China's economic woes embolden calls for deeper reform; Glum mood overhangs China's Asian Games - 'People just don't care'
Guangzhou eases home purchase limits; Beijing, Shanghai, Shenzhen may follow; China scrutinizes quant strategies as market weakness stokes public anger
Welcome to this issue of The China Brief. Today is September 21, 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.
Analysis: China's economic woes embolden calls for deeper reforms
Reuters
Debate among Chinese government advisers is growing over the best way to tackle the country's economic slowdown. Some advisers are calling for immediate stimulus measures, arguing that the central government can afford to finance infrastructure and other spending to boost activity. However, others argue that the stimulus policies that have driven growth for decades are no longer effective, and that bold structural changes are needed. The debate comes as China's new economic leadership faces the choice between short-term relief or long overdue reforms.
Glum mood overhangs China's Asian Games - 'People just don't care'
Reuters
China is hoping to make a splash with the Asian Games, which open on Saturday, but there is a lack of enthusiasm in Hangzhou and elsewhere in China. Some locals question the cost of the sporting extravaganza as the economy sputters. The city of Hangzhou, where the games are being held, has been transformed in a huge spruce-up similar to Beijing's before the 2008 Olympics. The Hangzhou government has said it spent more than CNY200bn ($30bn) in the five years through 2020 on transport infrastructure, stadiums, accommodation and other facilities.
Guangzhou eases home purchase limits; Beijing, Shanghai, Shenzhen may follow
South China Morning Post
Guangzhou has lifted home purchase restrictions, making it the first of China's tier-one cities to do so. Residents will now be able to buy two homes in four new districts, while non-local residents will be allowed to purchase property in core districts of Guangzhou with just two years of social insurance or personal income tax contribution. Analysts expect Beijing, Shanghai, and Shenzhen to follow suit in an attempt to stimulate the sluggish home market.
Rout in Chinese bonds is no sign of lasting economic rebound, say analysts
South China Morning Post
China's government bonds are experiencing their biggest slump since the lifting of Covid-19 restrictions, but this is not seen as a sign of economic optimism. Analysts believe the economy still faces downward pressure, and the factors that triggered the bond sell-off are fading. The yield on the 10-year sovereign debt has risen by 9.3 basis points this month, but so far this has not pushed investors towards stocks or boosted risk appetite. Overseas investors have continued to sell Chinese assets, with foreign investors selling CNY27.4bn ($4.2bn) of Chinese onshore stocks this month.
Exclusive: China scrutinizes quant strategies as market weakness stokes public anger - sources
Reuters
Chinese regulators have reportedly begun investigating hedge funds and brokerages over their quantitative trading strategies, amid growing criticism of the sector's ability to profit from share price falls and volatility. The China Securities Regulatory Commission (CSRC) has reportedly questioned major brokers about short-selling activities and trading strategies of their quant clients. The Shanghai and Shenzhen stock exchanges have also sought information from major quant funds on their money-making strategies. The regulatory scrutiny comes after a stamp duty cut and other market-friendly measures failed to drive a sustainable rally in China's struggling stock market.
Unprofitable China EV Maker Nio Unveils Phone Pitched at Drivers
Bloomberg
Chinese electric vehicle (EV) manufacturer Nio has unveiled its first mobile phone, targeting its loyal customer base. The phone will sync with Nio cars to serve as a key fob, display battery charge and control functions such as self-parking and the in-cabin infotainment system. The handset, priced at CNY6,499 ($890), will be sold via Nio’s online store. The company, which is yet to make a profit from its auto business, has cut prices and scaled back customer benefits to boost sales and bolster its balance sheet.
Xi Jinping faces impasse in jump-starting China's economy
Nikkei Asia
China's government is running out of options to stimulate its economy, which is facing a real estate slump and depressed consumption. Fiscal spending and monetary easing face significant constraints, with local government financing vehicles shouldering a large amount of off-book debt. Loosening monetary policies could weaken the yuan further and trigger capital outflows. The public's frugality stems from a lack of confidence in policy. China needs economic diversification through free economic activity, but the government's focus on politics is causing growing distrust and anxiety. The collapse of China's economy and some of its companies is starting to look inevitable.
China-Russia ties: Putin confirms he will meet Xi in Beijing next month
South China Morning Post
Russian President Vladimir Putin has confirmed he will meet Chinese President Xi Jinping in Beijing next month for the latest high-level engagement between the two neighbours amid tensions with the West. In his meeting with Chinese Foreign Minister Wang Yi on Wednesday, Putin said he would attend the Belt and Road Forum in the Chinese capital, a highlight of Xi’s diplomatic agenda for the year.
Huawei wants to go all in on AI for the next decade
CNN
Chinese tech and telecoms giant Huawei has announced that it will shift its focus to artificial intelligence (AI) as part of its new strategic direction. The company previously prioritised cloud computing and intellectual property over the past two decades. The move follows a similar decision by fellow Chinese tech giant Alibaba earlier this month to prioritise AI. Huawei's strategic update comes on the same day that China accused the US of infiltrating Huawei servers 15 years ago, an allegation the US National Security Agency has yet to respond to.
China beats US for first time in global scientific papers ranking
South China Morning Post
China has surpassed the US in the number of "hot papers" published and cited in the world's most influential journals, according to a report from the Institute of Scientific and Technical Information of China. Hot papers are those that receive significant numbers of citations soon after publication. China also ranked first in international papers citations in six major disciplines: agricultural sciences, chemistry, computer science, engineering, materials science, and mathematics. The report also noted a significant increase in the proportion of high-quality, high-influence papers published in domestic journals.
Singapore police uncover more gold bars, watches and other assets from money laundering scheme
Associated Press
Singapore police have uncovered more assets, including luxury watches and gold bars, related to a massive money laundering scheme that was busted last month. The total amount of assets seized or frozen in connection with the case now stands at SGD2.4bn ($1.75bn). The police have launched further operations related to a group of foreign nationals suspected of laundering the proceeds of organised criminal activities. The case has cast a shadow on Singapore's status as a financial hub known for its low crime and clean image.
China issues nationwide rules for electricity spot market
Nikkei Asia
China has published its first national rules for electricity spot markets as the country continues its drive toward the use of renewable energy and building a national power market.
Hong Kong drops to 16th place in global talent ranking, lagging behind Singapore
South China Morning Post
Hong Kong has dropped two places to rank 16th in attracting and fostering talent, trailing regional rival Singapore, with the high cost of living and a brain drain taking a toll on the city, according to a global study by a Swiss-based business school. The report evaluated the performance of 64 jurisdictions in three categories: investment and development, appeal and talent readiness. Within these broad categories are 31 specific indicators, including cost of living, quality of life and judicial systems, as well as the standard of primary, secondary and university education.
China, EU to hold high-level economic and trade dialogue in Beijing
Reuters
The 10th China-European Union High-Level Economic and Trade Dialogue is set to take place in Beijing on September 25th. The meeting will be co-chaired by Chinese Vice-Premier He Lifeng and European Commissioner for Trade Valdis Dombrovskis.
Assets seized in Singapore's money laundering case swell to S$2.4 bln
Reuters
The value of assets seized in Singapore's largest money laundering case has reached S$2.4bn ($1.76bn), according to police. The assets include cash, gold bars, cryptocurrencies, properties, and vehicles. Last month, 10 foreigners were arrested in simultaneous raids across Singapore on suspicion of laundering proceeds from organised crime activities. During the raids, S$1bn worth of assets were seized, including bank accounts, cash, luxury homes, cars, bags, watches, and gold bars. The case has attracted attention in Singapore, which has seen a significant increase in private wealth and investments since the pandemic.
China has issued some export licences for gallium and germanium
Reuters
China has granted export licences for gallium and germanium products to some companies that meet the relevant requirements, according to the commerce ministry. This comes after China imposed export controls on these metals in August, leading to a sharp decline in exports in the following month. The new rules require exporters to obtain an export licence for dual-use items and technologies, which have potential military and civilian uses. China's exports of wrought germanium increased by 58% in the first eight months of this year compared to the same period last year, while shipments of wrought gallium fell by 58% over the same period.
China’s healthcare tycoons lose US$17 billion as crackdown spreads
South China Morning Post
China's healthcare tycoons have seen their personal wealth decline as a result of the country's latest anti-corruption crackdown. The combined fortune of the top 15 Chinese healthcare billionaires has fallen 17% to $84.1bn from $101.4bn at the end of last year. The crackdown has resulted in hundreds of hospital chiefs and pharmaceutical executives being investigated, leading to a sector-wide share slump. The focus on healthcare comes after similar campaigns to reform the real estate and education sectors, and the crackdown could dampen investment in the healthcare sector, according to Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis.
Exclusive: VinFast to deliver EVs to Europe this year as EU probes China rivals
Reuters
Vietnamese electric vehicle (EV) manufacturer VinFast has received regulatory approval to ship its first EVs to Europe, with plans to deliver about 3,000 VF8 crossovers to France, Germany and the Netherlands by the fourth quarter of 2022. If the plan is fulfilled, Europe will become VinFast's biggest overseas market this year. The move comes as the European Union probes Chinese EV makers, potentially creating a gap in the market. VinFast plans to launch its VF6, VF7 and VF9 models in the European market next year.
Syria's Bashar Al-Assad to visit China seeking financial support
Japan Times
Syrian President Bashar al-Assad has been invited to attend the Asian Games in Hangzhou, China, marking another instance of Beijing welcoming leaders who have been ostracized by the West. Assad's attendance at the games comes as China seeks to strengthen its ties with Middle Eastern countries and expand its influence in the region.
Singapore banks tighten checks on China-born clients with other citizenships
South China Morning Post
Singaporean banks are increasing scrutiny of Chinese-born clients who hold other citizenships, following a crackdown on money laundering that involved S$2.4bn ($1.8bn) worth of assets. Some banks are closing accounts held by clients who hold dual citizenships with countries including Cambodia, Cyprus, Turkey and Vanuatu. The moves come after 10 Chinese Singapore residents were arrested and charged with running illegal gambling businesses and laundering money.
Chinese navy seeks graduate students for warplane pilot roles
Reuters
The Chinese navy is seeking to hire graduate students, raising the age limit to expand its search for shipborne aircraft pilots as it aims to improve the qualifications of its air personnel and build a stronger army. The navy is looking for graduate students with master's degrees in science and engineering who are younger than 26 to pilot aircraft from ships. This move is part of China's efforts to modernize its military by 2035. Training for the pilots will include three to four years of aviation theory and practical flight training, and successful candidates will receive free medical care and government-provided housing.
Hong Kong Says It Calls the Shots, Not Beijing. Investors Are Wary.
NY Times
Hong Kong's fortunes are increasingly tied to China as the city's stock market struggles, foreign businesses leave, and concerns over the erosion of rights grow. The political changes in Hong Kong have escalated tensions and hardened geopolitical lines between China and the West, affecting how Western businesses operate in the city. The implementation of a national security law in 2020, which curtailed freedoms and punished politicians who were not loyal to Beijing, has undermined Hong Kong's autonomy and its reputation as a separate entity from mainland China. The erosion of rights has also affected the ability of investors, financial analysts, and academics to speak freely. Many companies are choosing other jurisdictions, such as London and Singapore, for international arbitration out of concern that Hong Kong is no longer neutral. The concerns about Hong Kong's independence have been brought to the forefront as China's economic downturn spills over into the city, further dampening its prospects. Despite the challenges, the Chinese government believes it can maintain Hong Kong's status as a financial hub while exerting greater political control.
China gives EV sector billions of yuan in subsidies
Nikkei Asia
China's generous subsidies to the electric vehicle (EV) sector are facing scrutiny following an announcement by the European Commission that it is investigating the matter. An analysis of listed Chinese companies shows that significant amounts of government money are flowing to the strategically important industry. For example, five of the top 10 recipients of government grants during the first half of 2022 were local EV manufacturers or battery makers. These include Contemporary Amperex Technology (CATL), which received CNY2.85bn ($391m) in subsidies for H1 2022, an almost threefold increase from the previous year. Another company, EVE Energy, a competitor of CATL, received CNY1.08bn in the same period, four times more than the previous year. European Commission President Ursula von der Leyen has said that the EU will investigate Chinese EVs, arguing that "global markets are now flooded with cheaper Chinese electric cars, and their price is kept artificially low by huge state subsidies".
Foreign Affairs
The United States should not pursue a policy of containment towards China, as containment was not particularly successful during the Cold War and is unlikely to be effective against China today. The main problem with U.S. foreign policy during the Cold War was that it tried to do too much, not too little. The Soviet Union’s own errors and weaknesses caused its downfall, and China today is its own worst enemy. Rather than seeking to balance against China, the U.S. should let the country make its own mistakes.
China to soon decide whether to arrest Japanese national over spying
Japan Times
The Chinese government has informed Tokyo that an employee of Astellas Pharma has been placed in criminal detention. The reason for the detention is currently unknown.
MSCI’s China Gauge Set for 10-Month Low as Pessimism Persists
Bloomberg
Chinese stocks continued to decline, with the MSCI China Index set for its lowest close since November. The selloff comes as concerns about the economy and an exodus of foreign funds persist. China's central bank recently promised to use various tools to keep liquidity reasonably ample, but these efforts have failed to restore market confidence. Hedge funds have increased their bearish bets on Chinese and Hong Kong stocks, and short interest has risen across sectors. Foreign outflows from onshore Chinese stocks continue, with global funds selling CNY24bn ($3.2bn) so far in September.
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