Biden Administration Tamps Down Talk of US-China Decoupling; Exclusive Insight: China's Maritime Might: Navigating the Complexities of Global Shipping Domination
Canada seeks entry into AUKUS alliance to help keep China in check; India Monitored Chinese Ships During Drill in South China Sea; Long road ahead: Tokyo and Seoul look to take ties to the next level
Welcome to this issue of The China Brief. Today is May 8, 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.
Exclusive Insight: China's Maritime Might: Navigating the Complexities of Global Shipping Domination
According to statistics from 2020, China's shipbuilding capacity accounts for more than 40% of global shipbuilding capability. In terms of maritime transport of bulk commodities, bulk cargo, and general industrial goods, China-related shipping volume (imports or exports) constitutes 60-70% of the total global shipping volume.
However, defining ownership and control of the shipping fleet becomes more complex:
Firstly, the country of registration and the actual controlling entity may not be the same. For example, a Chinese private enterprise registering its fleet in Panama may complicate calculations. To date, the top three ship registration countries are Panama, Liberia, and the Marshall Islands, which offer convenient registration and low tax jurisdictions. Even some state-owned Chinese enterprises register their fleet in these countries.
Secondly, in the ship financing sector, China has quickly become a net exporter of capital. Some large international container fleets, such as France's CMA and Italy's MSC, have numerous nominally owned vessels belonging to leasing companies affiliated with large Chinese banks. This makes the definition of "ship owner/controller" more complex.
Thirdly, the Chinese-controlled container transport fleet is highly concentrated due to the nature of this transportation mode. Most research indicates that China controls around 40% of container transport volume. This includes Chinese coastal transport, China-Japan-South Korea routes, China-Southeast Asia-Middle East feeder routes, China-Africa transport, and especially major routes between China and Europe, and China and the US.
The China-US route has the largest shipping volume and fiercest competition, making it the most representative of all transportation routes and far surpassing the China-Europe route. However, on the China-US route, the United States does not have any controlling fleets. The top four shipping companies are Maersk (Denmark), COSCO, CMA (France), MSC (Italy), and Japanese shipping conglomerates, along with medium-sized companies like Evergreen. Chinese fleets only account for around 25% of the shipping volume on this route.
(Excerpt from "China's Influence and Control in the Global Maritime Shipping Market." Written by Yang Tian, a maritime entrepreneur. Contributed exclusively to "The China Brief.")
Canada seeks entry into AUKUS alliance to help keep China in check
The Globe and Mail
Canada is looking to join the non-nuclear component of the AUKUS security pact formed between Australia, the UK and the US. Although Canada was absent when the agreement was first announced, government officials say the country is interested in information-sharing and technology development under the second pillar of the agreement. Created to counter China's increasing military might in Indo-Pacific, AUKUS has been described as "AUKUS 2.0" in the sense that it expands on technological cooperation. Canadian officials said there is ongoing work within the government to sign Canada up for AUKUS.
India Monitored Chinese Ships During Drill in South China Sea
Bloomberg
China's military vessels made a sudden and unexplained appearance near the site where a flotilla of Southeast Asian nations' warships were engaged in military drills in the South China Sea last week, according to a government official. The report came as India and Singapore co-hosted the final day of the week-long Asean-India Maritime Exercise, involving nine ships and more than 1,800 personnel from various nations. Military tensions between India and China have also risen since 2020 due to fighting in the Himalayan border region. The region is viewed as a major commercial conduit, and almost a third of global maritime crude oil trade passes through it.
Long road ahead: Tokyo and Seoul look to take ties to the next level
Japan Times
Japanese Prime Minister Fumio Kishida has visited Seoul, the first such trip in over 12 years. Kishida was cautious about making an apology for Japan’s colonial rule of the Korean Peninsula. This visit is expected to give South Korea President Yoon Suk-yeol a boost and add more momentum to improving ties. But while Kishida and Yoon will look to bask in the success of a fruitful summit, the relationship remains fragile despite the breakneck speed of progress. Conservative lawmakers in Kishida’s ruling Liberal Democratic Party have criticized conciliatory moves towards South Korea. Yoon’s political standing at home remains relatively weak and his pro-Japan stance still faces resistance from opposition parties and a section of the public. This visit is unlikely to improve his domestic stance; however, the hope is that the thaw will become embedded in bilateral relations as East Asia’s external environment has transformed completely. Both countries face shared critical challenges such as North Korea’s nuclear and missile programs, so the stability of their relationship is important.
Russia's war on Ukraine latest: Wave of attacks ahead of Victory Day holiday
Reuters
Russia has increased its missile, drone and air strikes on Ukrainian cities, marking an escalation of attacks ahead of Victory Day, the holiday commemorating the defeat of Nazi Germany. The Ukrainian military says that Iranian-made Shahed drones were destroyed last night, after strikes injured at least five residents in Kyiv, damaged infrastructure, fuel depots and buildings, and also resulted in the wounding of three people in Odesa after a missile was aimed at a food warehouse. Russia has reportedly intensified shelling of Bakhmut in the hope of taking it before Victory Day, which falls on Tuesday.
Chinese automaker BYD to make EVs in Vietnam
Reuters
Chinese automaker BYD plans to expand its electric vehicle manufacturing and assembly into Vietnam, according to a statement from the Vietnamese government. BYD intends to create favorable conditions for investment procedures and has also proposed forming a local supply chain. The expansion into Vietnam will be a direct challenge to Vietnamese EV maker VinFast, which began selling cars in 2019 and has announced plans to expand in the US and Europe.
Biden Administration Tamps Down Talk of US-China Decoupling
Bloomberg
The Biden administration needs to reassure its allies that it is not encouraging a long-term decoupling between the US and China's economies, according to Bloomberg. Treasury Secretary Janet Yellen will reportedly reinforce this message at the forthcoming meeting of Group of Seven finance ministers this week, with President Joe Biden discussing decoupling further with leaders at summits in Japan and Australia. However, China's leaders do not believe this, and many of the US allies and businesses are also skeptical that a decoupling from China's economy would not cause significant disruption for them.
Are we sleepwalking into a prolonged global recession?
Japan Times
Global institutions are concerned about a prolonged worldwide recession amid fears of slowed global economic growth. Reports predict that global GDP growth will stop growing at 2% this year, rising to 3% in 2024, before dropping to 2.2% around 2030, much lower than the average rate of 3.5% in the 2000s. IMF's latest World Economic Outlook warns of very low growth, increased risks and rocky recovery that may damage countries heavily. OECD's predictions are slightly more pessimistic, asserting that pre-pandemic recovery in China and India will offset sluggish progress in Japan, the US and Europe. With increasing Sino-American relationship conflicts, former US Treasury Secretary Lawrence Summers anticipates a 70% chance of a recession in America. The current economic slowdown, coupled with the looming bifurcation of global supply chains, has deepened concerns, despite March's Fed injection of $300bn into liquidity to stabilize the financial system.
China says it is imperative to stabilize Sino-U.S. relations
Nikkei Asia
China's Foreign Minister Qin Gang has stated the importance of stabilizing relations between China and the US after a series of "erroneous words and deeds" have caused them to deteriorate. In a meeting with US Ambassador Nicholas Burns in Beijing, Qin stressed that the US must correct its handling of the Taiwan issue and prevent the hollowing out of the "One China" principle.
China will safeguard its interests over EU sanctions
Reuters
China has opposed any use of China-Russia relations as a pretext for the damage of trade cooperation, according to a spokesperson for the country's foreign ministry. In response to the European Union's proposed sanctions on Chinese companies over their alleged involvement in Russia's conflict in Ukraine, the spokesperson said China would take "firm" action to protect its interests if the measures were implemented.
China’s New Foreign Minister Meets US Envoy for First Time
Bloomberg
China's Foreign Minister Qin Gang met with US Ambassador to China Nicholas Burns, in what was the highest-level meeting between China and the US in weeks. Qin reportedly asked Burns to serve as a "bridge" between the two countries. China has refused the US's request to resume top-level engagements after tensions between the two, which have intensified since an alleged Chinese spy balloon supposedly transited the US in February, canceling US Secretary of State Antony Blinken's trip to Beijing. The countries also remain embroiled in a range of issues, including tech curbs, Taiwan, sanctions and Russia’s war in Ukraine. Qin blamed the US for the escalation in tensions, noting that a series of recent “erroneous words and deeds” had destroyed positive momentum achieved since Jinping and US President Joe Biden met last November. The US embassy in Beijing had not responded to a request for comment at the time of reporting.
Deaths of Seniors in Hospital Fire Point to China’s Elder Care Shortfall
NY Times
A fire at a hospital in Beijing has raised concerns over the underground elder care market in China. The fire at Changfeng Hospital, which killed 29 people, including elderly and disabled patients, and injured 23 others, has been linked to potential illegal elder care, prompting local officials to investigate. An aging population combined with not enough care facilities opening as the population ages have led to private care homes and hospitals offering these services illegally. Some have argued that the government must address the demand for care, and that this means either making it easier for private companies to do so, or the government providing more long-term care facility beds.
China’s secretive spacecraft returns to Earth after 9-month mission
South China Morning Post
China's top space defense contractor, China Aerospace Science and Technology Corporation, has announced that an unmanned spacecraft has returned safely to Earth after remaining in orbit for 276 days, more than 100 times longer than during its maiden flight. While China has remained secretive over the craft’s research and development details, some experts speculate that it could have advanced imaging and sensing equipment to gather intelligence on potential targets or monitor sensitive areas of interest. The spacecraft could also potentially be used for the deployment of small satellites or other military and government payloads into orbit, including communications satellites, navigation systems or different types of sensors. Unmanned spacecraft are cheaper, and their size means they can be launched by smaller rockets, expanding the range of potential launchers, which could lower the cost of space launches.
China's return to global stage checked by national security focus
Reuters
China’s increasing focus on national security combined with competition with the United States risks reversing China's engagement with the wider world post-pandemic and isolating it from the West, say analysts. Though Chinese officials have sought to stress the country’s openness for business abroad, China's severe anti-espionage law update and punitive action towards some overseas companies have caused volatile reactions among Western investors. Furthermore, China's diplomatic initiatives and attempts to promote peace in areas such as Ukraine have been met skeptically by other states because it refuses to condemn Moscow, its closest ally and largest oil supplier.
China's local governments struggle with hidden debt
Nikkei Asia
Addressing China's local government debt, which has been mounting for years and accelerated during the COVID-19 pandemic, is becoming a top priority as the country's economy begins to recover. The hidden debt of local governments presents a risk to the financial system and the long-term sustainability of local government finances. Policymakers have raised concern about these invisible liabilities, which have reached trillions of yuan.
China's exports seen rising in April but at slower pace, outlook challenging - Reuters poll
Reuters
China's exports are expected to have risen in April by 8% year-on-year, following an unexpected surge of 14.8% in March; imports are expected to forecast no growth, similar to the previous month. While China still has unfulfilled orders after last year's COVID-19 disruptions, slowing global growth is darkening the outlook with many of China's trade partners on the brink of recession. Additionally, a recent official manufacturing purchasing managers' index report showed new export orders contracting sharply, underlining the challenge facing Chinese policymakers and businesses hoping for a robust post-COVID-19 recovery.
China Flags Supply Chains, Population as Top Policy Priorities
Bloomberg
China may unveil policies to protect its supply chains and population growth following a meeting instigated by President Xi Jinping. Speaking at the high-profile gathering, Xi stated that birth rate and supply chain protection should be prioritized. It is expected that in coming months the government will set out its specific proposals in these areas, with some experts predicting that measures may include subsidies for manufacturing and updates to education policy. China is keen to safeguard its supply chain, particularly in light of tensions with the US, and improve the birth rate, which fell for the first time in six decades last year.
China's Sany Heavy bets on overseas demand to fuel growth
Nikkei Asia
Sany Heavy Industry, China's largest maker of construction machinery by market capitalization, plans to increase its focus on foreign markets, particularly in developed economies. The company, which achieved record revenue from abroad in 2020, will use a strategy of increasing localization through local recruitment and investing in high-tech manufacturing. The move will set Sany up for competition with rival firms including America's Caterpillar and Komatsu of Japan.
Chinese state tabloid criticises protest letter from South Korean embassy
Reuters
South Korea's embassy in China has been criticized by state media outlet the Global Times for "brutal interference" in its editorial independence. The issue is the latest to exacerbate diplomatic fragilities between the two Asian countries, with the embassy having expressed its regret over a series of "unreasonable slanderous articles". It is uncommon for foreign embassies in China to publicly criticize local media outlets. The remarks come following Japanese Prime Minister Fumio Kishida's first visit to Seoul in 12 years, signaling increasing warmth between South Korea and Japan after decades of historical dispute.
Hong Kong Exchange Fund posts US$12.5 billion gain as market rally continues
South China Morning Post
The Hong Kong Exchange Fund recorded HKD97.9bn ($12.5bn) return in 1Q 2023, which is the fourth-best quarterly result since 2003. The strong gains are the continuation of a recovery in the Exchange Fund’s investment performance, following a HKD73.4bn in 4Q 2022. The fund reported HKD3.3bn from its Hong Kong stock investments, HKD25.5bn from its overseas stock investments and HKD43.9bn in bonds. The sea change to profitability follows its worst-ever year on record in 2022, when it lost HKD205.4bn reflecting the tumultuous year in the global financial market.
The problem with concentrated power
Financial Times
China's monopoly power in key global supply chains including pharmaceutical and rare earth minerals represents a "security threat and a competitiveness one", according to Rana Foroohar, the FT's global business columnist. For years, China has flooded global markets with low-priced goods thanks to artificially suppressed wages, while ignoring environmental and World Trade Organization rules, Foroohar argued. Low prices led US businesses to localize in China, further boosting the country's ability to control supply chains. Such concentration of power becomes a vulnerability and Beijing has shown itself willing to ringfence strategic supplies while reducing its reliance on other countries, Foroohar said. She suggested that nations should institute a "rule of four" under which no country or company makes up more than 25% of a market's critical areas, from food to fuel, to critical minerals and pharmaceutical products.
China property bonds under pressure as sector uncertainties daunt investors
South China Morning Post
Allianz Global Investors has said Chinese property bonds are unlikely to recover from the effects of Beijing's "three red lines" policy in the near future. The insurer's top official for fixed incomes in Asia wants investors to focus on risk control rather than immediate opportunities. "Market sentiment around Chinese property US dollar bonds remains fragile … in the near term it may not necessarily be a good place to allocate risk", Jenny Zeng said. The ICE BofA Asian Dollar High-Yield Corporate China Issuers Index fell 4.9% year to date and went down from a peak in February when zero-covid policies were scrapped and returns of up to 65% were made. China's property market has faced quick change across cities and between primary and secondary markets.
Foreign Affairs
As attempts to restore the 2015 nuclear deal with Iran falter, policymakers are calling for a new diplomatic approach. Iran is now one short step from operating a nuclear weapon, increasing the urgency for Western powers to devise an alternative strategy. While previous American administrations had sought “narrow, transactional deals” with Iran, future negotiations must address regional tensions as well. A largescale agreement could simultaneously discourage Iran’s meddling in the Arabian Peninsula and its nuclear development, while drawing in buy-in from surrounding nations. The Arab Monarchies of the Persian Gulf and Iran have been forging stronger ties in recent years, to deter attacks and promote economic growth. If Iran can commit to the global community that it will not support non-state actors on the Arabian Peninsula and all nations on the rim of the Gulf agree to joint inspections and joint ventures in nuclear fuel, as well as Nuclear Non-Proliferation Treaty restrictions, a lasting diplomatic settlement to the nuclear issue could be crafted. The world is watching for new developments in such a global partnership.
Can Ukraine Get Justice Without Thwarting Peace?
Foreign Affairs
Calls are growing for a special tribunal to be set up to prosecute the Russian leaders responsible for the country's invasion of Ukraine in February 2022. The tribunal would be run specifically to try the crime of aggression, which is a clear disregard for the UN Charter’s prohibition on the use of force. The International Criminal Court, which already has jurisdiction over Russian atrocities committed in Ukraine, cannot bring aggression prosecutions against nationals of countries that are not parties to the treaty. A U.S.-backed loophole allows for US, Chinese and Russian officials to be immune from the court's jurisdiction, among others. Former UK Prime Minister Gordon Brown has argued that such a court is needed to fortify the norm against conquest, deter future aggressors, and provide justice for the war’s victims. Advocates for the new tribunal disagree on the body's form, though they agree that Russia’s aggression must not go unpunished in a court of law. Many are hailing this as a 'new Nuremberg moment'.
There are few precedents for a tribunal to charge wartime leaders for aggression, though international lawyers have pointed to the post–World War II International Military Tribunal as a successful example. The ICC Rome Statute did not cover the crime of aggression when it became effective in 2002. When the issue was addressed in 2010, the US insisted that the court cannot exercise jurisdiction over a charge of aggression against nationals of countries that are not parties to the Rome Statute. Several experts had expected that the crime of aggression would move to the back of the international legal agenda for the foreseeable future.
China ensnares two more former soccer officials in dragnet
Nikkei Asia
Former vice president of the Chinese Football Association, Li Yuyi, and former chairman of the Chinese Super League Company, Ma Chengquan, are being investigated for "serious violations of discipline and law" as part of a wider crackdown on corruption in Chinese soccer. At least 11 other high-ranking CFA officials and coaches have been caught up in the ongoing investigation.
Mystery Chinese spacecraft returns to Earth after 276 days
Nikkei Asia
An experimental and uncrewed Chinese spacecraft has successfully returned to Earth after orbiting for 276 days as part of a mission to test reusable space technologies. However, no details were released about the craft's technologies, altitude, or orbit since last August, and images have not yet been made public. Experts have speculated that China could be developing a spacecraft similar to the US Air Force's X-37B, an unmanned spaceplane that can remain in orbit for years at a time. The latest X-37B mission ended in November last year after 900 days in orbit.
‘I feel free’: Chinese buyers flock to Thailand to snap up luxury property
South China Morning Post
China's severe restrictions on international travel led to a sharp rise in mainland Chinese investors seeking properties overseas, including in Thailand. The main reasons are to provide a safety net in case of similar epidemics, economic instability, and a desire for freedom. Many buyers are looking to second homes as places to raise children in a more relaxed environment than China. A number of major cities such as the capital Bangkok, along with Chiang Mai in the mountainous north, the east coast beach resort of Pattaya, and northeastern region of Isan are the most popular. Thai real estate industry insiders said investors are ready to buy "better value" Thai property as this may be their last chance before prices rise as tourism returns to the same levels as before the pandemic. Thailand expects at least five million Chinese visitors this year, some set to buy property, although it is only a fraction of the 40 million arrivals recorded in 2019.
Fate of SVB’s Chinese venture hangs in balance
Financial Times
The future of SPD Silicon Valley Bank, the Chinese joint venture partner of Silicon Valley Bank (SVB), remains uncertain as SVB seeks buyers for its stake in the venture following the collapse of SVB in March. SPD Silicon Valley Bank has successfully proved an important model for lending to entrepreneurs and technology firms. Regulatory hurdles have led to discussions between Shanghai Pudong Development Bank (SPD's other joint venture partner), the China Banking and Insurance Regulatory Commission, and Shanghai’s municipal government effectively grinding to a halt.
Reuters
The European Union is increasing its sanctions against Russia by targeting Chinese companies that reportedly sold equipment to Russia that could potentially be used in weapons designed for use in the conflict between Russia and Ukraine. Seven Chinese companies are said to have been listed in the latest package of sanctions, two of which are based on mainland China and the other five are based in Hong Kong. The European Commission has yet to officially respond to the report.
Shenzhen developers target Hong Kong homebuyers after weak April sales
South China Morning Post
Chinese developers are accelerating their marketing of high-end properties to Hong Kong residents after slow sales growth in the region, including Shenzhen where a recent policy shift did little to revitalize the market. Agents said inquiries from Hong Kong buyers have soared, adding that interest has surged in homes in Zhuhai and Zhongshan, with some flats selling for below CNY1m ($155,000), but Shenzhen has the added advantage of bordering Hong Kong. New deals fell in 17 Chinese cities in April, according to reports, and new home transactions across 30 cities fell 27% last month.
Stay informed about the latest news, analysis, and policy briefs from across the globe related to China with the China brief. Our team aggregates, synthesizes, and summarizes the most important information from various sources, including media outlets, think tanks, government agencies, and industry experts.
Our mission is to provide you with easily accessible and critically valuable information tailored to your specific field of interest. We understand the significance of staying up-to-date on developments related to China and aim to make this information comprehensible for our readers.
Join the conversation and stay informed about the latest news and developments related to China by visiting our website at www.6dobrief.com