China has an inflation problem. It’s way too low; Exclusive Insight: E-Donkeys and Economic Resilience: A Firsthand Glimpse of China's Post-Pandemic Revival
Scholz to Meet with Chinese Leadership in Bid to Soothe Tensions; China's Shanghai to ramp up high-tech investments; China, Russia tensions haunt South Korea’s search for US security guarantees
Welcome to this issue of The China Brief. Today is April 25, 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: E-Donkeys and Economic Resilience: A Firsthand Glimpse of China's Post-Pandemic Revival
After a three-year absence and the easing of pandemic restrictions, I have at last returned to Chinese soil. As I stepped out of the customs hall, I couldn't help but notice two fellow citizens discussing electronic product specifications, immediately evoking a tangible sense of economic vitality.
A single day spent in a top-tier Chinese city is enough to leave one in awe of the electric motorcycles (locally dubbed "e-donkeys") nimbly navigating the streets. This is the authentic manifestation of China's economy, a reality that cannot be wholly comprehended through foreign media reports or gleaned from one or two analyses by global financial institutions.
Although the delivery service sector constitutes a mere fraction of the economy, this modest component nonetheless reflects the underlying economic dynamism. The delivery process hinges on both purchasing and selling, and the thriving courier service bears testament to the bustling activity at both ends, for there would be no deliveries without merchandise to transport.
The fact that purchases are being made suggests that despite the pandemic's impact on incomes, purchasing power has not been fundamentally compromised. We are evidently in a phase of recovery, corroborated by first-quarter economic data.
Conversely, the presence of goods for sale implies that the manufacturing sector has not come to a standstill. Furthermore, a critical question arises: how could the booming courier industry be sustained without the capacity to produce millions of e-donkeys, even with brisk buying and selling activity? Thus, the vibrancy of China's economy can indeed be appraised through the widespread use of e-donkeys by delivery services on the streets.
(This article is part of the series "Observing the Rise and Fall of China's Economy Upon Returning Home." The author, Shi Keni, is an entrepreneur and a contributing expert for the China Brief.)
Chinese AI firm 4Paradigm files for IPO again after US sanctions
South China Morning Post
4Paradigm, an artificial intelligence company in China, has filed for a Hong Kong initial public offering for a fourth time, seeking to raise new funds after being added to the US export control list in March. The company, which specializes in helping enterprises develop their decision-making AI applications, saw losses for 2022 come to CNY1.6bn ($240m), but this was down 8% YoY. Similarly, revenue for the year grew 53% to CNY3bn, according to the prospectus. The AI firm's previous IPO filings lapsed for unknown reasons such as was the case with filing done in August, which also passed in February 2022.
China breaks silence over status of Mars rover Zhurong
Al Jazeera
China's Mars rover, Zhurong, has likely been hindered by dust accumulation on its solar panels, keeping it in hibernation mode since May 2022, according to its mission designer. The fully robotic rover was set to wake up in December but the lack of solar radiation due to winter on Mars may have affected its power supply. While Zhurong has reportedly traveled 1,921 meters and explored for 358 days, which exceeds its original intended timeline of three months, speculation remains as to whether it will emerge before the summer solstice on Mars in July.
China’s tourism sector shows signs of strength ahead of key holiday
Japan Times
China's travel companies are seeing a flood of bookings from domestic tourists, outstripping even pre-pandemic levels, ahead of the upcoming Labour Day holiday. The five-day public holiday will be the first since China resumed overseas group tours in February. Air passenger traffic is set to reach nine million, overtaking pre-pandemic levels while flight searches hit 110% of levels before the pandemic, according to travel site Ctrip. Several local governments have taken action to prevent sharp price increases.
Startup e-commerce platform Temu expands to Europe
Reuters
Chinese-owned e-commerce platform Temu, which is owned by PDD Holdings, has expanded into six European markets, including the UK, Germany and Italy. Previously, Temu was available in the US, Canada, New Zealand and Australia. Temu's success has been driven by its low-cost e-commerce model, which allows customers to purchase goods directly from Chinese merchants, with gross merchandise value rising from $3m in September 2020 to $192m in January 2021. The platform also recorded 19 million downloads in the US during Q1 2021, with Sensor Tower ranking Temu as the country's most downloaded app.
China to Scrap PCR Test For Inbound Travelers in Latest Easing
Bloomberg
China announced on Tuesday that it will stop requiring inbound travelers to show a negative PCR test result. Instead, travelers may present negative rapid antigen tests, which airlines will no longer need to check as the change is “guided by the principle of ensuring safe and orderly travel,” to accommodate the low number of international flights. While China previously loosened the rule for some countries, government data shows that the number of international flights in Q1 2021 is only 12.4% of 2019 levels. China initially maintained the PCR testing rules as other countries’ fears over new variants led them to continue testing travelers from here. Other deterrents, such as high fares, limited airline capacity, and visa processing backlogs are likely to hinder global air travel for at least a year, according to Subhas Menon, Director General of the Association of Asia Pacific Airlines.
China’s Politburo meeting to offer traders policy clues as they eye new bets
South China Morning Post
Investors are closely watching China's Politburo high-level meeting for clues on how to adjust their portfolios. Policymakers are expected to focus on stabilizing employment, revitalizing the private sector, and boosting consumption, following China's 4.5% growth in the first quarter. Tech sectors and high-end manufacturing industries may receive more policy support, but traders also require fresh policy catalysts to retain momentum, amid the cooling AI frenzy. Central bank liquidity injections have also decreased, leading to increased cautiousness among investors. However, the Politburo meetings have previously moved stocks, with green-energy bets standing out in 2021 after resilience to market declines.
Vietnam, Taiwan boost share of shipments to the U.S. as China loses out
Nikkei Asia
China’s share of US imports from low-cost countries and regions in Asia declined last year as more companies shifted their manufacturing operations from the country, according to a report by management consulting firm Kearney. In 2022, the mainland and Hong Kong accounted for 50.7% of US imports from Asia’s low-cost regions, down from 53.5% in 2021 and part of an ongoing trend that began in 2013.
Scholz to Meet with Chinese Leadership in Bid to Soothe Tensions
Bloomberg
German Chancellor Olaf Scholz has invited China's Prime Minister Li Qiang to Berlin on 20 June, during which he will discuss matters such as peace and climate change with his Chinese counterpart. The meeting has been in the pipeline for months and Germany hopes it can use the opportunity to build on its economic ties with China, which is a key trading partner for Germany. Scholz has indicated that he opposes efforts to decouple from China and instead wants to "de-risk" relationships, having identified potential vulnerabilities resulting from reliance on Russian gas.
Ron DeSantis says deterrence key to preventing Taiwan conflict
Nikkei Asia
Florida Governor Ron DeSantis, a possible contender for the Republican presidential candidacy, has said that deterrence is crucial in avoiding a conflict in the Taiwan Strait. DeSantis explained that the key objective should be to discourage a military situation, and if Chinese President Xi Jinping knows that the costs of him initiating hostile action will surpass the advantages, then it will not occur.
Taiwan activist formally arrested for suspected ‘secession’ in China
CNN
Chinese authorities have formally arrested pro-independence Taiwanese political activist Yang Chih-yuan on "secession" charges about eight months after he was detained. Yang's arrest comes after he was detained by Chinese state security in Wenzhou in Zhejiang province last August following the United States House Speaker Nancy Pelosi's controversial visit to Taiwan that infuriated Beijing. Taiwan's Mainland Affairs Council- which has been calling for Yang's release- reiterated on Tuesday that he is innocent and the Chinese Communist Party should release him and allow him to return to Taiwan as soon as possible.
China, India vow to hasten border progress as ministers prepare to meet
South China Morning Post
China and India aim to speed up progress towards resolving the ongoing dispute over their disputed border, after their frontline officers held another round of talks at the 18th commander-level meeting in Chushul-Moldo on Sunday. The dispute in the border’s western sector centres on Aksai Chin, an area controlled by China that India considers part of its Ladakh region. The nations maintained that discussions regarding this dispute were frank and in-depth, but did not specify the issues discussed. Their defence ministers are set to meet in New Delhi later this week.
Philippines' Marcos may discuss Taiwan in U.S but trade tops agenda
Reuters
Philippine President Ferdinand Marcos Jr will focus on trade and investment during his first official visit to Washington on May 1, according to Philippine Ambassador to Washington Jose Manuel Romualdez. Electronics exports to the US almost doubled in February, while the US is also an agricultural market for the Philippines. China, however, is Manila's most important trading partner. Trade talks will be complicated by increasing tensions in the region and doubts about the extent of US commitment to defend the country under a 1951 Mutual Defense Treaty.
Wanda Chairman Notes Challenges Amid Bond Tumult, IPO Delay
Bloomberg
Dalian Wanda Group, the Chinese conglomerate, has faced challenges due to concerns about its debt and delays to the initial public offering (IPO) of mall operator Zhuhai Wanda Commercial Management, the company's chairman said during an internal meeting last week. The IPO was first filed for in 2015, and third application lapsed this week, according to Bloomberg. Loans related to the deal and other debt due this year have caused investor uncertainty, and two dollar bonds issued by a Dalian Wanda unit last year now trade below 60 cents, which is considered distressed trading.
Evergrande revamps NEV arm to sweeten debt overhaul but analysts underwhelmed
South China Morning Post
China Evergrande New Energy Vehicle (NEV) is transferring the residential and property projects of the NEV to Evergrande for just $0.29 as it seeks approval from offshore creditors to restructure its $19bn offshore debt. However, analysts are skeptical as to whether the move will make their restructuring plan more attractive to creditors, and Evergrande NEV remains under scrutiny, with the carmaker warning last month that it is “at risk of discontinuing production” as it risks cash burnout. Evergrande NEV currently relies on healthcare for 98.5% of its revenues.
China's Shanghai to ramp up high-tech investments
Reuters
Shanghai is set to promote investments in specialized technology such as chip design, circuitry and artificial intelligence. The Chinese city is keen to encourage investment in certain qualified semiconductor projects and will offer support up to CNY100m ($14.47m). The move comes as China continues to develop its offering in technological self-sufficiency.
Hong Kong’s Memory Is Being Erased
NY Times
Authorities in Hong Kong are attempting to erase history and re-write it, according to Louisa Lim, an expert in Chinese politics. In a New York Times opinion piece, she outlines how Hong Kong's memory is being reformatted step by step, through methods including mass indoctrination through patriotic education, the introduction of flag-raising ceremonies in schools, and oaths of allegiance for civil servants. Republican symbols are also being purged, with Lim stating that statues of sunflowers, symbols of Taiwan's democracy movement, were removed from a Hong Kong high school’s campus last September. Many key institutions, including civil society organizations, trade unions, and political parties, have dismantled themselves since the 2019 protests, while many journalists have fallen silent, with some in exile or in jail. At least 12 news outlets have closed down since the draconian national security law was imposed on Hong Kong.
India to pass China this week as world’s most populous nation: UN
Al Jazeera
India is predicted to surpass China as the world's most populous country with almost 1.43 billion people by the end of this month, according to the United Nations. India's government has not yet commented on the UN's predictions. Observers say India's large, young population gives it the potential to replicate China's economic trajectory. However, India is struggling to meet the challenge of providing employment, electricity, and housing for its growing population.
China’s Deepening Selloff Shows Investors Are Losing Confidence
Bloomberg
Chinese equities have plummeted as traders assess geopolitical pressures and potential economic risks, hitting the MSCI China Index, which is set to lose out on six days of growth, along with other mechanisms tracking Chinese stocks. Foreign investors are also predicted to be offloading Chinese shares for the third day in a row, while stock yields have dropped. Disgruntled investors are searching for solace in sovereign bonds during China's expected shift in policy that will focus on improving business productivity while stopping short of more monetary stimulation.
Chinese scientists take big step on journey to 6G wireless communication
South China Morning Post
Researchers from the Aerospace Science and Industry Corporation Second Institute in China have achieved the first real-time wireless transmission of the country’s 6G communication technology. The test, which used terahertz orbital angular momentum communication technology, could usher in the successor to the 5G platform. Experts believe 6G technology could include faster speeds, reduced latency, and better spectrum use, freeing up time and resources for other data-intensive tasks such as high-definition virtual reality and real-time holographic communication.
Why young shoppers are cool with counterfeits
Financial Times
Young people are increasingly purchasing fake luxury products, driven by rising prices at luxury brands, financial difficulties, and a “thrift culture.” In a survey of 22,021 people aged 15 to 24 conducted by the EU Intellectual Property Office in 2022, 37% said they had bought at least one fake item in the previous year, up from 14% in 2019. Clothes, footwear, and accessories were the most popular categories, with the report stating that “not caring” if the item was fake was the main motivation. The camaraderie among young people is also seen as a factor, as social media users share tips on how to buy convincing replicas. In a 2023 survey of 2,110 Gen Z respondents across 12 countries by audience research company GWI, 20% said inflation had had a “dramatic” impact on their finances. A focus on “frugal flexing” and the cost of living were said to be drivers behind the trend.
China, Russia tensions haunt South Korea’s search for US security guarantees
South China Morning Post
South Korean President Yoon Suk-yeol's six-day state visit to Washington has been criticized by some for his 'friend or foe' approach in response to a delicate balancing act amongst competing powers. While Seoul is seeking stronger commitment from Washington to protect South Korea against growing nuclear threats by the North, the US expects its ally to play a greater role in restraining China and Russia. As well as bolstering economic security in semiconductors and batteries, Seoul is also expecting US concessions in the implementation of the Inflation Reduction Act and Chips and Science Act to curb global trade and technology ties with China.
Malaysian energy needs clash with China claims in South China Sea
Al Jazeera
Chinese officials have questioned Malaysia’s oil and gas exploration within its exclusive economic zone (EEZ) in the South China Sea after state-owned energy company Petronas “carried out a major activity at an area that is also claimed by China,” Prime Minister, Anwar Ibrahim said. Although Anwar told his Chinese counterparts that Malaysia considers the area Malaysian territory and “therefore Petronas will continue its exploration activities there”, this exchange highlighted Beijing’s increasing efforts to pressure Kuala Lumpur not to exploit energy resources under its control, even as Anwar looks to deepen Sino-Malaysian ties.
China has an inflation problem. It’s way too low
CNN
China's economy is struggling with deflationary pressure, in which consumer prices fell 0.7% YoY in March despite the central bank cutting interest rates and pumping cash into the financial system. Uncertainty over the economy due to the pandemic has meant households continue to save money rather than go out and spend, while companies remain wary of making new investments, raising the specter of a tailspin of falling prices and wages from which the economy may struggle to recover. Chinese households are heavily in debt and have no ability or willingness to spend while local governments are also acting like "zombies" due to their debt woes.
U.K. urges China to explain ‘biggest’ peacetime military buildup
Japan Times
The UK's Foreign Secretary, James Cleverly, will urge China to be more transparent regarding the military expansion in the Indo-Pacific in order to avoid tragedy. Cleverly recognizes the significance China has on global affairs through solving significant global problems. However, he will also condemn Chinese oppression and the dismantling of freedoms.
Alibaba, HSBC push Hang Seng to 4-week low on valuation, recovery concerns
South China Morning Post
Hong Kong's Hang Seng Index has fallen 1.4%, its lowest point since 28 March, with a slump in tech stocks, including Alibaba Group and Tencent Holdings, leading the market. Analysts have warned that the valuations of such firms may have risen too far ahead of projected earnings and economic performance in mainland China. Meanwhile, the Hang Seng China Enterprises Index reportedly saw a 9.5% drop in 12-month forward earnings last week, and almost three times as many companies missed 2022 earnings forecasts as beat them.
Can China replace the US in the Middle East?
Al Jazeera
China's recent successes as a mediator in the Middle East show a shift toward the country becoming a peacemaker in global conflicts. The foreign ministers of Saudi Arabia and Iran recently met for the first time in seven years, a result of meetings hosted and mediated by China. Trita Parsi, the co-founder and executive vice president of the Quincy Institute for Responsible Statecraft, says that the influence China has as a primary trading partner in the region has allowed the country to become successful when previous mediators had failed. This diplomatic and economic influence is allowing Beijing to expand its reach beyond Middle Eastern partners, such as Israel and Palestine.
China’s determination to widen its influence is supported by its achievements in modern technology, such as 5G connectivity, which it can supply through companies like Huawei. In addition, China has also been investing in the region through the Belt and Road Initiative, which aims to create a China-backed network of ports, railways, highways, and other infrastructure projects by building links between Europe, Asia, and Africa. In addition to these economic benefits, China is also viewed as an ideologically trustworthy trading partner, as it has a policy of not interfering in the domestic affairs of other countries.
Despite China's fast-growing power in the region, the country still doesn't have the ability to replace the US as a prominent security provider in the Middle East, but what it does offer is access to modern technology, economic expansion, and a neutral, non-interfering policy.
Only 10 carmakers will survive global EV battle, says Tesla rival Xpeng
Financial Times
China's car industry will shrink to only 10 companies over the coming decade, according to Chinese car rival to Elon Musk’s Tesla, Xpeng, as intense competition in China’s electric vehicle market spills onto the global stage. Vice-chair of Xpeng said for Chinese companies to be among the last carmakers standing, they would need to have annual sales of at least 3mn vehicles, underpinned by global exports. Xpeng sold more than 120,000 vehicles in 2022, however, first-quarter sales were down almost 50% year-on-year after Tesla cut prices in China.
HSBC, Standard Chartered set to report results in aftermath of the banking crisis
South China Morning Post
Hong Kong's biggest banks, including Standard Chartered and HSBC, will release their first-quarter earnings reports this week. The reports will be closely watched, with investors looking for signs of financial stress and indications of China’s economic recovery amid the ongoing impact of the Covid-19 pandemic. According to the latest consensus analyses, Standard Chartered is expected to report a pre-tax profit of $1.43bn for Q1, while HSBC is expected to report an 87% jump in pre-tax profits to $32.7bn over the next two years. Hong Kong lenders are expected to experience a boost as China continues to recover from the pandemic, with Moody’s Investors Service predicting an improvement in exports and tourism as restrictions on travel are lifted.
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