China's Commerce Minister travels to US to meet counterpart; Exclusive Insight: Has Japan truly heralded a new moment of splendor?
Once a Symbol of China’s Growth, Now a Sign of a Housing Crisis; Like It or Not, America Needs Chinese Scientists
Welcome to this issue of The China Brief. Today is May 25, 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.
Exclusive Insight: Has Japan truly heralded a new moment of splendor?
In recent days, as the G7 summit is held in Hiroshima, Western media is awash with coverage of Japan, venerating this venerable developed nation as a rising star of tomorrow. Can the Mrs. Watanabe, who has languished for thirty years, really become the darling of the world overnight?
Japan's return to the radar of international investors began with Warren Buffett's investment in the Japanese stock market in 2020, but the subsequent fervor did not materialize. It was not until this April, when Buffett further invested in the Japanese market, that investing in Japan gradually became a topic of international discourse over the past month. Japan's unusually high-profile stance on the international stage over the past month, further backed by the renewed favour of its Western allies towards its economic market, has also gained attention. Warren Buffett, as a secondary market investor seeking solid returns in the Japanese market, is undoubtedly justified. It's certainly an intelligent investment opportunity to double down when the yen is low, from a long-term return perspective.
However, as a destination for industry investment, has Japan truly found new points of growth? Could it be that Japan, after a lost thirty years, has been underestimated by the world? The bursting of Japan's economic bubble coincided perfectly with the transition between the old and new emperors. As Japan's economy stumbled entering the Heisei era, the nation started to miss opportunities in an increasing number of areas.
In the past thirty years, Japan missed out on high-end chips, losing its chip advantage to Taiwan and South Korea; In the Cathode Ray Tube (CRT) era, Japan's televisions and displays dominated the world. But in the post-CRT era, Japan bet on Plasma Display Panels (PDP) and missed LCD, conceding LCD to Taiwan's top four panel factories and Samsung; In the post-LCD era, Japan's once successful Sharp was unable to make a breakthrough in OLED technology, causing Japan to miss the OLED era. Since then, Japan has been excluded from the entire flat panel display era;
With the advent of the iPhone, mankind entered the era of smartphones, and Japanese manufacturers transitioned from their dominance in feature phones. Despite NTT Docomo being the first operator to enter the 3G era, Japanese companies withdrew completely from the smartphone market, a transition that gave rise to Chinese mobile phone brands; Humanity, transitioning from the internet age to the late stages of the mobile internet era, is progressing towards the AI era. Yet, Japan has not yet fully entered the digital age. Relying on fax machines for information transmission, a usage rate of cash accounting for 51% - the highest among developed countries, and most government affairs still requiring face-to-face interactions at counters. Even more interesting is that Japanese news web pages still retain pagination - a relic from the early days of the internet, which could be considered a piece of internet cultural heritage.
Moreover, Japan's largest website, Yahoo Japan, has stopped accepting visits from Europe since April 2022. In an increasingly open world, Japan's choice is becoming more and more closed (though for regulatory reasons). In the era of mobile internet, Japan does not have any companies that catch the world's attention. Apart from Softbank, which survived the shake-up of the internet era, it's regrettable that Japan has not produced any outstanding new enterprises in the digital age of the 21st century.
A crucial point is the era of electric vehicles; Toyota, Japan's lone multinational corporation, is missing the EV era. A failure in its electric vehicle strategy led to the unexpected early retirement of Akio Toyoda, casting a shadow over Toyota's prospects. Japanese car manufacturers are also facing shrinking market shares outside of Japan, especially in China. With Chinese car companies gradually targeting the Southeast Asian market, Japanese car companies, whose stronghold is Southeast Asia, will face even more severe survival challenges in the future.
Considering all these, it begs the question, why has Japan suddenly become the apple of the Western media's eye today? Could it be that the Western business community has suddenly discovered a new economic dynamism in Japan? In reality, we have not seen any exciting signs in any aspect of Japan.
On the contrary, social vitality, which is a crucial element of economic dynamism, remains a crucial weakness that Japan has yet to address. As for foreign companies investing in Japan, recent foreign media reports have mentioned Japan's superior legal environment. Yes, as one of the most developed countries in the world, Japan is of course a rule-of-law society. However, Japan's closed culture and exclusive social environment do exert a certain impact on its judicial environment. It brings to mind the case of former Nissan CEO Carlos Ghosn, who was refused bail and family visits for as long as 108 days after his arrest, without the Japanese police providing any legally justified reasons. Japan's judicial system's treatment of foreign enterprises is a subject worth serious consideration.
Lastly, looking at Bloomberg's analysis, it anticipates Japan will regain the charm that once made the Walkman popular worldwide. This indeed provokes incredulous laughter. Unable to find any noteworthy achievements in the past thirty years, do they really have to rely on glories from 40 years ago?
(The author of this article is Zongyao Wu, an economist stationed in Japan for 'The China Brief'.)
China's Commerce Minister travels to US to meet counterpart, attend APEC meeting
Reuters
China's Minister of Commerce, Wang Wentao, will meet US Commerce Secretary Gina Raimondo on May 25 to discuss the bilateral relationship and issues of common concern, according to Shu Jueting, a spokesperson for China's commerce ministry. Wang is in the US to attend the 2023 APEC Ministers Responsible for Trade meeting. He met American firms, including Johnson & Johnson, 3M and Merck on May 25, telling them "China will continue to welcome US-funded enterprises to develop in China and achieve win-win results." The visit comes after the G7 leaders met in Hiroshima, with US President Joe Biden and other G7 leaders taking aim at China over "economic coercion" and pledging to "de-risk" without "decoupling".
Once a Symbol of China’s Growth, Now a Sign of a Housing Crisis
NY Times
The rows of towering buildings crowding the banks of the Gan River are a testament to China's real estate overbuilding crisis. China built around two million apartments in 2000. By the mid 2010s, it was building more than seven million apartments a year. Real estate quickly became the backbone of China's economy, accounting for around a quarter of all activity. Nanchang, the capital of Jiangxi Province, erected sweeping apartment complexes and gleaming office towers to meet the increasing demand for homes and workplaces. It pursued urban expansion with a growth-at-all-costs approach: “Advance eastward, extend southward, expand westward, integrate northward, and prosper in the middle.”
But the country's prolonged real estate slump has exposed cracks in cities, like Nanchang. Nanchang’s 20 percent residential vacancy rate was higher than the 12 percent average among a nationwide sample. Prices have roared back in bigger cities like Beijing and Shanghai. In second-tier cities, like Nanchang, the rebound has been more muted, and even nonexistent in smaller cities.
China’s housing problems are more pronounced outside the top cities because overbuilding has been more pervasive in smaller cities. Developers are saddled with debt, cities are teeming with empty dwellings, and local government finances are depleted from years of paying for COVID testing. The sector created jobs, supported the finances of local governments that rented land rights for new buildings, and provided one of the few reliable investment options for ordinary Chinese people looking to accumulate wealth.
Like It or Not, America Needs Chinese Scientists
NY Times
Concerns over Chinese influence are putting America's ability to attract top talent at risk, according to a op-ed in The New York Times. The case highlights concerns over the Department of Justice's now-defunct China Initiative, which placed researchers and academics of Chinese descent under house arrest or taken away in handcuffs on charges of hiding ties to China, cases which in some instances were later dropped. The program resulted in few prosecutions but set an atmosphere of fear surrounding collaborations with Chinese scientists, which is restricting the pool of potential partners and many best science is carried out by international teams. Furthermore, China is now a scientific power, ranking second only to the US for spend on R&D in 2018. Academics also choose partners based on who can best help them advance their work, and researchers at American universities have for years chosen co-authors from China more than any other country.
Wanda in Talks to Refinance $275 Million Private Debt Facility
Bloomberg
Dalian Wanda is in talks with lenders to refinance a $275m private debt facility which matures in June, according to unidentified sources cited by Bloomberg. Credit Suisse is overseeing the calls with lenders, who are discussing refinancing the arrangement which is backed by Wanda’s equity in Legendary Entertainment. Wanda has at least $1.18bn of bond obligations to be settled by 2023 and its overall finances have become the subject of concern for investors and Chinese authorities. It has been facing calls to repay debts following the mass acquisition of assets last decade.
Meituan’s Revenue Beats Estimates in China Spending Revival
Bloomberg
Chinese food delivery giant Meituan reported a stronger-than-expected 27% surge in revenue for Q1 2023, driven by a stabilising Chinese economy and the easing of Covid restrictions. Its operating profit more than doubled as consumers resumed spending on travel, meals and tickets. However, official data from last week shows that China's sales growth has slowed down, creating uncertainty around future prospects of the food delivery industry in the post-Covid market. Meituan is also facing competition from ByteDance's Douyin, which is testing a grocery and food delivery service that could rival Meituan and Alibaba's Ele.me.
Chinese hackers targeting critical infrastructure: Microsoft
Deutsche Welle
State-sponsored Chinese hackers have successfully infiltrated critical US infrastructure networks and similar espionage attacks may be taking place worldwide, according to the United States, its Western allies and Microsoft. China has denied the claims and called them a "disinformation campaign." In a coordinated effort, the US, Australian, Canadian, New Zealand and UK authorities released an advisory stating that the cyber actor behind Volt Typhoon is backed by the Chinese government and that similar hacking activities are likely occurring on a global scale. Volt Typhoon's attacks began in mid-2023 and appear to be aimed at undermining the US in the event of a regional conflict.
China calls on G7 to not abuse trade restrictions - commerce ministry
Reuters
China's commerce ministry spokesperson Shu Jueting has said that China hopes the G7 will not misuse trade and investment restrictions and added that China will not seek decoupling from the group. This comes after the G7 called for a better understanding of China's practices and closer cooperation to counter its increasing assertiveness.
China Warnings Flash Across Global Markets as Growth Disappoints
Bloomberg
The muted economic rebound in China, alongside Beijing's reluctance to deploy large-scale stimulus, are impacting global commodity prices and equity markets. Recent data suggests China's GDP growth will be closer to the government's target of 5%, contrary to earlier predictions of a large overshoot. Investors have cut back their expectations for the world's second-biggest economy, amid concerns about the loss of momentum in its recovery from pandemic restrictions. Meanwhile, growth in construction activity is lagging while the crisis-ridden property market is slowing sales after an initial rebound. New projects are also being hampered.
BRICS considering large expansion as emerging economies rally to join group
Japan Times
Foreign ministers from Brazil, Russia, India, China and South Africa (BRICS) will meet in South Africa on June 1-2 to discuss potential membership applications from at least 20 countries after first proposed by China last year. The move to expand the bloc is reportedly "positive news," according to South Africa's ambassador to BRICS, as it demonstrates the confidence of the Global South in the group's leadership. If expanded, BRICS could act as a counter to the US-led global order and allow emerging economies a greater say in the evolving global architecture. As well as discussing membership applications, the ministers are also expected to discuss boosting trade in local currencies.
BYD Rejects Rival’s Allegations of Breaching Emissions Rules
Bloomberg
Chinese automaker BYD has denied Great Wall Motor's allegations that the gasoline engines in the Qin Plus and Song Plus plug-in hybrids failed to meet national emissions standards. Great Wall had lodged a complaint with local regulators and said it was waiting for a response. In response, BYD said it opposed any form of unfair competition. The tests on the engines, which had travelled up to 670kms, were conducted by the Tianjin branch of the China Automotive Technology and Research Center at the request of Great Wall, which also purchased and provided the vehicles.
Chinese trust companies are dumping risky assets: 5 things to know
Nikkei Asia
Many of China's trust companies reported shrinking revenue or profits due to losses on their real estate investments in 2022, while regulators tightened scrutiny over the $3.2tn trust industry. Mounting nonperforming assets, including risky loans linked to real estate, are likely to concern regulators, with the Communist Party's top decision-making body calling for efforts to tackle trust industry risks.
Singapore Dollar at Record High Versus Ringgit on China Worries
Bloomberg
The Singaporean dollar has reached a record high against the Malaysian ringgit as the latter suffers from weakening confidence in China’s economic recovery. Singapore’s currency has climbed 1.3% against the ringgit in the past four sessions, posting its best weekly advance in over three months, while the ringgit has been impacted by a weaker outlook for China’s economy and sluggish oil prices. Reports of China’s lackluster retail sales and manufacturing data are also undermining the “reopening trade” and weighing on Malaysia’s trade balance. Meanwhile, the Singaporean dollar has been boosted by policy tightening and an influx of Chinese tourists.
China Stocks Rout Extends as Traders Rush to Sell Before Holiday
Bloomberg
Hong Kong's Hang Seng China Enterprises Index fell by 2.9% as investors sold off shares ahead of a long weekend. The index is on course for its worst week since March, falling more than 18% from this year's high. The weakness in Hong Kong's stocks is primarily due to concerns about the US debt ceiling, said Hayman Chiu, an analyst at Cinda International Holdings. The intensifying selloff of Chinese stocks reflects investors' lack of confidence in the market and comes amid a weaker yuan and persistent fears over growth and geopolitics.
Taiwan says software problems delaying new F-16 deliveries
Reuters
Software issues are delaying the delivery of 66 advanced F-16V fighter jets from the US to Taiwan. The Taiwanese Defence Minister stated that the island still expects to receive the full order by 2026. The delay is believed to be linked to flight control software, with Lockheed Martin having so far rolled out two prototype F-16Vs this year, but no comment was provided.
Singapore Says Aspects of US-China Rift ‘Appear Insurmountable’
Bloomberg
The increasing tensions between China and the US now look irreconcilable, according to Singapore Deputy Prime Minister Lawrence Wong, who said that the Taiwan Strait has become “the most dangerous flashpoint” in the region. Wong, who was speaking at the Nikkei Forum 28th Future of Asia, said that the two countries’ strategic and ideological differences appear insurmountable. Wong also warned against de-risking supply chains, stating that it could prompt unintended consequences and lead to a more fragmented and decoupled global economy.
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