China to choose fiscal muscle over big reforms to revive economy; China Growth May Fall to 2.9% If Property Crisis Widens; China's top diplomat to visit U.S. ahead of possible Xi trip
‘Honest Mistake,’ Says U.S. Politician Arrested on Gun Charge in Hong Kong; Former WVU professor accused of stealing grant funds, fleeing to China
Welcome to this issue of The China Brief. Today is October 24, 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.
Former WVU professor accused of stealing grant funds, fleeing to China
Yahoo US
A former West Virginia University (WVU) professor has been apprehended in New York by border patrol agents, after allegedly fleeing to China, following a warranted search of his residence, and subsequent termination from the university. Xinjian "Kevin" He is charged with two counts of federal program fraud after allegedly embezzling grant money. If convicted, He could face up to 10 years in prison for each count of fraud. His trial is scheduled for December 12th.
Germany set to eclipse Japan as No. 3 economy in 2023, IMF says
Japan Times
According to new projections by the International Monetary Fund (IMF), Japan's nominal gross domestic product (GDP) will be overtaken by Germany this year, slipping from No. 3 to No. 4 in the world on a U.S. dollar basis. Japan has held onto its position as the world's third-largest economy for over a decade, despite a prolonged period of low growth. However, it ceded the position of the world's second-largest economy to China in 2010.
China to choose fiscal muscle over big reforms to revive economy
Reuters
China is considering implementing fresh fiscal stimulus measures in order to support its economic recovery. Government advisers have suggested that China increases its 2024 budget deficit target beyond the 3% of GDP set for this year, which would allow Beijing to issue more bonds to revive the economy. The Chinese economy grew faster than expected in Q3 2021, however concerns remain over the continued decline of private sector activity and the lack of lasting reforms to shift the economy to consumer-led growth.
China Growth May Fall to 2.9% If Property Crisis Widens, S&P Says
Bloomberg
China's economic growth could fall below 3% in 2024 if the real estate slowdown continues, according to S&P Global Ratings. In a downside scenario, property sales would decline up to 25% from 2022, leading to a 2.9% growth rate that year. The rating agency sees a 20% probability of this happening if the Chinese government does not provide significant stimulus to the sector. Real estate directly makes up around 13% of China's GDP, creating a domino effect of problems in the financial system and local government fiscal profiles. Measures to encourage home purchases have so far been ineffective.
Country Garden debt crisis triggers push for payout on credit default swaps
South China Morning Post
An investor has submitted a question to the Credit Derivatives Determinations Committees regarding whether the non-payment of a $15.4m interest on a $500m bond due in 2025 by Country Garden Holdings constitutes a debt default. The failure to pay the bond coupon has prompted an investor to push for a payout on credit default swaps (CDS) linked to the troubled Chinese developer.
IMF report says Chinese loans not main debt burden in sub-Saharan Africa
South China Morning Post
China is not the main cause of debt distress in sub-Saharan Africa, according to the International Monetary Fund (IMF). China's lending to Africa has grown rapidly over the past two decades, but its share of sub-Saharan Africa's external public debt is relatively small at about 6%. The IMF's report said that the debt owed to China has not been the principal contributor to the region's public debt surge in the past 15 years. Sub-Saharan Africa's total external debt stood at $790bn in 2021, more than double the figure from a decade earlier.
Terry Gou’s Presidential Ambition Costs Foxconn $9 Billion
Bloomberg
Beijing's investigation into Foxconn is causing concern for founder Terry Gou's business empire as he runs for Taiwan's presidency. Shares of Hon Hai Precision Industry, the public arm of Foxconn, have lost 5% this week after Chinese state media announced regulators are conducting a tax audit of its subsidiaries and investigating its use of land. The investigations come at a time when Gou's businesses are already facing challenges, including a sluggish Chinese economy, lacklustre iPhone sales, and Hon Hai's diversification into the electric vehicle market. The probe may accelerate Hon Hai's move to diversify its production capacity out of China.
‘Honest Mistake,’ Says U.S. Politician Arrested on Gun Charge in Hong Kong
NY Times
Washington state senator Jeff Wilson was arrested at a Hong Kong airport on charges of possessing a locally unregistered firearm. Wilson, a Republican, discovered the weapon in his briefcase during his flight from San Francisco to Hong Kong. Baggage screeners in Portland had failed to notice the unloaded pistol before Wilson departed for his trip. Wilson was released on bail and his next court hearing is scheduled for next Monday. Carrying firearms without a license in Hong Kong is punishable by up to 14 years in jail and a fine of up to HKD 100,000 ($12,800).
Founder of discount e-shopping firm PDD races up China's rich list
Reuters
Colin Huang, the founder of PDD Holdings, saw his wealth increase by $13.8 billion in a year, making him China's third richest man with a $37.2 billion fortune, according to the annual Hurun Rich List. Huang's success is attributed to the growing popularity of his discount e-commerce platforms Temu and Pinduoduo, which have benefited from a slowing global economy and increased online shopping. Meanwhile, Jack Ma, founder of Alibaba, fell one place to 10th on the list, and Richard Liu, founder of JD.com, saw his wealth decline by $6.2 billion. The list also revealed that 179 individuals dropped off due to the prolonged debt crisis in the real estate sector.
Number of China's wealthy falls amid property crisis, Hurun finds
Nikkei Asia
The number of Chinese individuals with a net worth of over 5 billion yuan ($690 million) has dropped by 15% from its peak in 2021, according to the Hurun Research Institute. The decline in wealth is attributed to the economic slowdown and the competitive e-commerce market. The total wealth of the 1,241 individuals on the list decreased by 4% to $3.2 trillion compared to last year, with 898 individuals seeing their worth decline or remain unchanged. Despite the decrease, China still has the highest number of billionaires in the world, with 895 billionaires, surpassing the US and India.
China Widens Lead Over US in AI Patents After Beijing Tech Drive
Bloomberg
China has increased its lead over the US in the number of artificial intelligence (AI) patent filings, highlighting its determination to shape and influence the technology. Chinese institutions applied for 29,853 AI-related patents in 2022, almost 80% more than the US filings. China accounted for over 40% of global AI applications in the past year. President Xi Jinping has ordered the nation to accelerate fundamental research in response to US efforts to restrict its access to advanced technologies, resulting in increased investment in AI and quantum computing by Chinese companies.
China-linked 'spamouflage' targeted Canadian PM and lawmakers
Japan Times
The Canadian government has revealed that it detected a China-linked 'spamouflage' campaign targeting members of parliament, including Prime Minister Justin Trudeau. The campaign involved the use of bots to post disinformation and propaganda on social media accounts. The messages included accusations of criminal and ethical violations against lawmakers, claims that Hawaiian wildfires were caused by a secret US military 'weather weapon', and deepfake videos. The campaign took place in August and September and targeted lawmakers from across the political spectrum.
Thailand aims swapping Chinese sub with frigate after troubled deal
Reuters
The Thai government is considering buying a frigate instead of a submarine from China, as the Chinese manufacturer was unable to include a German engine as specified in the original deal. Thailand has already paid a $193.7 million instalment to China for the purchase of one of three submarines, but the deal was delayed when Germany forbade the use of its engines for Chinese military exports. China has proposed replacing the German engines with Chinese-made equipment, but several rounds of negotiations have not yielded a conclusive result. The Thai government has suggested buying a frigate instead and China is considering the proposal. The procurement of the submarine has been shelved for now and will resume "when the country is ready." The Chinese submarine deal has attracted public criticism, with questions raised about whether it is in the public interest and whether submarines are necessary for security.
China's top diplomat to visit U.S. ahead of possible Xi trip
Japan Times
China's top diplomat, Foreign Minister Wang Yi, will visit Washington this week, marking the first time in five years that a high-ranking Chinese official has traveled to the U.S. capital. The visit is seen as laying the groundwork for a meeting between Chinese leader Xi Jinping and U.S. President Joe Biden next month. Wang will meet with U.S. Secretary of State Antony Blinken to discuss various bilateral, regional, and global issues, with the aim of managing the U.S.-China relationship and maintaining open communication channels.
Taiwan presidential hopeful calls for better economic ties with China
Nikkei Asia
Taiwanese opposition presidential candidate Ko Wen-je has called for improved economic ties with China, whilst warning of the country's economic coercion. Ko believes that China is Taiwan's most important market and that it would be difficult to decouple from it. In contrast to the ruling Democratic Progressive Party (DPP) and opposition Kuomintang (KMT), Ko is willing to sign economic pacts with Beijing. Ko called for a middle-of-the-road approach, stating that his Taiwan People's Party is "neither anti-China nor overly pro-China".
Hong Kong universities under pressure as academics head for exits
Financial Times
Academics are leaving Hong Kong's universities due to shrinking academic freedoms and fears of falling foul of the national security law imposed by Beijing in 2020. Last year, 361 academics left Hong Kong's eight public universities, the highest turnover rate in over two decades. The departure of academics focused on Hong Kong and China has highlighted concerns about the erosion of academic freedom in the territory. Scholars have faced attacks in local state-affiliated media, and overseas scholars have been denied visas to Hong Kong. Beijing has also pushed for Hong Kong's higher education institutions to be less critical and called for the "de-westernization" of the Research Grants Council. The pressure is diminishing Hong Kong's role as a perch for foreign academics to study the mainland. Researchers' access to China has become more difficult, and the Fulbright program was suspended in 2020 in response to the national security law. Despite the challenges, some academics still believe that Hong Kong offers more academic freedom than the mainland, although the situation is fluid and any research runs the risk of being labelled as "anti-China."
Washington state senator arrested in Hong Kong for carrying a gun through airport
CNN
Washington state senator Jeff Wilson has been arrested in Hong Kong for possession of a firearm without a license. Wilson claims it was an honest mistake after he packed the pistol in his briefcase while travelling on holiday. Wilson, a Republican senator, says he discovered the weapon on the flight from San Francisco to Hong Kong and informed customs officials on landing. He is due to appear in court on 30 October.
China's Great Wall Motor is first EV maker to respond to EU anti-subsidy probe
Yahoo US
Chinese automaker Great Wall Motor has submitted responses to the European Commission's anti-subsidy investigation of the country's electric vehicles (EVs). The company has also called for a fair and open trade environment. The European Commission is examining whether to set up tariff barriers against cheaper Chinese EV imports benefiting from state subsidies. European car makers are trying to catch up with China in turning out lower-cost EVs. Great Wall Motor ranked eighth in terms of sales of pure electric and plug-in hybrid cars in China during the first nine months of the year.
4 lost years: How the EU fumbled its response to China’s belt and road
South China Morning Post
Internal documents and conversations with sources involved in the EU's infrastructure discussions reveal that the European Commission fought against using connectivity as a foreign policy tool, despite launching the Global Gateway infrastructure drive as an alternative to China's Belt and Road Initiative. EU leaders will gather in Brussels this week to discuss the project, which has been plagued by bureaucracy, infighting, and inaction. Documents reveal conflicting European attitudes toward China's growing influence in the developing world, with some officials opposing a connectivity strategy out of fear of sending the wrong signal to Beijing. The rejected proposal that contained much of the same rationale as Global Gateway was seen as a failure by some departments within the European Commission.
The rejection of the proposal led to a lack of clarity and an identity crisis for Global Gateway, which has been described as a marketing exercise rather than a coherent foreign policy tool. The lack of a single point of contact has left the project rudderless, and despite promises of strategic investment, many early projects are merely rebadged existing ones. The EU's development arm, DG INTPA, has struggled to deliver on the initiative and has clashed frequently with the EU's geopolitical camp. Calls for the appointment of a specialist commissioner or a single point of contact have been ignored, and other countries have expressed a desire for strategic investment rather than handouts.
While some see progress in the 87 projects announced this year, others argue that many of these predate Global Gateway and question their strategic value. The initiative's slow progress and lack of clarity have led to criticism and frustration. However, some believe that things are finally changing, albeit slowly, and that progress is being made.
The Corporate Retreat From Hong Kong Is Accelerating
WSJ
Hong Kong's appeal to international firms has been waning due to its tightening ties to mainland China, prompting many companies to relocate to Singapore. The number of US firms in Hong Kong fell to 1,258 in June 2022, its lowest level since 2004, while mainland Chinese companies now outnumber American ones for the first time in three decades. The tighter national-security restrictions, Beijing's crackdown on foreign businesses, economic slowdown in China and growing US-China tensions have all contributed to the shift. While Hong Kong still offers attractions such as low taxes and a well-developed financial market, its reputation has been dented by its close ties to China, which has raised concerns among foreign businesses. As a result, many firms are choosing to set up regional bases in Singapore instead.
China’s X-Like Service Asks Top Influencers to Show Real Names
Bloomberg
Chinese microblogging site Weibo plans to ask influential users with over 1 million followers to display their real names publicly, a move that may infringe on online privacy. Weibo CEO Wang Gaofei has already implemented the change to his personal account. It is unclear if Weibo is acting on the instructions of internet regulators, and Wang did not explain his rationale. In July, China's top internet watchdog demanded online platforms tighten control on independent content creators by better verifying accounts. Weibo has over the years lost its appeal to younger users as they flock to more addictive mobile apps.
SenseTime’s bid to diversify stymied by US chip curbs
Financial Times
Chinese AI company SenseTime is struggling to diversify its revenue streams away from its core surveillance business, as US export controls prevent it from accessing high-powered chips needed for AI training. The company has been seeking to reduce its reliance on its surveillance business, which sells AI-powered security cameras to Chinese authorities, by moving into data centres equipped with cutting-edge AI chips. However, the latest US-China "chip war" has stymied this effort, with SenseTime unable to buy chips from Nvidia and other companies. The company's move into data centres is also being hindered by a lack of investor interest, with many foreign investors unable to invest in the surveillance sector due to US restrictions. SenseTime's shares have plunged by over 75% since June 2022, and its market capitalization has dropped from $16.5 billion at the time of its listing to $5.9 billion. The company reported a net loss of $330 million and $760 million in revenue for the first six months of 2022.
China’s EV sector burns bright but cannot offset property’s woes
Financial Times
China's focus on expanding its green technology industries, particularly electric vehicles (EVs), may not be the best answer to its current economic woes, according to a report by Goldman Sachs. While EV production could offset the decline of the property sector in the long term, it would not generate as much employment and economic growth as real estate. Furthermore, the greener industries produce fewer jobs. Until confidence is restored among homeowners, businesspeople and entrepreneurs, the economy will continue to struggle, the report warned.
Foreign Affairs
The United States needs to define its objective in the competition with China and articulate a clear vision of success, according to a Foreign Affairs article by Kurt M. Campbell and Rush Doshi. The absence of a compelling vision of success is dangerous and leaves room for xenophobia, racism, and a push for China's collapse. The authors argue that the United States should aim to preserve a functioning international system that includes China rather than isolates it. This strategy departs from the Cold War goal of isolating the Soviet Union and instead seeks to keep China entangled in a global system that regulates behavior and pushes Beijing to operate within existing rules and norms. The authors suggest that the United States should maintain a strong military to deter China from using force and seek to sustain an overall edge over China in technological innovation. They also emphasize the importance of preserving and adapting multilateral institutions and engaging in dialogue and cooperation with China on global challenges. The article warns against isolating China, which would not serve U.S. interests and could lead to the fragmentation of the international system. In conclusion, the authors argue that the United States should pursue a patient but firm long-term strategy to keep China embedded in the international system while nurturing alliances and bolstering its technological edge.
https://www.foreignaffairs.com/united-states/what-america-wants-china-hass
Sovereign Funds: How the Communist Party of China Finances Its Global Ambitions
Foreign Affairs
Chinese sovereign funds, which Liu Xin refers to as "sovereign leveraged funds," differ significantly from other sovereign wealth funds. Liu argues that these funds, which have over $2 trillion in foreign exchange holdings, are essentially borrowed from China's foreign exchange reserves. This allows China to make riskier and potentially more profitable investments, but the primary mandate is driven by policy rather than profit. The funds are used domestically to stabilize the stock market, support failing banks, and invest in priority industries. Overseas, the funds are used to acquire stakes in natural resources and influential Western firms, as well as finance the Belt and Road Initiative. In essence, the sovereign funds serve as a market tool to supplement the Chinese government's methods of exerting influence both domestically and internationally.
WPP fires executive detained in China on suspicion of bribery
CNN
Advertising giant WPP has terminated the employment of an executive at its subsidiary GroupM, following the executive's detention in China on suspicion of bribery. The Chinese police raided the Shanghai office of GroupM last week. WPP has stated that it is cooperating with authorities and conducting its own investigation. The company says it is suspending trade with any external organisations involved in the police inquiries.
US defense department to send delegation to Xiangshan forum - China Daily
Reuters
The US defense department will send a delegation to attend China's regional security dialogue, the Xiangshan forum. The forum will be held in Beijing from October 29-31, and more than 90 countries and international organizations have confirmed they will send delegations. The US delegates include Xanthi Carras and Chad Sbragia.
Chinese sovereign wealth fund buys ETFs to shore up flagging stock market
South China Morning Post
Central Huijin Investment, a unit of China's sovereign wealth fund, has purchased exchange-traded funds (ETFs) tracking Chinese stocks in a bid to boost the country's struggling equity market. The move comes after a series of measures by the government to support stocks, such as cutting stamp duty and restricting short selling, failed to restore investor confidence. Central Huijin, managed by China Investment Corp, recently increased its stake in China's four big state-owned banks for CNY477.5m ($65.4m).
US-China Economic Talks Start With First Working Group Meeting
Bloomberg
The US Treasury and Chinese officials held the first meeting of a new working group dedicated to discussing economic topics. The meeting, held virtually, lasted for two hours and covered domestic and global macroeconomic developments. The Chinese expressed concerns to the US on unspecified matters. Another working group will meet to discuss financial topics. The meetings come as the Biden administration prepares to receive Chinese Foreign Minister Wang Yi in Washington. The establishment of these working groups follows Treasury Secretary Janet Yellen's visit to China and signals a small improvement in US-China relations.
China’s Wang urges peace in calls with Israeli, Palestinian counterparts
Al Jazeera
China’s Foreign Minister, Wang Yi, has expressed his concern and sadness over the large number of civilian casualties caused by the Israel-Hamas conflict. Wang spoke to his Israeli counterpart, Eli Cohen, and urged steps to prevent further escalation in violence and establish a lasting peace. Wang also spoke to the Palestinian Foreign Minister, Riyad al-Maliki, and condemned the Israeli attacks on hospitals and schools. China has positioned itself as a peacemaker in the conflict and its special envoy to the Middle East, Zhai Jun, is currently on a tour of the region.
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