Behind Public Assurances, Xi Jinping Spread Grim Views on U.S.; Chinese stocks to rise 6-8% in next 12 months on policy pivot: Morgan Stanley
China’s top memory chip maker sues Micron for patent infringement in US
Welcome to this issue of The China Brief. Today is November 13, 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.
Behind Public Assurances, Xi Jinping Spread Grim Views on U.S.
NY Times
Chinese President Xi Jinping warned military officials in unreported speeches that China must prepare for a potential conflict with the US, a series of speeches that reveal his worldview. Xi argued that the West would not accept China’s rise and that the US would continue to try to sabotage China’s ascent. His comments reflect a belief in China that the US is trying to contain China and overthrow the Communist Party. Xi’s views of the US were formed during China’s troubled years, when the country had slowed its economic reforms, corruption was rife, and protests and dissent were increasing. Xi has been trying to stabilize relations with the US, but mutual distrust between the two sides remains deep. Xi warned that Western countries, led by the US, have implemented containment, encirclement and suppression of China.
Chinese stocks to rise 6-8% in next 12 months on policy pivot: Morgan Stanley
South China Morning Post
Morgan Stanley has predicted that China's stocks will experience mild gains in 2024, as efforts to stimulate growth will be partially offset by long-term structural challenges related to debt and deflation. The investment bank's analysts said that the MSCI China Index will finish at 60 by the end of next year, representing a 6% gain from the previous week's close. Morgan Stanley believes that Beijing will need to take further action to convince investors of its commitment to restoring growth, such as providing more clarity on policy priorities and consistency.
China’s top memory chip maker sues Micron for patent infringement in US
South China Morning Post
Chinese flash memory maker Yangtze Memory Technologies (YMTC) has filed a lawsuit against US memory chip maker Micron Technology, accusing it of patent infringement. YMTC alleges that Micron and its subsidiary Micron Consumer Products Group infringed on eight of its patents. The lawsuit comes as YMTC seeks to overcome escalating US sanctions on the export of advanced semiconductor tools and services to China.
Albanese ticks off China visit, but caution remains over Aukus, South China Sea
South China Morning Post
Australian Prime Minister Anthony Albanese's visit to Beijing this week is a significant step in the normalization of relations between Australia and China. The visit reflects a stabilisation in the relationship between the two countries that had soured in 2020 when the previous administration called for an international probe into the origin of Covid-19. Since the Labour Party in Australia wrestled back power in May 2022, Albanese started working on resuming normal ties with his country’s largest trading partner, which is also the biggest consumer of Australian iron ore in the world. Before the bilateral meeting between Xi and Albanese, China agreed to review the tariffs it had imposed on Australian wine, which had all but wiped out Australia’s Chinese wine market that had been worth about US$1.2 billion a year. It is also expected that trade barriers on Australian lobsters and beef will also be resolved. In August, China removed the anti-dumping and anti-subsidy tariffs on Australian barley that had been applied for more than three years. Other Australian products such as coal, cotton and timber, which were under unofficial bans over the past few years, have been returning to the Chinese market since early this year.
China's Didi posts first quarterly profit since 2021 as regulatory woes ease
Reuters
China's largest ride-hailing company, Didi Global, has reported a quarterly profit for the first time since 2021, indicating a recovery from regulatory challenges. The company's net income for the three-month period ended September 30 was 107 million yuan ($14.66 million), compared to a loss of 2 billion yuan the previous year. Didi's revenue in the same quarter rose by 25% to 51.40 billion yuan. The company plans to repurchase up to $1 billion in shares over the next two years and increase marketing efforts to support further growth. Didi faced regulatory investigations and penalties after pursuing a US stock listing without approval. It has since worked to streamline its operations and focus on its core ride-hailing services.
Citadel Securities explores China licence as Beijing steps up market-making program
Reuters
Citadel Securities, one of the world's largest market-making firms, is considering setting up a licensed onshore business in China. If it were to obtain a licence, it would be the first foreign firm to enter the market-making sector in China outside of interbank and foreign exchange market making. Citadel Securities handles about $390bn in trades per day and is one of the top market makers in the US. China's market-making sector is expected to be worth CNY250bn ($34bn) in revenues by 2032, compared to CNY40bn last year.
Thailand’s plan to deploy Chinese police patrol to boost tourism sparks outcry
South China Morning Post
Thailand is considering a plan to station Chinese police personnel at popular tourist destinations in order to boost confidence among Chinese travelers. The move has sparked controversy, with critics raising concerns over sovereignty. The plan was discussed by Prime Minister Srettha Thavisin, senior police, and tourism officials as a way to attract more Chinese visitors, who were previously the largest group of foreign arrivals. However, some Thai internet users worry that Thailand could become a location for covert operations targeting Chinese dissidents. The Thai government has reassured that the plan is aimed at busting Chinese mafia groups and has nothing to do with sovereignty. This is the latest attempt by Thailand to attract visitors and revive the tourism industry, as concerns over tourist safety have deterred some Chinese travelers.
U.S., South Korea revise North deterrence plan for 1st time in decade
Nikkei Asia
The US and South Korea have updated their strategy on deterring North Korea, as new security challenges arise from growing military ties between North Korea and Russia. During an annual security consultative meeting in Seoul, US Secretary of Defense Lloyd Austin and South Korean Defense Minister Shin Won-sik approved a 20-page strategic document tailored to address North Korea's growing threat. The document constitutes the first formal change to the strategy since 2013, suggesting that the allies are increasingly concerned about the trajectory of Pyongyang's military power.
Emerging-Market Stocks Halt Declines as China Sentiment Improves
Bloomberg
Emerging-market stocks have risen for the first time in five days, driven by signs of improving corporate performance in Asia and a thaw in US-China relations. The MSCI Emerging Markets Index rose above its 50-day moving average, with Taiwan Semiconductor Manufacturing Co. contributing to the gains after posting the first increase in monthly sales since February. Alibaba Group Holdings and JD.com also advanced after a successful Singles Day shopping event. Investors are awaiting results from Asian technology and e-commerce firms to gauge China's post-Covid recovery. The sentiment is also improving as Beijing signals its desire to improve relations with the US ahead of this week's meeting between Presidents Xi Jinping and Joe Biden.
China’s Credit Growth Weaker Than Expected in October
Bloomberg
China's credit growth in October was slower than expected. This comes after a few strong months of credit growth supported by government and central bank measures to stimulate the economy. September saw a boost in credit growth due to government bond sales and the release of long-term liquidity by the People's Bank of China. October is traditionally a weak month for lending and credit.
ByteDance Billionaire’s VC Firm Sets Up Shop in Marquee HK Tower
Bloomberg
ByteDance co-founder Zhang Yiming's venture capital firm, Cool River Venture HK, has leased office space in Hong Kong's Two International Finance Centre. The move is seen as an indicator of Zhang's future intentions following his departure from ByteDance amid Beijing's crackdown on tech firms. The billionaire entrepreneur, who holds a Hong Kong ID card, has an estimated fortune of $42.3bn.
Biden to meet with Indonesia president ahead of Xi summit
Yahoo US
US President Joe Biden is to meet with the Indonesian President, Joko Widodo, on 18 October ahead of the Asia-Pacific Economic Cooperation (APEC) summit in San Francisco, where Biden is due to meet China's President Xi Jinping. The pair are expected to discuss increased cooperation in defence and climate issues, and may also discuss a potential minerals partnership focused on the electric vehicle battery metal nickel. The Biden administration is keen to improve environmental, social and governance standards in Indonesia before signing a deal, however.
How Chinese aggression is increasing the risk of war in the Taiwan Strait
Washington Post
China's increasingly aggressive activities around Taiwan, along with its refusal to engage in military-to-military communication with the US, has raised fears that the US could be drawn into a third major war. China's unpredictable and incommunicative behavior is aimed at keeping the US military off-guard in the Pacific and warning against American attempts to help defend Taiwan. The situation is reaching a "very, very high level of tension" and war could break out at any time, according to Lyle Goldstein, director of Asia engagement at Defense Priorities. President Biden is expected to discuss reestablishing communication channels during his meeting with Chinese leader Xi Jinping this week.
The Chinese military has conducted more than 180 intercepts against US surveillance aircraft in the past two years, compared to the previous decade, and has carried out increasingly frequent incursions across the median line of the Taiwan Strait. Chinese warships have also been practising repelling US forces and carrying out exercises near Taiwan. This military coercion is part of China's strategy to influence the Taiwanese presidential election in January and create psychological pressure on the island's inhabitants to give in to Beijing's demands for unification. While the US is pushing Beijing to restore military communications, China may be reluctant to engage in order to wear down Taiwan and keep the US guessing.
China's large-scale drills are designed to demonstrate its readiness to fight off the US Navy in the region and to protest against American involvement in defending Taiwan. Beijing has also incorporated civilian ships into military exercises, potentially to move the huge numbers of troops needed for an invasion. However, despite China's efforts to be unpredictable, the scale of mobilization required for an invasion means a sneak attack would be difficult without American intelligence picking up on Chinese plans.
China proposes cybersecurity check for auditors if national security involved
Reuters
China's finance ministry has released draft measures that propose auditors undergo additional cybersecurity checks when their work involves national security. The measures are part of China's efforts to step up scrutiny of auditors in recent years due to concerns about data security. The draft rules also stipulate that accounting firms should manage data related to Chinese firms in a specific manner. The draft measures are open for public consultation until 11 December. The world's big four auditing firms - PricewaterhouseCoopers, Deloitte, KPMG and EY - did not immediately respond to requests for comment.
International students have returned to US colleges, fueled by a surge from India
Yahoo US
The number of international students enrolling in US universities increased by 12% in the 2022-2023 academic year, with India providing the largest increase, a study by the Institute of International Education and the State Department has found. The number of students from India increased by 35% to 269,000, while China sent 290,000 students, its third consecutive year of decline. The report said that the increased number of Indian students is due to a growing population, increased competition from UK and Canadian universities, and travel restrictions in Asia caused by the pandemic.
Inside Wall Street's scramble after ICBC hack
Reuters
Industrial and Commercial Bank of China’s (ICBC) US broker-dealer, ICBC Financial Services, was temporarily forced to switch to Google mail after a ransomware attack disrupted its corporate email service. The attack, allegedly perpetrated by cybercrime gang Lockbit, reportedly resulted in the company owing BNY Mellon $9bn, a sum much larger than ICBC’s net capital. The attack has prompted concerns about the resilience of the $26tn Treasury market, despite assurances from market participants and officials that its functioning was unaffected. The full extent of the attack is not yet known and some debate has arisen over the potential impact on a major Treasury bond auction. The attack is expected to shift the regulatory focus onto cyber threats and may encourage the Securities and Exchange Commission to push for more Treasury trades to go through central clearing. ICBC Financial Services has been supported by its Chinese parent company, which provided a cash injection to repay BNY Mellon.
Number of Americans studying in mainland China falls sharply
South China Morning Post
The number of American students studying in mainland China has dropped to its lowest level in over a decade, with only 211 students studying there in the 2021-22 school year, according to new data. In contrast, there were over 11,000 American students in mainland China in the 2018-19 school year. However, Chinese students continue to vastly outnumber any other foreign group in the US, with 289,526 Chinese students studying there during the 2022-23 school year. The US still hosts nearly double the number of Chinese students compared to the next largest host, the UK.
Chinese Communist Party plenums: what is the cycle and what can we expect?
South China Morning Post
China's annual Central Committee plenums are important political events that set the agenda for the following year. The plenums are usually attended by over 370 members of the Central Committee, who make key decisions on policies and appointments. There are seven plenums held over the five-year term of each Central Committee, with the third plenum being the most important as it sets the economic and reform policies for the next five or ten years. The fifth plenum focuses on the five-year plan for the country's development objectives. The fourth and sixth plenums do not have fixed themes but are usually related to party building or ideology.
China’s Consumption Recovery Is Losing Momentum, Data Show
Bloomberg
Consumer demand in China showed signs of slowing in October, as a Paris-based indicator of Chinese consumer demand for recreation and transport, as well as an independent survey of consumer sentiment, both fell from the previous month. The decline suggests that the nation's consumption rebound struggled last month, even as Beijing announced more fiscal stimulus. China's leaders had previously warned that the economy follows a pattern of short growth upturns followed by downturns.
Goldman Downgrades Hong Kong-Traded China Stocks, Raises India
Bloomberg
Goldman Sachs has downgraded its rating on Hong Kong-listed Chinese stocks due to low earnings growth and a potential consensus downgrade. The bank has upgraded shares in India, citing the market's strategic appeal and strong earnings growth prospects. Meanwhile, Goldman remains overweight on Chinese onshore shares due to opportunities in sectors related to the country's shift towards higher productivity and greater self-sufficiency.
San Francisco scrambles to clean up its image for Apec summit
South China Morning Post
San Francisco is undergoing a tidy up as it prepares to host the Asia Pacific Economic Cooperation (Apec) summit. The city, which has earned a reputation for homelessness and crime in recent years, is making efforts to project a more business-friendly image to the influential visitors. Streets are being cleaned, potholes repaired, and a large police presence has been deployed. While the city's underbelly is still apparent just off the main streets, the authorities hope that the summit will help change the narrative and show that San Francisco is a place to do business and invest.
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