BREAKING: China Names Navy Veteran as Defense Minister After Ousting Li Shangfu; Does the US$228 billion China stock rally herald an end to the three-year rout?
China Revises Company Law to Tighten Capital Contribution Rules; China disappointment shapes Asia's worst and best stock markets in 2023
Welcome to this issue of The China Brief. Today is December 29, 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.
China Names Navy Veteran as Defense Minister After Ousting Li
Bloomberg
China has appointed navy veteran Dong Jun as its new defense minister, a move expected to facilitate resumption of high-level military talks with the US. This decision, made by China's top legislator, ends months of speculation about the replacement for Li Shangfu, who was removed from the role in October without explanation. Dong, the first defense minister from a navy background in Beijing, is not currently a member of the national Central Military Commission, indicating President Xi Jinping's preference. Dong has extensive experience in China's navy, including commanding in the South China Sea and the Taiwan Strait, areas of tension with the US and neighboring nations. His appointment may impact discussions on maritime disputes and military relations between China and the US.
Does the US$228 billion China stock rally herald an end to the three-year rout?
South China Morning Post
The Chinese stocks' 2.3% jump in the benchmark CSI 300 Index has led to hopes that three years of losses may be coming to an end, as foreign buyers return and investors reconsider yuan-linked assets. In addition, the yuan has risen to its strongest level against the US dollar in nearly seven months. The positive moves have reignited optimism that the worst for yuan assets may have passed, as valuations fall to attractive levels.
China Revises Company Law to Tighten Capital Contribution Rules
Bloomberg
Chinese lawmakers have revised the country's Company Law to impose tougher capital rules for registering a new firm. The changes, which take effect in 2024, will require shareholders to inject the declared amount of capital within five years, with a shorter time limit for some key industries. The revisions aim to close loopholes in corporate governance and prevent financial risks, but some entrepreneurs and lawyers have expressed concerns about the change, which they say came as a surprise and brought uncertainty.
China disappointment shapes Asia's worst and best stock markets in 2023
Nikkei Asia
Hong Kong's Hang Seng Index (HSI) has recorded its fourth straight year of decline, dropping 13.8% in 2023, its first four-year losing streak since its inception in 1969. The HSI reached a high of 22,688.9 on January 27 after Hong Kong opened its border with mainland China, but interest rate hikes and a sluggish Chinese economy have since impacted the market. The Hong Kong currency is pegged to the US dollar, meaning its interest rate follows that of the US, even though its economic activities are closely linked to China. The China slowdown also affected mainland shares, with the CSI 300 index losing 11.4%. The market's heavy focus on Chinese financial stocks played a major role in the decline. Meanwhile, Japan's Nikkei 225 was the best-performing benchmark index in Asia, rising nearly 30% in 2023 due to factors such as improved corporate governance and rising profit. India emerged as a leader in IPOs, with Mumbai being the global leader in the number of IPOs in 2023. The shift in equity market dynamics will impact where companies choose to list in the coming year.
Hong Kong Stocks Plunge to Losses for 4th Straight Year
NY Times
Hong Kong's Hang Seng index has had a tough year and is set to finish 14% lower than it started, making it one of the world's worst-performing stock markets in 2018. This decline has been driven by a combination of factors, including an economic downturn in China and pressure on American investors to reduce their exposure to Chinese companies. Money managers and pension funds have been reducing their holdings in Hong Kong, resulting in hundreds of billions of dollars flowing out of the city. Earlier this year, Hong Kong's financial chief attempted to inject confidence into the market by cutting taxes on trading and promising measures to make investors feel optimistic, but this has not had the desired effect.
Hong Kong Activist Flees to Britain, Citing Police Pressure
NY Times
Hong Kong activist Tony Chung has fled to the UK and plans to seek asylum there, citing oppressive restrictions, pressure to act as an informant, and severe stress following his release from prison in June. Chung, who was sentenced to three years and seven months in prison in 2021 for advocating independence for Hong Kong, said he will be unable to return to his home in the foreseeable future. He is the second high-profile dissident to announce going into exile from Hong Kong this month.
How Taiwan’s Voters Will Choose Their Next President
Bloomberg
Taiwanese voters are preparing to choose their next president and legislature in a competitive three-way race that will have implications for cross-strait and US-China relations. The ruling Democratic Progressive Party (DPP) is seeking to maintain Taiwan's de facto political independence, while the opposition Kuomintang (KMT) would herald closer ties with China. The Taiwan People's Party (TPP) represents a middle-of-the-road stance that includes some dialogue with Beijing. The outcome of the election will determine the level of tensions across the Taiwan Strait and could affect relations between China and the US.
Huawei was once fighting for its survival. It is back to nearly $100 billion in revenue in 2023
CNN
Chinese tech giant Huawei expects to bring in over CNY700bn ($99bn) in revenue in 2023, with a 9% jump from CNY642.3bn ($92.4bn) recorded in 2022. The figures are still below the $123bn Huawei logged in 2019. Huawei's rotating chairman, Ken Hu, said the strong performance came after the launch of Huawei’s Mate 60 Pro smartphone in August, which allowed the firm to snatch market share from Apple in China. Huawei was once the world’s second biggest seller of smartphones, but lost its position due to crippling US sanctions. Huawei expects to expand production of handsets powered by Kirin chips.
Xi reveals China’s push for global power after secret meeting on foreign policy
South China Morning Post
China has vowed to increase its "international influence, appeal, and power" in order to shape a changing world by strengthening Communist Party control of foreign affairs. President Xi Jinping made the comments during a closed-door party meeting on China's future foreign policy direction. The meeting comes amid growing signs of socio-economic headwinds at home and increasing international scrutiny and resistance to Beijing's policies. Xi called China a "responsible" global power and said the country had overcome various challenges in its external work over the past decade. He also warned of "high winds and choppy waters" ahead, in an apparent reference to the country's feud with the US and its allies. Xi called for an "equal and orderly multipolar world" and said China would "resolutely oppose the attempt to roll back globalisation".
Tough going in China has global investment banks looking abroad
Nikkei Asia
Global investment banks are searching for alternatives to China as their advisory businesses in the country slow down due to a decline in deal activity and increased competition from local firms. While Japan and India are emerging as appealing alternatives, experts warn that offsetting the slowdown in China will not be easy. Beijing's crackdown on the tech sector and tensions with the West have slowed the wave of Chinese companies listing in the US, while a clampdown on the property sector has halted real estate giants issuing high-yield offshore bonds.
ChatGPT-aided ransomware in China results in four arrests
South China Morning Post
Four individuals in China have been arrested for developing ransomware using OpenAI's ChatGPT, marking the first case in China involving the chatbot. The hackers demanded 20,000 Tether cryptocurrency to restore access to systems they had blocked. OpenAI's chatbot is not officially available in the country and the use of the technology was not mentioned in the charges against the individuals. OpenAI has restricted access to its products in China and other sanctioned markets. This case highlights the legal challenges surrounding the use of generative AI in China and globally.
JD Wins 1 Billion Yuan in Damages in Anti-Monopoly Case Against Alibaba
Bloomberg
JD.com has won a $141m settlement in an anti-monopoly case against its larger rival Alibaba. The Beijing High People's Court found Alibaba's Tmall platform guilty of abusing its market dominance by demanding sellers work exclusively with its platform. JD.com initiated the lawsuit in 2017 to challenge Alibaba's exclusivity requirement. The ruling comes after regulators launched an antitrust investigation into Alibaba in late 2020, resulting in a record fine of $2.8bn for antitrust violations and orders to cease certain practices.
Myanmar and China's CITIC to resume stalled deepwater port project
Nikkei Asia
China's CITIC Group, alongside Myanmar's military government, is set to resume work on the long-delayed deepwater port project in Kyaukphyu, Myanmar's special economic zone in western Rakhine state. The port, which is part of China's Belt and Road initiative, will serve as a key terminus connecting the Chinese mainland with the Indian Ocean. The project had been put on hold due to disruptions caused by the pandemic and the military takeover of Myanmar in 2021. CITIC and other Chinese entities are working with Myanmar's authorities to establish a foothold in the business and security fronts.
China denies political pressure on Taiwan rock band
BBC
China has denied allegations that its investigation into allegations of lip syncing by Taiwanese rock band Mayday is politically motivated. Reports claimed that Beijing had asked the band to make pro-China comments, and when they refused, an inquiry was launched to put pressure on them. China's Taiwan Affairs Office dismissed the reports as "fake news" and a "complete fabrication". The allegations suggest that China wanted to use Mayday to sway voters, particularly the youth, ahead of Taiwan's presidential and legislative elections on 11 January 2020.
First Made-in-China Cruise Ship to Set Sail From Shanghai
Bloomberg
China's first domestically built cruise ship, Adora Magic City, is set to embark on its maiden voyage on 1 January. The 323.6-metre vessel can accommodate up to 5,246 passengers in 2,125 guest rooms. The ship will operate on short trips around northeast Asia but has plans to expand to southeast Asia and possibly the Maritime Belt & Road route.
China's Hangzhou to start lifting restrictions on gas cars' licenses
Nikkei Asia
The city of Hangzhou in China is to start lifting restrictions on the issuing of new car licenses. The current restrictions were imposed in 2014 to reduce car ownership and ease traffic congestion and air pollution. Hangzhou is one of several large cities in China that have such restrictions, including Beijing, Shanghai, Guangzhou and Shenzhen. The move to lift the restrictions on new car licenses aims to boost car sales as the country's economic growth slows down.
After breakthrough talks, China's military slams U.S. for 'meddling'
Japan Times
The Chinese defense ministry criticized the United States for its continued meddling in the Asia Pacific region and accused it of maintaining a 'Cold War' mindset. This comes a week after top military officials from both countries resumed high-level talks and pledged to work towards restoring contacts to prevent miscalculations and misunderstandings. The Chinese defense ministry spokesperson took a more hawkish tone during their last regular press conference of the year.
Agnes Chow wanted in Hong Kong after breaking bail terms
Nikkei Asia
Hong Kong police are pursuing pro-democracy activist Agnes Chow, who recently fled to Canada, for breaking the terms of her bail. Chow did not report to the police station as required on Thursday. The authorities consider Chow a "fugitive" who has broken her legal obligations, as she was out on bail after being arrested on suspicion of colluding with foreign forces. The Hong Kong government has been actively pursuing pro-democracy activists who now live abroad, issuing arrest warrants for 13 other overseas dissidents prior to Chow's case.
China urges ‘prudent, steady’ yuan adoption – but wheels remain in motion
South China Morning Post
Former officials and analysts in China have urged Beijing to promote the use of the yuan abroad by deeper penetration into emerging markets with loans and swap deals. They argue that China should take a more pragmatic approach to expanding the overseas influence of the Chinese currency while remaining cautious and prepared to mitigate risks. The focus should be on risk management and serving the real economy, rather than pursuing internationalisation for the sake of it. The yuan's internationalisation has increased rapidly since its initial adoption for trade settlements in 2009 but it still lags behind the US dollar and the euro in terms of global usage.
China conducts off-site probe into Japanese cosmetics plant
Japan Times
Chinese regulators have conducted an investigation into a Japanese cosmetics maker’s production processes and have halted imports of the company’s products due to compliance concerns. The probe was conducted online and is part of China’s efforts to increase scrutiny of foreign businesses that sell products in the country. This is a rare case of Chinese authorities directly targeting an overseas manufacturing base.
Yuan Seen Rising Versus Dollar in 2024 as Capital Outflows Ease
Bloomberg
China's yuan is expected to strengthen for the first time in three years in 2024, according to a Bloomberg survey of traders and analysts. The median forecast is for the currency to appreciate to 7 against the US dollar by the end of next year, compared to its current level of 7.1124. The narrowing of the US-China interest rate gap as the Federal Reserve eases policy is expected to be the main driver behind the yuan's appreciation. However, concerns over China's property market, weak economic recovery, and tensions with the US are likely to keep foreign investors cautious.
Are China’s actions in the South China Sea a harbinger of things to come for Taiwan?
CNN
China could soon start to deploy its coast guard to ratchet up the pressure on Taiwan, which Beijing has vowed to bring under its control. The coast guard now has the backing of a Chinese law allowing it to use lethal force in waters which China claims. The coast guard makes it easier for Beijing to deploy other tools of coercion it has so far not chosen to use including moves that could directly threaten foreign companies doing business in Taiwan.
China Stock Market Sees Foreign Inflows Dry Up in Dismal Year
Bloomberg
Foreign investors are expected to record their smallest-ever annual purchases of Chinese stocks in 2022 due to concerns over the fragile economic recovery and geopolitical tensions. Foreign funds have only bought CNY 44 billion ($6.1 billion) of onshore stocks via trading links with Hong Kong on a net basis so far this year, the lowest since Bloomberg began compiling annual data in 2017. The poor performance of China's stock market this year, a lack of strong stimulus, and regulatory uncertainties have led to a heavy sell-off. Overseas funds are set to flee Chinese stocks for the fifth consecutive month in December, the longest such streak on record. However, some analysts believe that the end of depreciation pressure for the yuan, combined with the US Federal Reserve's pause in interest rate hikes and an improving economic outlook, could drive foreign investors back into China.
China’s richest provinces promise to take lead in driving growth
Japan Times
Local Chinese officials have announced their priorities for 2024, with wealthy provinces such as Zhejiang and Guangdong pledging to take a leading role in driving economic growth. These provinces have responded to the central government's call for economically strong regions to support the national economy, pledging to increase infrastructure investment and grow in high value-added sectors. This sheds light on how Beijing's economic strategy will play out nationwide.
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