$46bn wiped off Tencent's market cap after China proposes new gaming curbs; BYD Picks Hungary For Its First European EV Factory Site
Taiwan presidential race tightens in final weeks, polls show; China’s CSI 300 Index Caps Longest Weekly Losing Streak Since 2012
Welcome to this issue of The China Brief. Today is December 22, 2023. 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.
$46bn wiped off Tencent's market cap after China proposes new gaming curbs
Nikkei Asia
Shares in China's largest gaming companies, Tencent and NetEase, plummeted after Beijing issued draft regulations aimed at restricting players' spending. The regulations require online games to set limits on user recharges, use pop-up alerts to warn against "irrational spending," and have technical equipment located in China. The regulations also prohibit inducements such as daily login rewards and high-priced transactions of virtual items. Tencent's shares fell over 12%, wiping $46 billion off its market capitalization, while NetEase fell over 24%, losing $16.4 billion. The draft regulations are open for public feedback until January 22.
BYD Picks Hungary For Its First European EV Factory Site
Bloomberg
Chinese electric vehicle (EV) maker BYD plans to build its first European factory in Hungary as it seeks to challenge Tesla as the dominant battery-powered car manufacturer. The factory, in the city of Szeged, will create thousands of jobs and produce EVs and plug-in hybrids for the European market. The move may help BYD avoid any import tariffs resulting from an ongoing European Commission investigation into state subsidies to Chinese EV manufacturers. Hungary, which has become a leading European hub for the EV sector, is investing heavily in the industry.
Taiwan presidential race tightens in final weeks, polls show
Nikkei Asia
Taiwan's presidential race is expected to be closely fought, with the latest poll showing support for front-runner Lai Ching-te narrowing compared to his main opposition rival, Hou Yu-ih. The poll by My Formosa showed Lai with 37.3% support, followed by Hou with 33.4% and Ko Wen-je with 17.7%. The narrowing gap has been attributed to a rapid increase in support for the KMT party since late November after the end of opposition unity talks. The election will be held on 13 January.
China drafts new rules proposing restrictions on online gaming
Associated Press
China has released draft guidelines aimed at curbing excessive spending on online gaming, causing shares in Tencent and NetEase to plunge. The guidelines, issued by China's gaming regulator, include restrictions on incentives for daily log-ins or purchases, limits on recharges, and warnings for "irrational consumption behavior." This move is part of the Chinese government's efforts to control the virtual economy. In recent years, Beijing has taken several measures against the online games sector, including restricting the amount of time children can spend on games and suspending approvals of new video games.
First Dreamliner delivery in four years lands in China
Al Jazeera
A Boeing Dreamliner 787 is set to be delivered to China for the first time in four years, potentially signaling a thaw in Chinese orders for the US company. The 787-9, bound for Juneyao Airlines, took off from Washington state and was due to land in Shanghai. In 2019, China suspended most orders and deliveries of Boeing planes following the grounding of the 737 MAX after two fatal crashes in Ethiopia and Indonesia. China was an important market for Boeing, accounting for about one-fifth of its worldwide deliveries of the 737 MAX. Analysts suggested that the recent improvement in political ties between the US and China could also boost Boeing's business with Chinese airlines.
Kissinger's corrosive legacy still weighs on U.S. policy in Asia
Nikkei Asia
Henry Kissinger's policies towards China and India have had a lasting impact on the relationship between the US and these two Asian powers. Kissinger's opening to China in the 1970s led to the rise of a more aggressive and expansionist China, which has become the greatest strategic adversary that the US has ever faced. His policies also perpetuated Communist Party rule in China. Furthermore, Kissinger's complicity in the Pakistani military's massacre of Bengalis during the Bangladesh Liberation War in 1971, as well as his encouragement of China to take military action against India, strained US-India relations for decades. Although the US-India relationship has improved in recent years, Kissinger's legacy continues to complicate the relationship, as US strategic objectives still diverge from Indian interests in the region. The US maintains close ties with Pakistan's military, which is seen as a regional adversary by India. Additionally, the US has yet to make a strong statement on the border standoff between India and China, suggesting that a Kissingerian mindset still influences US policy towards China.
China’s CSI 300 Index Caps Longest Weekly Losing Streak Since 2012
Bloomberg
Chinese stocks are set to end 2023 on a low note, with the CSI 300 Index marking its longest losing streak since 2012. The index is down almost 14% for the year and is poised for its third consecutive annual loss. The disappointing performance is in contrast to the optimism at the start of the year when a rally triggered by Beijing's loosening of Covid restrictions saw global investment banks turn optimistic on the market. However, ongoing problems in the property sector, a weaker-than-expected rebound in consumption, and intermittent geopolitical tensions have kept stocks in a downtrend. Some hopes are building for a better 2024, but expectations are more modest this time around.
China’s Top Court to Launch Public Database of Example Rulings
Bloomberg
China's Supreme People's Court has announced the launch of a new database containing a small selection of legal cases. The move follows concerns that a decade-old public repository of tens of millions of cases may be closed, limiting transparency. The new database will provide up to two examples of different types of cases and aims to ensure consistency in judges' interpretations of the law. However, some experts have expressed concerns that the change could make China's legal system less transparent. The court also confirmed the launch of a platform accessible only to court officials, prompting worries that the 2013 public platform may eventually be retired.
Outrage in China over patient punched in surgery
BBC
Chinese authorities are investigating a hospital after a surgeon allegedly punched a patient during an operation. The incident, which took place in December 2019, was captured on video and went viral on social media, sparking outrage. The hospital's parent group, Aier China, has suspended the surgeon and dismissed the CEO of the hospital. Aier China operates a chain of eye hospitals and said the incident occurred during an operation in Guigang. The patient, an 82-year-old woman, sustained bruises on her forehead and her son claims she is now blind in one eye. Aier China has apologized and paid compensation.
China policy risk returns as stock market grinch
Reuters Breaking Views
Shares in Tencent and NetEase plummeted after Chinese regulators announced new rules on video-game spending and rewards. The regulations, which apply to both adults and children, prohibit providers from giving players rewards for logging on daily and set spending limits. Tencent, the world's largest gaming company, fell by as much as 16% and NetEase dropped by as much as 25%. The unexpected move has raised concerns among overseas investors who are already cautious about investing in China due to President Xi Jinping's crackdowns on other sectors.
Tesla moves forward with plan to build an energy-storage battery factory in China
Yahoo US
Tesla has signed an agreement to acquire land in Shanghai for the construction of a factory to produce energy-storage batteries in China, according to state media. The factory is expected to begin construction early next year and be up and running by the end of the year, producing 10,000 of Tesla's Megapack units annually. The factory will focus on producing batteries for electric utilities and other companies to store power. Energy storage has become increasingly important as solar and wind energy have grown in popularity. The factory will be Tesla's second in China; it already has a plant in Shanghai that assembles cars for China, Europe and other overseas markets.
Hong Kong court won't quash Jimmy Lai's sedition charge
Deutsche Welle
A court in Hong Kong has rejected pro-democracy activist Jimmy Lai's appeal to revoke a sedition charge against him during his trial. Lai, who has been charged under the Beijing-imposed national security law, could face life imprisonment if found guilty. His legal team argued for the nullification of the sedition charge, claiming that the prosecution acted after the six-month deadline mandated by Hong Kong law. However, the court rejected the appeal. Lai's case has gained international attention as a test for Hong Kong's political freedom and judicial independence.
Chinese state banks cut deposit rates in bid to stimulate growth
Financial Times
China's five largest state-run banks have cut deposit rates for the third time this year, as part of efforts to protect lenders' profitability and provide a buffer against further economic headwinds. Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China and Bank of Communications all reduced one-year deposit rates to 1.45% and three-year rates to 1.95%. The cuts aim to lower interest payment costs for China's biggest banks, which are suffering historically low net interest margins, and are set to continue, with smaller regional banks expected to follow suit.
China’s air quality worsened this year for the first time in a decade
Washington Post
Air pollution in major Chinese cities has rebounded this year after a surge in coal burning and industrial activity, according to research from the Center for Research on Energy and Clean Air in Finland. Compared to 2022, levels of PM 2.5 particles were 7.7% higher by the end of November. The rise was concentrated in areas with heavy industry and coal mines. Pollution in China’s cities became a public issue after the 2008 Olympics and the country launched a “war on pollution” in 2014, which was initially successful but progress has since stalled.
China to Seek Exemptions to US Sanctions on Russian LNG
Bloomberg
China's state-owned companies Cnooc and China National Petroleum Corp (CNPC) are reportedly planning to ask the US for exemptions to sanctions on the Novatek PJSC Arctic LNG 2 project in Russia. The US imposed sanctions on the facility in November, which could threaten deliveries of liquefied natural gas (LNG) to China. LNG vessels picking up fuel from Arctic LNG 2 could fall foul of US sanctions, and China does not want to endanger its supply from American projects. China is the world's biggest buyer of LNG and imports large quantities of Russian gas. The start of exports from Arctic LNG 2 is at risk of being delayed after force majeure was declared on shipments due to the US measures.
China 2024 steel demand to fall 1.7%, says state research
Nikkei Asia
China's steel demand is expected to decline by 3.3% in 2023 and a further 1.7% in 2024, according to the China Metallurgical Industry Planning and Research Institute (MPI). This decline is primarily due to a drop in construction activity, which has put pressure on the steel industry. China's steel production has remained high, with 952.14 million tons of crude steel produced in the first 11 months of 2023. However, the country has also seen a surge in steel exports, reaching the highest amount since 2016. Despite the decline in demand, the infrastructure sector is expected to partially offset the decline from the property market. China's steel exports in 2024 may slightly fall due to slower economic growth overseas.
Tesla Acquires Land for Shanghai Megapack Battery Factory
Bloomberg
Tesla has acquired land in Shanghai to build its Megapack factory, which will have the capacity to produce 10,000 battery packs per year. Construction is expected to begin soon, with production slated to start in the second quarter of 2024. The majority of the Megapacks manufactured at the facility will be for export. The Shanghai factory will be Tesla's second dedicated Megapack factory, with the first located in California. Tesla's energy generation business, which includes the Megapack, is a fast-growing revenue stream for the company.
Chinese property developer Powerlong signs debt restructuring deal
South China Morning Post
Chinese developer Powerlong Real Estate Holdings has released preliminary terms of a restructuring agreement with an ad hoc group of creditors that may provide temporary relief from the company's ongoing debt crisis. The company has agreed with the group on restructuring offshore bonds, giving bondholders the option to swap their holdings for shares in the company's subsidiary or for convertible bonds of the company. The aggregate amount of the options will not exceed $715.7m. Powerlong failed to repay offshore debt in November, which could trigger cross defaults on other borrowings.
Can China-US people-to-people cooperation resume if academic swaps are curbed?
South China Morning Post
The University of Florida has been prevented from hiring postgraduate and postdoctoral students from China, as well as collaborating on research with Chinese academics, due to a new state law that came into effect in July. The law prohibits public higher education institutions in the state from working with individuals from seven "foreign countries of concern", including China. Faculty members at the university have launched a petition asking for clear guidance on hiring procedures and the continued recruitment of graduate assistants, postdocs, and visiting scholars, regardless of nationality. The state government's stance highlights the resistance to educational exchanges between China and the US, despite recent commitments by leaders from both countries to boost people-to-people and educational exchanges. The pandemic and increasing tensions between the two countries have already resulted in a decline in the number of Chinese and American students studying in each other's countries. China has announced plans to invite 50,000 young Americans to visit the country in the next five years in an attempt to reverse this trend.
After bumpy recovery, China’s economy faces serious headwinds in 2024
Al Jazeera
China's economy is expected to face a slowdown in 2024 due to deep-seated structural issues and President Xi Jinping's consolidation of political control. China's recovery from the lifting of its COVID-19 restrictions was hindered by challenging economic conditions overseas, including soaring inflation and reduced consumer demand for Chinese goods. Domestically, Chinese consumers were hesitant to start spending again after two years of lockdowns and border closures. The country also struggled with deflation in the second half of the year, and its real estate crisis persisted as more developers neared default and home sales remained low. The economy's challenges have highlighted concerns about Xi's leadership and his concentration of power, which has blurred the lines between the Chinese state and the ruling Communist Party. Xi has reduced the influence of the Chinese premier, who traditionally set the tone for economic policy. Under Xi, economic policy has focused on stability and achieving "common prosperity" to reduce inequality and regional disparities. However, this concentrated decision-making has raised concerns about the lack of expertise and understanding of economic problems. Xi has also overseen a regulatory crackdown on industries and has tried to direct the country's major industries, leading to concerns among investors. China's growing involvement in the economy has also raised geopolitical risks, particularly in relation to Taiwan. Xi's challenge will be to find new drivers of economic growth, as the country's heavy reliance on real estate poses risks. China's efforts to reduce its reliance on property have had mixed results, with some industries making progress while others struggle. Additionally, the country faces challenges from high levels of local government debt. Moody's recently downgraded China's credit rating due to its bailout of indebted local governments, the real estate crisis, and the shrinking population. Overall, China's economy is in need of significant reform, but the tightened control of the economy under Xi makes it difficult to implement necessary changes.
US, China top military officials hold first talks in more than a year
Al Jazeera
The top military officer from the United States, General Charles Q Brown, has held a virtual meeting with General Liu Zhenli of China’s People’s Liberation Army. This is the first conversation of its kind in over a year, as Beijing halted high-level talks after then-US House Speaker Nancy Pelosi visited Taiwan in August 2022. The two countries’ leaders agreed to resume such discussions when they met last month. During the meeting, the two generals touched on global and regional security issues, and Brown emphasised the importance of open and direct lines of communication to avoid misunderstandings.
Hong Kong stocks slide as China’s new gaming crackdown hits Tencent and NetEase
South China Morning Post
Hong Kong stocks fell for the third consecutive week as shares in online gaming companies Tencent and NetEase slumped due to increased regulation in China. The Hang Seng Index dropped 0.4% to 16,548.98, extending the week's decline to 1.5%. Meanwhile, the Tech Index dropped 1.5% and the Shanghai Composite Index rose 0.5%.
China’s 30-Year Yield Hits Lowest Since ‘05 on Deposit Rate Cuts
Bloomberg
Chinese government bonds have rallied after reports that large state-owned banks are planning to cut deposit rates. This has pushed yields on 30-year sovereign notes to their lowest level since 2005. The move is expected to steer investment towards the debt market, as banks will have lower funding costs and may be more motivated to buy bonds. Individual investors and companies may also redirect their term deposits into financial products that invest in fixed income assets. Bond bulls are optimistic that the People's Bank of China will ease monetary policy next year, potentially leading to a cut in interest rates.
China bans export of rare earths processing tech over security
Japan Times
China, the world's leading processor of rare earths, has banned the export of technology to extract and separate the critical materials. This move is seen as an effort by China to protect its dominance over strategic metals. Rare earths are used to make magnets for electric vehicles, wind turbines, and electronics. The ban is expected to have the largest impact on 'heavy rare earths,' which are used in EV motors, medical devices, and weaponry. China currently has a virtual monopoly on refining these materials.
China’s automakers will defy the great uncoupling
Reuters Breaking Views
American automakers General Motors and Ford Motor are racing to catch up to Tesla in the electric vehicle (EV) market. The Inflation Reduction Act, passed in 2022, promises billions of dollars in subsidies to support the domestic manufacturing of EV batteries. However, China currently has a significant lead in the EV battery market, accounting for roughly three-quarters of global battery cell supply. Chinese batteries are also cheaper than their American counterparts. While the US government's subsidies will help close the cost gap, China's costs are falling rapidly, and the country is leading in the development of new battery technologies. This puts American automakers at a disadvantage and raises concerns that US subsidies may end up benefiting Chinese battery suppliers. Furthermore, Chinese automakers may set up operations in Mexico to bypass US import barriers. The article suggests that while the US has an advantage in certain industries, like microchips, it is at risk of being left behind in the EV market.
Amid US-China rivalry, Vietnam’s sweet spot diplomacy is a master class
South China Morning Post
Vietnam is emerging as a winner of the "de-risking" trend, with companies relocating from China to Vietnam to avoid rising production costs and geopolitical risks. The country recently upgraded its ties with the United States and Japan and is at the centre of major powers vying for influence. Vietnam has become China's largest trading partner in the Association of Southeast Asian Nations and companies are using the country to bypass US sanctions.
Marcos shrugs off China’s warning, says Philippines will assert sea rights
South China Morning Post
Philippines President Ferdinand Marcos Jnr has said that the country will continue to assert its rights in the South China Sea, despite warnings from China. Tensions between the two countries have escalated in recent months, with their vessels clashing in the disputed waters. The Philippines has accused China of harassment, while China has maintained that its actions are lawful.
Chinese-developed ‘golden veil’ can make missiles look like passenger planes
South China Morning Post
Chinese scientists have developed a cheap gold-plated "camouflage veil", which can make a cruise missile appear to be a passenger plane on a radar. The technology confuses expensive air defence systems and reduces commanders' response times. The veil is made of gold-plated metal threads, forming a web to reflect radar signals. It can be folded and deployed repeatedly throughout a flight, and can be used on warships and land vehicles. The veil is low-cost and lightweight, meaning missiles can fly further or carry larger warheads.
US Air Force to reclaim Pacific airfield that launched atomic bombings as it looks to counter China
CNN
The US is reactivating the World War II airfield on Tinian Island in the Pacific. It plans to make the North Field on Tinian, which was used to launch the atomic bombings of Japan, an “extensive” facility. The US Air Force is also adding facilities at Tinian International Airport in the centre of the island to broaden its basing options in the event of hostilities with China.
Financial firms eye Hong Kong as they target rich clients, family offices
South China Morning Post
Hong Kong's Securities and Futures Commission (SFC) has reported a surge in applications from financial firms and individuals seeking financial services licenses, despite a downturn in the capital market. The SFC received 2,017 applications in Q3 2021 from 1,972 individuals and 45 companies, up 13% QoQ and 6% YoY. Oliver Ng, managing partner at Digiwealth Consulting, said the rise in applications reflected a "structural change" in Hong Kong's financial markets. Landmark Family Office is one of the newcomers that launched operations this year, offering wealth management, succession planning and setting up charities for rich customers.
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