China’s Economic Malaise Was Perfectly Predictable; Trudeau’s murder claim risks upending U.S. courtship of India
Huawei makes processor breakthrough in flagship smartphone; Huawei unit ships Chinese-made surveillance chips in fresh comeback sign;
Welcome to this issue of The China Brief. Today is September 20, 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 Economic Malaise Was Perfectly Predictable
Diplomat
The Chinese economy is currently facing challenges such as falling property prices and the possibility of deflation. Monetary conditions have been eased, but weak demand for credit means that lower borrowing costs have had little impact on aggregate demand. The article suggests that fiscal policy should be relied upon to stimulate domestic demand, including transfers to households and structural reforms to reduce high levels of precautionary savings. However, the Chinese government has been resistant to calls for increased social spending. The article compares China's economic situation to that of Japan in the 1990s, noting that Japan avoided a financial meltdown and eventually resumed growth after a decade of stagnation. Three scenarios for China's economy are presented: one in which fiscal policies and reforms are successful in reviving the economy, one in which there is a chronic property debt crisis leading to a severe credit crunch, and a "muddling through" scenario in which segments of the private sector remain competitive but domestic demand remains limited. The article argues that the "muddling through" scenario is the most likely. The author also criticizes China bulls for their failure to revise their predictions in light of new evidence and their misplaced optimism about China's economic prospects.
Amid isolation, China has no choice but to move closer to Russia: expert
South China Morning Post
China is strengthening its strategic ties with Russia due to Western isolation over the Ukraine war, according to a Chinese expert on Sino-Russian relations. The expert, Wu Dahui, said that although China and Russia both share a distrust of the West, there is still a gap between the two countries over existing international rules. However, due to their shared border, China is unlikely to go against Russia, leaving the two countries no option but to strengthen their strategic collaboration. This move by China and Russia has drawn suspicion from governments in the West.
Trudeau’s murder claim risks upending U.S. courtship of India
Japan Times
U.S. President Joe Biden is facing a diplomatic challenge as he is caught between two important partners, one being a close ally and the other being a key partner in countering China. The challenge arises from allegations made by Saudi Arabia that an Iranian-backed group was responsible for the recent attack on an oil facility. The U.S. has traditionally sided with Saudi Arabia, but it is also seeking to improve relations with Iran in order to counter China's influence in the region. Biden will need to carefully navigate this situation in order to maintain relationships with both countries.
China's trillion-dollar dilemma of local government 'hidden debt'
Nikkei Asia
China's local governments are grappling with trillions of dollars in hidden debt, which has been exacerbated by the pandemic and property crisis. To address the issue, policymakers may need to take drastic measures such as allowing local governments to sell bad debt to asset managers and increasing their share of tax revenue, financial scholars have said. Local authorities in China have accumulated trillions of dollars in off-the-books liabilities, including bonds issued by local government financing vehicles (LGFVs) and debt hidden in public-private partnership projects and shady loan contracts. The total scale of the hidden debt is not publicly available, but research suggests that interest-bearing LGFV debt increased from CNY32.6tn ($4.6tn) to CNY54.6tn by the end of 2022. If all interest-bearing LGFV debt and on-the-books debt were taken into account, local governments would have had to spend 19% of their total fiscal revenue paying interest to creditors last year, according to an assistant professor of finance at the National School of Development.
US and G7 allies now expect Ukraine-Russia war to grind on for years
South China Morning Post
US President Joe Biden has called on world leaders to support Ukraine in its fight against Russia, as the conflict is expected to last for years to come. Biden’s appeal comes as questions are raised in the US about the cost of supporting Ukraine’s fight and pressure grows from developing countries for a quick end to the conflict. Ukrainian President Volodymyr Zelensky made his case for the war effort at the United Nations General Assembly, accusing Russia of turning resources into weapons. However, opposition is growing in the US Congress to continued funding for support to Ukraine, with several Republican candidates in next year’s presidential elections calling for a reduction in commitments. Ukrainian allies in the Global South have also made little progress in winning support for peace talks. A senior official from one European G7 country has said the war could last another six or seven years, longer than previously expected. Ukraine and its allies oppose negotiations at present, insisting on a full withdrawal of Russian troops.
Exclusive: Huawei unit ships Chinese-made surveillance chips in fresh comeback sign -sources
Reuters
Huawei Technologies subsidiary HiSilicon has been shipping new Chinese-made chips for surveillance cameras, according to two sources. The move is seen as an indication that the Chinese tech giant is finding ways around US export controls. Huawei has also unveiled new smartphones in recent weeks that use advanced chips, which analysts say are domestically made. The developments indicate the Chinese tech giant is overcoming Washington's export controls, which since 2019 have barred it from obtaining components and technology from US firms without approval.
Huawei makes processor breakthrough in flagship smartphone
Financial Times
Chinese technology company Huawei has developed its own smartphone processor in a move that will reduce its reliance on foreign technology amid US sanctions. The new chip, which features in the Mate 60 Pro smartphone, has four central processing units with Huawei's own designs and adaptations, while the other four use Arm's design, according to people familiar with the chip. Huawei's move mirrors Apple's approach to chip design and will reduce patent licensing costs and help differentiate its products from rivals'. However, Huawei still faces challenges in producing cutting-edge chips due to US restrictions on suppliers.
China says more harsh weather in store after tornado kills one
Reuters
Chinese weather officials have issued warnings against heavy rain and strong winds in several regions, following a tornado in Jiangsu province that left five dead and four injured. The tornado caused significant damage to homes and crops, and overturned cars and power lines. The incident follows weeks of destructive and deadly weather in China, including torrential rain and landslides caused by Typhoon Haikui. Authorities have urged vigilance against strong winds in coastal areas near the Yellow Sea off Jiangsu.
Chinese satellite ground stations installed on disputed South China Sea reefs
South China Morning Post
China has constructed two ground stations for its BeiDou satellite system on disputed South China Sea reefs. The stations, located on North Reef and Bombay Reef in the Paracel Islands, use the BeiDou satellite network to locate vessels and transmit signals. The stations are connected to China's land-based ship automatic identification system (AIS) and will help monitor ships in the area, provide navigational guidance, and support ecological protection. The South China Sea is a resource-rich area with overlapping claims from multiple countries, including the Philippines, Vietnam, Malaysia, Brunei, and Taipei. The installation of the ground stations could improve accuracy, particularly for military purposes.
China's BYD takes on Toyota, Nissan in Japan's small-car market
Nikkei Asia
Chinese automaker BYD is introducing its compact electric car, the Dolphin, to the Japanese market. Priced at 3.6 million yen ($24,000), the Dolphin will compete with popular domestic models such as the Toyota Yaris and Nissan Leaf. BYD hopes to tap into the Japanese market, where demand for electric vehicles (EVs) has been relatively low compared to other countries. The Dolphin has been adjusted to fit condominium parking areas and features a safety system to suppress unintentional acceleration. Rising demand for small cars in Japan, particularly lightweight minicars, has provided an opportunity to boost EV penetration. The Dolphin is also eligible for subsidies, making it more affordable for consumers.
Boeing Says China Will Account for 20% of Global Plane Demand
Bloomberg
China is expected to account for 20% of the world's new aircraft deliveries over the next 20 years, according to Boeing. The US planemaker predicts that China will require 8,560 new commercial aircraft by 2042, with two-thirds being for fleet growth and the remainder replacing older jets. This will result in China's commercial fleet more than doubling to nearly 9,600 planes in the next two decades. Boeing also forecasts that China will need 134,000 pilots, 138,000 technicians, and 161,000 cabin crew to serve the growing market.
Hong Kong stocks hit 4-week low as Fed decision looms, BlackRock downgrades
South China Morning Post
Hong Kong stocks fell to a four-week low as more strategists turned bearish on the market outlook amid China's housing slump and policy disappointment. The Hang Seng Index fell 0.8% to 17,862.36, the lowest level since August 23. The Tech Index declined 2% while the Shanghai Composite Index dropped 0.3%. Property developer Longfor Group fell 1.8% and Wuxi Biologics tumbled 3.9%. Oil-related stocks advanced on the outlook for crude prices, with PetroChina climbing 1.2% and ENN Energy jumping 3.1%. The Hang Seng Index has tumbled 9.7% so far this year, the worst performer among major global equity benchmarks.
Syria's Assad will visit China as Beijing boosts its reach in the Middle East
The Toronto Star
Syrian President Bashar Assad is set to visit China this week, marking his first visit to Beijing since the start of the Syrian conflict in 2011. China has been a key backer of Assad throughout the conflict and continues to support him in the ongoing civil war. China's expanding influence in the Middle East, including its mediation of a deal between Saudi Arabia and Iran, has positioned it to play a major role in Syria's reconstruction, which is estimated to cost tens of billions of dollars. Assad's visit comes as Syria faces a worsening economic crisis and protests in government-held areas. China has used its veto power at the UN multiple times to block resolutions against the Assad government.
Former central bank governor Zhou says China can fuel regional growth
South China Morning Post
Former governor of China's central bank, Zhou Xiaochuan, has stated that China remains a prime option for funding to fuel growth in the region, despite global high interest rates making the cost of borrowing higher. Zhou also called for global efforts to offset geopolitical and economic headwinds. He believes that Asia will continue to be the main engine of global growth and that countries along the Belt and Road Initiative will become important growth engines. Hong Kong leader John Lee Ka-chiu also expressed the commitment of the city to remain competitive in the global financial market.
China’s BYD launches Dolphin EV in Japan as it seeks to pry open market
South China Morning Post
Chinese automaker BYD has introduced its Dolphin electric vehicle (EV) to the Japanese market, aiming to boost sales in a country that has been hesitant to embrace Chinese carmakers or EVs. The Dolphin will be priced starting from JPY 3.63m ($24,560) and will come in two models with different battery sizes offering ranges of 400km and 476km per charge. BYD, China's largest carmaker, has struggled to gain traction in Japan where consumers prefer to buy cars from domestic manufacturers. However, the company sees an opportunity in the Japanese market as it faces increasing hostility in Europe and the US. BYD plans to open 100 dealerships and showrooms in Japan by 2025 and aims to launch its Seal sedan in the country early next year.
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