Baidu placed AI chip order from Huawei in shift away from Nvidia; China's opaque politics and the Li Keqiang mystery
Ex-head of Chinese state-owned company jailed for 6 years on spying charges; Wall Street Bosses in Hong Kong See Financial Dangers Everywhere
Welcome to this issue of The China Brief. Today is November 7, 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.
China's opaque politics and the Li Keqiang mystery
Japan Times
The recent death of former Premier Li Keqiang has led to speculation about the inner workings of Chinese politics. However, it is important to refrain from filling in gaps with sensational possibilities when there is a lack of transparency. Understanding is crucial and the consequences of misunderstanding can be high. Li died of a heart attack while on vacation in Shanghai, and the state-run news agency reported that all rescue measures failed.
Exclusive: Baidu placed AI chip order from Huawei in shift away from Nvidia -sources
Reuters
Chinese AI firm Baidu has reportedly ordered 1,600 artificial intelligence chips from Huawei, as Chinese companies seek alternatives to US chip giant Nvidia. The order, worth approximately CNY450m ($61.83m), was placed in August ahead of expected tightening of US restrictions on chip exports to China. The Huawei chips, seen as inferior to Nvidia's, were ordered in preparation for the possibility that Nvidia's chips may no longer be available to Chinese firms. Baidu, a long-time client of Nvidia, has also developed its own line of AI chips.
China’s economic woes cry out for Zhu Rongji’s spirit of bold reform
South China Morning Post
China needs to adopt a more market-driven approach to address its economic challenges, according to a private investor. The country's recent shift towards prioritising state control over the market has resulted in uneven implementation of reforms and a decline in foreign investment, despite government efforts to promote it. The investor argues that state-driven innovations should be complemented by market-based dynamism, and that reforms are needed in areas such as urbanisation, healthcare and fiscal architecture. The central government must also assume greater fiscal responsibility and broaden municipal finance options, including implementing a property tax.
China Probes Hospital Boss Accused of Role in Child Kidnappings
Bloomberg
Chinese authorities are investigating a private hospital in Hubei province after allegations that fake birth certificates were being sold, potentially to cover child trafficking. The Health Commission of the city of Xiangyang said it was contacting people with knowledge of the situation to aid investigations. Birth certificates are required for registering for hukou, the government system that determines where people live and work. A recent report alleged that intermediaries worked with hospital staff to sell birth certificates and other documents for about $13,190.
Ex-head of Chinese state-owned company jailed for 6 years on spying charges
South China Morning Post
A former executive of a state-owned company in China has been sentenced to six years in prison on espionage charges. The man, known only by his surname Wang, provided classified documents to a foreign country that he was applying to immigrate to. China has recently expanded its anti-espionage law, broadening the definition of spying, and is also updating its state secrets legislation. The country has been locked in an intelligence war with the US and its allies, and President Xi Jinping has made national security a key focus.
Wall Street Bosses in Hong Kong See Financial Dangers Everywhere
Bloomberg
Banking and investing executives gathered in Hong Kong for the Global Financial Leaders’ Investment Summit have expressed concerns over geopolitical escalations and market events. Deutsche Bank CEO Christian Sewing said, “My biggest fear is there’s one more geopolitical escalation and there’s a market event.” Bridgewater Associates co-CIO Bob Prince warned that markets are “under-discounting” the length of interest-rate tightening in the US and Europe. UBS Chairman Colm Kelleher said the growth of shadow banking is “a real cause of concern” and said the next crisis will be in that sector.
Will Chinese financing be the saviour of the Japanese video game industry?
Guardian
Chinese investors are increasingly targeting the Japanese video game industry as part of their strategy to expand their influence in the western gaming market. Chinese companies such as Tencent and NetEase have been acquiring Japanese studios and talent, with the aim of creating Japan-style console games to appeal to western audiences. Chinese-made games have struggled to gain traction in the west, while Japanese developers have long been influential in shaping the tastes and interests of players. The move comes at a time of upheaval in the gaming industry, with rising costs and a contraction in the market leading to redundancies and studio closures. Japanese staff working for Chinese backers reportedly benefit from increased funding, creative freedom, and improved working conditions. However, there are concerns that the long-term risk of these investments is a failure to invest in the next generation of Japanese artists and designers.
Chinese tech and investment bosses 'detained'
BBC
Two prominent businessmen in China have reportedly been detained by authorities. The boss of Chinese live-streaming site DouYu, Chen Shaojie, has been missing for weeks and his firm says he cannot be contacted. Zhao Bingxian, referred to as China's Warren Buffet, has also been confirmed to have been detained. His firm, Wohua Pharmaceutical, did not disclose the reasons for his detention but stated that it was unrelated to the company. There are concerns of a wider crackdown on finance and tech industry leaders in China, as there have been other cases of high-profile individuals being detained this year.
Oaktree Seeks More Opportunities in China Loans Including Property
Bloomberg
Oaktree Capital Group is continuing to invest in China's loan market despite concerns over the country's investability, according to the firm's Co-Chairman, Howard Marks. Oaktree has been investing in Chinese loans since 2015, with Marks calling the results "very satisfactory". The firm is looking for opportunities with high yields that provide a "margin of safety" for investments. Marks said Oaktree is open to making loans secured by property, even in China's beleaguered real estate sector. Oaktree has $183bn in assets under management globally.
China’s Housing Slump Shrinks Role as Growth Driver, Research Says
Bloomberg
China's housing market slump is contributing to the country's economic slowdown, with housing-related demand accounting for a smaller share of final demand this year compared to previous years, according to Bloomberg Economics. Housing-related demand was estimated to be 19.4% of final demand in the first nine months of 2021, down from 24.2% in 2018. The decline in the housing market is expected to continue, leading to less reliance on the sector for economic growth. However, the decline in the housing market could free up resources for other industries such as electric vehicle production, technological innovation, and environmental protection. The housing market slump has been ongoing for the past three years, with sales and investment in the sector both falling. Outstanding property loans have also declined, indicating stress in the sector.
China tightens rare-earth export curbs amid tension with U.S.
Nikkei Asia
China has announced that it will tighten its export controls on rare earths, requiring exporters to report the types of rare earths and their export destinations. China accounts for 70% of the world's output of rare earths, which are essential for the manufacture of electric vehicles and some weapons. The move is seen as a negotiating tactic ahead of a planned November summit between Chinese President Xi Jinping and US President Joe Biden. The US has sought to tighten exports of semiconductors and chipmaking equipment to China in recent years. The two countries have agreed in principle to a face-to-face meeting between Biden and Xi in mid-November.
China, Vietnam pledge cooperation against corruption for ‘clean Silk Road’
South China Morning Post
China and Vietnam have agreed to deepen their cooperation in the fight against corruption. The Communist Party's anti-corruption chief, Li Xi, met with the head of the Vietnamese Communist Party's top anti-corruption body, Tran Cam Tu, in Beijing to discuss ways to ensure a "clean Silk Road" as part of China's Belt and Road Initiative. Li said that China is committed to preventing bribery and corruption in the mammoth global investment project, and called for experience-sharing and cooperation in anti-corruption mechanisms and law enforcement. Vietnam has also launched its own anti-corruption campaign in recent years.
China the world's biggest debt collector, report shows
Deutsche Welle
China is owed over $1tn by countries participating in the Belt and Road Initiative (BRI), according to a report by US researchers at AidData. The BRI, launched in 2013, is a global infrastructure project. The report showed that 80% of loans were given to countries in financial distress. AidData said that China was "the world's largest official debt collector". China claims that over 150 countries have signed up to the BRI. Last month, China said that it would put more than $100bn of new funds into the project.
China Extends Run of Gold Buying That’s Helped Support Prices
Bloomberg
China has increased its gold holdings for the 12th consecutive month in October, boosting its total holdings to 2,215 tonnes. The country has been one of the biggest buyers of gold in the past year, following the trend of many other central banks diversifying their reserves. Global central banks purchased the highest amount of gold in Q3 this year, according to the World Gold Council. China's demand for gold has been strong in 2023, and investment demand is expected to remain robust for the rest of the year.
China-founded Shein targets US$90 billion valuation in US IPO: sources
South China Morning Post
Fast-fashion giant Shein is reportedly aiming for a valuation of $80bn to $90bn in its upcoming US initial public offering (IPO), according to people familiar with the matter. This would far exceed its current valuation in private trades, which has dropped below the $66bn it reached in May. The company's valuation has been affected by concerns over competition, allegations of copyright theft, and accusations of forced labour. The timing of the IPO has yet to be decided due to market volatility, the people said.
China tightens controls over rare earth exports, imports of key commodities
South China Morning Post
China has asked exporters to report transactions of rare earth metals and oxide products, as well as other strategically important commodities, as part of efforts to ensure economic security. The new reporting requirements, which will last for two years starting from 31 October, will cover imports of crude oil, iron ore, copper ore concentrates, potash fertilizer, and rare earths. China is the world's top producer of rare earths, which are used in a range of sectors including defence and new energy vehicles. The move is seen as a response to concerns that rare earths could be used as a tool of retaliation in the US-China trade war.
Chinese imports rise in October while exports fall for 6th straight month
Associated Press
China's imports increased by 3% in October compared to the previous year, while exports fell for the sixth consecutive month. The decline in exports was partly due to lower export prices. The trade surplus for October was $56.5 billion, down more than 30% from September. China's overall foreign trade has remained sluggish this year due to weak global demand and a stalled recovery. The country's property sector also continues to be a drag on the economy. Despite efforts to stimulate the economy, including easing borrowing rules and cutting mortgage rates, the demand for Chinese exports has weakened.
ABC
Australian Leader Anthony Albanese has concluded his visit to China, aimed at improving relations between the two countries. During his trip, Albanese met with Chinese President Xi Jinping, who expressed his gratitude for former Australian Prime Minister Gough Whitlam's role in establishing diplomatic relations with China 50 years ago. Albanese also attended the China International Import Expo in Shanghai and held bilateral talks with Premier Li Qiang. While no concrete announcements were made, Albanese said that Australia and China had agreed on a joint outcome statement and practical steps to advance dialogue on climate change and trade. He added that progress had been made on lifting Chinese sanctions on Australian lobster and beef products. Albanese rejected the idea that Australia should act as a mediator between the US and China and said that Australia would not be defined by its differences with China. He also raised concerns about China's human rights record and the case of Australian writer Yang Hengjun, who has been imprisoned in China for almost five years.
HSBC chief executive says wealth flow from mainland China to Hong Kong up 3 to 4 times this year
Reuters
HSBC Group CEO Noel Quinn has stated that wealth flow from mainland China to Hong Kong has increased by three to four times this year. He also noted that retail banking activity for new clients in the Greater Bay Area has risen by 70%, while banking activity for small- to medium-sized enterprises has increased by 90% since the end of the COVID-19 pandemic.
China Vanke shares, bonds rally after state shareholder’s support pledge
South China Morning Post
China Vanke, the country's second-largest property developer by sales, has said it will make timely repayments of its debts after its largest shareholder, Shenzhen Metro Group, vowed support to "revitalise the bulk assets and promote the liquidity" of the company. Shenzhen Metro Group, which holds a 27.9% stake in China Vanke, will boost the developer's finances by purchasing some of its urban renewal projects in Shenzhen, worth an estimated CNY10bn ($1.37bn), as well as purchasing Vanke's bonds in the open market at a suitable time.
Australia-China Tensions Ease as Albanese Wraps Up Four-Day Trip
Bloomberg
Australian Prime Minister Anthony Albanese met with Chinese Premier Li Qiang in Beijing to discuss strengthening communication, deepening trust, expanding practical cooperation, and managing differences between the two countries. Albanese emphasized the importance of removing Chinese restrictions on Australian exports, while Li expressed China's willingness to work together with Australia. The meeting marks the restart of annual meetings between the two sides and comes after 18 months of efforts to improve relations between the two key trading partners.
China culls spend in response to US trade hostility
Financial Times
Chinese investment in the US fell to $2.5bn last year, the lowest in over a decade and a fraction of the $48bn recorded in 2016, according to analysis from think-tank Rhodium Group. Responding to the study, more than 80% of Chinese companies cited the stalemate in bilateral relations as the leading challenge for business, while over one-third reported unstable US policies towards foreign investment as a concern. The findings come as 24 states across the US have enacted bans on foreign ownership of land, primarily targeting agricultural land and foreign adversaries such as China.
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