China’s banking regulators are caught between Beijing and its regions; Exclusive Insight: Macron vs. Scholz: Contrasting Approaches to China Reveal Crucial Insights into Global Politics

Australia suspends WTO case against China on barley tariffs; Anxious and stressed about their careers, young Chinese are flocking to temples

Welcome to this issue of The China Brief. Today is April 11, 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.

And here’s today’s exclusive insight:

Exclusive Insight: Macron vs. Scholz: Contrasting Approaches to China Reveal Crucial Insights into Global Politics

The contrasting approaches of Macron and Scholz during their respective visits to China have revealed some crucial insights into the current state of global politics. Against the backdrop of the 20th Congress of the Chinese Communist Party, which marked the beginning of Xi Jinping's third term in power, China was seeking to garner support from major Western countries. This presented an opportunity for Macron to visit China, but Scholz from Germany acted first, leaving Macron to venture alone.

While receiving Scholz's entourage, China desired to avoid delving into thorny and complex issues, such as the Russia-Ukraine conflict. Instead, China's primary objective was to use its massive domestic market as a bargaining chip to secure support from Western democracies. Macron, on the other hand, emphasized the need for a ceasefire in Ukraine and put this at the forefront of his agenda.

Fast forward six months, and the timing is now opportune for Macron to shift his stance. With China anxious about its being alienated by European democracies following the Russia-Ukraine conflict, they are urgently seeking to establish a wedge between the US and Europe to stabilize China’s external environment. Given France's status as a permanent member of the United Nations, and the fact that it has been “stabbed in the back” by AUKUS, it is now a preferred target for China to bring into Beijing’s sphere of influence. This change in the balance of power means that Macron is no longer a helpless victim but rather someone with bargaining chips to exchange.

Moreover, Xi Jinping's recent visit to Russia, during which he signed numerous economic and trade agreements, has given him a stronger foothold in influencing the Russia-Ukraine conflict. This is precisely what Macron, who is keen to secure a ceasefire, is concerned about. With tangible benefits that can be exchanged, Macron's visit to China has become an inevitable conclusion.

During his visit, Macron heeded the advice of his pragmatic staff and pursued a multifaceted approach. On the one hand, he secured numerous purchase orders from China. On the other hand, he arranged several informal activities to interact with various segments of Chinese society, engaging in discussions on topics beyond economics to dilute the perception of an entirely monetary interest-driven exchange.

In addition, he established personal relationships with Xi Jinping, arranging long private conversations and dinners. Xi Jinping even took him to major cities outside of Beijing, in contrast to Scholz’s entourage, who did not stay overnight.

Given Xi Jinping's concerns about decoupling and his need to protect his own image, there is a strong likelihood that he may send a significant economic gift to Macron in the near future as a means of building a closer relationship between their two countries.

(This is Part 2 of the series "The End of the New Cold War". The series is written by Li Zijun, an international relations scholar and a special analysis expert for The China Brief.)

China’s banking regulators are caught between Beijing and its regions

Financial Times

China's banking and financial regulation underwent a reform in March after thousands of enraged depositors took to the streets when they discovered that four local banks froze CNY40bn ($6.17bn) of their money. Regulators unraveling the mess in Henan not only discovered a decade-long trail of fraud but also identified corruption among the financial watchdogs themselves. China's answer was the regulatory revamp revealed last month. It created a new national financial watchdog to oversee all financial activities except the securities industry. The new bureau will, in theory, become a powerful go-to manager that ensures financial stability and consumer protection, leaving the People's Bank of China to focus on traditional monetary policies. 

Many insiders have hailed the reform as progress -- it aims to bridge supervisory lapses and respond faster to designated risks. The revamped system also inches closer to global norms, splitting prudential and conduct regulation. But the new regime, critics say, still fails to address the biggest absence in the system: a clear "waterfall" of loss allocation when authorities do have to step in to deal with a troubled financial firm. Conflicts between local and central bodies are likely to worsen after the regulatory revamp, as central authorities will inevitably push their regional counterparts to absorb all financial costs. 

Senior foreign exchange regulator Lu Lei told reporters at a recent forum that China's central bank has a toolbox in place to counter predictable risks. But as Switzerland's finance minister Karin Keller-Sutter has admitted, capital buffers and curbs on banking risk are inadequate in a real crisis. "Financial risk resolution is still the weakest point of the regulatory system," says one senior Chinese banking regulator.

Australia suspends WTO case against China on barley tariffs

Associated Press

Australia has paused a complaint to the World Trade Organisation (WTO) in the hope that the move will reopen the Chinese market to Australian barley. The Chinese market has been closed to Australian barley for three years since China imposed an 80% tariff following the previous conservative government calling for an inquiry into the origins of the COVID-19 pandemic. Penny Wong, Australian Foreign minister, said that the current Australian government had reached an agreement with China that “creates a pathway for the resolution of the dispute over Australian barley”. She also said that the Chinese had agreed to review their duties on the grain over three or four months while Australia suspends its WTO dispute. If China doesn’t lift the duty at the end of this review period, the dispute will resume at the WTO. Official and unofficial trade barriers are estimated to cost Australian exporters AUD 14bn ($10.5bn) a year.

Is China building facilities on Myanmar islands to ‘spy’ on Indian bases?

South China Morning Post

Satellite images have revealed that Myanmar has upgraded its military infrastructure on the strategically important Coco Islands, located near the Bay of Bengal and 55km from India’s Andaman and Nicobar Islands, which are home to Indian air and naval bases. The images reveal the island has been significantly modernized and there are facilities that seemingly suggest Myanmar is using the island as a monitoring hub for military equipment. Experts suggest that China is likely helping Myanmar build military installations on the island, as China has been operating on the Coco Islands for the last 30 years and is the only country engaging with the Myanmar junta. If evidence were to suggest that China was involved, it could escalate tensions with India in the region.

Myanmar’s military rulers seized power in a coup in February 2021 and since then have been ostracized by many in the global community, with a wide array of sanctions placed on the junta. Prior to the coup, India had been in close alignment with Myanmar’s National League of Democracy, but since the military takeover, there have been few if any contacts between the two countries. Meanwhile, China has established footholds around the Indian Ocean in recent years, including acquiring ports in Sri Lanka and Pakistan, and military bases in Djibouti, giving China an advantage in the region.

Biden Faces Awkward Talks Abroad as US Reels from Intelligence Breach

Bloomberg

The leak of classified US documents has set off diplomatic conversations amongst the country's allies. The documents, which revealed the extent of the US spy network on its allies, was an embarrassment for a nation that already faces criticism of its surveillance techniques. The documents have begun to circulate since Wednesday, and while officials are still assessing the extent of the leak, foreign officials are highlighting the negative timing of the incident. Recently, Ukraine has been at war against Russia, and President Joe Biden is due to see the UK's leader and will host his South Korean counterpart, a key partner in efforts to counter China, at the end of April. Japan and Australia are also concerned about the intelligence leak.

The US has suffered from two major breaches in classified information in the last decade with the information revealed now causing concern amongst US allies. Washington is now also at risk of undermining support for continuing military assistance to Ukraine internationally and domestically where a number of Republicans have called for a cut-off. However, one official noted that previous negative assessments of Ukraine's prospects have proven to be wrong.

The leaks may also come with some exaggerations. The New York Times has noted that the documents posted were changed to understate estimates of Russian casualties in Ukraine and overstate those of Ukrainian forces. This highlights further concerns about disinformation which has plagued the US long before the Trump administration. Elon Musk, the owner of Twitter and well-known entrepreneur, also responded to reports of the leaked documents being taken down by the US administration, saying that "you can totally delete things from the Internet - that works perfectly and doesn't draw attention to whatever you were trying to hide at all".

Anxious and stressed about their careers, young Chinese are flocking to temples

South China Morning Post

Buddhist and Taoist temples in China have become popular destinations for young graduates who are taking a break from the competitive job market. Many young people have retreated from the market after feeling disillusioned or burnt out, and are looking to take a break and re-evaluate their path. Furthermore, youth unemployment has continued to rise in China, hitting 17.5% last year and subsequently increasing to 18.1% in the first two months of this year. Young people aged 16 to 24 have frequently been the hardest hit by job losses during the pandemic.

Young graduates have flocked to temples, looking to lead a more relaxed lifestyle, volunteering at temples, and attending lectures to gain spiritual and emotional support. While temple visits were previously rare, trips have recently surged since the start of 2023, with digital shops selling souvenirs such as bead bracelets and incense burners. Experts claim that many young people are looking for spiritual fulfillment, as well as greater freedom to think about issues such as these that were not available to previous generations. 

The new-found interest in temple life reflects a younger generation that is more willing and open to finding a spiritual path that aligns with their values, according to young people who have visited. The temple trend has even caught the eye of official state media, with one article claiming that youth are turning to shrines out of fear of life’s pressures. The trend has also highlighted the pragmatic and utilitarian attitude that Chinese people have toward religion compared to monotheistic practices seen in Western religions.

Macron Takes Pitch for EU Power to The Hague as Backlash Builds

Bloomberg

French President Emmanuel Macron is seeking support in the Netherlands for more joint EU spending, closer control over European supplies of technology and industrial goods, and fostering a degree of skepticism about relations with the US as he attempts to move into the middle ground between China and the US. Macron will deliver a speech highlighting the need for European economic sovereignty and the risks of naivety and over-dependence on the US. Macron has been pushing for greater European foreign policy integration and common spending since he took power six years ago. He reflects on a long-standing French approach that began with Charles De Gaulle in the 1960s. Despite being seen as a market raider, Dutch Prime Minister Mark Rutte has improved relations with Macron's government, and the two countries are aiming to seal a defense agreement next year.

Differences are expected to appear over how to respond to US demands on promoting clean technology, with France pushing for the EU to come up with more common funds to compete with Biden's aid program and cheaper energy. Germany will also be an important advocate of common financing. The sale of Dutch firm ASML Holding NV's machinery to China, which provides cutting-edge equipment for semiconductor companies, will also be discussed, following pressure from Washington. Macron aims to foster a deal to boost Franco-Dutch cooperation and home-grown tech solutions. He will attend a round table on technology and innovation along with representatives of French semiconductor company StMicroelectronics NV, which works with ASML, and technology provider Atos SE.

China internet giants, startups rush to jump on ChatGPT bandwagon

Nikkei Asia

Chinese companies, including industry giant Meituan, are looking to acquire AI and machine-learning start-ups amid a "gold rush" for artificial intelligence in the country. Meituan co-founder Wang Huiwen announced a $50m personal investment in a Chinese version of Microsoft-backed ChatGPT while Lightyear Technology, founded by a billionaire who retired from Meituan last year, last month acquired Beijing OneFlow Technology. Several other firms have also moved to develop chatbots that use the latest AI systems.

The demand for chatbots – programs that emulate human conversations – is growing in China's increasingly tech-reliant society. But despite a government push for the industry to produce the best artificial intelligence systems, it is difficult to retain talent in the sector. Many promising entrepreneurs, academics, and developers go to Silicon Valley or other overseas companies, where they are offered better salaries and more freedom.

Stocks rally on China stimulus bets as inflation cools while SenseTime gains

South China Morning Post

Reports that inflation cooled more than expected last month in mainland China have fuelled hopes of increased stimulus measures from the mainland government, spurring a 0.9% increase in the Hang Seng Index in Hong Kong. Among the tech firms to make gains were Alibaba, which increased by 2.7% to HKD100.40, and SenseTime, which rose by 0.9% to HKD3.36 after it unveiled a new product, SenseNova. Gold Sachs has urged investors to channel their money into stocks registered in New York and Hong Kong, instead of mainland China’s onshore options, which have not performed as well.

Sandstorms, dangerous pollution return to Beijing

Reuters

Sandstorms are set to hit Beijing and surrounding areas throughout Wednesday, with weather forecasters warning citizens of respiratory risks and extremely low visibility. A blue weather alert has been issued, signaling the least serious warning in China's four-tier, color-coded weather-warning system. The Chinese government has already noted a surge of sandstorms in recent decades, with a government official stating the number is four times higher than in the 1960s.

China Tries to Reassure Taiwan Businesses as Military Drills End

Bloomberg

Wang Huning, who is a high-ranking Chinese official, has told Taiwanese executives that they are welcome across the strait despite Chinese military drills occurring. An official in China's ruling Communist Party stated publicly that "efforts will be made to ensure that Taiwan compatriots and their businesses are willing to invest on the mainland, integrate into the development of the mainland and prosper on the mainland." The reassurance comes after China ended military drills around Taiwan and sent 91 People’s Liberation Army planes and 12 warships into Taiwan's surrounding areas. China has guaranteed that it is striving to safeguard peace and stability across the Taiwan Strait, however, it will not tolerate any efforts from Taiwan to pursue independence.

Taiwanese companies increasingly encounter difficulties on the mainland for political reasons, as seen in the summer of 2020 when some products' imports into China were suspended, including fish, fruit, and sand used in construction, following former House Speaker Nancy Pelosi's visit to Taipei, the first visit by a sitting speaker in 25 years. Consequently, Taiwanese businesses have decreased their new investments in China in recent years, as they branch out to diversify their manufacturing locations. Investments in China permitted by the government in Taipei decreased to just over $5 billion in 2022, noticeably less than in the previous decade.

Alibaba unveils Tongyi Qianwen, an AI model similar to GPT

Reuters

Alibaba has revealed a new AI-driven product known as Tongyi Qianwen, which will be integrated into all the company's business applications. Initially integrated into DingTalk, the tool will ultimately spread throughout the enterprise. As well as summarising meeting notes, it can also draft business proposals and emails, and will also be added to the company's Tmall Genie voice assistant. As previously revealed, at the recent Alibaba Cloud Summit conference in Hong Kong, the company is looking to unleash an "ET Brain" AI platform as part of its smart city development program.   

Japan urges peace in Taiwan Strait as Beijing simulates attack

Japan Times

Japan has emphasized the necessity of peace in the Taiwan Strait during talks between senior Japanese and Chinese officials. The talks, centered on the contested waters in the East China Sea, follow three days of war games conducted by China near Taiwan in response to a visit to the US by Taiwan’s President Tsai Ing-wen, during which she met House of Representatives Speaker Kevin McCarthy. During the meeting, Japan stressed the importance of avoiding conflict in the area, as it also expressed concern over Chinese military activity close to Japan and its cooperation with Russia. Tokyo also urged Beijing to maintain its coastguard ships outside Japanese waters.

Japanese and Chinese officials convened at the high-level consultation mechanism on maritime affairs, with the talks largely conducted online in recent years due to the pandemic. This followed a meeting in person in May 2019. On Monday, a hotline was agreed upon between the two countries’ defense authorities, and both unanimously confirmed their commitment to joint gas exploration.

Chinese solar material maker GCL mulls overseas plant to bypass US trade barrier

South China Morning Post

Chinese solar material firm GCL Technology is considering expansion into Europe or the Middle East as it seeks to circumvent potential trade restrictions from the US, as well as access cheap green power. US trade barriers could impact the origin of solar panels and materials, and lead to tariffs as soon as mid-2023. GCL hopes to avoid this by establishing production facilities overseas, while an international move would benefit potential solar cell and panel customers looking to relocate from Asia. GCL Technology CEO said green energy will be used in its Middle East production plant, enabling the company to supply the European Union, which will levy taxes on carbon-intensive imports from 2026. The company has increased its output of granular polysilicon six-fold using energy-efficient methods, accounting for 43.5% of last year’s total output, and aims to raise production of granular polysilicon to 220,000 to 240,000 tonnes this year.

The Chinese firm is exploring plant sites in the Middle East or Europe to take advantage of cheaper electricity and avoid potential US trade barriers that could affect the origin of solar panels and materials, and lead to tariffs. The decision follows Washington's preliminary decision to impose new duties on solar panel imports from major Chinese companies that are considered to circumvent tariffs by finishing their products in Southeast Asia. GCL is well-positioned to supply the EU with efficient, low-carbon footprint solar material, as it has achieved its production using green energy to reduce carbon levies incurred by its customers. HSBC analysts predict GCL's manufacturing cost will fall to 30 yuan per kg by 2024, compared to 38 yuan at closest rival Tongwei Group.

Taiwan's ex-leader's tour emboldens China, risks backlash at home

Nikkei Asia

The recent 12-day visit to China by former Taiwanese President Ma Ying-jeou has unveiled two separate approaches taken by the island's two main political parties towards Beijing. Ma, from the opposition Kuomintang (KMT), emphasized the Chinese ethnic heritage of Taiwanese people and the argument that Taiwan, under the exiled government of the Republic of China, and Communist-run China belong to the same country. The island's ruling Democratic Progressive Party (DPP), however, rejects this view and takes a more cautious stance towards China, fearing the potential impact the relationship could have on Taiwan's autonomy and democracy. 

The stark differences between the two parties' approaches highlight what is set to be a key issue in Taiwan's next presidential elections, due to take place in 2020. Following her election in 2016, DPP President Tsai Ing-wen refused to acknowledge the "one China" principle, amid rising pressure from mainland China to do so. The Chinese government considers Taiwan to be a province of China and has used economic and diplomatic tools to promote reunification. Taiwan has responded by seeking to build alliances with other countries and reduce reliance on China. 

The KMT, on the other hand, has traditionally favored closer ties with China and the implementation of a "one China" policy. Ma Ying-jeou signed a series of agreements with China during his presidency from 2008 to 2016, leading to closer economic and business links between the two economies. However, his recent visit has highlighted support for this approach may be dwindling, not only among the younger generation of Taiwanese voters but also within the KMT itself. 

China's consumer inflation hits 18-month low amid uneven recovery

Reuters

China's consumer inflation in March rose 0.7%, the slowest pace since September 2020 due to sluggish food prices, suggesting a persistent weakness in demand in the economy's uneven recovery. Meanwhile, producer deflation sped up, extending price declines for a sixth straight month, with the producer price index falling 2.5% year-on-year. The results of the March inflation report suggest that the Chinese economy is running a disinflation process and there is greater room for monetary policy easing to boost demand, according to Zhou Hao, an economist at Guotai Junan International. 

US House committee chair Mike Gallagher ‘concerned’ by Tesla deals in China

South China Morning Post

Republican Chair of the House of Representatives’ Select Committee on China’s Communist Party, Mike Gallagher, has raised concerns about electric car manufacturer Tesla’s reliance on China, following the company’s announcement of a Megapack battery factory in Shanghai. The factory will initially produce 10,000 units per year, equivalent to about 40 GWh of energy storage, to complement an existing Shanghai plant making electric vehicles. The China facility provided over half of Tesla’s global production last year, while China accounted for over a fifth of the firm’s overall revenue. Analysts suggested US government support for Tesla would help mitigate the firm’s reliance on China. Gallagher, who last week met with tech firms including Apple, Alphabet’s Google and Disney about their China dealings, said he hoped to engage with Tesla and other companies, but suggested that executives could be called to testify if investigations were hindered. He declined to discuss the committee’s upcoming hearings but said it was under a “tight timeline”.

Tai­wan’s pres­i­dent con­demns Chi­na drills as ir­re­spon­si­ble

Aljazeera

Taiwan’s President Tsai Ing-wen has criticized China’s three-day military drills in the Taiwan Strait. The war games concluded on 10 April, but Taiwan’s Ministry of National Defense stated on 13 April 8 boats continued to operate “in the waters surrounding Taiwan.” During Tsai’s return to Taiwan from a visit to Central America, China began the drill, which simulated attacks on Taiwan by the People’s Liberation Army (PLA). The exercise “comprehensively tested the integrated joint combat ability of multiple military branches under actual combat conditions", said China’s People’s Liberation Army’s Eastern Command. The drills follow China’s ramping up of pressure on Taiwan since Tsai was first elected president in 2016. China considers Taiwan part of its territory and has not ruled out the use of force to take control of it. 

China tourism boom seen ahead after Beijing reopening triggers travel frenzy

South China Morning Post

Fosun Tourism Group is planning to expand its global business operations and upscale resorts in China after revenue from its hotel business returned almost to pre-pandemic levels in early 2023, according to the company’s chairman. Fosun is the leisure and holiday tourism business subsidiary of China's Fosun International and predicts a surge of Chinese tourists planning trips in the coming months. The company has decided to combine work with leisure for its customers and expand the number of resorts in cities in China by adding 17 new resorts globally by 2025. It aims to launch more resort projects in China's market after suffering losses from the pandemic.

China Says Homegrown mRNA Covid Shot is a Preferred Booster

Bloomberg

China's National Health Commission has announced that its first homegrown mRNA Covid vaccine is one of its two preferred boosters that adults should take. The other new preferred booster was created by Beijing-based Sinocelltech Group and targets four different variants, including omicron. The announcement comes as China tries to renew a government campaign to increase immunity against Covid. It is thought that more than 80% of the population in China has had it, with many outside experts estimating that hundreds of thousands of people have died due to inadequate vaccination.

The decision to roll out and heavily promote the vaccines was made less than a month after they were granted emergency use permitted by the government. The CPSC shot's clearance allowed the use of mRNA technology in China, which had previously relied on other types of vaccines. China has developed more than a dozen homegrown Covid shots so far, but it has not approved applications for BioNTech SE or Pfizer's mRNA shot yet.

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