China’s consumer prices mark steepest fall since November 2020；Why China is still several moves behind in the AI chess game started by ChatGPT
Make sure Taylor Swift doesn’t skip Hong Kong again; Chinese Startup Pulls Off Second Methane-Fueled Rocket Launch
Welcome to this issue of The China Brief. Today is December 9, 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’s consumer prices mark steepest fall since November 2020
South China Morning Post
China's consumer prices fell 0.5% year-on-year in November, marking the steepest decline in three years and intensifying deflationary pressure. The decline was attributed to downward pressures on energy and food prices. China's producer price index also fell for the 14th straight month, down by 3% year-on-year in November. China's economy has been facing difficulties including sluggish domestic consumption, local government debt risks, an ailing property sector, and weak exports as global growth slows down. Moody's recently cut the outlook for Chinese sovereign bonds from stable to negative, citing costs to bail out local governments and state enterprises.
Why China is still several moves behind in the AI chess game started by ChatGPT
South China Morning Post
China's ambitions to become a global leader in artificial intelligence (AI) by 2030 are being hampered by a lack of access to advanced chips, leading to fragmented markets for the technology and high development costs. US export controls have blocked China's access to cutting-edge graphics processing units (GPUs) from Nvidia and other companies, which are considered crucial for the development of large language models (LLMs). China's crowded market of more than 100 LLMs is also constrained by strict regulation, censorship of sensitive topics, and the lack of high-quality data available in Mandarin compared to English. Despite these challenges, Chinese tech companies are racing to develop domestic rivals to US-led LLMs such as OpenAI's GPT and Google's Bard. However, experts warn that China's lack of access to advanced chips is likely to hamper its ability to compete in the AI field for the foreseeable future.
Make sure Taylor Swift doesn’t skip Hong Kong again
South China Morning Post
Hong Kong's hosting of high-profile cultural and business events in recent weeks, such as the Louis Vuitton pre-fall menswear show and the Clockenflap music festival, signals the city's return as an international player after three years of pandemic isolation. In order to secure its status as a premier events capital, the Hong Kong government must invest in long-term strategies, collaborate with cultural leaders, and foster the development of the arts, culture, and creative sectors. The business sector should also support this cause by leveraging its international connections and resources.
On topic: Will China's sprawling debt problem worsen?
Nikkei Asia
China's housing market turmoil and weak consumer sentiment are impacting the country's economy. Property developer Evergrande is facing a lawsuit that could lead to its liquidation, while Dalian Wanda Group, China's largest mall operator, is selling assets to avoid default. Debt-laden local governments are also struggling. Moody's has downgraded China's credit rating and warned of hidden debt. Evergrande's winding-up petition hearing has been postponed, and presale properties have slumped due to fears over developers' ability to deliver. Real estate prices have fallen, but local governments are reluctant to let them drop further. To solve the property crisis, China needs to address the root causes rather than just treating symptoms.
US-China’s Pacific power play to persist after Australia-Papua New Guinea pact
South China Morning Post
Australia and Papua New Guinea have signed a bilateral security agreement that will see them work together on defence and policing. Australia will contribute AUD200m ($132m) towards Papua New Guinea’s security priorities. The deal comes after Papua New Guinea’s controversial security pact with China in 2019, which allowed Chinese police and military personnel to help with social order and disaster relief in the Pacific nation. Analysts have said that power tensions between the US and China in the Pacific will continue, despite Australia’s efforts to strengthen its relationships in the region.
Australia to Keep Pressing China on Removal of Trade Impediments
Bloomberg
Australia's Trade Minister, Don Farrell, has said that the country will continue to pressure China to remove trade barriers that are affecting Australian exports, particularly live lobster and red meat. China imposed tariffs on Australian wine and barley after Australia called for an investigation into the origins of COVID-19, angering Beijing. However, China recently removed duties on Australian barley, and Farrell is hopeful that import duties on Australian wine will also be removed following a review by China. He stated that trade relations with China are on a "positive trajectory."
The 2023 EU-China Summit – A Lukewarm Affair But No Disaster
Woodrow Wilson International Center for Scholars
The 2023 EU-China summit on December 7 in Beijing ended without a dramatic clash of views but also without much agreement. The summit did not do any harm, it seems, but it did not lead to any major results either. Ursula von der Leyen, President of the European Commission, and Charles Michel, President of the European Council, probably expected as much. In her opening statement von der Leyen asked Chinese President and Chinese Communist Party (CCP) chairman, Xi Jinping, for a “frank and open exchange” of views and it seems that is what she got, once the doors closed for the two-part meeting.
The EU pair, accompanied by the High Representative of the European Union for Foreign Affairs and Security Policy, Josep Borrell, first met with Xi and then after lunch with the new premier Li Qiang. At both meetings the elephants in the rooms were the United States and Russia. In what has almost become a tradition by now, the Chinese leaders attempted to do their best to drive a wedge between the transatlantic allies by warning the EU leaders against “all kinds of interference” from outside powers, such as the United States and its latest export curbs on high-end artificial intelligence chips and chipmaking tools.
In turn, the two EU presidents tried to persuade Xi to drop his support for Russia’s war against Ukraine and persuade Putin to withdraw his troops. China’s position regarding Russia’s aggression would define the EU’s relationship with China, von der Leyen told a news conference after the summit but Xi remained unswayed, as far as we know. China buys huge amounts of Russian oil at discounted prices and is providing Moscow with drones, microchips, and other dual-use goods, which may well classify as military aid. Wang Luton, the director-general for European affairs in the Chinese foreign ministry, suggested at a later press conference that the EU countries should talk to Putin themselves, if they wanted to bring about an end to the war.
Xi is greatly upset about the difficulties caused by US and European high-tech export controls and grapples with very high youth unemployment (which is still increasing), a looming demographic crisis, and not least the collapse of the property bubble. Just before the summit meeting Xi learned that the government in Rome had pulled out of the Belt and Road Initiative (BRI), a humiliating blow as Italy was the only G7 country which had ever joined the BRI.
In their meetings with the Chinese leaders, von der Leyen and Michel bitterly complained about the massive EU trade deficit with China, which ran at almost 400 billion euros in 2022.
Not surprisingly, Xi dismissed this. Many exports to the EU actually originated from European-owned factories in China. Moreover, the trade deficit in 2023 had already declined by some 17 percent compared to the previous year. China’s industries were developing rapidly due to their high innovation abilities and there was no overcapacity and no unfair subsidies of EV vehicles in China.
The EU fears, however, that China will soon flood the EU countries with even more low-cost goods such as solar panels, wind turbines, medical devices, and more subsidized electric cars.
Michel and von der Leyen also presented details of 13 Chinese companies to Xi which sell EU-made dual-use products to Russia and thus avoid the European sanctions put on Moscow. They expect Beijing to take “appropriate action” otherwise these Chinese companies will also be sanctioned as part of the 13th sanctions package on Russia, which is currently being debated in the European Parliament.
The meeting was indeed quite “candid” as Beijing later expressed. Von der Leyen and Michel also raised serious human rights issues in Xinjiang, Tibet, and Hong Kong though they were delighted that the EU-China Human Rights Dialogue had commenced again. The two EU leaders expressed their concern about the rising tensions in the Taiwan Strait but also reiterated the EU’s consistent One China policy. The Israel-Hamas War was also discussed.
China had pressed for the relaunching of High-Level People-to-People Dialogue (HPPD) next year and this was agreed. First initiated in 2012, the HPPD consists of meetings of decision-makers and practitioners in various civil society and cultural fields. Agreement was also reached regarding the controversial issue of the ambiguous Chinese rules for data transfers. Beijing agreed to publish guidelines to provide greater transparency regarding how western companies can transfer their data out of China without running the danger of breaking any laws and rules.
Philippines Says China Fired Water Cannons at Civilian Vessels
Bloomberg
Chinese Coast Guard ships fired water cannons at Filipino civilian vessels delivering supplies to Scarborough Shoal in the South China Sea. The Chinese ships also engaged in dangerous maneuvers and used a Long-Range Acoustic Device, which caused discomfort and incapacitation to some Filipino crew members. The Chinese use of water cannons caused significant damage to the communication and navigation equipment of a Philippine fisheries bureau vessel. The US Ambassador to the Philippines condemned China's actions. Manila and Beijing have had several tense encounters in the disputed waters in recent months.
US court denies bail to man accused of killing Chinese wife, her parents
South China Morning Post
Samuel Bond Haskell IV, the son of a Hollywood executive, has been charged with the murder of his wife and her parents. The 35-year-old was ordered to be held without bail on Friday and will return to court in January, after his arraignment was postponed. Haskell was arrested last month on suspicion of murder in relation to the deaths of his wife, Mei Li Haskell, 37, her mother, Yanxiang Wang, 64, and stepfather, Gaoshan Li, 72.
Chinese Startup Pulls Off Second Methane-Fueled Rocket Launch
Bloomberg
Chinese startup LandSpace Technology has successfully launched its second rocket powered by methane-based fuel. The ZQ-2 rocket, carrying three satellites, took off from the Jiuquan Satellite Launch Center in the northwestern Gobi Desert. The launch marks the first commercial mission of the ZQ-2 rocket. LandSpace sent the first methane-fueled rocket into orbit in July. The company is developing a reusable rocket and expects a test flight in 2025.
2 years after US killed the rail gun, Chinese scientists bring it back to life
South China Morning Post
Chinese navy engineers have reportedly developed an electromagnetic railgun that can fire multiple projectiles without sustaining damage. The railgun can shoot shells out of the barrel at a speed of 2km per second, allowing it to hit targets within a range of 100-200km. The weapon demonstrated a high level of shooting accuracy during continuous firing, and the entire system remained intact after firing 120 rounds. The breakthrough puts China ahead in the development of electromagnetic railgun technology, which is seen as a game-changing technology in warfare.
Turkey Moves to Counter Rising Tide of Chinese EV Imports
Bloomberg
Turkey has introduced new regulations requiring companies importing electric vehicles (EVs) to establish at least 140 authorised service stations and open a call centre for each brand. The move is believed to be targeting Chinese automakers, which have been successful in selling EVs in Turkey due to their relative affordability. The new rules are set to disrupt the Chinese EV market in the country, with many importers unlikely to be able to meet the requirements by the end of December deadline.
Weekends in Shenzhen: Hong Kong economy hit by neighbor's growing allure
Nikkei Asia
Hong Kong residents are flocking to neighbouring Shenzhen to shop, dine and spend weekends following the relaxation of border controls by China. The move is posing a challenge to Hong Kong's economic recovery as small and midsize enterprises (SMEs) in the city suffer from the imbalance. Shenzhen is making it easier for Hong Kongers to visit, offering online consumption vouchers and kiosks to make currency exchanges easy, while linking Chinese online services WeChat and AliPay with offshore bank accounts. Since cross-border movement resumed in January, Hong Kong residents have made over 48 million trips to Shenzhen, compared with 19.8 million from mainlanders visiting Hong Kong.
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