Blacklisted Chinese Companies Rebrand as American to Dodge Crackdown; Shenzhen, Guangzhou join China’s property relaxation campaign in bid to lure homebuyers
Rare spat shows China and North Korea still at odds on nuclear weapons; China’s Quixotic Quest to Innovate; IMF upgrades its forecast for China’s economy, but says reforms are needed to support growth
Welcome to this issue of The China Brief. Today is May 29, 2024. 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 Quixotic Quest to Innovate
Foreign Affairs
Chinese leader Xi Jinping's growth strategy for the country's economy is centered on industrial policy and innovation, with a focus on sectors such as clean energy, electric vehicles, artificial intelligence, and biotechnology. Xi hopes that this strategy will not only boost economic growth and prosperity at home, but also position China as a global leader in key industries, and challenge the United States' dominance in the international system. However, this approach is unlikely to succeed as intended due to China's rigid politics and governance, weak consumer demand, and systemic weaknesses such as youth unemployment and frailties in the banking and financial systems. Additionally, the government's emphasis on industrial policy fails to address the damage caused by Xi's repressive governance on the private sector and the need to boost consumption in China. Furthermore, the policy risks externalizing the consequences of China's economic and industrial policies, leading to bigger trade deficits and potential retaliatory policies from other countries.
China's track record on innovation is mixed, with the country ranking 12th in the World Intellectual Property Organization's Global Innovation Index in 2023. While China's manufacturing prowess is world-class, the institutional factors that encourage creativity and initiative across society are not. China also faces challenges in properly auditing and assessing initiatives, due to the government's lack of transparency on funding and financing. The government's conflation of industrial policy with innovation also hinders its ability to foster broad innovation and disruptive change. Furthermore, the emphasis on industrial policy is unlikely to reverse the trend of jobs flowing into lower-paid, lower-skill sectors. Additionally, Xi's repressive governance and weak legal and regulatory institutions constrain the private sector and hinder the boost in consumption.
Overall, China's industrial policy strategy is unlikely to address the systemic weaknesses and challenges facing the country's economy. While China may make some headway in certain sectors, its belief in government direction, weak institutions, and corruption will hinder its ability to lead in innovation and drive sustainable nationwide growth.
Blacklisted Chinese Companies Rebrand as American to Dodge Crackdown
WSJ
In December, American Lidar was registered in Michigan, located close to major U.S. automakers. It is backed by Hesai Group, a China-based lidar manufacturer labeled a security concern by the U.S. government. To navigate regulatory and reputational issues, Chinese firms like Hesai rebrand and create U.S.-based subsidiaries, a tactic seen with other companies such as TikTok and BGI Group.
Hesai set up American Lidar for U.S. manufacturing, but a month later, the Defense Department listed Hesai as a Chinese military entity, causing its stock to plummet. Hesai argues that its lidar technology, crucial for automotive functions like lane-keeping, poses no security threat as it cannot store or transmit data. The company has paused its U.S. facility plans and is suing the Defense Department to be removed from the military list.
Other Chinese firms have used similar strategies. BGI Group rebranded its Massachusetts subsidiary to Innomics to avoid regulatory scrutiny. DJI, a major drone maker facing potential bans, licensed technology to an American startup, Anzu Robotics, to maintain its presence in the U.S. market while addressing data-sharing concerns.
National-security experts suggest targeting technology sectors instead of individual firms to prevent rebranding and obfuscation. The situation reflects ongoing U.S.-China tensions in tech and trade, with implications for regulatory approaches and market dynamics.
Rare spat shows China and North Korea still at odds on nuclear weapons
Japan Times
North Korea criticized China, along with Japan and South Korea, for discussing the denuclearization of the peninsula, calling their joint declaration a "grave political provocation." This rare criticism highlights the differences between China and North Korea regarding the latter's nuclear weapons program. While China has been a long-time ally of North Korea, this incident shows that they do not entirely see eye-to-eye on the issue.
US appoints a new representative to Taiwan as the self-governing island faces China’s intimidation
Associated Press
The United States has appointed Raymond Greene as its new representative to Taiwan, amidst increasing tensions between China and Taiwan. China claims Taiwan as its own territory and has recently staged naval and air force drills around the island. The US is Taiwan’s strongest ally, despite cutting formal diplomatic ties with the island in 1979. Greene, a veteran diplomat, will take over from Sandra Oudkirk in the summer of 2024. Taiwan’s new president, Lai Ching-te, has urged Beijing to stop its military intimidation and has emphasised that Taiwan is a “sovereign independent nation”.
IMF upgrades its forecast for China’s economy, but says reforms are needed to support growth
Associated Press
The International Monetary Fund (IMF) has upgraded its forecast for China's economy, predicting it will expand at a 5% annual rate this year. The IMF warned, however, that consumer-friendly reforms are needed to sustain strong, high-quality growth. It recommended building stronger social safety nets and increasing workers' incomes to enable Chinese consumers to spend more. The IMF also suggested that Beijing should scale back subsidies and other "distortive" policies that support manufacturing at the expense of other industries such as services. While the IMF praised the Chinese government's focus on "high quality" growth, it said that a more comprehensive and balanced policy approach is needed. The IMF's longer-term assessment was less optimistic, predicting that China's annual economic growth will fall to 3.3% by 2029 due to the rapid aging of its population and slower growth in productivity.
Shenzhen, Guangzhou join China’s property relaxation campaign in bid to lure homebuyers
South China Morning Post
The Chinese cities of Shenzhen and Guangzhou have lowered mortgage rates in an attempt to attract homebuyers. As part of wider stimulus policies, Guangzhou has reduced the minimum down payment ratio for first-time buyers to 15%, and 25% for second-time buyers. Authorities in the city have also eased restrictions on home purchases, including social security and tax payment requirements. Shenzhen has cut down payment requirements by 10 percentage points to a minimum of 20% for first-time buyers and 30% for second-home purchasers. The moves follow similar measures by Shanghai and 10 provincial cities.
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