China relaxes capital controls to entice badly needed foreign investment; U.S. envoy Emanuel slams China again in new tweet

Biden Issues China Restrictions on Companies Getting Chip Funds; Another top Silicon Valley investor is splitting off its China business as pressure mounts

Welcome to this issue of The China Brief. Today is September 22, 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.

Biden Issues China Restrictions on Companies Getting Chip Funds

Bloomberg

The Biden administration has announced final restrictions on expansion in China by semiconductor companies that will receive federal funds to build plants in the US. The restrictions are the last regulatory hurdle before the Commerce Department hands out more than $100 billion worth of federal aid intended to boost domestic chipmaking while containing China’s technological advancement. Under the new rules, companies that receive federal funds will be limited to a 5% increase in output for advanced chips and a 10% increase for older technology. Companies will also be barred from substantially expanding their physical manufacturing space in China.

Another top Silicon Valley investor is splitting off its China business as pressure mounts

CNN

Silicon Valley venture capital firm GGV Capital has announced that it will split its US and China operations into separate entities due to rising tensions between the two countries. The firm will create two "completely independent" companies, with one focusing on North America, Europe, Latin America, Israel, and cross-border US-India deals, and the other focusing on China, Southeast Asia, and South Asia. The move comes as US-China tensions continue to impact businesses, with the Biden administration recently announcing restrictions on investments by US venture capital and private equity firms in Chinese tech sectors.

China relaxes capital controls to entice badly needed foreign investment

CNN

China is relaxing its strict capital controls in an effort to attract overseas investors. Chinese authorities have announced that foreigners in Shanghai and Beijing will be allowed to freely move their money into and out of the country. The move comes after data showed that foreign direct investment in China had hit a record quarterly low due to a slump in business confidence. The new rules, which do not apply to mainland Chinese nationals, took effect on September 1 and are aimed at attracting foreign investment to build an open economy.

Premier Li Qiang pushes hi-tech firms to boost China’s self-reliance

South China Morning Post

Chinese Premier Li Qiang has urged high-tech firms to play a bigger role in boosting the country's technological self-reliance and stabilising its supply and industrial chains. During a visit to Chinese manufacturers facing US restrictions, Li called for greater confidence in development and a focus on transformation and upgrading. He also stressed the need to concentrate on high-end, intelligent and green technology to climb to the top of the industrial chain, innovation chain and value chain.

EU trade commissioner to seek relief from export barriers during China visit

Financial Times

EU trade commissioner Valdis Dombrovskis will visit China to address trade grievances and urge China to buy more EU goods. The trip is expected to be the most intensive in months between the two parties. Dombrovskis will question China's refusal to approve medical devices and its use of security measures to crush competition. China will challenge the EU's new carbon border tax and the investigation into subsidies for electric vehicles.

Philip­pines mulls court ac­tion against Bei­jing in South Chi­na Sea dis­pute

Al Jazeera

The Philippines is considering taking legal action against China over the alleged destruction of coral reefs in the South China Sea. Manila has accused Beijing of causing environmental damage at Iroquois Reef in the Spratly Islands and is assessing the extent of the damage. China claims the entire South China Sea under its nine-dash line, but the Philippines, Brunei, Malaysia, Taiwan and Vietnam also claim the disputed waters. In 2016, The Permanent Court of Arbitration ruled in the Philippines’s favour that China’s nine-dash line had no legal basis, but Beijing ignored the decision.

China Mulls Easing Foreign Stake Limits to Lure Global Funds

Bloomberg

China is reportedly considering relaxing the rules that limit foreign ownership in domestic publicly traded companies in order to attract global funds back to its stock market. The country currently caps total foreign ownership in locally listed firms at 30% and subjects a single foreign shareholder to a 10% limit. The discussions are still in the early stages and details, such as which sectors might benefit and where new cap limits might be set, have not been decided. This move comes as foreign investors have been exiting the Chinese equity market, with domestic shares among the worst-performing globally this year.

Apple's flagship Shanghai store buzzes as iPhone 15 goes on sale

Reuters

Apple's new iPhone 15 went on sale in China on Friday, with over a hundred customers queuing at the flagship store in Shanghai. The launch is being closely watched by fans and market watchers, following increased restrictions on iPhone use by government staff and the release of a high-end rival from domestic manufacturer Huawei. However, strong pre-orders have eased concerns and delivery times have been pushed into November. The premium models, iPhone 15 Pro and Pro Max, sold out in just one minute on Alibaba's Tmall e-commerce site. Some customers at the store expressed disappointment with the lack of significant upgrades from the previous model.

JD.com subsidy scheme for store owners fails to appease investors; shares tumble

South China Morning Post

Chinese e-commerce platform JD.com's shares have hit an all-time low after its 10 billion yuan ($1.37bn) subsidy programme failed to boost business prospects. The scheme was aimed at fending off rivals Alibaba and PDD, but analysts have questioned its effectiveness. JD.com's shares have fallen by 47% this year, wiping $35.8bn off its market value. The company ranked the lowest of the three preferred stocks by US research firm Morningstar. JD.com's retail business grew by 5% from a year earlier in Q2, lagging PDD's 66% growth and Alibaba's 12% increase.

Laos debt at 'critical level' with China payments still opaque

Nikkei Asia

Laos's debt crisis is worse than the world realises, according to Mariza Cooray, a senior economist with the Indo Pacific Development Centre at the Lowy Institute. "That's partly because of the incredible level of opacity, and the poor quality of the statistics and information being disseminated," she said. Laos' public and publicly guaranteed debt stands at 123% of GDP as of 2023, according to the International Monetary Fund, with over half owed to China. Cooray said she did not see a "way out for Laos, outside of debt forgiveness," a precedent she believed Beijing is reluctant to set.

Why China’s slowdown is actually helping the West

The Sydney Morning Herald

China's economic slowdown is causing concerns that it may no longer be a major growth engine, which could lead to a global economic slump. The Chinese economy is faltering, with falling consumer confidence, oversupply of manufactured goods, and declining demand for credit. Exports are also down due to the West's cost of living crisis. China's growth rate is expected to fall to 3% in 2022, which is low for the country. The Hong Kong stock market has entered "bear market" territory, and the yuan has hit a 16-year low against the US dollar. The real estate sector, which accounts for 25-30% of GDP, is also experiencing a slowdown, causing major developers to fold. China's government debt is over 140% of GDP, making it difficult for the authorities to launch large-scale fiscal rescue measures. However, the lending rules in China's property market are less brittle than those in the US before the 2008 collapse, which makes a collapse less likely. Instead, a drawn-out period of sluggish growth, similar to Japan in the 1990s, is more likely. Despite the concerns, China's slowdown is currently benefiting the Western world by making exports cheaper and helping to alleviate inflation and the cost of living crisis.

Rahm Emanuel criticises China in speech and social media post

Reuters

Rahm Emanuel, the US ambassador to Japan, has criticised China for coercing its neighbours and engaging in economic coercion. He posted pictures of Chinese boats fishing near Japan despite a seafood ban and questioned the whereabouts of China's defence minister, who has not been seen in public for over three weeks. The ambassador's remarks drew a response from China's foreign ministry, which accused him of favouring Japan's "irresponsible" behaviour. Emanuel declined to comment on whether the White House had instructed him to halt his social media posts.

China sentences Uyghur academic to life in prison in Xinjiang

Washington Post

Rahile Dawut, a prominent Uyghur academic who disappeared in 2017 during China's crackdown on Uyghur Muslims in Xinjiang, has been sentenced to life in prison, according to the human rights group Dui Hua. Dawut, a former professor at Xinjiang University and leading scholar on Uyghur folklore, was convicted in 2018 on charges of endangering state security by promoting "splittism." She is among more than 300 intellectuals, artists, and writers believed to be detained in Xinjiang as part of the Chinese government's campaign to assimilate the Muslim minority and promote ethnic harmony. Rights groups have accused China of committing "cultural genocide" by eradicating Uyghur culture. Dawut's case highlights the government's targeting of even public intellectuals firmly within the establishment. Last year, the UN High Commissioner for Human Rights concluded that China had committed violations in Xinjiang that may amount to "crimes against humanity."

China tourists scared of Thailand travel due to hit film, kidnapping rumours

South China Morning Post

Thailand's tourism industry has been hit by social media rumours and a popular Chinese blockbuster film that claims tourists might be kidnapped and sent across the border to work in brutal scamming compounds in Myanmar or Cambodia. The number of Chinese tourists visiting Thailand has plummeted, leaving the country's holiday industry struggling. Thailand welcomed a record-breaking 11 million Chinese tourists in 2019, but since the start of 2023, only 2.3 million Chinese tourists have come. The Thai government has announced temporary visa-free travel for Chinese travellers in a bid to restart the flow.

Alibaba’s Cainiao Plans to Raise At Least $1 Billion in Hong Kong IPO Soon

Bloomberg

Cainiao Network, the logistics arm of Alibaba, is reportedly planning to file for its Hong Kong IPO as early as next week, potentially raising at least $1bn in the share sale. While no final decision has been made and details could still change, if the IPO goes ahead, it would make Cainiao one of the first of Alibaba's units to go public. Cainiao has been working with banks including Citic Securities, Citigroup and JPMorgan on the IPO. Separately, Alibaba is reportedly delaying the Hong Kong IPO of its Freshippo grocery chain due to weak sentiment for consumer stocks in China.

China urges US envoy to Japan to stop favouring Japan's 'irresponsible' behaviour

Reuters

China has criticized US ambassador to Japan, Rahm Emanuel, for favouring Japan's "irresponsible" behaviour regarding the release of water from the Fukushima nuclear plant. China called on the US to stop being biased in favour of Japan and to join other countries in urging Japan to find a responsible way to dispose of the wastewater.

Imitators are adopting Chinese tactics to quash online critics

Nikkei Asia

Facebook's network management tools are failing to combat the deployment of an army of bots by the Cambodian dictatorship to silence dissenting voices. The government already controls the majority of media in Cambodia but is unwilling to tolerate any form of criticism. The bots are being used to trigger Facebook algorithms to restrict or remove content posted by critics. This issue is not unique to Cambodia, as Facebook's parent company, Meta, recently discovered a network of accounts aimed at promoting Beijing's agenda and silencing critics in countries including the US, Australia and the UK.

Japan demands release of citizen detained in China for spying

Japan Times

A Japanese man in his 50s, who is an employee of Astellas Pharma, a Japanese drugmaker, has been detained by Chinese authorities since March. The reason for his detention is unclear.

Huawei’s New Chip Powering Sales Surge Shown to Have 5G Support

Bloomberg

Huawei's Kirin 9000s processor supports 5G wireless speeds, according to TechInsights. The Mate 60 smartphone series, powered by the Kirin chip, sold over 300,000 units in its first two weeks on sale in China. Huawei has not disclosed certain key specifications and features of the devices, including whether they are capable of achieving 5G cellular speeds. However, Bloomberg News testing showed 5G speeds, which has been confirmed by TechInsights. The Mate 60 phones are Huawei's first 5G devices since US sanctions derailed the company's consumer business three years ago.

Rocket failure marks rare setback for China’s satellite network plans

South China Morning Post

Chinese rocket company Galactic Energy experienced its first major setback after its Ceres-1 rocket failed to send a high-resolution imaging satellite into orbit. The rocket, which has been one of the best-performing commercial rockets in China, has previously completed nine successful launch missions. This failure could potentially delay the expansion of China's Jilin-1, the world's largest Earth observation satellite network. Galactic Energy said it is investigating the cause of the failure and will work to ensure the success of future launch missions.

Shein shifts shipping strategy to bring China-made goods closer to US shoppers

Reuters

E-commerce company Shein is increasing the number of low-priced clothing and home goods it sends to US warehouses from China in order to reduce shipping times for customers. The company has traditionally flown goods directly from China to customers in the US, resulting in long wait times. However, it recently opened a warehouse in Indiana in order to speed up delivery times. The move is part of Shein's strategy to compete with established retailers such as Amazon, Target and Walmart on delivery times and prepare for an initial public offering.

U.S. envoy Emanuel slams China again in new tweet

Nikkei Asia

U.S. Ambassador to Japan Rahm Emanuel has tweeted a photo of Chinese fishing boats operating in Japan's exclusive economic zone, despite China's ban on all Japanese seafood. The tweet comes after a report claimed that President Joe Biden's aides had asked Emanuel to stop posting messages on social media taunting Chinese President Xi Jinping. However, Emanuel's spokesperson has disputed the report, stating that it is "absolutely not true." Emanuel's tweet suggests that he will continue to criticize Beijing. U.S. and Chinese officials have been discussing the possibility of a summit between Biden and Xi in November.

A Chinese Journalist Gave #MeToo Victims a Voice. Now She’s on Trial.

NY Times

Chinese journalist Huang Xueqin and labor rights activist Wang Jianbing have stood trial on subversion charges, following two years in detention. Both individuals were taken into custody in September 2021 and later charged with inciting subversion of state power. The vaguely worded offense has been seen as a tool to silence dissent in China. The trial is the latest example of the Beijing government's intensified crackdown on civil society. Huang was once a prominent voice in China's #MeToo movement, while Wang worked to promote the rights of people with disabilities and was also a #MeToo advocate.

Exclusive: Satellite images show increased activity at nuclear test sites in Russia, China and US

CNN

Satellite images have shown that Russia, the United States, and China have expanded and built new facilities at their nuclear test sites in recent years. The images, obtained by CNN, show new tunnels, roads, and storage facilities, as well as increased vehicle traffic at the sites compared to just a few years ago. While there is no evidence to suggest that any of the countries are preparing for an imminent nuclear test, analysts believe that the expansions could spark a race to modernize nuclear weapons testing infrastructure. This comes at a time of deep mistrust between the three major nuclear powers. Experts have warned that the increased activity could accelerate the growing arms race between the US, Russia, and China. They argue that the consequences of this are that vast sums of money will be spent without making the world any safer. The images also show increased activity at the Chinese nuclear test site in Lop Nur, and at the US nuclear test site in Nevada.

Defence minister's disappearance latest case of missing Chinese official

Reuters

China's Defence Minister, Li Shangfu, is being investigated for corruption, leading to his disappearance, similar to other high-ranking officials in President Xi Jinping's entourage who have mysteriously vanished in recent times. Investigations by the Central Commission for Discipline Inspection and the People's Liberation Army's Discipline Inspection Commission focus on officials suspected of violating party regulations or state laws, including corruption, political disloyalty, and extramarital affairs.

Real Estate Crisis Triggers New Alarms Over China’s Shadow Banks

NY Times

Zhongzhi Enterprise Group, a financial conglomerate managing $140bn in assets, and its trust banking arm, Zhongrong, have missed dozens of payments to investors, sparking concerns that one of China's largest shadow banks may be on the brink of collapse. Zhongzhi's problems are the latest effects of China's property crisis, with many borrowers defaulting on loans as the construction boom has slowed. Trust firms like Zhongrong, which manage $3tn in assets, sell investment products to Chinese companies and wealthy individuals, with many investors believing that their investments are guaranteed by the government. However, Zhongrong has not made any public statements about its finances and has offered no timetable for when people will be paid. China could either let firms such as Zhongrong collapse, risking social stability, or bail them out, undermining the message that risky behaviour has consequences. 

How Xi Jinping is taking control of China’s stock market

Financial Times

China has seen a record number of IPOs this year, with over 200 companies floating on its domestic markets and raising over $40bn. This is more than double the amount raised on Wall Street and almost half the global total. The country's benchmark CSI 300 index, however, is down 14% since January, having fallen by a fifth in 2022, underperforming major markets such as Japan and the US. Concerns are mounting about China's slowing economic growth and a liquidity crisis in the real estate sector. The stagnant market is a result of Beijing's significant policy shifts, with President Xi Jinping directing investment into sectors that fit with his priorities for control, national security, and technological self-sufficiency.

Xi's goal is to reshape China's economy, and he is using stock markets to direct capital towards sectors deemed strategically important to China, such as semiconductor manufacturing, biotech, and electric vehicles. The strategy is to encourage these companies to go public so they can scale up and help drive consumer spending to fill the gap left by the downsized property market. This marks a major departure from past administrations and the pro-market position initially taken by Xi when he became party leader in 2012. The approach also raises questions about whether the tech sectors being favoured by Beijing can provide the scale of employment or drive the levels of consumer spending anticipated by Chinese leaders.

The state's enhanced role in China's stock markets has caused concern among some investors, who fear that the system of state controls over equity investment could do lasting damage to the appeal of Chinese stocks, both domestically and globally. Some investors are looking for a consistent and persistent trend in policymaking that shows Chinese policymakers are pragmatists who care about economic growth and private businesses. However, the tensions between the previous market-oriented path and the current whole-nation approach may continue for the foreseeable future.

Chinese investors rush into local government bonds

Financial Times

China's credit investors have been buying up bonds issued by the country's most indebted provinces, amid hopes that the central government will help local governments clean up their debt. Local government financing vehicles, which raise debt on behalf of local governments, saw a surge in monthly bond sales in August, with the second highest on record of CNY640bn ($88bn), according to the Financial Times. The increased bond sales indicate that onshore investors believe China will find ways to refinance and cut local government debt, as part of the government's efforts to drive economic growth.

Qualcomm slashes jobs in China and Taiwan amid smartphone slump

Nikkei Asia

Qualcomm is cutting hundreds of staff in China and Taiwan as a result of weak demand in the global smartphone market. The company has been struggling amid a prolonged slump in the sector and posted a 23% decline in revenue in its most recent quarterly financial report. The global smartphone market is forecast to suffer a 4.7% yearly decline in shipments in 2023 to 1.15 billion units, according to market research company IDC. The move by Qualcomm follows Huawei's release of new 5G smartphones in China using its in-house chipset, which could impact Qualcomm's sales in China.

Despite China’s iPhone Ban, Buyers and Scalpers Are Flocking to Apple Stores

Bloomberg

Despite government restrictions and local competition, Chinese customers have flocked to Apple stores to buy the latest iPhone 15. This is seen as an encouraging sign for Apple as China is the company's largest overseas market. The release of the iPhone 15 is a key test for Apple to see if refreshed specifications and features can help the company return to growth. China, which accounts for about a fifth of Apple's sales, will be of particular interest. The Chinese government is expanding a ban on iPhone use in certain agencies and state-owned enterprises, and rival Huawei Technologies has just introduced its highly touted Mate 60 Pro. Scalpers were seen outside Apple stores, but there appeared to be fewer compared to previous releases. Premiums asked by scalpers were modest.

China’s wealthy youth flock home as tensions with U.S. rise

Japan Times

Many wealthy Chinese graduates are choosing to stay in China instead of pursuing opportunities abroad. Despite the criticism and scrutiny that China faces internationally, these individuals see the potential for success and growth within their own country. They believe that China's booming economy and opportunities for entrepreneurship outweigh the potential benefits of studying or working abroad. Additionally, they feel a sense of duty to contribute to the development of their homeland. This shift in mindset reflects China's increasing confidence and influence on the global stage.

Amazon’s New Challenge: Bargain Retailers Who Are Playing a Different Game

WSJ

The rise of shopping platforms Temu and Shein has proven to be a challenge for Amazon. Unlike Amazon, Temu and Shein focus on offering bargain items that may take longer to arrive. Despite the longer delivery times, American customers have been increasingly willing to try these platforms, with monthly unique visits from US customers growing significantly. While Amazon has not taken steps to match the prices of items on Temu, it is reportedly considering how to respond to these competitors. Amazon executives have seen that there is a market for bargain items and are exploring whether to make such offerings more discoverable on their own site. However, Amazon faces the challenge of maintaining its reputation as a reliable retailer while potentially offering lower-priced products that may sacrifice quality. Both Temu and Shein face regulatory scrutiny in the US, with lawmakers and attorneys general pressing the companies on their sourcing practices in China's Xinjiang region.

China’s Economic Worries Spur a Different Kind of Shopping Spree

WSJ

The sale of insurance policies to Chinese tourists in Hong Kong has surged in recent months as mainland tourists seek to diversify their investments away from yuan-denominated assets. The policies, denominated in US or Hong Kong dollars, have gained popularity as the yuan has fallen against the dollar and Chinese stocks have slumped. HSBC is one of the beneficiaries of the trend as it looks to diversify its business away from traditional interest-rate-sensitive lending. The bank's Hong Kong insurance business grew rapidly before the pandemic and appears to be resuming that growth.

Chi­na re­it­er­ates cease­fire, peace talks ‘only way’ to end Ukraine war

Al Jazeera

China has reiterated its stance that a ceasefire and peace talks are the only way to resolve the conflict in Ukraine. Vice President Han Zheng told the United Nations General Assembly that the cessation of hostilities and resumption of peace talks is the only way to settle the crisis. China has positioned itself as a peacemaker and neutral arbiter in the conflict, although it has refused to condemn Russia over the invasion. China has made little progress in mediating a resolution to the conflict, and its professed neutrality has been met with skepticism due to its deepening ties with Russia. Han also used his speech to advocate for an alternative world order free from "Western hegemony" and to position China as part of the Global South, supporting the development paths of developing nations.

Top Chinese university scraps English tests in move cheered by nationalists

CNN

Xi'an Jiaotong University in China has removed English proficiency as a requirement for graduation, sparking debate about the role of English in the country's education system. The move comes as China becomes more nationalistic under President Xi Jinping, with restrictions on Western textbooks and discussions of Western values in schools. Some have praised the decision, arguing that Chinese degrees should not be dependent on a foreign language test, while others have expressed concerns about the importance of English in global academia and scientific research.

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