China’s Defense Minister Has Been Removed From Post, U.S. Officials Say; Missing Chinese defense chief signals turmoil in Xi's government
U.S. diplomat questions whether Chinese defence minister under 'house arrest'; China’s Economy Shows Fresh Signs of Fragile Recovery
Welcome to this issue of The China Brief. Today is September 15, 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 Economy Shows Fresh Signs of Fragile Recovery
WSJ
China's economy is showing signs of improvement, with retail sales and factory output both increasing in August. The economy grew just 3% in 2022 due to sporadic lockdowns and an increase in Covid cases, and the country's target for growth this year is around 5%. Further stimulus measures are expected to be implemented to help spur the economy, including relaxing home-purchase restrictions and reducing down-payment requirements. However, it is still too early to say if China's slowdown is over, as a drawn-out property slump, falling exports, and tensions with the West all pose risks to the economy.
US envoy queries China defence minister’s absence
BBC
The absence of China's defence minister, Li Shangfu, has led to speculation of a corruption purge. Li has not been seen in public for about two weeks and has reportedly missed several meetings. His absence follows the disappearance of another top military official, who has been missing for three months. US envoy to Japan, Rahm Emanuel, tweeted that the "unemployment rate" in the Chinese government was very high. Observers have said that Li's disappearance highlights the opacity of Chinese political leadership and suggests that some of President Xi Jinping's decisions are shaky.
China economic data show signs slowdown may be easing, as central bank acts to support growth
Associated Press
China's economy is gradually recovering from the impact of the Covid-19 pandemic, with factories picking up their pace and retail sales gaining momentum in August, according to government figures. However, the property sector continues to struggle, with investment falling by 8.8% in August compared with a year earlier. The People's Bank of China has cut the reserve requirement for most lenders by 0.25 percentage points to help relieve the burden on banks and free up more money for lending.
Missing Chinese defense chief signals turmoil in Xi's government
Japan Times
Li Shangfu, a top Chinese military official, has been stripped of his responsibilities by Washington. Li Shangfu took up his post in March, but the US government has reportedly concluded that he is no longer able to fulfill his duties. No further details have been provided regarding the reasons for this action.
Chinese economic activity data signals optimism after stimulus measures
Financial Times
China's retail sales and industrial production grew faster than expected in August, providing a rare boost for the world's second-largest economy. Industrial production rose 4.5% year on year, while retail sales increased 4.6%, both exceeding analyst forecasts and the growth rates in July. However, other data released on Friday highlighted the challenge for Beijing to reach its 5% annual growth target, such as falling new home prices in major cities and a slowdown in fixed-asset investment. Policymakers have introduced stimulus measures in recent weeks to support growth and the property market.
China property woes deepen as a big developer suspends debt payments
CNN
Chinese property company Sino Ocean has suspended offshore debt payments and trading of US dollar-denominated bonds as it embarks on a wider debt restructuring. The company cited "mounting liquidity pressures" due to a sales slump in the wider industry since 2021, which has affected its ability to repay its debts. Sino Ocean's decision adds to concerns over China's property sector, which have been highlighted recently by the possibility of default by Country Garden, the country's largest homebuilder last year. Property investment in China fell 8.8% in the first eight months of 2022 compared to the same period last year.
China's military rocket force uncovers 'shortcomings' - PLA Daily
Reuters
China’s People’s Liberation Army (PLA) Rocket Force, which oversees conventional and nuclear missiles, has been found to have “shortcomings” in an exercise, according to the PLA Daily. The report is unusual in its self-critique of the armed force’s combat readiness. The PLA Rocket Force has come under scrutiny recently after its two most senior leaders were replaced in July by commanders from outside the force. President Xi Jinping has called for higher combat readiness as China builds new capabilities.
Broken dreams, shattered families in China's unfinished apartments
Reuters
Construction worker Shi Tieniu and dozens of other homebuyers in an unfinished apartment complex in China's Shaanxi province are campaigning for authorities to address the issue of "rotting" or unfinished homes, which have become more common due to a property slump. The homeowners live in an unfinished shell of a building, with no water, heating, or electricity. Construction on the complex began in 2013, but since then, it has repeatedly stalled, and the developer and project names have changed several times. The buyers have organised protests and are demanding that construction resumes.
The West fears a closer Russia and North Korea. China may not
CNN
China is likely to see the benefits of the emerging alliance between Russia and North Korea as part of its great power rivalry with the US. “China is too important for both North Korea and Russia, so for them it would be foolish to do something behind China’s back that it wouldn’t like,” said Alexander Korolev, a senior lecturer in Politics and International Relations at the University of New South Wales in Australia. “(If) North Korea is really prepared to provide ammunition to Russia, it would be good for the Chinese expectation that Russia doesn’t experience a major military defeat in the battlefield in Ukraine,” said Li Mingjiang, an associate professor of international relations at Singapore’s Nanyang Technological University. “In that respect, it’s good for China’s geopolitical interests … in terms of China and Russia on the one hand and Western countries on the other,” he said. “China would support a more capable North Korea in many respects – economically, militarily – and a North Korea that continues to serve as a troublemaker for the US,” said Li. “Such a (military technology) transfer will be destabilizing for the region, but China will turn the table and blame the US and its allies for pushing both Russia and North Korea in a corner. This reinforces China’s opposition to the ‘Asian NATO’ it sees US as orchestrating,” says Yun Sun, director of the China Program at the Stimson Center think tank in Washington.
TSMC tells vendors to delay chip equipment deliveries -sources
Reuters
Taiwan Semiconductor Manufacturing Company (TSMC) has asked suppliers to delay delivery of high-end chipmaking equipment due to growing caution about customer demand, according to unnamed sources. The company is grappling with delays at its $40bn chip factory in Arizona and is trying to control costs. TSMC is not alone in its concerns, as it is believed Apple's recently launched iPhone 13 series did not increase prices due to the global slump in smartphone sales.
China’s Defense Minister Has Been Removed From Post, U.S. Officials Say
WSJ
China's Defense Minister Li Shangfu has been taken away for questioning by authorities, according to a person close to decision-making in Beijing, while US officials say he is being removed from his post. Li has not made a public appearance since late August. The unexplained absence of Li and other vanished officials has prompted new questions about China's governance under President Xi Jinping. It remains unclear whether Li's removal is linked to President Xi's campaign to shake up China's military with anti-corruption purges and structural reforms.
China will train Venezuelans to join Beijing’s moon project, says Maduro
South China Morning Post
China has agreed to help Venezuela train astronauts and eventually send them to the moon as part of an "all-weather strategic partnership" between the two countries. In July, Venezuela became the first South American country to join the China-led International Lunar Research Station (ILRS), a project to build a permanent base near the moon's south pole. As a partner of the ILRS, Venezuela will provide technological support such as spacecraft tracking and data relay during space missions. China aims to put astronauts on the lunar surface in 2030, while the US aims for 2025.
What slowing demand from China and the West means for the rest of Asia
South China Morning Post
A slowdown in the US economy, weak growth in Europe, and a disappointing recovery in China will have significant implications for economies across Asia, with a decline in consumer and business spending in the West leading to a fall in export growth in Asian economies. Some Asian countries will be less sensitive to a fall in external demand, such as the Philippines, Indonesia and India, as their domestic household consumption contributes a larger share to economic growth. Tourism is also an important contributor to economic activity in the region, with further stimulus in China and a potential rebound in consumer confidence supporting the tourism industry.
China's Jan-Aug fiscal revenue growth slows despite policy support
Reuters
China's fiscal revenue rose by 10% in the January-August period of 2023, slower than the 11.5% growth in January-July, according to official data. Fiscal revenue totaled CNY 15.18tn ($2.09tn) for the eight months, while fiscal expenditures grew by 3.8% to CNY 17.14tn. In August alone, fiscal revenue fell by 4.6% year-on-year, while fiscal expenditure rose by 7.2%. The government's revenue from state land sales fell for the 20th consecutive month in August, extending declines to 22.2% from a year earlier. Despite signs of stabilization, the Chinese economy still faces pressure to reach Beijing's annual GDP target of around 5% for this year.
Turkey close to deal with China on nuclear power plant
Nikkei Asia
Turkey is in the final stages of completing its second nuclear energy deal with China, according to Turkey's Energy and Natural Resources Minister Alparslan Bayraktar. The deal will see China construct four nuclear reactors in Turkey's northwestern city of Kirklareli. The project has been subject to negotiations between the two countries for several years. Turkey is already preparing to generate its first nuclear-powered electricity next year through a plant being constructed by Russia. Turkey is also in negotiations with Russia and South Korea for another set of four nuclear reactors in Sinop.
China's August land sale revenue falls for 20th straight month
Reuters
China's government land sales revenue fell for the 20th consecutive month in August, according to data from the finance ministry. Land sale revenues were down 22.2% from a year earlier in August, following a 10.1% fall the previous month. For January-August, sales were down 19.6% from a year earlier to CNY2.71tn ($372.82bn). The decline in land sale values is eroding the financial strength of local and regional governments and diminishing their discretionary spending power. The Chinese government has been implementing measures to tackle local debt risks, including easing restrictions on the property sector and tighter scrutiny of local governments' financing vehicles.
China Sanctions Two US Military Firms Over Taiwan Arms Sales
Bloomberg
China has announced that it is imposing sanctions on Northrop Grumman Corp. and a subsidiary of Lockheed Martin Corp. for supplying arms to Taiwan, in a symbolic move to show its displeasure at US support for the island. The Chinese Ministry of Foreign Affairs claims that Lockheed Martin has directly participated in US arms sales to Taiwan, while Northrop Grumman has participated in such sales several times. China claims sovereignty over Taiwan, although it has never had control of the self-ruled island. The sanctions are seen as a symbolic gesture, as neither company has any activities to sanction in China. This is not the first time that China has imposed such sanctions on US defence companies.
China to launch revamped ‘smart’ green card, easing online orders for foreigners
South China Morning Post
China will launch an upgraded version of its smart card for foreign permanent residents, making it more convenient for them to purchase train and airline tickets and make online orders. The new version of the smart card will feature five stars on the design, a nod towards the Chinese flag, and will include more advanced anti-counterfeit and storage technology. The smart card was introduced in 2017 to make it easier for permanent residents to carry out various tasks such as checking into hotels and submitting tax documents. The card is accepted as legal proof of identity and can be used to book hotels and tickets without a passport. The upgraded version is part of China’s efforts to attract skilled foreigners to settle in the country and will better serve foreign talents as they work and study in China.Chinese developer Sino-Ocean halts repayments of offshore debt
Nikkei Asia
Chinese property developer Sino-Ocean Group Holding has announced that it will halt repayments for all offshore debt until a restructuring is implemented and has suspended trading of its US dollar securities in Hong Kong. The company said that it expects liquidity challenges to persist in the short-to-medium term and believes that a "holistic restructuring" of its offshore debt is the best way forward. Sino-Ocean's debt problems are the latest in a deepening debt crisis that has beset China's beleaguered property sector and rattled global markets.
BlackRock China funds named in US lawmaker probe suffer outflows
Financial Times
BlackRock's China-focused ETFs experienced significant outflows in August following accusations by the US House Select Committee that the asset manager was profiting from investments that help the Chinese military. Morningstar data showed that four out of the five BlackRock funds highlighted by the committee saw outflows, with the $21.6bn iShares MSCI Emerging Markets ETF seeing the largest outflows of $1.9bn. Analysts noted that the outflows were likely driven by poor performance in Chinese equities rather than political concerns.
Riding the Chinese dragon gets a lot harder for investors
Financial Times
YouTube search suggestions for videos on the Chinese economy include negative phrases such as "is about to collapse" and "is done," reflecting the bearish sentiment among both amateur analysts and professional investment advisers. This negative sentiment has contributed to an exodus of foreign investment from China, with foreign investors selling a record $12 billion of stocks listed in Shanghai and Shenzhen in August alone. Retail investors in the UK have also been withdrawing money from China funds for the past five years. Concerns about political crackdowns, geopolitical tensions, and a lack of trust and transparency in the Chinese economy have deterred many investors.
However, there are still bullish investors who believe that China offers significant opportunities. China's long-term growth rate has averaged 8% from 2000 to 2022, and it is expected to generate 35% of global growth this year. China has 12 of the world's 100 largest companies by market capitalization and is poised to dominate industries such as electric vehicles, batteries, and electronics. Bullish investors argue that short-term headwinds do not negate these long-term opportunities.
Investors looking for exposure to China can consider investing in China A shares, China H shares, or Chinese companies listed abroad. Index funds such as the CSI 300 and the MSCI China offer broad exposure to the Chinese market, while investors looking for a more granular approach can consider investing in specific sectors and companies, such as Chinese consumer companies, high-tech companies like Tencent, or manufacturers in the electric vehicle and battery industry. However, it is important to note that investing in Chinese stocks carries risks, including volatility and the potential for government intervention.
The Myth of Chinese Diversionary War
Foreign Affairs
There is a widespread belief that China may resort to aggression or diversionary tactics to deflect domestic attention from its economic problems. However, historical evidence suggests that Chinese leaders rarely use conflicts as a diversionary tactic, even during times of significant unrest. China's strong control over public opinion and society, as well as its Leninist institutions, make it less vulnerable to domestic unrest. The government has the ability to selectively permit protests that do not target the ruling party, and its social surveillance network helps suppress threats to the party. Even in moments of economic crisis or political unrest, China has often engaged in conciliatory and cooperative behavior abroad, rather than initiating conflicts.
China's lack of diversionary behavior highlights a flaw in the logic of waging a diversionary war. Leaders looking to boost their popular support through a conflict would need to find a target that carries minimal risk but can also impress the public. However, such targets are difficult to find, and leaders risk expediting the collapse of their government if a diversionary crisis or war fails to produce the desired results. Instead, Chinese leaders are more likely to use force as a way to signal resolve to China's adversaries in moments of perceived external challenges or threats.
If China's economic difficulties worsen, its leaders may become more sensitive to perceived external challenges, particularly on issues like Taiwan. Increased pressure on China could inadvertently lead Beijing to become more aggressive to demonstrate its resolve despite its internal problems. However, this would be a reflection of deterrence logic rather than diversion.
U.S. diplomat questions whether Chinese defence minister under 'house arrest'
Reuters
The US ambassador to Japan, Rahm Emanuel, has questioned in a social media post whether China's defence minister, Li Shangfu, has been placed under house arrest. The post comes after Li's two-week absence from public view and his failure to attend a meeting with Vietnamese defence leaders. The US government believes that Li is under investigation, however, the nature of the investigation is unknown. This follows a series of unexplained replacements and absences from public view within China's leadership, raising concerns about transparency and decision-making.
China checks ballast water on Japanese ships amid Fukushima row
Japan Times
China has started inspecting ballast water on cargo ships arriving from Japan at several major ports as a dispute over the release of contaminated water escalates. The move comes after Japan announced plans to release treated radioactive water from the Fukushima nuclear plant into the ocean. China has expressed concerns about the potential impact of the release on the marine environment and seafood safety. The inspections are aimed at preventing the spread of any potential contamination.
China Says Youth Employment Improving But Provides No Proof
Bloomberg
China's youth employment improved in August, according to the National Bureau of Statistics (NBS), although the jobless rate is still being withheld from publication after being abruptly halted last month. The NBS said it would continue to conduct research on the methodology for collecting youth unemployment data and release new information in a timely manner. The unemployment rate for those aged between 16 and 24 rose to a record 21.3% in June. The move to stop releasing the data is seen as part of President Xi Jinping's government's efforts to reduce access to sensitive information.
Asia stocks rally as China data buoys mood; dollar stays strong
Reuters
Asian stocks rose on Friday, following better-than-expected Chinese economic data. The MSCI's broadest index of Asia-Pacific shares rose 0.84%, with Japan's Nikkei jumping 1.33% to a two-month high. Hong Kong's Hang Seng added 1.2%, mainland Chinese blue chips rose 0.2% and Australia's stock benchmark surged 1.75%. Chinese retail sales and industrial output for August surpassed economists' forecasts, while the European Central Bank's hint that Thursday's rate hike would probably be the last this cycle caused the euro to sag and the dollar to stick to a six-month peak.
US Treasury official visits Hong Kong in bid to deepen ties with China
Reuters
Brent Neiman, an official from the U.S. Department of the Treasury, visited Hong Kong on Thursday, marking the highest-ranking Treasury official to visit the financial hub since 2019. The visit is part of the U.S.'s efforts to deepen ties with Beijing despite rising tensions. Neiman's visit aims to build on President Biden's direction to strengthen ties between the U.S. and China. The visit comes as China's economy faces challenges such as weak consumer sentiment, high levels of debt, and a property market downturn. During his visit, Neiman will engage with various audiences, including government officials, policymakers, scholars, the U.S. business community, and financial leaders. The topics of discussion will include bilateral financial and regulatory matters, as well as macroeconomic and financial developments in Hong Kong and China. Neiman will also focus on deepening people-to-people ties between the U.S. and Hong Kong. The U.S. government emphasized that the visit will stress the U.S.'s focus on securing and advancing its economic and national security interests, protecting human rights, and supporting its allies.
Singapore Sees Chinese Visitors at 30%-60% of Pre-Pandemic Level
Bloomberg
Singapore is anticipating a gradual recovery in tourism from China, with visitor arrivals expected to reach 30% to 60% of pre-Covid levels this year. As of end-August, Singapore had welcomed about 870,000 Chinese visitors, making up close to 30% of 2019 numbers. China was Singapore’s largest market in terms of visitor arrivals and tourism receipts before the pandemic. Chinese travelers spent $255 billion overseas in 2019, accounting for almost 20% of all international tourism spending. However, tourism recovery has been slower than expected since China opened its borders in January. Hong Kong and Macau are currently the most popular destinations for Chinese travelers, followed by Thailand and South Korea.
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