BREAKING: China blocks exports of chip materials gallium, germanium to U.S.；Wall Street isn’t buying Trump’s deportation threats or Elon Musk’s spending cut claims
Welcome to this issue of The China Brief. Today is December 3, 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 blocks exports of chip materials gallium, germanium to U.S.
Nikkei Asia
China has announced it will block exports to the U.S. of critical raw materials, including gallium and germanium, in response to the Biden administration's increased export controls targeting the Chinese chip industry. This decision aims to "safeguard national security and interests" and is effective immediately. The Chinese Ministry of Commerce specified that exports of these dual-use materials, which can be used for both civilian and military applications, are generally prohibited to the U.S. The announcement follows the U.S. adding 140 Chinese entities to a trade blacklist, further escalating tensions between the two nations. The U.S. has previously expressed concerns over the concentration of production of these materials in China, viewing it as a potential risk to global supply chains. The Chinese government has stated that any violations of these new export regulations will face legal consequences.
https://asia.nikkei.com/Economy/Trade-war/China-blocks-exports-of-chip-materials-gallium-germanium-to-U.S
Wall Street isn’t buying Trump’s deportation threats or Elon Musk’s spending cut claims
CNN
President-elect Donald Trump's plan to deport millions of undocumented immigrants has met skepticism from Wall Street, which predicts that net immigration will remain positive despite his crackdown efforts. A Goldman Sachs survey shows only 6% of investors expect net immigration to turn negative, with many anticipating annual immigration rates between 500,000 and 1 million. Additionally, investors doubt Elon Musk's ambitious goal of cutting $2 trillion from the federal budget, with many forecasting modest savings instead. Concerns about increased tariffs also dominate investor fears, yet markets remain resilient amid Trump's threats.
https://edition.cnn.com/2024/12/03/business/markets-trump-deportations-elon-musk-doge/index.html
China needs investments in new generation of clean-energy tech after wind and solar boom
South China Morning Post
At the BloombergNEF Summit in Shanghai, executives emphasized the need for China to increase investment in new clean energy technologies such as storage, hydrogen, and sustainable aviation fuel. Although significant funding for renewables and electric vehicles has positioned China to peak emissions ahead of its 2030 target, this has led to saturated supply chains that are affecting company profits and heightening international trade tensions.
Alan Chan Ying-lung, chief investment officer at Hong Kong & China Gas Co., highlighted the importance of redirecting investments from mature technologies to areas with unmet demand. The surge in renewable energy has also caused grid imbalances, prompting calls for more energy storage and market-based principles to incentivize investment. Lu Chuan, chairman of solar manufacturer Astronergy, suggested that China adopt pricing models from markets like Europe and California to enhance consumption.
Additionally, Saudi Arabia’s ACWA Power Co. plans to invest $50 billion in China to develop 20 gigawatts of renewables and produce one million tonnes of green hydrogen annually by 2030, and aims to collaborate with Chinese state-owned enterprises to acquire clean power assets.
https://www.scmp.com/tech/policy/article/3289154/china-needs-investments-new-generation-clean-energy-tech-after-wind-and-solar-boom?utm_source=rss_feed
India pivots from Russia to US for weapons, marking realignment in global arms trade
South China Morning Post
India is shifting its defense procurement from Russia to Western suppliers, marking a significant change in policy. The country has reduced its arms imports from Russia to 36% in 2022, down from 76% in 2009, and is increasingly engaging with U.S. and French defense manufacturers. Joint projects with Russia, including helicopters and submarines, have been shelved. India aims to enhance domestic defense manufacturing while balancing its ties with Russia for cheap energy and nuclear capabilities. The war in Ukraine has accelerated this pivot, highlighting Russia's strained defense capacity and reliance on Chinese electronics.
https://www.scmp.com/news/asia/south-asia/article/3289157/india-pivots-russia-us-weapons-marking-realignment-global-arms-trade?utm_source=rss_feed
Malaysia tech firms set to ‘act aggressively’ over Trump’s tariff hikes
South China Morning Post
Malaysian firms are bracing for the impact of potential new tariffs from US President-elect Donald Trump, who plans significant increases on imports from Canada, Mexico, and China. Malaysian companies, particularly in the semiconductor sector, are preparing to act decisively to mitigate risks associated with these changes. The tariffs could compel American multinationals to relocate operations back to the US, complicating the landscape for Malaysian exports. The country, which relies heavily on its trade surplus with the US, is adapting by seeking better quality investments and considering diversification to maintain stability amid expected trade tensions.
https://www.scmp.com/week-asia/economics/article/3289141/malaysia-tech-firms-set-act-aggressively-over-trumps-tariff-hikes?utm_source=rss_feed
China’s 10-year bond yield slumps to record low as investors scramble for safe haven
South China Morning Post
China's 10-year government bond yield has fallen below 2% for the first time, signaling investor expectations for further monetary easing to revive a struggling economy. The yield dropped to 1.979%, a significant decrease of 57 basis points this year, while the yuan weakened against the US dollar. Despite stimulus measures, economic recovery remains weak, particularly in the property market. Analysts anticipate more aggressive monetary actions, including interest rate cuts, as the central bank grapples with stabilizing the yuan amid external pressures from US-China tensions. China's bond market faces challenges with increasing yields in Japan and the US.
https://www.scmp.com/business/china-business/article/3289140/chinas-10-year-bond-yield-slumps-record-low-investors-scramble-safe-haven?utm_source=rss_feed
Shenzhen’s US$2.5 billion land sale is a bright spot for China’s sluggish property market
South China Morning Post
A record land sale in Shenzhen for 18.5 billion yuan (US$2.54 billion) signals renewed confidence in China’s property market, following government measures to address a prolonged downturn. The 263,000-square-metre site, sold after intense bidding, will host commercial and residential developments. This sale marks a shift towards market-oriented pricing, potentially stabilizing housing prices. Despite a year of declining property sales, recent policy changes, including tax amendments and eased restrictions, have boosted buyer sentiment, leading to a surge in transactions for both new and second-hand homes in Shenzhen.
https://www.scmp.com/business/china-business/article/3289183/shenzhens-us25-billion-land-sale-bright-spot-chinas-sluggish-property-market?utm_source=rss_feed
China-Australia relations: Beijing lifts red meat ban with Canberra as relations improve
South China Morning Post
China has lifted suspensions on Australian red meat, marking the end of a four-year trade dispute that affected US$13 billion in exports. Following diplomatic efforts by Australia, trade barriers on red meat and lobster have been removed, allowing for a full resumption of exports. Australian Prime Minister Anthony Albanese announced that the last two beef-processing plants could now export to China. The trade relationship between the two nations has improved since the Labor government's election in 2022, with other commodities like barley, wine, and coal also seeing lifted restrictions. Full lobster trade is expected to resume by year-end.
https://www.scmp.com/news/asia/australasia/article/3289167/china-australia-relations-beijing-lifts-red-meat-ban-canberra-relations-improve?utm_source=rss_feed
Why Mexico’s global trade sweet spot may turn sour
Reuters BreakingViews
Mexico has significantly benefited from the "nearshoring" trend, surpassing China with $475 billion in U.S. goods exports last year. However, President-elect Donald Trump's proposed 25% tariffs on Mexican goods could jeopardize this progress. Despite the alarming nature of Trump’s campaign promises, Mexico's new government, led by President Claudia Sheinbaum, appears relatively calm and optimistic, citing past negotiations that mitigated threats during Trump's first term.
Trade relations have flourished under the United States-Mexico-Canada Agreement (USMCA), with Mexican jobs supported by intra-North American trade increasing by 2 million from 2017 to 2022. Yet, Trump's cabinet choices suggest a potentially more aggressive stance against Mexico, particularly regarding its trade surplus with the U.S., which has risen significantly.
Additionally, concerns about Chinese influence in Mexico could provoke Trump to take action against its southern neighbor. While Sheinbaum might consider increasing border security and limiting Chinese investments to appease the U.S., these measures could harm Mexico's economic growth. Overall, Mexico's trade position remains precarious amidst rising U.S.-China tensions and potential policy shifts under a new Trump administration.
https://www.breakingviews.com/features/why-mexicos-global-trade-sweet-spot-may-turn-sour/
German foreign minister's China trip highlights shaky ground under ties
Nikkei Asia
Chinese Foreign Minister Wang Yi urged German Foreign Minister Annalena Baerbock to prioritize constructive ties despite differences, during her recent two-day visit to Beijing. The discussions highlighted tensions over European tariffs on Chinese electric vehicles and China's support for Russia amid the Ukraine war. Baerbock emphasized the impact of these issues on bilateral relations. Meanwhile, German Chancellor Olaf Scholz reaffirmed support for Ukraine during a concurrent visit to Kyiv. Baerbock's remarks also aimed to counter China's attempts to influence Europe individually rather than collectively, amidst Germany's political uncertainties ahead of upcoming elections.
https://asia.nikkei.com/Politics/International-relations/German-foreign-minister-s-China-trip-highlights-shaky-ground-under-ties
Chinese tourists leave Japan guest house in disarray, sparking price hike proposal
South China Morning Post
Public outrage has emerged in Japan and China after a group of Chinese tourists left an Osaka guest house in a state of disarray following their stay from November 18 to 21. A Japanese blogger shared photos of the mess, which included empty food packages and debris, leading to widespread condemnation on social media. The guests, who booked the property through Airbnb, are believed to have significantly impacted the host's business, as the property became temporarily unavailable for reservations. Comments from online users reflected anger towards the tourists, suggesting they should face consequences for their actions, while some argued that such behavior tarnishes the reputation of Chinese travelers. In Japan, it is customary for guests to clean up before leaving, and hosts can impose cleaning fees at their discretion. There have been previous incidents involving foreign guests not paying for their stays, raising concerns about the behavior of tourists in Japan.
https://www.scmp.com/news/people-culture/trending-china/article/3288635/chinese-tourists-leave-japan-guest-house-disarray-sparking-price-hike-proposal?utm_source=rss_feed
Chip war: Chinese firms play down fresh US sanctions, tout local supply chain
South China Morning Post
Chinese semiconductor companies recently added to a US trade blacklist expressed confidence that the impact of the latest sanctions will be manageable. Empyrean Technology, a chip design tool developer, stated that the effects are "generally controllable" due to its reliance on its own patented technologies. Its shares rose by 3% following the announcement. Similarly, Skyverse Technology reported no significant impact from the sanctions, citing five years of preparation and a focus on local production. Other companies, such as Naura Technology Group and Piotech, have also downplayed the effects of the sanctions on their operations. The US government's actions aim to hinder China's semiconductor advancements, particularly in high-bandwidth memory chips critical for AI and military applications, marking the third crackdown on the Chinese chip industry in three years.
https://www.scmp.com/tech/tech-war/article/3289112/chip-war-chinese-firms-play-down-fresh-us-sanctions-tout-local-supply-chain?utm_source=rss_feed
Trump again vows to block Japanese firm’s controversial takeover of US Steel
CNN
President-elect Donald Trump has announced his intention to block Nippon Steel's $15 billion takeover bid for US Steel, asserting that the company can thrive independently with the help of tax incentives and tariffs. Trump emphasized his commitment to strengthening US Steel, which has seen a significant decline in output and stock value in recent years. The deal has faced opposition from both political parties, including Trump, President Biden, and Vice President Harris, due to national security concerns. The Committee on Foreign Investment in the United States (CFIUS) has been reviewing the deal, and given the political climate, an extension for the review process was deemed necessary. US Steel indicated it may need to lay off workers without Nippon's support, as it previously sought buyers after receiving a $7 billion offer from Cleveland Cliffs.
https://edition.cnn.com/2024/12/02/business/trump-block-us-nippon-steel-hnk-intl/index.html
China deflationary pressures send benchmark bond yield to new low
Nikkei Asia
China's 10-year government bond yield fell below 2% for the first time, indicating growing deflationary pressures despite government stimulus efforts. The yield dropped to 1.979%, while shorter and longer-term bonds also decreased. Analysts suggest that recent banking rules may lead companies to invest cash in bonds. The economy shows little sign of improvement, with inflation slowing to 0.3% and the purchasing managers' index declining. The yuan weakened as U.S. interest rates rise, prompting investors to seek better alternatives in the bond market. Overall, there are concerns about the effectiveness of China's monetary policy amidst ongoing economic challenges.
https://asia.nikkei.com/Business/Markets/Bonds/China-deflationary-pressures-send-benchmark-bond-yield-to-new-low
COVID-19 likely came from a lab, US committee finds
Al Jazeera
A US congressional committee has endorsed the theory that a lab leak likely caused the COVID-19 pandemic, according to a report released by the Republican-controlled House Select Subcommittee on the Coronavirus Crisis. The 520-page report, based on extensive investigations, claims that the US National Institutes of Health funded controversial research at the Wuhan Institute of Virology before the outbreak. While some scientists believe the virus originated from animals, the Department of Energy and FBI suggested it may have escaped from a lab. The report also critiques pandemic responses, including lockdowns and mask mandates.
https://www.aljazeera.com/news/2024/12/3/us-lawmakers-back-covid-lab-leak-theory-after-two-year-probe
Trump vows to block Japanese takeover of US Steel
South China Morning Post
US president-elect Donald Trump has stated he will block a proposed $14.9 billion takeover of US Steel by Japan's Nippon Steel. Trump expressed his opposition on social media, emphasizing his intent to keep US Steel an American company and to strengthen it through tax incentives and tariffs. The deal is under review by the Committee on Foreign Investment in the United States (CFIUS), led by Treasury Secretary Janet Yellen, and President Joe Biden has also opposed the acquisition, citing the importance of US ownership. US Steel has argued that the merger is necessary for investment in its Pennsylvania plants, which may face closure without it. Despite Trump’s firm stance against the takeover, some US Steel workers support the deal, believing it could help sustain jobs. Both major Japanese and American business groups have urged caution in the review process, while bipartisan criticism of the deal has emerged in Congress.
https://www.scmp.com/news/asia/east-asia/article/3289101/trump-vows-block-japanese-takeover-us-steel?utm_source=rss_feed
China’s 2025 economic path previewed as central bank pledges ‘supportive’ monetary policy
South China Morning Post
China's central bank governor, Pan Gongsheng, announced a “supportive” monetary policy for 2025, focusing on countercyclical adjustments and economic stimulus. He emphasized enhancing liquidity and lowering financing costs for businesses and households, while supporting property and capital markets, technological innovation, and green finance. The People's Bank of China plans to revise the M1 money supply measure, which has seen a decline, to better reflect economic conditions. Despite lower M1 growth, economic indicators like the purchasing managers’ index remain stable. Additionally, China’s 10-year bond yield fell below 2%, marking a record low amid economic concerns.
https://www.scmp.com/economy/policy/article/3289092/chinas-2025-economic-path-previewed-central-bank-pledges-supportive-monetary-policy?utm_source=rss_feed
China’s Xinjiang eyes closer ties with Pakistan and Central Asia to offset US sanctions
South China Morning Post
Xinjiang, China, is enhancing ties with Pakistan and Central Asian nations to mitigate US sanctions and bolster its role in the Belt and Road Initiative. The Khunjerab port, China's only border crossing with Pakistan, resumed full-year operations, facilitating significant trade increases. Recent meetings with Kazakhstan officials focused on cross-border cooperation in tourism, infrastructure, and security. As US sanctions impact Xinjiang, China aims to strengthen economic ties with Central Asia, despite concerns over secondary sanctions. The China-Pakistan Economic Corridor faces challenges due to security threats, prompting joint counterterrorism efforts.
https://www.scmp.com/news/china/diplomacy/article/3289009/chinas-xinjiang-eyes-closer-ties-pakistan-and-central-asia-offset-us-sanctions?utm_source=rss_feed
China’s Xi calls for the protection of Belt and Road Initiative interests overseas
South China Morning Post
President Xi Jinping emphasized the need to protect China's overseas interests in the Belt and Road Initiative (BRI) due to increasing global risks, during a recent conference. He acknowledged a "tough and complicated" international environment marked by unilateralism and regional conflicts. Despite challenges, Xi asserted that opportunities still outweigh risks and called for improved risk management in BRI projects. He highlighted the importance of balancing benefits for partner countries and China. Critics have raised concerns about debt traps, lack of local benefits, and transparency issues in BRI projects, while some partners have withdrawn from the initiative.
https://www.scmp.com/news/china/politics/article/3289056/chinas-xi-calls-protection-belt-and-road-initiative-interests-overseas?utm_source=rss_feed
Chinese AI firms rush out costly ‘reasoning’ models to take on OpenAI’s o1
South China Morning Post
Chinese technology companies are rapidly developing advanced reasoning AI models to compete with the US, with Alibaba Cloud recently previewing its QwQ model, which excels in mathematics and programming. QwQ was found to outperform OpenAI’s o1 in two math tests and match it in problem-solving. This surge in reasoning models, including updates from Tencent and other firms, signifies China's progress in AI. However, experts caution that the longer response times and higher costs may limit their practical applications in everyday tasks.
https://www.scmp.com/tech/big-tech/article/3289022/chinese-ai-firms-rush-out-costly-reasoning-models-take-openais-o1?utm_source=rss_feed
China’s strategic ‘little giant’ firms quickly rise to 14,600, surpass 2025 goal
South China Morning Post
China has successfully nurtured 14,600 small, privately-owned companies, known as "little giants," surpassing its 2025 goal of 10,000. These firms are integral to strategic industries, particularly in new technologies like artificial intelligence and commercial drones. The Chinese government supports these enterprises to bolster domestic innovation and self-sufficiency, especially amid tensions with the U.S. that have limited access to certain supplies.
As of 2022, 8,997 of these little giants were identified, significantly contributing to sectors such as semiconductors and advanced manufacturing. On average, these companies invest 7% of their operating income in research and development and hold around 22 patents each, outperforming larger firms. Most of these companies are in manufacturing and play a critical role in supply chains for strategic industries. The Chinese government plans to continue expanding support for little giants, with financial backing and subsidies announced for over 1,000 enterprises this year.
https://www.scmp.com/economy/china-economy/article/3288996/chinas-strategic-little-giant-firms-quickly-rise-14600-surpass-2025-goal?utm_source=rss_feed
Help from Asean nations to counter China is unlikely: ex-Philippine Navy officer
South China Morning Post
A retired Philippine naval officer, Rommel Ong, emphasized the need for Manila to enhance collaboration with Southeast Asian nations regarding its China policy, particularly in light of tensions in the South China Sea. Ong expressed skepticism about convincing ASEAN members to align with the Philippines, citing China's successful divide-and-conquer strategy in the region. He noted that while the U.S. supports Manila, increased coordination could provoke Beijing. Ong also highlighted potential alternatives to China’s influence, such as Japan and India, while criticizing the lack of free trade deals that may weaken U.S. influence in Southeast Asia.
https://www.scmp.com/news/china/article/3289059/help-asean-nations-counter-china-unlikely-ex-philippine-navy-officer?utm_source=rss_feed
EU shuts out Chinese hydrogen equipment from subsidy program
Nikkei Asia
The European Union is tightening restrictions on its subsidy program for "green" hydrogen production to exclude Chinese-made equipment, aiming to prevent similar issues faced in its solar panel industry. Starting with the upcoming subsidy auction by the European Hydrogen Bank, projects will not qualify if Chinese-made electrolyzer stacks make up more than 25% of their output capacity. This effectively aims to eliminate Chinese stacks, as a significant percentage of projects in the first auction planned to use them. The EU has previously faced challenges with Chinese competition in renewable energy, leading to measures such as antidumping tariffs on solar panels and additional duties on Chinese electric vehicles. Despite some opposition from EU member states, the European Commission is moving forward with the restrictions and is also considering requiring Chinese companies to set up production facilities in the EU to qualify for future subsidies.
https://asia.nikkei.com/Politics/International-relations/EU-shuts-out-Chinese-hydrogen-equipment-from-subsidy-program
China's BYD marks 30th year by chasing 4m car milestone
Nikkei Asia
BYD, China's leading electric vehicle (EV) manufacturer, marked its 30th anniversary and reported a 40% sales increase in 2023, reaching 3.75 million vehicles sold. The company is closing in on Tesla, especially in EV sales. BYD's competitive edge stems from its in-house battery production, significantly reducing costs. The company, which began in mobile phone batteries, transitioned to automotive manufacturing in 2003 and has since become a major global battery supplier. Despite low international brand recognition, BYD is expanding its presence in Southeast Asia, Europe, and beyond, with plans for new assembly plants in Hungary and Turkey by 2026.
https://asia.nikkei.com/Spotlight/Electric-cars-in-China/China-s-BYD-marks-30th-year-by-chasing-4m-car-milestone
BRICS currency: Is Trump's tariff threat justified?
Deutsche Welle
Donald Trump has threatened to impose 100% tariffs on imports from BRICS nations—Brazil, Russia, India, China, and South Africa—if they pursue a new currency to rival the US dollar. The BRICS countries are seeking to reduce their reliance on the dollar, which dominates global trade. Economists argue that the dollar's strength grants the US significant economic advantages, including lower borrowing costs and geopolitical influence, allowing it to impose sanctions on other nations.
BRICS discussions about a new currency intensified after sanctions on Russia following its invasion of Ukraine, with leaders considering a common currency to mitigate dollar-related risks. However, creating a shared currency poses challenges due to the differing political and economic systems within BRICS, with China holding a dominant economic position.
Despite some enthusiasm from leaders like Putin and Brazil's Lula da Silva, other members, such as India, are cautious. Recent statements from South Africa suggested there are no immediate plans for a BRICS currency, focusing instead on increasing trade in local currencies. Trump's tariffs could strain relations with these economies, potentially leading to retaliatory measures and impacting global inflation and economic growth.
https://www.dw.com/en/brics-currency-is-trumps-tariff-threat-justified/a-70934600
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