China is back, bringing profit and perplexity for western business; Exclusive Insight: From Humble Sewing Machines to Urban Enterprises: Zhejiang's Innovative Economic Evolution
Foreign carmakers confront ‘moment of truth；Hong Kong student arrested over comments made on social media while in Japan；Shenzhen eases mortgage rules to boost spending power, revive flagging market
Welcome to this issue of The China Brief. Today is April 21, 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: From Humble Sewing Machines to Urban Enterprises: Zhejiang's Innovative Economic Evolution
In Zhejiang, numerous private enterprises have thrived since the 1980s and 1990s when farmers began using sewing machines to produce simple goods for sale. These endeavors generated profits, which, when reinvested from family savings, allowed for the expansion of operations from a few machines to small factories with five to ten machines.
Later, the region saw the introduction of knitting machines, particularly Korean-made Brother knitting machines. A single machine could produce socks, spurring the growth of small factories with five to ten machines. As neighbors observed this success, they too followed suit, gradually accumulating income despite the modest profits earned from each pair of socks.
Over a decade ago, the province spearheaded the concept of managing cities as businesses, prompting local governments to treat cities as enterprises. This management approach was executed through the land finance model, which involved expropriating rural land and converting it to state-owned land. Initially, farmers received no compensation. With no access to loans due to a lack of qualifications, the government had no available funds.
After expropriating the farmers' land, it was sold to real estate developers. Post-2004, the state required land transfers to be conducted through bidding, auctioning, and listing, as opposed to the previous method of government agreements with developers. Developers, who may have lacked sufficient funds or secured partial funding through private financing, had the land certificate transferred to their names, enabling them to apply for bank loans.
With financing secured, developers embarked on real estate projects. However, their funds were often insufficient, requiring the construction companies building the houses to invest upfront. The construction company owner's funds were also limited, resulting in workers, such as masons and carpenters, receiving payment only after completing their work. This practice formed a lengthy chain of funding, marked by the unpaid wages of migrant workers and the credit extended by material suppliers.
(This article is the fourteenth in the series "Zhejiang, Zhejiang People, Zhejiang Economy." The author, Ye Feng, is a Zhejiang Research Scholar.)
No change to French stand on Taiwan, envoy to Hong Kong says
South China Morning Post
France's consul general in Hong Kong has said that her country's support for dialogue will promote peace and stability in the region, while not specifically contradicting Emmanuel Macron's recent comments on Taiwan. Following Macron's three-day state visit to China last month, he stated that Europe should not follow either Beijing or Washington on the issue of Taiwan. Macron was then criticized by the US and Eastern European leaders over his stance. Macron's pursuit of greater European sovereignty has been viewed by some as being targeted against China and Russia.
India court rejects Xiaomi's challenge to $676 mln asset freeze
Reuters
An Indian court has dismissed a petition from Xiaomi challenging the seizure of INR55.51bn ($676.35m) by the country's federal financial crime agency, the Enforcement Directorate. Xiaomi denies any wrongdoing and insists that the funds were legitimate royalty payments, rather than illegal remittances to foreign entities.
Shenzhen eases mortgage rules to boost spending power, revive flagging market
South China Morning Post
Shenzhen will no longer use "guide prices" as a reference point for mortgage applications on lived-in homes in a bid to increase sales in the real estate market, according to local property agents. Previously, home loans were pegged to reference prices imposed by the Housing and Construction Bureau that encouraged reasonable listing prices and helped minimize bad-loan risks. The cooling measure led to fewer transactions and increased mortgage down payments. Although reference prices will remain, banks will no longer use them to calculate mortgages, which could increase purchasing power in the market.
Foreign carmakers confront ‘moment of truth’ in China
Financial Times
Chinese carmakers' advances in electric vehicle (EV) technology could lead to financial pressure on more established companies due to the cost competitiveness and scale from the adoption of EV mobility, said industry consultant Fabian Brandt. China is set to be the world’s largest exporter of cars, as EV features such as infotainment, experimental interior concepts and autonomous driving technology reach new levels. Although some foreign automotive executives understand the challenges they face in China, they struggle to create a swift and agile implementation of a “true localization strategy” to retain and gain market share.
Hong Kong student arrested over comments made on social media while in Japan
Japan Times
A Hong Kong student studying in Japan has been arrested in Hong Kong under China's national security law after comments made on social media while in Japan two years ago. The student had allegedly written on Facebook that “Hong Kong’s independence is the only way” and was arrested when renewing identification documentation. The comments are believed to be the first time someone has been apprehended under the security law for actions committed in Japan. The national security law came into effect in Hong Kong in June 2020, fuelling fears of the erosion of freedom and human rights in the territory.
Modernization is not a privilege for the few: Chinese foreign minister
South China Morning Post
China's Foreign Minister, Qin Gang, has stated that modernization must not be monopolized by only a few countries. Speaking at the Lanting Forum, Gang also highlighted the Saudi and Iranian leaders' recent talks as proof that China could provide the necessary impartial support to salvage the nuclear weapons deal brokered between those two countries. In addition, despite recent criticism from the West, he claimed that China's path to modernization had been a "force for justice" and a "boost for peace," with China contributing more heavily to global growth than all G7 countries combined.
Twitter drops ‘state-affiliated’, ‘government-funded’ labels
Al Jazeera
Twitter has removed its "state-affiliated" and "government-funded" labels for media outlets including Russia's RT, China's Xinhua and the Global Times; publicly funded Western channels such as NPR, the BBC and Canada's CBC have also lost their labels. The platform's policy on state-backed media seems to have been deleted, following previous controversy over Elon Musk's attempts to undermine the legitimacy of public broadcasting services. The New Zealand public broadcaster threatened to leave Twitter last week over the "-funded" label, which it claimed suggested government influence over its content.
China Central Bank Signals It Will Dial Back Pandemic Stimulus
Bloomberg
The People’s Bank of China has dropped hints that it may begin withdrawing some of the stimulus measures it put in place as the economy recovers from the pandemic. The bank has been using structural tools to target areas of the economy, but its leaders have said that such measures were temporary and would be ended as the population's plight eased. The relaxations would be implemented according to set schedules and after relevant problems had been addressed. The structural policies in question primarily include relending programs, which provide low-cost funding to banks to enable them to lend to green technology-based firms and small businesses. Scaling back the incentives will occur gradually, with no significant reduction expected in 2022, although growth may slow, according to analysts at GF Securities.
How Chinese electric cars risk wrecking the net zero revolution
Telegraph
The move of UK consumers towards Chinese electric vehicles (EVs) due to lower costs and a surge in new brands from China is raising doubts about the environmental impact of the vehicles' shipping and manufacturing. Shipping is the least environmentally damaging form of commercial transport, the International Chamber of Shipping claims. Even if shipping off a 2-tonne EV from China to the UK from China generated 120kg of carbon dioxide in its journey, a petrol car produces around 4.6 tonnes of CO2 every year, according to the US Environmental Protection Agency. Despite the best-case scenario, figures show that 78,700 miles need to be driven for any green benefits from China's EVs to kick in in countries powered mainly by coal, such as China and Poland.
Carlyle eyes fresh backers for McDonald's China arm
Reuters
Carlyle Group is reportedly planning to seek investors for McDonald's China operations in a move that could value the business at $8bn to $10bn. Carlyle and Trustar Capital control McDonald's China and the sale could see the firms downsize their stakes. However, plans are thought to be at an early stage, and no final decisions have been made.
China foreign minister steps up threats against Taiwan
Independent
China's foreign minister has warned that any action against Beijing's demand to exert control over Taiwan will be playing with fire. Steps taken by China to bolster its single-party political system as an alternative to the Western liberal approach that defines international relations is part of China's latest concept movement. Viewed as the most economically vital regions, Taiwan produces a large proportion of the world's computer chips and the Taiwan Strait is one of the world's busiest waterways. Taiwan is due to elect a new president and parliament in January.
Jack Ma is HKU’s honorary professor for entrepreneurship research
South China Morning Post
Alibaba’s founder, Jack Ma, will join the University of Hong Kong’s faculty of business and economics as an honorary professor. As part of the three-year-term appointment, he will conduct research in finance, agriculture and entrepreneurial innovations with the faculty. Ma taught English at Hangzhou Dianzi University in the Zhejiang provincial capital before co-founding Alibaba, which owns the South China Morning Post. The university has invited successful businesspeople to bring real-world relevance to its academic courses in the past.
‘High risk, high reward’ for European firms seeking to up China R&D spending
South China Morning Post
Geopolitics and China’s self-reliance push are causing European companies to rethink localizing research and development (R&D) in the country, the European Union Chamber of Commerce in China has written in a survey of 107 member firms conducted between November and December 2021. Although China has attracted European businesses to compete with local counterparts and stimulate their substantial technology sector with tax incentives and a swift research-to-commercial adoption pipeline, geopolitical concerns over Taiwan and Ukraine, Beijing’s technology policies, trade secret protection, and other dangers provoke doubts over the value of returning to the country for R&D.
Xi’s Tech Self-Reliance Push Leaves Europeans Wary of China R&D
Bloomberg
Research and development (R&D) plans of European companies operating in China are being reviewed as local firms increasingly favor locally produced technology or technology without US parts. The European Union Chamber of Commerce in China organized the survey that found 52% of respondents believed that European sentiment regarding collaboration with China was impacting their business in a negative way. Meanwhile, 26% said that such sentiment in the US had a negative effect. Furthermore, 88% of survey respondents believe that Covid-19 barriers have a detrimental effect on R&D.
Russian Arms Sales to India Stall Due to Fears Over US Sanctions
Bloomberg
India and Russia are struggling to find a payment mechanism that doesn't violate US sanctions; Indian payments for weapons worth over $2bn have been stuck for around a year. Russia has stopped supplying credit for a pipeline, of around $10bn worth of spare parts as well as two S-400 missile-defense system batteries, that have yet to be delivered. India's government has proposed Moscow use rupees from weapons sales to invest in Indian debt and capital markets to avoid stockpiling rupees while Russia remains unwilling to accept rupees due to exchange-rate volatility.
China is back, bringing profit and perplexity for western business
Financial Times
The geopolitical tensions between China and the US and Europe are presenting a quandary for multinationals investing in the Chinese economy. As western businesses reap the rewards of China’s economic expansion, driven by pent-up demand in the retail sector since Covid-19 restrictions were lifted in December, the question is whether to invest in the world’s second-largest economy as geopolitical tensions over the fate of Taiwan intensify. Volkswagen, which owns Porsche, recently announced a plan to invest €1bn in building an innovation center in China, despite policymakers around the world increasingly regarding the country as the biggest threat to the West.
China sees more state-sector funds launched after policy drive
Reuters
Chinese asset managers are launching funds to take advantage of the upwards trend in stocks of state-owned firms, which have leapt in value following Beijing pushing the market into revaluing the previously overlooked state sector. Consequently, over 10 mutual fund companies have put in applications to launch almost 20 state-owned enterprise-dedicated funds since March, according to state media. The rally has made them cheaper than global rivals, a factor that has heightened interest in investment. However, long-term investment remains uncertain due to questions over the sustainability of SOEs' performance.
Australian lecturer’s ‘anti-China’ remarks spark discrimination concerns
South China Morning Post
Chris Lloyd, an academic at the Melbourne Business School, has suggested in a Facebook post that Australian universities should reduce their exposure to Chinese students, leading to concerns over potential academic discrimination. Lloyd referred to a recent report from The Sydney Morning Herald warning of a war with China and stated that if conflict were to break out, universities should “target more Indonesian and Indian students instead to promote business and ethnic diversity”. Students, including those from mainland China and Singapore, have petitioned for the university to respond to Lloyd’s comments, which they consider negative and possibly racially vilifying. University guidance has advised Lloyd not to comment on the issue. Concerns have also been raised over a perceived rise in racist attacks in Australia towards Asian communities during the pandemic.
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