Why Chinese Are Rushing Into a ‘Casino’ Stock Market
China cuts key lending rates in bid to support economic growth；China’s economy saw its slowest growth in more than a year. Can it still hit its target?
Welcome to this issue of The China Brief. Today is October 21, 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 cuts key lending rates in bid to support economic growth
The Globe and Mail
China has cut benchmark lending rates as part of a stimulus package aimed at reviving the economy. The one-year loan prime rate (LPR) was reduced by 25 basis points to 3.10%, while the five-year LPR also decreased by the same margin to 3.6%. These reductions follow cuts to other policy rates last month and are the first since July. The People's Bank of China (PBOC) had previously indicated further rate cuts would occur.
The PBOC also lowered banks' reserve requirement ratios and the seven-day reverse repo rate, marking the most aggressive stimulus since the pandemic, which includes measures to support the struggling property sector and boost consumption. Despite a significant rise in the CSI300 Index and improvements in retail sales and industrial production, concerns remain about whether the policy support will be sufficient to sustain economic growth. China’s economic growth in the third quarter was slightly better than expected, but property investment has declined significantly. Officials remain optimistic about reaching the government’s growth target of around 5% for the year, with potential for more reserve ratio cuts by year-end.
https://www.theglobeandmail.com/business/international-business/asia-pacific-business/article-china-cuts-key-lending-rates-in-bid-to-support-economic-growth/
Why Chinese Are Rushing Into a ‘Casino’ Stock Market
NY Times
China's stock market, often likened to a "casino," is experiencing a surge as middle-class investors are drawn in by recent government policies aimed at stimulating the economy. This has led to the country's biggest market rally since 2008, despite investors expressing concerns that the government's actions may be more focused on boosting the market than on genuine economic improvement. Many investors feel a sense of control by participating in the stock market, even amidst risks and uncertainties. They are mostly professionals or business owners who have some money to invest but do not consider themselves wealthy. The government's censorship of critical opinions adds to the unease among investors, who are wary of being manipulated in a system that feels out of their control.
https://www.nytimes.com/2024/10/21/business/china-stocks-investing.html
China’s economy saw its slowest growth in more than a year. Can it still hit its target?
South China Morning Post
China's GDP growth for the third quarter of the year has been reported at 4.6%, slightly below the previous quarter's 4.7%. This figure aligns with analyst expectations, contributing positively to China’s goal of meeting its annual growth target, amid a backdrop of recently announced stimulus measures. Retail sales and industrial output also showed signs of recovery in September, with retail sales rising by 3.2% year-on-year and industrial output increasing by 5.4%. However, the construction and property sectors continue to struggle, with property investment plummeting 10.1% in the first nine months of 2024, indicating ongoing challenges for the economy.
The People's Bank of China is considering further cuts to the reserve requirement ratio (RRR) for commercial banks to enhance liquidity and stimulate economic activity. Governor Pan Gongsheng emphasized the need to address deflationary pressures, suggesting that future monetary policy will focus on stabilizing inflation. Economists believe that while current measures may help meet short-term growth targets, there are concerns about a potential slowdown in growth by the end of next year. Analysts are watching closely for statements from the Politburo that may signal larger fiscal stimulus plans in 2024.
The global implications of China's economic situation are significant, as its slowdown could affect international trade dynamics. Analysts are closely monitoring the government's stimulus measures, which began in late September, as they could potentially revive China's appetite for imports and stabilize global markets. With calls for a stimulus package as large as 10 trillion yuan, the debate continues regarding the scale and timing of Beijing's economic response. Observers remain keen on how effectively China can navigate its current challenges while balancing long-term sustainability amidst economic uncertainties.
https://www.scmp.com/economy/economic-indicators/article/3283157/chinas-economy-saw-its-slowest-growth-more-year-can-it-still-hit-its-target?utm_source=rss_feed
Prigozhin’s Ghost Lives On in China
Foreign Policy
Yevgeny Prigozhin, the former leader of the Wagner Group, has unexpectedly become a cult figure in China following his demise after a brief mutiny. On Weibo, a major Chinese social media platform, he is celebrated for his patriotism and critique of Russian military leaders. This admiration resonates with Chinese military bloggers amidst a backdrop of corruption purges within the People’s Liberation Army. Many speculate that the U.S. orchestrated Prigozhin's death to instigate discord in Russia, reflecting a distrust of Western influence.
Chinese commentators see parallels between Wagner's assertive tactics and the need for stronger private security forces to protect Chinese interests abroad, particularly in light of rising threats to overseas workers. Despite recognizing Wagner's controversies, these discussions frame the group as a model for future security operations.
Prigozhin's narrative in China emphasizes his business success and operational effectiveness, contrasting with views of him as a warlord in the West. However, while there is a call for reform in China's private security sector, the CCP maintains strict control over military force, using Prigozhin's legacy as both inspiration and caution.
https://foreignpolicy.com/2024/10/21/wagner-prigozhin-china-putin-mercenaries-military-private-security/
China's SenseTime using 'a lot' of Huawei, other domestic AI chips
Nikkei Asia
SenseTime Group is prioritizing the use of domestic chips, including those from Huawei, to develop its AI computing ecosystem. The company’s new AI Data Center in Shanghai uses various domestic chips, though there are still performance gaps compared to foreign alternatives. Despite government encouragement to adopt local technology, Nvidia remains dominant in China's AI chip market. Huawei is enhancing its capabilities with its Ascend chip, but the U.S. export controls complicate China's chip independence. China is investing heavily in chip manufacturing, aiming to overcome U.S. supply chain bottlenecks.
https://asia.nikkei.com/Business/Technology/China-s-SenseTime-using-a-lot-of-Huawei-other-domestic-AI-chips
Microsoft closes Azure subscription for individuals to access OpenAI in mainland China
South China Morning Post
Microsoft has halted individual subscriptions for OpenAI services in mainland China through its Azure cloud platform, which was previously the sole legitimate access point for users in the region. This decision follows OpenAI's earlier restriction of its API in “unsupported countries and territories,” citing local regulatory requirements. Now, only enterprise customers can subscribe to the Azure OpenAI Service. This change significantly impacts local developers who relied on the service to integrate OpenAI technologies, like the GPT-4o model, into their applications. While some users are exploring workarounds to access OpenAI's API, the restriction encourages a shift towards domestic AI solutions, as local developers may increasingly adopt Chinese large language models (LLMs). The move is seen as part of a broader trend of tightening access to OpenAI's services in the region.
https://www.scmp.com/tech/big-tech/article/3283259/microsoft-closes-azure-subscription-individuals-access-openai-mainland-china?utm_source=rss_feed
China could fend off EU tariff moves with more direct investment: analyst
South China Morning Post
A Chinese analyst warns that the EU may impose more tariffs on China as it seeks to reduce reliance on critical raw materials. Zhang Pengfei suggests that direct investment from Chinese firms in the EU is essential to navigate upcoming trade barriers. He emphasizes that while the EU cannot fully decouple from China, it will likely adopt anti-dumping and anti-subsidy measures to protect local jobs and industries. The EU's dependence on China's raw materials will decrease gradually, but cooperation in refining and recycling is still possible. Zhang urges China to foster collaboration in digital technology and data flows.
https://www.scmp.com/news/china/diplomacy/article/3283174/china-could-fend-eu-tariff-moves-more-direct-investment-analyst?utm_source=rss_feed
India says it has reached a pact with China on military patrols along their disputed border
Associated Press
India and China have reached an agreement on military patrols along their disputed Himalayan border, aimed at disengaging troops following a standoff that began in 2020. India's Foreign Secretary, Vikram Misri, announced the pact after multiple rounds of negotiations, which could lead to a resolution of the issues stemming from the military clash that resulted in the deaths of 20 Indian and four Chinese soldiers. While some troops have been withdrawn from certain areas, both countries still maintain a significant military presence along the Line of Actual Control, which separates their territories. The agreement was announced just before Indian Prime Minister Narendra Modi's visit to Russia for the BRICS summit, where he may discuss the situation with Chinese President Xi Jinping. The ongoing tensions date back to a 1962 war between the two nations over border disputes.
https://apnews.com/article/india-china-ladakh-border-standoff-c7c5fcf61b2378428842207b52b547c3
TikTok owner sacks intern for allegedly sabotaging AI project
Guardian
ByteDance, the owner of TikTok, has dismissed an intern for allegedly sabotaging an internal artificial intelligence project by "maliciously interfering" with the training of AI models. The incident, which occurred in August, prompted widespread rumors on Chinese social media, but ByteDance clarified that its official commercial products and large language models were not affected. The company refuted exaggerated claims about the extent of the disruption, including reports of significant financial losses and damage to thousands of AI training chips. Amidst concerns regarding generative AI safety and ongoing scrutiny in the US over TikTok's national security implications, ByteDance has also notified the intern's university about their conduct.
https://www.theguardian.com/technology/2024/oct/21/tiktok-owner-bytedance-sacks-intern-for-allegedly-sabotaging-ai-project
China will press ahead with internationalisation of yuan and markets: Sibos panellists
South China Morning Post
At the Sibos conference in Beijing, experts discussed the ongoing internationalization of China's financial markets and currency, emphasizing Hong Kong's role as a key "superconnector." Lu Lei from the PBOC highlighted the importance of opening up and cooperation for high-quality financial sector development. The PBOC aims to enhance cross-border trade and promote the yuan's international use. HSBC’s David Liao noted that global yuan usage does not match China's economic strength, while Wilfred Yiu of Hong Kong's stock exchange stressed the city's potential in technology. Geopolitical tensions were acknowledged, but the overall sentiment remained optimistic about China's market opportunities.
https://www.scmp.com/business/banking-finance/article/3283226/china-will-press-ahead-internationalisation-yuan-and-markets-sibos-panellists?utm_source=rss_feed
Sinopec leads 23 firms in China’s US$1.55 billion stock buy-back rush
South China Morning Post
China Petroleum and Chemical Corp (Sinopec) and 22 other companies will invest 11 billion yuan (US$1.55 billion) in stock buy-backs and stake increases, utilizing a central bank relending program aimed at supporting equities. The initiative, part of a broader effort to boost the economy and stock market, allows listed companies to secure loans at a low interest rate from selected commercial lenders. The program follows a significant increase in China's stock market, with the CSI 300 Index rising 20% over the past month, fueled by optimism for fiscal stimulus to combat deflation and stimulate growth.
https://www.scmp.com/business/china-business/article/3283204/sinopec-leads-23-firms-chinas-us155-billion-stock-buy-back-rush?utm_source=rss_feed
China Resources Beverage IPO prices at top end of range, valuing firm at US$4.39 billion
South China Morning Post
China Resources Beverage's IPO priced at HK$14.50 per share, aiming to raise up to HK$5.04 billion (US$650 million) with a market capitalization of about US$4.39 billion. The offering was significantly oversubscribed, leading to a clawback mechanism allowing for increased share allocation. The company, a major player in China's packaged water sector, plans to use proceeds for expansion, R&D, and digitalization. The IPO reflects a surge in Hong Kong's capital markets, following recent successful listings like Midea Group's. CR Beverage will begin trading on the Hong Kong stock exchange on Wednesday.
https://www.scmp.com/business/banking-finance/article/3283183/china-resources-beverage-ipo-prices-top-end-range-valuing-firm-us439-billion?utm_source=rss_feed
Chinese county, infamous for lavish projects, back in spotlight as local debts linger
South China Morning Post
Dushan, a county in China's impoverished Guizhou province, is facing significant debt challenges due to past extravagant construction projects, including a 99.9-meter wooden building. The local government acknowledged "reckless borrowing" and is attempting to repurpose unused structures while grappling with declining tax revenues and land sales. Analysts warn that without substantial central government support and structural reforms, Dushan's debt may continue to hinder economic recovery. The central government plans a significant debt swap to help localities but experts say long-term solutions require broader economic reforms and sustainable profit models for local financing vehicles.
https://www.scmp.com/economy/china-economy/article/3282938/chinese-county-infamous-lavish-projects-back-spotlight-local-debts-linger?utm_source=rss_feed
Asia hedge funds outperform global peers on September rally
South China Morning Post
In September, a surge in Chinese stocks propelled Asia's hedge funds to outperform global peers, achieving a 9.7% return for the first nine months of the year, compared to 8.1% globally. Funds like Quantedge Capital and Ocean Arete benefitted from China’s aggressive stimulus measures, including rate cuts and relaxed banking regulations. The MSCI China Index rose 23%, with notable gains from firms such as PDD Holdings and TAL Education Group. Overall, numerous funds reported significant monthly and year-to-date gains, driven by strategic investments in Chinese equities and various macroeconomic trends.
https://www.scmp.com/business/markets/article/3283171/asia-hedge-funds-outperform-global-peers-september-rally?utm_source=rss_feed
Russia and China gear up for bigger BRICS summit in push for new order
Nikkei Asia
Russia will host the first BRICS summit since its expansion, aiming to project its international influence alongside China and counter perceptions of isolation. The summit, taking place in Kazan, will involve leaders from the original five BRICS nations—Brazil, Russia, India, China, and South Africa—along with new members Egypt, Ethiopia, Iran, and the UAE, and potential future members, including Saudi Arabia, with 34 countries expressing interest in joining.
Key discussions will focus on enhancing international cooperation in security, economy, and finance, as well as the potential for further BRICS enlargement. While Russia supports a new "partner country" model, India is cautious about admitting more members due to concerns over China's growing influence.
The summit aims to deepen economic collaboration among members, especially in response to Western sanctions against Russia, with plans to establish a new cross-border payment system to bypass the SWIFT system. Moscow views this as essential for facilitating trade and investment, while India may find value in such a system but remains wary of further Chinese dominance within BRICS.
https://asia.nikkei.com/Politics/International-relations/Russia-and-China-gear-up-for-bigger-BRICS-summit-in-push-for-new-order
Chad Sbragia on why a breakdown of US-China defence links could be ‘really dangerous’
South China Morning Post
Chad Sbragia, the first US deputy assistant secretary of defense for China during the Trump administration, emphasizes the importance of resuming US-China defense contacts, which have been limited since early in the Biden administration. He points out that while some dialogues have partially restarted, higher-level discussions remain absent, creating confusion and potential risks regarding policy disagreements. The lack of communication mechanisms complicates understanding each other's military readiness and strategic intentions, which is crucial for averting conflict.
Sbragia reflects on the past effectiveness of command-level exchanges, noting that such visits were instrumental in reducing security anxiety. He suggests that the current dynamics have changed, with the Chinese side deeming the Indo-Pacific commander as an obstacle. Despite this shift, he stresses the necessity for ongoing dialogue at all levels to foster better understanding and transparency, especially in light of the increasing opaqueness of China's military and political landscape.
Lastly, Sbragia addresses the broader geopolitical context, including China's military collaborations with Russia and its engagements with ASEAN nations. He believes that while these partnerships are partly motivated by a shared rivalry with the US, they may not signify a robust operational alliance. He underscores that continued face-to-face interactions are critical for both sides to challenge flawed assumptions and improve mutual understanding, reinforcing the necessity of dialogue to prevent miscalculations that could lead to conflict.
https://www.scmp.com/news/china/military/article/3283086/chad-sbragia-why-breakdown-us-china-defence-links-could-be-really-dangerous?utm_source=rss_feed
For China’s next big tech leap, its ‘little giants’ must grow up
South China Morning Post
China's "little giants," small and medium-sized enterprises (SMEs) promoted under its 14th five-year plan, aim to spearhead technological advancements and reduce reliance on foreign tech. Despite surpassing growth targets, these SMEs struggle with translating innovation into sustainable market success and often depend on state support. While fostering specialization, China risks stifling cross-sector collaboration essential for breakthrough innovations. The success of SMEs is questioned against the backdrop of larger enterprises that historically drive significant advancements. For these "little giants" to thrive globally, they must secure private investment and navigate geopolitical challenges beyond state backing.
https://www.scmp.com/opinion/china-opinion/article/3282773/chinas-next-big-tech-leap-its-little-giants-must-grow?utm_source=rss_feed
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