected economic support package

Financial Times

Chinese factory activity improved in October, marking its first increase in six months, with the purchasing managers’ index at 50.1, above September's 49.8. This data comes ahead of a National People’s Congress meeting expected to confirm a fiscal stimulus aimed at boosting economic growth. Analysts suggest China needs to invest Rmb10tn ($1.4tn) over three years to restore consumer confidence, which has been impacted by a property sector slowdown. However, much of the proposed stimulus may focus on local government debt swaps rather than direct consumer assistance, raising concerns among economists about its effectiveness.

https://www.ft.com/content/69af9641-8edd-48ef-8937-a6cbd03ed873

North Korea launches suspected ICBM days ahead of US election

CNN

North Korea conducted a suspected intercontinental ballistic missile (ICBM) test on Thursday morning, marking what Japan's Defense Ministry described as the longest flight time for a North Korean missile. The launch occurred just days before the U.S. presidential election and follows warnings from South Korean intelligence about a potential ICBM launch during this period to assess reentry technology. The missile was reportedly fired at a “lofted angle” and is believed to have landed outside Japan's exclusive economic zone. Japanese Defense Minister Gen Nakatani indicated the missile flew for approximately 1 hour and 26 minutes, potentially making it the newest missile tested by North Korea. The U.S. National Security Council condemned the launch as a violation of multiple UN Security Council resolutions. The situation remains developing and will be updated as more information becomes available.

https://edition.cnn.com/2024/10/30/asia/north-korea-icbm-test-intl-hnk/index.html

Chinese AI unicorn MiniMax scores big in US with Talkie chatbot entertainment app

South China Morning Post

Chinese AI startup MiniMax has gained international attention with its Talkie chatbot app, becoming the fourth most-downloaded AI app in the US in early 2024. Talkie recorded 17 million downloads globally in the first eight months of the year, trailing Character.ai. MiniMax is expected to earn around $70 million in revenue, primarily from its avatar chatbot platform targeting overseas markets. Companion AI apps are especially popular among users aged 18-35. As demand for generative AI applications grows abroad, several Chinese firms are expanding into international markets to capitalize on opportunities.

https://www.scmp.com/tech/tech-trends/article/3284511/chinese-ai-unicorn-minimax-scores-big-us-talkie-chatbot-entertainment-app?utm_source=rss_feed

Leading human rights lawyer Xu Zhiyong on hunger strike in Chinese prison, family says

Guardian

Concerns are rising over the health of Xu Zhiyong, a prominent Chinese human rights lawyer, who has been on hunger strike since October 4 to protest inhumane prison conditions, including restricted family contact and excessive surveillance. Detained since February 2020, Xu is a key figure in the New Citizens’ Movement, advocating for civil rights. He was sentenced to 14 years for subverting state power, highlighting the crackdown on dissent under Xi Jinping's regime. Xu's hunger strike aims to ensure communication with his partner, Li Qiaochu, and has drawn attention to the harsh treatment of political prisoners in China.

https://www.theguardian.com/world/2024/oct/31/xu-zhiyong-hunger-strike-china-prison

Chinese student in Michigan arrested for trying to vote in 2024 US presidential election

South China Morning Post

A 19-year-old Chinese student at the University of Michigan was arrested for voting illegally in the presidential election, falsely claiming U.S. citizenship to register. He was charged with perjury and unauthorized voting, facing potential prison time. The incident has drawn attention from U.S. Congressman John Moolenaar, who criticized state officials and called for the university to expel the student, citing concerns over Chinese influence. Michigan law prohibits non-citizens from voting, and the case has intensified scrutiny on election integrity amidst ongoing claims of voter fraud stemming from the 2020 election.

https://www.scmp.com/news/china/article/3284534/chinese-student-michigan-arrested-trying-vote-2024-us-presidential-election?utm_source=rss_feed

Chinese e-commerce platform JD.com to accept Alipay as ‘walled gardens’ fall

South China Morning Post

JD.com, a Chinese e-commerce platform, has begun accepting Alipay for payments, signaling a breakdown of the competitive barriers between tech giants in China. This move follows a logistics partnership with Alibaba’s Cainiao, allowing JD.com merchants to utilize Cainiao’s courier services for shipping large items. Both JD.com and Alibaba have historically been rivals in the e-commerce sector, but they are now collaborating amid increasing competition from new entrants like PDD Holdings and ByteDance's Douyin. The shift comes as Chinese regulators push for greater interconnectivity in the tech industry, following a crackdown on monopolistic practices. Recent cooperation between Alibaba and Tencent has allowed merchants on Alibaba's platforms to accept WeChat Pay, further blurring the lines between competing ecosystems.

https://www.scmp.com/tech/tech-trends/article/3284482/chinese-e-commerce-platform-jdcom-accept-alipay-walled-gardens-fall?utm_source=rss_feed

How Volkswagen Lost Its Way in China

NY Times

Volkswagen, once the dominant carmaker in China for four decades, is facing significant challenges as it struggles to compete with the rapidly growing Chinese electric vehicle manufacturer BYD. BYD's aggressive expansion in all-electric and plug-in hybrid sales has outpaced VW, which has been slow to adapt to the evolving market. As a result, many Chinese consumers now view VW as outdated and prefer local brands that offer more appealing products. With state-owned banks and local governments supporting Chinese automakers, VW has chosen not to engage in price wars, leading to a loss of market share. The company's executives acknowledge their struggle to keep up with the changing preferences of Chinese consumers.

https://www.nytimes.com/2024/10/31/business/volkswagen-china.html

China’s finance sector comes to grips with new normal in year since landmark conference

South China Morning Post

China's financial sector has faced strict regulatory oversight over the past year, leading to pay cuts and layoffs in an industry traditionally dominated by state-owned institutions. The government is focusing on risk prevention amid economic challenges, including a struggling property market and rising local government debt. Management reshuffles are common, and regulatory measures have increased, though some view stricter supervision as potentially beneficial for larger firms. Despite a recent announcement of a possible stimulus to boost the economy, experts do not anticipate a return to previous credit growth levels or financial practices, emphasizing a commitment to stability.

https://www.scmp.com/economy/china-economy/article/3284476/chinas-finance-sector-comes-grips-new-normal-year-landmark-conference?utm_source=rss_feed

Beijing to Chinese EV makers: think twice about investing in tariff-backing EU countries

South China Morning Post

Beijing has advised Chinese carmakers, including BYD and Geely, against significant investments in EU countries that supported new tariffs on Chinese electric vehicles (EVs), which could be as high as 35%. This directive from the Ministry of Commerce follows a recent EU vote favoring tariffs after an anti-subsidy investigation. While the guidance is not mandatory, it reflects concerns over the risks of establishing factories in affected countries. Analysts warn that despite the cost advantages of Chinese EVs, localizing production in Europe poses challenges due to consumer skepticism regarding quality and reliability.

https://www.scmp.com/business/china-business/article/3284591/beijing-chinese-ev-makers-think-twice-about-investing-tariff-backing-eu-countries?utm_source=rss_feed

Will China replace India and Japan as Asia’s new investment darling?

South China Morning Post

India and Japan have been the top-performing equity markets in Asia since the Covid-19 pandemic, driven by strong corporate earnings and economic growth. The Nifty 50 index in India rose nearly 300% since 2014, while Japan's market rebounded after decades of stagnation. However, recent political instability in both countries, alongside China's stimulus package boosting investor sentiment, has led to a decline in interest in Indian and Japanese stocks. Despite concerns, domestic investors in India remain bullish, while Japan's market continues to be seen as a safe haven. The future of China's recovery remains uncertain.

https://www.scmp.com/opinion/china-opinion/article/3284566/will-china-replace-india-and-japan-asias-new-investment-darling?utm_source=rss_feed

EU investments in China soar to new quarterly record of US$3.9 billion

South China Morning Post

Despite EU leaders advocating for reduced economic ties with China, greenfield investments by EU businesses, particularly German car manufacturers, hit a record €3.6 billion in Q2 2024. German firms accounted for 57% of these investments, with major players including Volkswagen and BMW. This surge aims to localize production amid geopolitical tensions, even as the EU imposes tariffs on Chinese electric vehicles to counter state subsidies. Critics, including the German automotive industry, warn these tariffs could lead to a trade conflict, highlighting a growing tension between deepening economic ties with China and EU policy goals for de-risking.

https://www.scmp.com/news/china/article/3284530/eu-investments-china-soar-new-quarterly-record-us39-billion?utm_source=rss_feed

BYD beats Tesla in quarterly sales for the first time as demand soars for hybrid EVs

South China Morning Post

BYD surpassed Tesla in quarterly sales for the first time, driven by a surge in hybrid and electric vehicle (EV) demand, with sales reaching 201.12 billion yuan (US$28.2 billion) compared to Tesla's US$25.18 billion. BYD's net profit rose to 11.61 billion yuan (US$1.63 billion). The company sold over 1 million vehicles in the quarter, primarily hybrids, while Tesla's sales of pure EVs remained strong. The shift towards hybrids reflects changing consumer preferences, with competition intensifying in the market as traditional automakers launch EVs.

https://www.scmp.com/business/china-evs/article/3284573/byd-beats-tesla-quarterly-sales-first-time-demand-soars-hybrid-evs?utm_source=rss_feed

Can Men in China Take a Joke? Women Doing Stand-Up Have Their Doubts

NY Times

The article discusses the challenges faced by female comedians in China, particularly in light of a recent incident involving Yang Li, a prominent female stand-up comic. After facing backlash from men on social media who labeled her as anti-male, a major e-commerce platform, JD.com, ended its partnership with her. This reflects a growing sensitivity around women's rights discussions in China, with female comedians increasingly addressing gender injustices through humor. However, this has led to a backlash from men, and instances of online harassment against these women. The situation illustrates a complex dynamic in China where feminist discussions are becoming more visible, yet are also met with significant pushback and suppression, especially from governmental and nationalistic forces.

https://www.nytimes.com/2024/10/31/world/asia/china-comedy-women-yang-li.html

Trump or Harris? Why China-born scientists fear US shadow of suspicion will persist

South China Morning Post

The upcoming presidential election between Donald Trump and Kamala Harris is viewed with apprehension by Chinese-born scientists due to the prevailing geopolitical tensions and the implications for their community. Yan Chen, an experimental economist, expresses a hope for a Trump loss, believing that Harris, being half Asian and a child of an immigrant scientist, might offer a more empathetic approach towards Asian and Asian-American scholars. However, the broader scientific community remains skeptical, feeling both political parties regard China as a significant threat, which has resulted in legislation that disproportionately impacts Chinese-American researchers.

The recently passed House legislation aims to reinstate the controversial China Initiative, which was originally designed to combat espionage but inadvertently targeted academics of Chinese descent. Many researchers, such as Xiaoxing Xi and Anming Hu, have faced severe consequences from investigations under the initiative, which often misconstrued legitimate academic activities as suspicious. These experiences have led to job losses, legal battles, and emotional turmoil for those affected, instilling a pervasive atmosphere of fear and caution among scientists regarding their professional connections to China.

Despite the termination of the China Initiative, investigations into researchers of Chinese origin continue, raising concerns about due process and discrimination. Experts like Denis Simon warn that the damaging effects on scientific collaboration and the flow of talent could take years to mend. The experiences of those targeted reveal a troubling pattern of bias, indicating systemic issues within US policies towards Chinese-born scholars. As the scientific community grapples with these challenges, calls for accountability and reform persist, emphasizing the need for a more inclusive and fair approach to research and collaboration in the face of rising geopolitical tensions.

https://www.scmp.com/news/china/science/article/3284513/trump-or-harris-why-china-born-scientists-fear-us-shadow-suspicion-will-persist?utm_source=rss_feed

Analysis: Ministries compete to show economic loyalty to Xi Jinping

Nikkei Asia

Katsuji Nakazawa reports on Xi Jinping's robust anti-corruption campaign, which is creating a competitive atmosphere among senior economic officials to exhibit their loyalty to Xi and the Chinese Communist Party. Following a recent Politburo meeting, Xi emphasized the importance of maintaining a firm stance against corruption while also addressing the country's economic decline, particularly in the real estate sector. The government has initiated a third round of disciplinary inspections on key economic organizations, including the People's Bank of China and the National Development and Reform Commission, prompting top officials to hold press conferences to unveil economic stimulus measures and reassure the public. Despite efforts to stabilize the real estate market, skepticism remains as housing prices continue to fall, leaving local governments facing significant revenue shortfalls. As Xi's administration grapples with economic challenges, officials are under pressure to achieve a growth target of around 5% for 2024 while navigating the political risks of the ongoing anti-corruption campaign, which demands their unwavering loyalty.

https://asia.nikkei.com/Editor-s-Picks/China-up-close/Analysis-Ministries-compete-to-show-economic-loyalty-to-Xi-Jinping

For European automakers, China goes from gift to threat

The Globe and Mail

China's dominance in the electric vehicle (EV) market is threatening European automakers, particularly German brands, which once thrived in the Chinese market. Foreign brands' market share in China has plummeted from nearly two-thirds in 2020 to 37% today, as local manufacturers produce higher-quality vehicles. Volkswagen is struggling, announcing plant closures and significant profit drops, while Chinese EVs gain ground in Europe. The European Union's tariffs on Chinese imports may backfire, prompting retaliation or increased Chinese investment in Europe. Overall, European automakers are losing market share and face a challenging future in the evolving automotive landscape.

https://www.theglobeandmail.com/business/commentary/article-for-european-automakers-china-goes-from-gift-to-threat/

No, BRICS Isn’t Trying to Rival the West

Foreign Policy

Last week’s BRICS summit in Kazan, Russia, highlighted the bloc’s growing influence, with representatives from 36 countries attending despite Western efforts to isolate Moscow following its invasion of Ukraine. President Vladimir Putin’s interactions with leaders like Indian Prime Minister Narendra Modi and Chinese President Xi Jinping showcased that Russia is not a global pariah. The summit marked the largest gathering since BRICS’ inception in 2009, with the addition of four new members—Egypt, Ethiopia, Iran, and the UAE—bringing the group’s representation to over 40% of the world’s population.

While some Western analysts view BRICS as a vehicle for anti-Western sentiment, the group’s recent declarations suggest a commitment to existing international frameworks. The Kazan Declaration reaffirmed support for multilateralism and the role of the United Nations, advocating for solutions to global issues through established institutions like the WTO, IMF, and World Bank. This alignment with current global governance structures indicates that BRICS is more focused on rebalancing power rather than creating a rival system to the postwar order, revealing the complexities of its member states' political dynamics.

The summit also facilitated diplomatic breakthroughs, such as a statement from Xi emphasizing de-escalation in Ukraine, and encouraged India and China to advance border negotiations. The BRICS framework does present challenges to Western interests but lacks the authority to redefine the international order. Critically, the summit underscored the need for the West to engage in necessary reforms to address global inequities, rather than dismissing non-Western initiatives as threats. The rise of BRICS reflects a demand for a fairer international system, and the West's failure to adequately respond may contribute to the bloc’s growing prominence.

https://foreignpolicy.com/2024/10/30/brics-summit-kazan-declaration-global-south-russia-china-iran-west-global-order/

AstraZeneca’s China president under ‘ongoing investigation’, company says

South China Morning Post

AstraZeneca's president for China, Leon Wang, is currently under investigation in mainland China. The company confirmed that Wang is cooperating with the ongoing investigation but has not provided details on his custody status or whereabouts. AstraZeneca's operations in China will continue under the current general manager during this time. Wang has been with AstraZeneca since 2013 and became the country president in 2014, later serving as executive vice-president for commercial operations in China since 2017. The company has pledged to fully cooperate with the investigation.

https://www.scmp.com/news/china/science/article/3284525/astrazenecas-china-president-under-ongoing-investigation-company-says?utm_source=rss_feed

Ex-Hong Kong leader crosses swords with incumbent again over land supply

South China Morning Post

A debate has emerged between former Hong Kong leader Leung Chun-ying and current Chief Executive John Lee Ka-chiu regarding land supply and development. Leung criticized the government's land planning, urging for clarity and caution against oversupply, which could lead to financial issues. He likened land supply to making sweet soup, emphasizing the importance of balance. Lee defended the need for continuous land creation to control the market and protect residents' interests, referencing historical mistakes that led to housing shortages. The discussion follows the announcement of a delayed reclamation project and plans for a new economic hub.

https://www.scmp.com/news/hong-kong/society/article/3284519/ex-hong-kong-leader-crosses-swords-incumbent-again-over-land-supply?utm_source=rss_feed

Is China looking to ‘divide and conquer’ as it boosts defence ties with Vietnam?

South China Morning Post

General Zhang Youxia's recent visit to Vietnam signifies improved Chinese-Vietnamese relations. During his two-day trip, he met with senior Vietnamese leaders and emphasized deepening political, economic, and military ties. The visit follows a series of high-level exchanges aimed at preventing South China Sea disputes from escalating. Analysts suggest a "Vietnam model" could help China manage tensions with other claimants, particularly the Philippines. While both nations have territorial disputes, their collaboration in defense and maritime operations reflects a strategic move by China to balance relations in the region and mitigate conflict risks.

https://www.scmp.com/news/china/military/article/3284495/china-looking-divide-and-conquer-it-boosts-defence-ties-vietnam?utm_source=rss_feed

Xiaomi unveils US$114,000 Ferrari lookalike in luxury car venture

South China Morning Post

Xiaomi has launched a luxury sports car, the SU7 Ultra, priced at US$114,000, which has drawn comparisons to Ferrari. This car is Xiaomi's second release in the electric vehicle (EV) market after its initial models debuted in March. Since then, the company has delivered over 75,000 SU7 sedans, with monthly sales exceeding 20,000 for the first time in October. Despite generating 6.4 billion yuan in revenue from its EV business in the second quarter, Xiaomi reported a net loss of 1.8 billion yuan due to ongoing investments. The SU7 Ultra has received over 3,600 pre-orders within 10 minutes of registration, although some consumers question its performance capabilities given urban speed limits. Alongside its car launch, Xiaomi introduced the Xiaomi 15 smartphone series, emphasizing its advanced AI features, which it claims surpass those of Apple's iPhone 16 Pro. Xiaomi remains a strong competitor in the smartphone market, holding over 15 percent of the domestic market share.

https://www.scmp.com/tech/big-tech/article/3284501/xiaomi-unveils-us114000-ferrari-lookalike-luxury-car-venture?utm_source=rss_feed

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