China’s $6.3 Trillion Stock Selloff Is Getting Uglier by the Day; New Foreign Investment Into China Drops to Lowest in Three Years
China vows to rein in capacity in electric vehicle industry; Chinese Bad-Debt Manager Huarong Downgraded to Junk by Moody’s
Welcome to this issue of The China Brief. Today is January 19, 2024. 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.
The latest indignity for China’s flawed recovery
Japan Times
Despite China's disappointing recovery from the pandemic, neighboring countries such as Singapore and South Korea have had a strong economic performance. Singapore, which previously feared a recession, finished the year strongly, while South Korea's economy ended December with solid momentum. The markets in Asia are more focused on when the Federal Reserve will cut interest rates, rather than any potential borrowing cost reductions by the People's Bank of China. The slight strengthening of the yuan can also be attributed to the efforts of Fed Chair Jerome Powell, rather than Beijing's attempts to boost the economy.
China’s $6.3 Trillion Stock Selloff Is Getting Uglier by the Day
Bloomberg
Chinese stocks have had another poor week, with the Hang Seng China Enterprises Index losing 11% so far this year. This comes after a record four-year losing streak, and reflects a shift away from the Chinese stock market by both active and passive investors. The decline in the market value of Chinese and Hong Kong stocks since their peak in 2021 amounts to $6.3tn, which is a significant challenge for Beijing as it tries to restore investor confidence.
New Foreign Investment Into China Drops to Lowest in Three Years
Bloomberg
New foreign direct investment (FDI) into China dropped to its lowest level in three years in 2023, with companies in Hong Kong and overseas becoming less willing to invest in the mainland. Data from the Ministry of Commerce revealed that new actually utilized FDI totaled CNY 1.1tn ($153bn), an 8% decrease from the previous year. The ministry had declared 2023 as the "year of investing in China," but a slowing economy, falling financial markets, a weak rebound from Covid, investigations on foreign firms, and the arrest of a Japanese executive all contributed to a decrease in companies' willingness to invest. The ministry has proposed 24 reforms to encourage more investment, but few actions have been taken thus far.
China vows to rein in capacity in electric vehicle industry
Financial Times
China has announced that it will limit the expansion of its electric vehicle (EV) sector in response to criticism from Western nations. Xin Guobin, Vice Minister of Industry and Information Technology, stated that there is “insufficient” demand for EVs outside of China and that the construction of new EV projects has been “blind” and “disorderly”. China is currently the world’s biggest car exporter, with exports rising by more than 60% in 2017. However, the EU has launched an anti-dumping investigation into the Chinese EV industry due to fears that it poses a threat to European car manufacturers.
Chinese Bad-Debt Manager Huarong Downgraded to Junk by Moody’s
Bloomberg
Moody's Investors Service has downgraded China Huarong Asset Management, one of China's largest state-owned bad-debt managers, to junk territory. The downgrade is due to the pressure on the company's profitability and asset quality. Moody's also changed the outlook for the company to negative from stable, citing the worsening capital position caused by the strain on China's property market and slowing economic growth. China Huarong AMC was originally set up by the Chinese government in 1999 to help clean up the country's banking system, but later expanded beyond its original mandate.
Sino-American ties competitive despite being ‘notably stabilised’: US envoy
South China Morning Post
Senior American and Chinese officials have offered contrasting views on the future of US-China relations. The US ambassador to China, Nicholas Burns, stated that while the relationship between the two countries had stabilised, it remained competitive, and the US was unwilling to compromise on national security. However, the Chinese deputy chief of mission and minister at the Chinese embassy in the US, Xu Xueyuan, called for win-win cooperation and argued that building a small yard and high fence for national security concerns would ultimately serve no one’s interest.
China lab simulates attack on US warships using space weapons, hypersonic missiles
South China Morning Post
China has been working on the development of space-based electromagnetic weapons, according to a study published by Chinese researchers. The study outlined a computer simulation in which China used satellites to suppress the radars of US warships, allowing Chinese anti-ship missiles to approach without being detected. The researchers believe that two or three satellites would be enough to attack an aircraft carrier group, while a constellation of 28 satellites could support a global strike. The researchers said that space-based platforms operate beyond national boundaries, allowing more rapid deployment in global conflicts than other types of weapons.
Huawei makes a break from Android with next version of Harmony OS - Caixin
Yahoo US
Huawei will not support Android apps on the next version of its Harmony operating system, according to Chinese financial media outlet Caixin. The company is set to release a developer version of HarmonyOS Next in Q2 2022 and a commercial version in Q4 2022. Huawei's initial 2019 release of Harmony allowed Android apps to run on the system. The company expects revenue in 2023 to exceed $97.3bn, a 9% year-on-year increase.
Citi Tells Private Bankers Not to Discuss Yuan in Mainland China
Bloomberg
Citigroup has reportedly told its private bankers serving Chinese clients not to discuss the yuan or hedging currency risk when visiting mainland China. The US bank does not have a private bank unit in mainland China, but primarily serves its rich clients from offshore wealth centres in Hong Kong or Singapore. The bank’s latest guidelines, refreshed in December, specifically warned relationship managers against soliciting yuan-related investment ideas. The move comes as China’s growth has disappointed and the nation has been battling a prolonged property slump.
Homegrown asset managers grab limelight in Asia ETF boom
Financial Times
Exchange-traded fund (ETF) assets in the Asia-Pacific region experienced double-digit growth in 2023, with Taiwan, South Korea, and China leading the way. These markets saw ETF asset growth rates between 26% and 31%, outpacing global growth in ETF assets under management. China Asset Management saw the largest surge in net assets, followed by E Fund Management. Taiwan's ETF industry also experienced significant growth, with Yuanta Funds and Cathay Securities leading the way. Japan, the largest ETF market in the region, saw a 10% increase in ETF assets.
Renewed calls for China to free Australian writer Yang five years on
Nikkei Asia
Australian Foreign Minister Penny Wong has said that the government is still concerned about the indefinite detention of writer Yang Hengjun, five years after his arrest in China. Wong released a statement to mark the anniversary of his detention, stating that the government has called for "basic standards of justice, procedural fairness and humane treatment" for Yang. His doctoral supervisor, Feng Chongyi, called on the Australian government to step up its efforts to secure his release, stating that Yang's life is in danger. Yang was detained in 2019 on charges of espionage.
China Wants Real-Time Surveillance on Government-Funded Projects
Bloomberg
China's National Development and Reform Commission (NDRC) has announced new measures to track projects receiving funding from the central government in real time. Project developers that receive at least CNY 30 million ($4.2 million) of investment will be required to install remote visual monitoring equipment. The move is aimed at improving the effectiveness and efficiency of state investments as China seeks to boost its economy. The NDRC said that drones, satellite remote sensing, big data, and cloud computing can all be used to monitor projects and detect any problems early on. The Chinese government has been increasing investment in infrastructure to support economic growth.
China’s Scrutiny of Shein IPO Plan Shows Regulator’s Reach Widening
Bloomberg
Chinese fast fashion giant Shein has been told by the China Securities Regulatory Commission (CSRC) that it must undergo regulatory scrutiny under new rules before launching its planned initial public offering (IPO) in the US. Although Shein moved its global headquarters to Singapore a number of years ago and has never sold products in China, the CSRC has stated that the company must still go through the vetting process required of companies seeking to list outside China. The move has raised concerns among investors and has led to speculation that Beijing may tighten capital controls during an economic downturn. In addition, the Cyberspace Administration of China is currently reviewing Shein’s data handling practices as part of the regulatory clearance process. The review could take months to complete and may result in a delay to the IPO.
Chinese stock rout accelerates as foreign investors sell out
Financial Times
Chinese equities have experienced a punishing sell-off this month, with the Hang Seng China Enterprises index falling by around 11% and the CSI 300 index shedding over 5%. This has surprised banks such as JPMorgan and Goldman Sachs, which had predicted a recovery for the Chinese stock market in 2024. International investors have been selling Chinese stocks, with $4.6bn of foreign money already flowing out of the market this year. The decline in Chinese equities has been exacerbated by weakness in the renminbi. However, UBS Securities China equity strategist Meng Lei believes now is a good time to be positive on the A-share market.
CNN
Ukraine has called on China to support its peace plan amid the third year of Russia’s war in the country, but it appears to be an unlikely ally. China has suggested that it does not want to make any moves to bring the war to an end, as it does not agree with the terms of Ukraine’s peace plan. Ukraine wants a ceasefire with the prior withdrawal of Russian troops from the country, whereas China’s proposal calls for a ceasefire without the withdrawal of Russian troops. China has previously dispatched an envoy to Ukraine and Moscow, and released its own proposal for peace. However, analysts suggest that China is merely observing the situation, and will only enter into negotiations when there is an opening for compromise between Russia and Ukraine.
China’s Biggest Brokerage Restricts Short Sales After Stock Rout
Bloomberg
Citic Securities, China's largest brokerage, has suspended short selling for some clients in mainland markets amid the ongoing slump in the nation's stocks. The state-owned brokerage has stopped lending stocks to individual investors and raised requirements for institutional clients following guidance from regulators. The move signals China's eagerness to support the market, as previous efforts including state buying of bank shares failed to boost sentiment. In addition, trading activity in some major exchange-traded funds surged on Thursday, pointing to potential buying by state institutions. China has a history of limiting short selling during times of market volatility.
China's Mutual Funds Implode at Fastest Pace in Five Years as Stocks Sink
Bloomberg
The Chinese asset management sector is experiencing a wave of mutual fund closures, with 240 funds liquidated in 2019, the highest number in five years. This trend has continued into 2020, with 14 funds already liquidated and another 24 warning of imminent closures. The closures coincide with a plunge in new subscriptions, as investors lose confidence in the market due to weak performance. The selloff in Chinese shares has intensified these challenges, creating a vicious cycle as retail investors abandon mutual funds for cash.
China’s navy starts open water trials for next-generation frigate
South China Morning Post
China's new-model frigate, Type 054B, has begun open water trials, indicating an accelerated push towards being commissioned by the Chinese navy. The vessel, which is estimated to have a displacement of about 6,000 tonnes, is bigger and faster than its predecessor, Type 054A. The Type 054B features an optimised shape that shields both radar and infrared signatures, increasing its stealth capability. It is equipped with a 32-cell missile vertical launch system, a 100-mm main gun, and other weaponry systems. The frigate has a larger hangar capable of carrying two Z-20 anti-submarine helicopters. The Type 054B is likely to play a greater role in anti-submarine operations and partner with Type 055 and Type 052D destroyers for high-sea missions.
After Taiwan’s election, its new envoy to the US offers assurances to Washington and Beijing
Associated Press
Taiwan’s President-elect, Lai Ching-te, plans to maintain the status quo in the Taiwan Strait, according to Alexander Tah-Ray Yui, Taiwan’s de-facto ambassador to the US. Yui said that Lai is willing to engage with Beijing, even as the island seeks to strengthen its unofficial ties with Washington for stability in the region. He said: “We want the status quo. We want the way it is — neither unification, neither independence. The way it is is the way we want to live right now.” Yui spoke to the Associated Press just days after Lai won the presidential election with more than 40% of the vote. China has called Lai a troublemaker who will push Taiwan towards independence. Beijing claims Taiwan as its own and has previously suggested that a vote for Tsai was a vote for war. It is unclear whether Beijing will be willing to engage with Lai, who has described himself as a “pragmatic worker of Taiwan’s independence”.
Chinese auto chip firms race to cash in on new energy vehicles
Nikkei Asia
Chinese companies are rushing to make their own auto chips as demand continues to increase in the world's largest car market. There were more than 300 local auto chipmakers in 2023, nearly 10 times the number from three years ago. Demand for smart driving cars is much higher in China compared with other countries.
China Is Buying Up US Farmland, But Just How Much Isn’t Clear
Bloomberg
Foreign ownership and investment in US farmland, pastures, and forests has increased by 40% since 2016, but problems with data tracking make it difficult to determine the exact amount, according to the US Department of Agriculture (USDA). The largest land holding linked to China was counted twice, and the USDA relies on foreigners self-reporting their activity. Concerns about food supply chains and national security risks have led lawmakers to call for restrictions on sales of farmland to foreign nations. The US Government Accountability Office (GAO) has made recommendations, including sharing more timely and complete data with the Committee on Foreign Investment in the US.
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