Beijing’s ‘men in black’ step up scrutiny of foreign corporate sleuths; Exclusive Insight: Xi Jinping's tenure in Zhejiang
Shein, E-Commerce Retailer Hit by Criticism, Tries Charm Offensive; Australian police searched pilot's home for China fighter jet records; Xi Jinping Can’t Handle an Aging China
Welcome to this issue of The China Brief. Today is May 2, 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.
And here’s today’s exclusive insight:
Exclusive Insight: Xi Jinping's tenure in Zhejiang
During the 1980s, specifically around 1989 amid the Eastern European upheavals, many regions in China continued to emphasize class struggle. However, by the 1990s, the atmosphere of class struggle had virtually disappeared in Zhejiang province. Although central government documents were issued, enforced, and reported, the winds of change could no longer restrain the people's pursuit of wealth.
In Zhejiang, officials prioritized economic development, striving to better serve the private sector and foster conditions more conducive to economic growth.
While Xi Jinping was the Party Secretary in Zhejiang, he did not overly emphasize GDP indicators. He supported key industries such as the automotive sector, but his focus was more on developing the "gold and silver mountains," concentrating on environmental protection, government transparency, public service halls, and mayor hotlines, among other initiatives.
During that era, local governments across China competed in terms of GDP to demonstrate their accomplishments. However, under Xi Jinping's leadership in Zhejiang, the government refrained from engaging in numerous large-scale enterprises or projects. Officials were indeed serious about attracting investment, hoping that business owners would invest in projects, but the government did not initiate these ventures themselves.
From my perspective, the so-called reform and opening up consisted of two components: reform for domestic growth, primarily promoting private enterprise, and opening up to the world. Contrary to some opinions, China's opening up was not a favor granted by the West allowing China to enter the Western world. In the 1980s, Zhao Ziyang proposed the concept of the economic macro cycle, which involved opening China's doors and inviting foreign investment. The process of opening up was not a Western concession to China, but rather a shift in China's attitude from being closed to open—a transformation from barring the United States to welcoming it.
Naturally, the West considered reciprocal actions. If China did not allow foreign entities' entry, China would face certain restrictions when seeking entry into foreign markets. In negotiations, both sides reduced barriers, eased restrictions, and opened doors, marking a crucial process. While the government opened the doors and set the stage, the success of the performance ultimately depended on enterprises, particularly private ones.
(This article is the twentieth in the series "Zhejiang, Zhejiang People, Zhejiang Economy" by Ye Feng, a Zhejiang research scholar.)
Beijing’s ‘men in black’ step up scrutiny of foreign corporate sleuths
Financial Times
China's consulting industry has seen a recent crackdown, with police raiding the offices of several companies including US firms Bain and Mintz. Firms including Blackpeak, Control Risks, FTI, and Kroll have also faced scrutiny. Given China's past suspicions of espionage-related to the industry, experts say the country's recent expanding espionage laws and the US-China trade war may have contributed to the crackdown. Analysts believe bad regulation in the consulting industry may have been a further factor. According to Anne Stevenson-Yang, founder of J Capital Research, many fund managers are already avoiding China due to its risks.
In China, It’s Time to Splurge Again, and the Luxury Industry Is Relieved
NY Times
Luxury brands including Chanel, Louis Vuitton, and Dior, are experiencing a resurgence in sales in China after a tumultuous 2020. Following the pandemic, Chinese tourists are spending more on luxury items domestically as overseas travel restrictions and higher airfares made flying abroad more difficult. As retailers reopen and people return to shopping in store, supply chains continue to adapt to the post-pandemic world. LVMH, the world’s largest luxury goods group and the owner of Louis Vuitton, Tiffany & Company, and Dior, recently saw its first-quarter revenue increase by 17% from a year earlier. Meanwhile, Hermès and Brunello Cucinelli saw year-over-year sales increases of 23% and 56%, respectively. Luxury spending in China is rising at a faster rate than the country’s overall economy. In March, jewelry, gold, and silver sales grew 37.4% from the previous year, a significant increase compared to the 13.6% increase in overall retail sales.
Shein, E-Commerce Retailer Hit by Criticism, Tries Charm Offensive
NY Times
Online retailer Shein is seeking to counter criticism of its low-cost models ahead of a planned IPO by pumping millions of dollars into initiatives designed to promote sustainability and diversity. The $55m program, launched last year, pays independent designers to produce garments to be marketed by Shein. The company was criticized by co-founder of fashion firm Freak City Justin Romero in 2020 for selling clothes similar to some of his products. After seeing sales figures at Shein, the designer began working with the company under its Shein X program. That initiative is aimed at establishing a pipeline of ambassadors for the industry.
China Renews Embrace of Maduro’s Venezuela as the US Looks On
Bloomberg
China and Venezuela are re-establishing ties, potentially reopening the route for further oil sales. High-ranking officials from China, Venezuela’s biggest creditor, met with close aides to President Nicolas Maduro in Caracas where they discussed potential areas to renew collaboration, including telecommunications and oil. Thawing relations would offer Maduro a powerful ally as well as the chance of a renewed conduit for oil sales, potentially handing him more leverage with the US as Washington looks to bring more crude to market to lower prices. The outreach is taking place amid US-China rivalry, amid tentative signs that Latin America is again becoming a destination for Chinese loans, increasing Beijing’s sway across the region. China became a key lender in Venezuela in 2007, providing funds for infrastructure and oil projects. Between 5-10% of current exports are being used to pay down Venezuelan debt. State-run Petroleos de Venezuela SA is currently carrying out a thorough review of contracts after finding billions of dollars in missing oil revenue.
Tesla’s US$289 increase signals end of price cuts in China: industry observer
South China Morning Post
Tesla is raising prices of its China-made electric vehicles (EVs), after earlier sparking a price war among EV manufacturers by offering deep discounts on its cars. All variants of the Tesla Model 3 and Model Y made in Shanghai rose by 2,000 yuan ($289) with effect from Tuesday. Four months ago, CEO Elon Musk cut prices of the vehicles by between 6% and 13.5%, prompting discounts by other Chinese EV manufacturers such as Li Auto and Xpeng. The price rise by Tesla follows a fall in quarterly profits and challenges for the company from manufacturers such as BYD.
China Tourists Overwhelm Attractions as Travel Explodes After Covid
Bloomberg
China's Golden Week holiday saw 159 million trips taken over the first three days, a 162% increase on the same period last year, as travel restrictions continue to be relaxed. Daily average trips are around pre-pandemic levels, leading to reports of mass crowds, or "gradually becoming ridiculous," according to one social media user. Baidu tracked levels of traffic at tourist sites and found they had almost doubled compared to last year, while major retail and catering firms reported sales growth of 15.6% on Monday alone, with the largest increases attributed to clothing and automobile purchases. The tourism sector is being watched closely for signs of economic recovery following reports of some areas of weakness.
Australian police searched pilot's home for China fighter jet records
Reuters
Australian police searched the home of a former British test pilot last November as part of an investigation into Western military pilots training the Chinese military. The search was aimed at obtaining documents relating to China's J-16 strike fighter, Chinese aviation firms, and Australia's intelligence partners. Keith Hartley, chief operating officer of the Test Flying Academy of South Africa (TFASA), has not been charged. Hartley challenged the warrant, questioning its wording and seeking the return of the seized material. However, the court rejected his application and released the judgment.
Column: China's manufacturing wobble may drive coal use even higher
Reuters
China's coal use is predicted to rise further following a manufacturing downturn in April. Power producers are expected to increase their use of high-polluting but cheap coal as the main source of power generation. The tentative nature of the economic recovery means authorities will be keen to ensure that power costs are as low as possible for businesses and industries. Beijing has already taken numerous steps to restore China's economy after a COVID-19-hit 2022 curtailed industrial activity and goods production. The stimulus measures included financial support for manufacturers and the easing of movement restrictions.
IMF raises Asia’s economic forecast on China recovery
Al Jazeera
The International Monetary Fund (IMF) has raised Asia's economic growth forecast for 2022 from 4.8% to 5.3% due to robust export demand from the US and Europe and China's economic recovery. Growth in Japan and India has also boosted Asia's economy. The IMF expects Asia's economy to expand by 4.4% in 2023. However, it warned of risks from persistent inflation and global market volatility from US and European banking issues. "We need further policy measures to limit potential risks," said Thomas Helbling, deputy director of the IMF's Asia and Pacific Department.
Corpse found under Tibet hotel bed leads to probe
BBC
A man found a corpse under his bed at a hotel in Lhasa, Tibet, and local authorities are now conducting a murder investigation and have arrested a suspect. The man, whose name has not been released outside the Chinese media, checked into the Guzang Shuhua Inn in April but switched rooms after detecting a strong smell. Hotel owners initially denied the incident, prompting the guest to post about it online. The hotel’s influencers-friendly aesthetic made it popular on social media, until the incident happened. The hotel has since reportedly closed down.
Electrolux Jumps as China’s Midea Said to Make Takeover Approach
Bloomberg
Shares in Electrolux rose by 10% on news that luxury home appliances manufacturer Midea Group, based in China, had made an approach with a view to a takeover. Midea has stated that any deal must be friendly but Electrolux has as yet been unreceptive to the suggestion. Midea is looking to continue its overseas acquisitions, with chairman Paul Fang hinting at an interest in European and American procurement last year after making a bid for the white goods unit of General Electric. A tie-up between the two companies would test Midea's ability to establish foreign acquisitions at a time when protectionist measures are being introduced into both Europe and the US. Electrolux is in the midst of shedding jobs in order to cut costs.
Chinese censor has shut down over 4,000 websites and 55 apps in 3 months
South China Morning Post
China's internet watchdog, the Cyberspace Administration of China, has closed down more than 4,200 sites and removed 55 apps from stores for a range of violations in Q1 2019. The sites were accused of offering unauthorized news services, while some hosted "harmful information" such as online gambling, prostitution, and illegal lending. More than 2,200 websites were ordered to rectify their content. The move comes as Beijing tightens control over the internet to limit influence from Western ideologies amid heightened tensions with the US and its allies.
Malaysia breaks up scam ‘shaman’ syndicate from China who preyed on older women
South China Morning Post
Police in Malaysia arrested four women and a man, aged between 40 and 50, for exploiting elderly women with offers of medicine that supposedly cured illnesses. The scam, run by a group the media described as fake “Shaman Bomohs” from China, entailed members approaching women over the age of 60 in public markets, offering medicine and telephone numbers for follow-up treatment, and collecting jewelry and cash for prayer ceremonies. The group was arrested at Kuala Lumpur International Airport while trying to escape to China. Nine mobile phones, five bags, 11 watches, and the equivalent of $13,600 were seized.
British foreign minister says he expects to meet Chinese vice president this week
Reuters
British Foreign Secretary James Cleverly has said he expects to meet China's Vice President Han Zheng during a visit to London for King Charles' coronation ceremony this week. Speaking to the BBC, Cleverly confirmed he would discuss a range of topics when he met officials from China, including concerns over Chinese investment and Beijing's growing economic and military assertiveness. Any meeting would come at a low point in UK-China relations after London placed restrictions on Chinese investment due to national security concerns and expressed alarm at China's treatment of the Uyghur minority in the Xinjiang region.
Chinese foreign minister to visit Myanmar, India this week
Reuters
China's Foreign Minister Qin Gang will visit Myanmar and India from May 2-5. Qin will also attend a meeting of foreign ministers from the Shanghai Cooperation Organisation in India.
Japan's automakers have a made-in-China sales crisis
Reuters
Japanese automakers are facing a sales crisis in China due to the rapid shift towards electric vehicles. There has been a plunge in purchases of gasoline-powered cars, with Japan's total sales in China down 32% YoY in Q1 2021, double the pace of the overall market contraction, according to industry data analyzed by Reuters. However, in contrast to other automakers such as Volkswagen, Japanese carmakers have limited showing in the EV and plug-in hybrid markets. The competition outside of Japan is increasingly becoming a concern, and production and margins are expected to come under pressure.
‘No magic wand’: normalizing Australia-China trade proves a challenge
South China Morning Post
Although China has relaxed restrictions on coal imports from Australia, the resumption of trade is proving sluggish and complex, with bureaucratic inertia meaning that permits have to be sorted out by visiting numerous government departments, and Australian miners no longer offering concessional prices. This has resulted in Chinese importers turning to Russia and Mongolia. Relations between the two countries soured in 2017 and hit another low last year after Australia called for an inquiry into Covid-19's origins.
U.S. and Philippines reaffirm ‘ironclad’ alliance while eyeing cooperation with Japan
Japan Times
The US has guaranteed the Philippines its "ironclad" commitment to defend it against China amid rising tensions and territorial disputes. President Joe Biden's comments followed talks with Filipino leader Ferdinand Marcos Jr, who became the first Philippine president to visit the White House since 2011. Marcos reiterated the importance of a 70-year defense alliance between the governments, stating that rising tensions had created "arguably the most complicated geopolitical situation in the world right now”. Both countries agreed to increase defense guidelines to build up bilateral priorities, mechanisms, and processes across "land, sea, air, space and cyberspace”, while upgrading alliance coordination to respond to an evolving security environment. Furthermore, security analysts note that the alliance has agreed that “armed attack on Philippine military assets in the Pacific, including the South China Sea, would invoke US mutual defense commitments,” citing the need to clarify grey areas in their defense treaty.
EU and US warn Malaysia of ‘national security’ risk in Huawei’s bid for 5G role
Financial Times
Envoys to Malaysia from the US and EU have warned of the risks to national security and foreign investment as Malaysia finalises its 5G rollout. The review, which was due to be completed by the end of March, now includes the question of whether to allow China’s Huawei a role in the country’s telecoms infrastructure. The company was beaten by Ericsson in an $2.5bn tender to build a state-owned 5G network. The possible introduction of a second 5G network from next year would create uncertainty and inefficiencies and raise costs.
Japan PM's Africa tour a bid to counter China, Russia influence
RFI
Japan’s Prime Minister, Fumio Kishida, who is touring Egypt, Ghana, Kenya, and Mozambique, has highlighted cooperation between Japan and the Global South as key to maintaining a “rules-based international order.” He has been keen to gain support at G7 for Ukraine and to counter Chinese expansion. Reasons behind Japan’s move to invite the African Union to the upcoming G7 meeting in Hiroshima, instead of South Africa, are cited as the latter’s reluctance to censor Russia's invasion of Ukraine during recent United Nations General Assembly votes, and for hosting war games including Russia and China.
China’s exit bans multiply as political control tightens under Xi
Japan Times
China has significantly increased the number of people it is barring from leaving the country, including foreign nationals, despite claims by authorities that China is open for business after three years of tight COVID-19 restrictions. A report by the rights group Safeguard Defenders highlighted that “since Xi Jinping took power in 2012, China has expanded the legal landscape for exit bans and increasingly used them, sometimes outside legal justification”. Records from China’s Supreme Court database analyzed by Reuters also showed an eight-fold increase in cases mentioning bans on leaving China between 2016 and 2022. While most cases involved convicted debtors, advocacy groups have argued that exit bans are also used for more political reasons, including securing business interests and preventing political dissent. Experts warn that exit bans are becoming a more salient risk for large companies, which are now seeking legal assistance to reduce risks from the bans.
Normalizing China-Australia trade will take more than a political fix
Reuters
Restrictions on Australian coal imports to China were relaxed in January, three years after Beijing took issue with Australia's stance on China's presence in the disputed South China Sea and Canberra's perceived interference in domestic Chinese affairs. However, some coal importers allege that bureaucratic issues have been compounded by the price hikes and enhanced market share of Russian and Mongolian competitors, resulting in imports still a third of the 2016-2019 average in March. As relations between the two nations thaw, Australian officials have emphasized the importance of diversification of trade away from China to avoid future disruption.
China dominates global IPO market as Wall Street fails to rebound
Financial Times
Chinese IPOs raised more than 5 times as much money as US versions due to poor performance in American and European markets, leaving Asia – and particularly China – as the clear global leader in IPO markets this year due to the end of pandemic restrictions and a new streamlined listing regime for the Shanghai and Shenzhen stock exchanges. Despite being down around $4bn YoY, Chinese companies raised over $19.5bn across nearly 80 deals to account for some 53% of the global total in 2023.
Biden reassures Philippines' Marcos amid China tensions
Deutsche Welle
US President Joe Biden has reaffirmed his country's "ironclad" commitment to the security of the Philippines, as he hosted Philippine President Ferdinand Marcos Jr. at the White House on Monday. The US sees the Philippines as a crucial ally to counter China's aggression and expand its military presence in the region. Manila agreed to give the US access to four more bases on its islands to help Washington to counter an invasion of Taiwan by China. The two countries will also co-host the 2024 Indo-Pacific Business Forum in Manila.
Chinese online brokerage tests first AI chatbot for stock trading
South China Morning Post
Chinese Xiaomi-backed brokerage Tiger Brokers has developed a trade bot powered by generative artificial intelligence, dubbed TigerGPT. The chatbot filters financial information to focus on providing up-to-date data to Tiger's online trading platform users. The system, which uses OpenAI's Generative Pre-Trained Transformer models, is "fine-tuned on a daily basis" by a team of 50, according to Jacques Li, the brokerage's head of global communications. The tool can prompt the latest information about a company's performance, and the next iteration will feature audio. Currently available as an invite-only beta, it's aimed at Tiger's two million account holders and nine million users.
China’s KWG Faces $4.5 Billion of Payment Demands After Default
Bloomberg
Chinese property developer KWG Group Holdings Ltd. is facing $4.5bn of potential debt repayments following its default last week. The company did not meet payments of RMB 212m ($31m) on bank and other borrowings due on 8 May, triggering RMB 31.2bn of debt repayable on demand. The defaults occurred as KWG reported a RMB 9.2bn loss for 2015 and faces $137.6m of payments on dollar bonds this month. KWG’s shares fell 17% to reach a six-month low, whilst analysts have suggested that its bankruptcy could trigger testing times for fellow developers Agile Group Holdings and Sino-Ocean Group Holding.
Xi Jinping Can’t Handle an Aging China
Foreign Affairs
China is facing significant challenges as it transitions towards a low fertility, rapidly aging, and steadily declining population that will be around 200 million less by the middle of this century, with a corresponding increase in median age to around 50. Despite the Chinese Communist Party flagging the importance of addressing the needs of an aging society and warnings from officials and scholars of the need to raise unsustainably low retirement ages, China’s regime under an increasingly autocratic General Secretary Xi Jinping is unsuited to handling these challenges, with the country’s technocratic governance practices crumbling as it pivots back to an era of one-man rule. At the same time, Xi prioritizes political stability over necessary reforms that might impact the interests of vested urban elites, further exacerbating the decline in fertility rates by reinforcing the underlying factors driving young Chinese to opt out of marriage and child-rearing, and constraining the country’s rise as a global power. China’s most serious demographic challenges lie in its rural areas. While China has a large bureaucracy and policy documents, they often crumble in the face of hard political realities catering to Xi’s whims. Additionally, China’s situation is worsened by its ethnonationalism which undermines its ability to use imported labor as a tactic to mitigate the effects of a shrinking labor force.
Furthermore, China’s pivoting back towards one-man rule is eroding its ability to plan for its future. As Xi marginalizes technocratic voices and institutions, state policies cater to his whims and do not have the interests of the rural population in mind. There are serious concerns that state bureaucracies are tacking into new political winds created by Xi’s promotion of traditional medicine as a symbol of national pride, rather than his aim to improve the health of China’s elderly. As retirement programs are becoming increasingly unsustainable and retirement ages remain exceptionally low, China’s rulers are hesitant to cut back on benefits or raise the retirement age given the risk of public backlash. As redistributive policies aimed at reducing the rural-urban gap have stalled under Xi, every East Asian society facing demographic decline has turned to imported labor to mitigate the effects of declining birth rates and rapid aging. However, Xi’s pivot towards ethnonationalism undermines China’s ability to use this tool.
China Developer Jiayuan Gets HK Court Order to Liquidate Assets
Bloomberg
Jiayuan International Group has been ordered to sell assets to offset overdue debt by a Hong Kong court. It is the latest Chinese property developer to be embroiled in such a legal battle, and follows similar petitions against China Evergrande Group and Hsin Chong Construction. Jiayuan dropped a proposal to exchange its dollar notes to delay maturity after several extensions and will instead proceed with its restructuring support plan. The offshore credit market for high-yield Chinese bonds has experienced mounting levels of debt default and tumbling new home sales in the sector, leading to investors seeking swift debt recovery in the courts.
Taliban FM to meet Pakistan, China foreign ministers: Media
Aljazeera
The UN Security Council committee has allowed the Taliban's interim foreign minister, Mawlawi Amir Khan Muttaqi, to travel to Pakistan to attend a meeting with Pakistani and Chinese counterparts. Muttaqi had been subject to a travel ban, asset freeze, and arms embargo under UN Security Council sanctions. The news of his travel comes after representatives of two dozen countries and international institutions met in Qatar with UN Secretary-General Antonio Guterres for talks on Afghanistan, particularly concerning the plight of women and girls under Taliban rule. Taliban authorities were not invited to the closed-door meeting.
Hong Kong security law keeps tight lid on Labor Day rallies
Nikkei Asia
The lack of Labor Day protesters on Hong Kong's main thoroughfare, Hennessy Road, demonstrated how the national security law imposed by Beijing has eroded the freedom to protest in the city. Despite the Hong Kong government's assurance that the city has returned to "normal", the absence of demonstrators highlighted the continuing impact of the legislation. Hennessy Road has been the site of numerous demonstrations in the past, and the lack of attendees further demonstrates the shrinking space for protesting in Hong Kong.
Worth the Read: The Hell of Good Intentions: America's Foreign Policy Elite and the Decline of U.S. Primacy -by Stephen M. Walt
In the first two chapters of his book, Harvard professor Stephen Walt contends that the United States should adopt a realist and restrained foreign policy approach. He asserts that after the Cold War, US foreign policy elites forsook realism in favor of liberal hegemony, resulting in failed wars, financial crises, and weakened alliances. Walt maintains that overconfidence among US leaders led to catastrophic interventions and an inability to fulfill the promises of globalization. While Trump's election indicated the American public's desire for change, Walt argues that his policies have not significantly deviated from those of his predecessors. Walt proposes that the US should concentrate on offshore balancing and refrain from crusades to reshape the world, in order to more effectively maintain power and safeguard its interests. Below is a summary (in Chinese) of Walt's analysis of the dysfunction within the US foreign policy establishment, referred to as the "blob":
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