China Unveils a New Naval Chief as Maritime Tensions Climb; ‘No one dares to spend’: why China’s middle class is tightening its belt
Why China’s local governments are encouraging upgrades by homeowners; Hong Kong’s new visa schemes, improved market spurs mainlander worker rush
Welcome to this issue of The China Brief. Today is December 26, 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 Unveils a New Naval Chief as Maritime Tensions Climb
Bloomberg
China has appointed Hu Zhongming as the new head of its navy, a move that comes amidst escalating tensions in the South China Sea. Hu was promoted to the rank of general at a ceremony in Beijing attended by President Xi Jinping. The change in leadership comes as China flexes its military muscle in the disputed waters of the South China Sea and the Taiwan Strait. Last week, China's Foreign Minister warned that relations with the Philippines are facing "serious difficulties" following recent maritime confrontations. The appointment of Hu marks China's push for its navy to be more active around the world.
‘No one dares to spend’: why China’s middle class is tightening its belt
South China Morning Post
Millions of middle-class Chinese consumers are reluctant to spend their money until the economy shows signs of solid recovery. This cautious approach comes as the post-Covid economy faces deflation risks, a property market slump, and bleak business sentiment. Despite having robust savings and access to VIP services from wealth managers at banks, even relatively affluent Chinese individuals are not keen to invest or spend like before. Property sales have fallen and retail sales have only seen a marginal rebound due to low base comparisons from last year's lockdowns.
Why China’s local governments are encouraging upgrades by homeowners
South China Morning Post
China's local governments are encouraging residents to sell their old homes in exchange for new ones in an attempt to boost the stagnant housing market. However, prospective buyers are hesitant due to poor market sentiment and fears of having to offer significant discounts on their old homes. Municipalities have been launching support measures to boost new home purchases, such as the "old-for-new" initiative, which involves helping homebuyers sell their old homes while offering partial subsidies to buy new ones. The scheme has gained traction in larger cities but has also sparked scepticism among prospective buyers.
Hong Kong’s new visa schemes, improved market spurs mainlander worker rush
South China Morning Post
Improved market conditions and supportive visa programmes have spurred a rush from mainland Chinese workers heading to Hong Kong for employment, according to recruitment consultants. Since last year, the Hong Kong government has announced a slew of new immigration policies to attract global talent amid an exodus of residents who left the city during the Covid-19 pandemic.
Whisky wooing young Chinese away from ‘baijiu’ as top distillers target a growing market
Associated Press
Pernod Ricard has opened a $100m distillery in the Sichuan region of China, to meet the growing demand for whisky among the country's younger consumers. The distillery is located at the UNESCO World Heritage site Mount Emei and will produce The Chuan, a pure-malt whisky. China is already home to more than 30 whisky distilleries, and consumption of the drink rose at a compound annual growth rate of 10% from 2017 to 2022.
China looks for the diplomatic ‘sweet spot’ between panda and wolf
Al Jazeera
China is shifting its diplomatic approach away from “wolf warrior” diplomacy and panda diplomacy, according to experts. Wolf warrior diplomacy, named after a 2017 Chinese film, emerged in response to tensions in the South China Sea and aimed to demonstrate China’s resolve and promote nationalism. However, the approach appears to have backfired, with Western countries increasingly wary of China and its actions. Meanwhile, panda diplomacy – whereby China loans pandas to countries – is reportedly no longer effective in promoting a friendly image of China. Beijing has not replaced pandas sent abroad when they return to China, and few Western institutions are now interested in obtaining them. Instead, experts believe China is attempting to find a balance between hard and soft diplomacy. The shift in approach is attributed to the economic challenges China is currently facing and a desire to secure foreign investment and technology.
China stocks drop as liquor distillers pace losses, gaming operators rebound
South China Morning Post
Stocks in mainland China fell to a 14-month low as investors sold consumer-related stocks and chip makers. The Shanghai Composite Index dropped by 0.5% to near its lowest level since October 2021. The CSI 300 Index also fell by 0.7%. However, video-gaming stocks rebounded after the industry regulator approved the largest batch of new titles in 17 months. China approved 105 games in December, the highest number since July 2021. Despite the rebound in video-gaming stocks, the Shanghai Composite Index has lost nearly 6% this year and is heading for a second straight year of decline. The CSI 300 Index has dropped by 14% and experienced a streak of annual losses.
IMF predicts sixfold increase in demand for EV battery minerals amid rising prices
Yahoo US
The International Monetary Fund (IMF) has warned that rising prices for metals such as nickel, cobalt, lithium and copper, due to the Russian invasion of Ukraine, are expected to impact the cost of electric vehicle (EV) batteries. The global minerals market is vulnerable to supply chain issues due to the concentration of deposits in certain countries. The IMF said the demand for copper could rise by 1.5 times, nickel and cobalt could double, and lithium could increase sixfold by 2030.
China Sanctions US Company, Two Researchers Over Xinjiang Work
Bloomberg
China has announced sanctions against a US company and two human rights researchers over their work related to Xinjiang, amid an escalating dispute between the two nations over allegations of forced labor. The company, Kharon, based in Los Angeles, had any assets held in China frozen, and its director of investigations, Edmund Xu, and analyst Nicole Morgret, were barred from entering China. Chinese companies were also barred from working with Kharon, Xu, or Morgret. The move comes after the US sanctioned two Chinese officials earlier this month, accusing them of human rights abuses against minority groups in Xinjiang.
Goldman rethinks emerging market strategy after China lesson
Japan Times
Goldman Sachs' head of global currency, rates, and emerging markets strategy has reflected on the lessons learned from the incorrect prediction of a post-pandemic reopening boom in China in 2023. The expectation was that a recovery in China would lead to a rally in the Chinese stock market and boost emerging markets globally. However, this prediction did not come to fruition, highlighting the difficulty in accurately forecasting market movements.
2024 outlook: China property market turn requires new growth model
Nikkei Asia
China's housing market has been in decline for the past two years, and the collapse of the property bubble has impacted investor and consumer confidence. The real estate sector accounts for over a quarter of China's economy, and the depressed market is dragging down economic growth. The government has attempted stimulus measures, such as launching a sovereign debt issue and potentially extending low-cost loans to homebuyers, but these measures alone are unlikely to bring about a quick rebound. The Chinese growth model is heavily skewed towards investment and exports, and there is a need to shift towards domestic consumption. However, this shift will take time, and there are systemic issues that need to be addressed, such as household debt and weak job markets. The Chinese government needs to expand social safety nets to encourage spending, overhaul the household registration system to remove barriers to spending by migrant workers, and reform land rights to redistribute wealth. The government also needs to put the right incentives in place, such as a progressive tax system and offering employees ownership stakes in state-owned enterprises. If these reforms are not implemented, China risks a longer-than-necessary stagnation.
AstraZeneca to buy China-based Gracell Biotechnologies in $1.2 billion deal
Yahoo US
AstraZeneca has announced that it is purchasing Gracell Biotechnologies for up to $1.2bn in a cash deal that will help AstraZeneca expand its cell therapy offerings. Under the terms of the deal, Gracell will operate as a wholly owned subsidiary of AstraZeneca, with operations in China and the US. The deal is expected to be completed in Q1 2024, with AstraZeneca also acquiring Gracell's cash, cash equivalents and short-term investments of $234.1m as of 30 September.
China economists expect slower 4.6% growth in 2024
Nikkei Asia
China's economic growth is expected to slow in 2023 to 4.6%, following a predicted 5.2% expansion this year, due to a slump in the real estate market and stagnant consumption, according to a survey by Nikkei, Nikkei Asia, and Nikkei Quick News. The survey of 25 economists also revealed that 23 expect this year's growth to be close to Beijing's official target of around 5%. The economists' average prediction for growth in 2024 is 4.6%, with a possible downside scenario of 2.9% depending on what happens in the property sector. The economists cited the sluggish housing market, weak consumer confidence, and a lack of policy measures as the top risks to China's growth. The experts also noted that uncertainties remain regarding China's ability to resolve the challenges in the real estate sector and deliver homes to buyers. Furthermore, geopolitical risks such as US-China tension and China's demographic issues were seen as additional factors affecting China's economic outlook.
Two more Vivo executives detained in India in money-laundering probe
Nikkei Asia
The Chinese Ministry of Foreign Affairs has stated that it is closely following the news that two senior executives of Chinese smartphone maker Vivo have been arrested in India as part of a money-laundering investigation. The Ministry has said that it will provide consular protection and assistance to the individuals involved. Vivo, the second-largest smartphone brand in India after Samsung, has faced increasing difficulties operating in the country as the Indian government toughens its stance on Chinese tech companies. This is the latest in a series of arrests related to Vivo's alleged involvement in money laundering.
Small Chinese gaming outfits unveil share buybacks
Nikkei Asia
Several smaller Chinese gaming companies have announced plans to buy back shares, in an effort to reassure investors after regulatory moves to clamp down on consumer spending on games caused share prices to plummet. The buyback announcements come following a softening in the stance of China's video game regulator, the National Press and Publication Administration, which released a statement saying the government would further improve the proposed rules after studying public views. However, the buybacks have served only to stabilise share prices, with shares of G-bits Network Technology Xiamen rising 3% and those of Perfect World falling 2% on Tuesday afternoon.
Death toll rises to 18 in furnace explosion at Chinese-owned nickel plant in Indonesia
Associated Press
An explosion at a Chinese-owned nickel plant on the Indonesian island of Sulawesi has killed 18 people. The explosion occurred during maintenance work at the PT Indonesia Tsingshan Stainless Steel facility. The plant is part of China's Belt and Road Initiative. The accident is the latest in a number of incidents at nickel smelting plants in Indonesia and comes as the demand for nickel rises to meet the needs of electric vehicle production.
The story of a Chinese-led team, amateur scientists and a star’s explosive death
South China Morning Post
A team of Chinese-led researchers has discovered that a giant star was surrounded by layers of dust as it ran out of fuel and exploded. While the shockwave of the explosion was expected to be very hot and short-lived, this “veil of death”, which was formed by materials expelled by the star during its final years of life, prevented the explosion’s shockwave from quickly breaking out into open space. The discovery challenges the standard theory of stellar evolution.
Chinese Media Expose Prompts Probe Into Illegal Baby Surrogacies
Bloomberg
Health authorities in Xiamen are to investigate an assisted reproduction clinic after reports emerged of an illegal surrogacy service. The clinic, run by Longduhua Medical Group (Hong Kong), is reportedly delivering over 300 babies per year. Surrogacy is illegal in China, but couples are turning to illegal services due to either the now-abolished one-child policy or infertility issues. Longduhua's services, costing from CNY550,000 ($77,000), include IVF and finding a surrogate mother under 32 years old. The company also offers a guarantee of success, including fertilisation, twin births and renewed surrogacy following a miscarriage.
Foreign Affairs
War games are becoming an increasingly popular tool for policymakers and influencers in the United States to shape public opinion and advance their agendas. These games, which simulate potential conflicts and scenarios, can be used to rally support for certain policies, influence budget decisions, and even signal intentions to adversaries. The recent focus on war games involving China, particularly a conflict over Taiwan, reveals a growing hawkishness in U.S. policy towards China. The games assume that the defense of Taiwan is a strategic interest for the United States and that China intends to invade Taiwan, despite the fact that China's intentions are unknowable. The games also reveal a consolidation of support among political factions in the U.S. in favor of increased military aid to Taiwan and restrictive trade measures against China. While war games are not crystal balls and don't predict the future, they can shape it by influencing policymakers and public opinion. The immersive nature of war games and the shared experience they provide make them powerful tools of persuasion. However, they can also be biased and manipulative, and it is important for the press and the public to ask the right questions and understand the context of these games. Ultimately, war games can play a valuable role in building deterrence, fostering trust between adversaries, and helping to prevent conflict.
Malaysia’s MM2H visa shake-up prompts cautious welcome – and questions
Al Jazeera
Malaysia's "My Second Home" visa program, which is popular with expats and retirees, has announced relaxed requirements that have been welcomed by prospective applicants. The scheme was suspended in 2020 due to the COVID-19 pandemic and then reopened in 2021 with new regulations that made it unaffordable for many. The revised program will have a lower minimum age requirement and a choice of three fixed deposit amounts depending on the tier chosen. The initial announcement did not include details of income or asset requirements or an implementation date. It is hoped the new criteria will be simpler and clearer, although there are concerns that the financial threshold could be reintroduced during the application process. The program requires a significant deposit, but all categories of visa holders will be able to withdraw up to 50% of their deposit after 12 months for various expenses. The possibility of permanent residency under the Platinum tier is of interest, but how long the application process will take is unclear.
China warns rocket remnants to hit South China Sea
Yahoo US
Debris from China's Long March 5 rocket is set to hit an area of the South China Sea on Tuesday. The rocket was launched on 15 December from Hainan Island, and debris is expected to fall off the coast of China's province of Hainan between 11:00 a.m. and noon local time. The Long March 5 rocket is China's most powerful launch vehicle and has been used to launch various items, including a probe to Mars and modules of a space station. In 2020, debris from a Long March 5B rocket fell on Ivory Coast, damaging several buildings.
Goldman’s Painful 2023 Lesson on China Forces Rethink of Emerging Markets
Yahoo US
Goldman Sachs' head of global currency, rates and emerging-markets strategy, Kamakshya Trivedi, has said that emerging markets (EMs) have been "pretty uncorrelated" with Chinese assets for some time, even though analysts had been predicting a 15% rally in Chinese stocks at the beginning of 2023. Trivedi also said that emerging markets have been "pretty resilient" in the face of rising US interest rates and a rising dollar. Excluding China, emerging-market stocks have risen 16% this year, compared with 4.4% for the MSCI emerging-market index.
China Bond Inflow Surprise May Be False Dawn as PBOC Hands Tied
Bloomberg
Foreign investors have boosted their holdings of Chinese bonds by CNY251bn ($33bn) in November, the second-highest monthly total on record, according to China’s foreign exchange regulator. This surge in inflows has raised hopes that pessimism surrounding China’s assets may be overdone. However, the inflows resulted from a global bond rally rather than a change in sentiment towards China. Furthermore, Beijing’s constraints and lack of intention to loosen policy significantly, along with increased concerns about China’s long-term debt problems, may mean that this surge is short-lived.
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