China’s 40-Year Boom Is Over. What Comes Next?
China Is on Edge as Fallout From Its Real Estate Crisis Spreads; Russia remains China's top crude supplier in July despite less discounts
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China’s 40-Year Boom Is Over. What Comes Next?
WSJ
China's economic model that led the country from poverty to global economic prominence is now showing signs of distress. The model that relied on massive investments in infrastructure, factories, and construction is no longer as effective, as China grapples with high debt, underutilized assets, and declining returns on investment. The country's growth is slowing due to unfavorable demographics, a growing divide with the U.S. and its allies, and diminishing returns from traditional growth drivers.
Economists predict a significant slowdown in China's economic growth, with projections estimating GDP growth to be below 4%, much lower than the levels seen in the past few decades. This slowdown could hinder China's ambition to become the world's largest economy and might prevent it from overtaking the U.S. as originally hoped.
China's heavy investments in infrastructure have led to overbuilding, with many unoccupied apartments and underused infrastructure projects. The country's debt levels have soared, and the return on investment has declined. China's labor force is shrinking, and productivity growth is slowing down. To combat these challenges, China needs to shift towards promoting consumer spending and service industries, but this transition has been slow, partly due to concerns about undermining state authority.
China's leadership under Xi Jinping continues to emphasize state intervention in industries like semiconductors, electric vehicles, and artificial intelligence. However, these efforts alone might not be enough to sustain the economy's growth and create sufficient jobs for the workforce.
China Is on Edge as Fallout From Its Real Estate Crisis Spreads
NY Times
China's property sector, which once accounted for more than a quarter of all economic activity, is on the verge of a crisis that threatens the broader economy. A crackdown on risky business practices by developers in 2019, combined with a subsequent housing slowdown, has left the sector in a precarious position. The Chinese government has done little to ease concerns and seems determined to reduce the country's reliance on real estate. The current crisis is a result of the government's own policies, which allowed developers to borrow excessively to finance growth. Regulators intervened suddenly in 2020 to prevent a housing bubble, cutting off the flow of cheap money to real estate companies. As a result, more than 50 property developers have defaulted or failed to make debt payments in the last three years. The crisis has led to falling home sales, defaults on loans, and a decline in consumer spending. Local governments, which rely on land sales to developers, are also cutting back on services. Investors are worried that policymakers are not acting quickly enough to prevent a bigger crisis, while Hong Kong's stock market has fallen into a bear market and investors have pulled billions of dollars out of Chinese stocks.
Russia remains China's top crude supplier in July despite less discounts
Nikkei Asia
Russia remained China's largest crude supplier in July, with arrivals up 13% from the same month last year to 8.06 million metric tons. However, shipments from Saudi Arabia were down 14% from a year earlier and 31% from June. Despite continuing Western sanctions and a price cap on Russian shipments, Russian crude is increasingly trading closer to benchmark grades as strong demand from Indian and Chinese buyers erodes the sanctions discount. Shipments from western Russian ports in July were estimated to fall 18% month-on-month, reflecting resurgent domestic refining demand.
China warns of external influence ahead of South China Sea code of conduct talks
South China Morning Post
China's foreign minister, Wang Yi, has said that Beijing is willing to speed up talks with ASEAN nations on the South China Sea code of conduct. This comes ahead of a new round of talks scheduled to take place in Manila, the Philippines, this week. Wang also warned against external interference in the region and called on ASEAN countries to be vigilant of powers outside of the region that may be stirring up confrontation. Japan, the United States and Australia are planning to send military vessels to Manila for a drill in the South China Sea this week.
Indonesia’s Jokowi to attend Brics summit amid expansion speculation
South China Morning Post
Indonesian President Joko Widodo is attending the Brics summit in Johannesburg, South Africa, amid speculation that Indonesia could become the group's latest member. The Brics summit brings together major emerging economies, including Brazil, Russia, India, China, and South Africa. Indonesia has been invited to the summit, but Widodo has stated that his government has not yet decided whether to join Brics. Widodo will also visit Kenya, Tanzania, and Mozambique to strengthen cooperation. The Brics leaders are divided over expansion of the group, with China supporting expansion and Brazil being sceptical.
Yuan slide feeds rush for safety in Hong Kong bank rates, insurance, US dollar
South China Morning Post
Chinese citizens are rushing to Hong Kong to deposit their money in higher-yielding bank accounts, buy insurance policies, and invest in US currency, as the Chinese yuan continues to weaken. The yuan has lost 5.4% of its value against the US dollar this year and 7% over the past 12 months. The offshore rate hit a nine-month low on Thursday, while the onshore yuan reached its lowest level since November. Chinese citizens are looking to diversify their investments due to the uncertainty surrounding the Chinese economy. Some banks in Hong Kong, such as HSBC, are offering lucrative incentives to attract more customer deposits. The cost of borrowing between lenders in the interbank market has surged, making high-yielding bank accounts in Hong Kong an attractive option for Chinese citizens. Sales of new life insurance policies in Hong Kong to mainland Chinese visitors have jumped 28-fold in the first quarter of this year compared to the same period last year.
China leads in research on next-generation solar cells
Nikkei Asia
China has emerged as a leader in perovskite solar cell research, producing over 5,500 international academic papers on the technology since 2019. This accounts for around 30% of the total papers produced by the top 10 countries, surpassing the US and South Korea. Perovskite solar cells are thinner, lighter, and more flexible than traditional silicon cells, making them easier to install on various surfaces. The analysis by data analysis provider Fronteo also found that the US is the leader in perovskite solar cell patent applications, followed by Japan.
Russia remains China's top crude supplier in July despite narrower discounts
Reuters
Russia remained China's largest crude supplier in July, with shipments up 13% from the same month last year. However, Russian shipments have fallen from all-time highs due to narrower discounts and rising domestic demand. Shipments from Saudi Arabia, on the other hand, were down 14% from a year earlier and 31% from June. Saudi exports to Asian refiners were expected to fall in July as Riyadh raised the July official selling price of its flagship Arab Light crude to Asian buyers to a six-month high.
How Singapore-based China-founded Shein is beating Amazon, Walmart in Africa
South China Morning Post
Fast-fashion brand Shein has become the most downloaded shopping app in South Africa, despite the company not going to great lengths to promote itself in the country. The Singapore-based retailer is reportedly expanding in the nation through word of mouth and by offering discounts to first-time buyers. However, South African retailers are reportedly concerned Shein is exploiting import tax loopholes when sending parcels to customers, and regulators are said to be investigating the claims. Shein already poses a threat to US companies Walmart and Amazon, both of which are looking to expand into the South African market. Retailers are rushing to take advantage of the country’s growing online sales, which currently make up 4% of retail.
Chinese air force flies through unofficial barrier with Taiwan, stoking tension ahead of election
The Sydney Morning Herald
Taiwan's upcoming presidential election is a choice between democracy and autocracy, according to Vice President William Lai. His comments came after China conducted military exercises around the island in response to Lai's visit to the US this month. Lai, who is the frontrunner in the polls to be Taiwan's next president, said that China should not decide the outcome of the election and that Taiwan has the right to choose between democracy or autocracy. China has long sought to "annex" Taiwan and has demanded that Taiwan accept that both sides are part of "one China."
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