China's firing of defense minister: Five takeaways; China’s foreign minister is in Washington. That counts as progress
China’s Communist party beefs up new financial regulator to tighten control; Mideast in focus as US, China meet to pave way for Biden-Xi summit
Welcome to this issue of The China Brief. Today is October 26, 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 firing of defense minister: Five takeaways
Nikkei Asia
China's removal of Defense Minister Li Shangfu raises questions about the future of military-to-military dialogue between China and the U.S. Beijing had previously suspended defense talks after the visit of then-House Speaker Nancy Pelosi to Taiwan last August. Li's appointment as defense minister, despite being previously sanctioned by the U.S. for overseeing China's purchase of Russian weapons, was seen as an obstacle to talks. Some analysts suggest that China may not want military-to-military dialogue, as it wants to introduce risk and change the status quo. This raises doubts about the validity of U.S. President Joe Biden's goal of establishing "guardrails" for the U.S.-China relationship. The upcoming Xiangshan Forum will be a test case for the future of defense talks, but it is expected that the People's Liberation Army (PLA) will raise new obstacles. Li's removal is seen as part of the resistance to President Xi Jinping inside the Chinese Communist Party, and a sign of issues with Xi's power. The fact that Li was removed without a replacement being named suggests a power struggle. Furthermore, the PLA is becoming more important in China's foreign policy execution, which may explain Xi's obsession with filling military ranks with his own people.
China’s foreign minister is in Washington. That counts as progress.
Washington Post
China's top diplomat, Wang Yi, is set to visit the US for talks with Secretary of State Antony Blinken and national security adviser Jake Sullivan, marking a thaw in relations between the two countries since the summer. Wang and his US counterparts are likely to discuss the need to stabilise fraught ties between the two countries, as well as the situation in the Middle East and efforts to pressure Iran to hold back from intervening in the Israel-Gaza conflict. Wang is also expected to call for the US to ease restrictions on technology exports to China and to roll back support for Taiwan. The visit is seen as paving the way for a meeting between Chinese leader Xi Jinping and President Biden in San Francisco in November.
China Is Beating the US in the Race for the Seabed’s Riches
Bloomberg
China has emerged as a global leader in deep-seabed mining, with the US lagging behind, according to Admiral James Stavridis. China's progress is driven by the country's Belt and Road initiative, which aims to secure a steady supply of raw materials, as well as its geopolitical interests in the South China Sea. Deep-sea mining is set to become increasingly profitable, Stavridis said, but the US has been little more than an observer in the race. The US should ratify the United Nations Convention on the Law of the Sea and consider providing tax incentives to domestic companies involved in seabed mining, he added.
China's youngest-ever crew of astronauts heads to space station
Japan Times
China has launched its youngest-ever crew of astronauts to its space station. The three astronauts, led by former air force pilot Tang Hongbo, will spend six months on the space station, advancing China's space ambitions. The spacecraft, called Shenzhou-17, lifted off from the Jiuquan Satellite Launch Center in northwest China.
China says US has no right to get involved in problems between it and Philippines
Yahoo US
China's foreign ministry spokesperson, Mao Ning, stated that the United States does not have the right to intervene in issues between China and the Philippines. The statement came in response to US President Joe Biden's remarks that America's commitment to the defense of the Philippines remains "iron-clad." Mao emphasized that US involvement in the South China Sea issue should not harm China's sovereignty or maritime interests, nor should it support the Philippines' illegal claims. China and the Philippines have recently had several conflicts in the disputed waters of the South China Sea.
US-China Ties Quietly Improving Even as Global Turmoil Surges
Bloomberg
China's Foreign Minister Wang Yi will meet with US President Joe Biden during his visit to Washington, as he paves the way for an anticipated leaders' meeting with Chinese President Xi Jinping next month in California. The recent engagement between the US and China has provided cause for optimism, as both nations have reasons to foster friendlier ties. Beijing needs a more stable geopolitical environment to attract foreign investors as China's economy slows, while the US wants to diffuse military and economic threats from China. However, the relationship remains fragile, as both sides have taken opposite stances on conflicts in Europe and the Middle East. The US is also tightening trade restrictions to limit China's access to cutting-edge technology. Despite this, there are signs that military and economic ties are improving. The US Department of Defense has accepted an invitation to participate in the Beijing Xiangshan Forum, and China has invited US Secretary of Defense Lloyd Austin to the gathering. Additionally, China and the US have started new working groups to discuss economic and financial topics.
Taiwan ex-colonel gets 20 years for spying for China
Yahoo US
A retired Taiwan air force colonel, Liu Sheng-shu, has been sentenced to 20 years in prison for running a spy ring for China. Liu was found guilty of recruiting active-duty officers to pass on military secrets to Beijing. Five other officers from the navy and air force were also jailed for periods ranging from six months to 20 years for their involvement. Liu reportedly ran a network of informants, paying them through shell companies. In addition to his jail sentence, authorities confiscated NT$16.7m ($514,000) which they said were illicit earnings.
Sri Lanka leans on IMF and China as crucial budget test looms
Nikkei Asia
Sri Lanka's government is facing mounting pressure to balance financial constraints with public welfare as it prepares to present its budget on 13 November. The country's foreign exchange reserves dried up under President Gotabaya Rajapaksa, forcing the government to default on foreign debts. Its successor, President Ranil Wickremesinghe, is now tasked with addressing the crisis, securing debt treatment with major creditors such as China and managing bailout conditions imposed by the International Monetary Fund (IMF). Last week, the IMF agreed to release a $330m tranche, but has stressed the importance of shoring up government revenue through tariffs and taxes. The government recently approved an 18% hike in electricity tariffs, the second increase in eight months. The IMF's conditions have frustrated the population and risk putting the government and IMF at odds as the government seeks to deliver election promises. Critics argue that the middle and lower classes are bearing the burden of the crisis, whilst the government remains too lenient.
Hong Kong Exports Fall Again as Weak Demand Persists
Bloomberg
Hong Kong's exports in September fell 5.3% from a year earlier, marking the 17th consecutive month of declines. Weak demand and China's uncertain recovery have continued to weigh on Hong Kong's financial hub. Imports decreased 0.4% from a year ago. The decline in exports comes as Hong Kong Chief Executive John Lee implements stimulus measures to boost the city's economy. Lee also highlighted external challenges, including a high interest rate environment, that could slow the city's growth.
Partner nations on China's lunar research station programme
Reuters
Belarus has become the latest country to join China's International Lunar Research Station (ILRS) program, following Pakistan and Azerbaijan earlier this month. The ILRS, a joint initiative between China and Russia, aims to establish a permanently inhabited outpost on the moon's south pole. The program will launch lunar missions this decade to establish a "basic" version of the research station, with plans to construct a "full" version in the 2030s. The ILRS is projected to be fully operational by 2050 and could serve as a launch pad for crewed missions to other planets in the solar system.
Think Tank Urges US to Get Even Stricter With China Over Chips
Bloomberg
The US and its allies should restrict Chinese access to older semiconductor technologies in addition to advanced chipmaking gear, according to a report from think tank Silverado Policy Accelerator. China is increasing its production capacity of foundational chips, less sophisticated components used in everything from cars to phones. Silverado warns that China is showing signs of undercutting its Western competitors in this market, which could wipe out foreign rivals and pose a major threat to US national security. The report suggests that the US use investment review and trade investigation tools, as well as export controls, to counter the issue.
Mercedes says 'brutal' EV market will pressure car sales margins
Reuters
Mercedes-Benz is likely to hit the lower end of its adjusted return on sales forecast for its cars division, according to the firm's chief financial officer, Harald Wilhelm. He said that the electric vehicle market was "brutal" due to heavy price cuts by competitors and supply chain issues. Wilhelm added that Mercedes-Benz could bolster earnings with better returns from its combustion engine portfolio if margins on EVs remained lower than previously assumed. The luxury carmaker reported a 12.4% adjusted return on sales in its cars division in Q3 2019.
China says graphite export curbs not targeted at specific sector
Reuters
China's commerce ministry has confirmed that the recently announced restrictions on graphite exports are not targeted at any specific sector. The ministry stated that the measures requiring export licences for some graphite products from December 1st are not aimed at any particular industry.
China accepts invitation to AI summit in Britain - Deputy UK PM
Reuters
China has accepted an invitation to attend a global summit on artificial intelligence (AI) in the UK next week, according to Deputy Prime Minister Oliver Dowden. The summit aims to bring together AI companies, political leaders, and experts to discuss the risks posed by AI and build an international consensus on its safe development. Dowden stated that he expects China to attend, but will wait to see who actually turns up at the summit.
WPP Cuts Growth Outlook Citing Weakness From Tech, China
Bloomberg
WPP, the advertising giant, has cut its revenue growth forecast for the year due to sluggish sales in the technology industry and China. The company now expects its like-for-like revenue, excluding pass-through costs, to grow by 0.5% to 1% for the full year, down from its previous forecast of 1.5% to 3% growth. WPP cited continued cutbacks from technology clients and weak growth in China as the reasons for the downgrade. The company also reported that third-quarter revenue fell 5% from a year earlier to £2.84bn ($3.4bn).
Nomura reviews business plan for mainland China as losses rise
Japan Times
Nomura Holdings is reevaluating its business in mainland China due to mounting losses at its Shanghai-based securities joint venture. The joint venture has struggled to grow since its launch in 2019, facing challenges from the pandemic and a slowing economy. In 2022, the joint venture lost 225 million yuan ($30.75 million) after losing 84 million yuan in 2021.
Australia returns historical artefacts to China
BBC
Australia has returned three historical artefacts to China that were believed to have been illegally exported. The items include a dinosaur fossil that is over 100 million years old and two Tang Dynasty figurines. The handover comes ahead of Australian Prime Minister Anthony Albanese's visit to Beijing next month. This return of cultural property highlights the collaboration between the two nations in returning items of cultural significance to their rightful home. China's ambassador to Australia expressed his gratitude for the return of the artefacts. Australia and China have been working closely for the past three years to facilitate the return of illegally imported cultural relics, art items, and fossils. This comes after Australia's national gallery returned three stolen bronze sculptures to Cambodia in August. Beijing has been increasingly vocal in calling for the return of historical artefacts stolen from China.
Mideast in focus as US, China meet to pave way for Biden-Xi summit
Yahoo US
Chinese Foreign Minister Wang Yi begins a long-anticipated visit to Washington to manage deep strategic differences between the US and China and pave the way for a summit between presidents Joe Biden and Xi Jinping. The US is hoping Beijing could use its influence with Iran to help ensure the Israel-Hamas conflict does not spread to the wider region. Policy analysts in China and the US say both sides share an interest in averting a wider war and that China, as a major oil purchaser, has considerable influence it could exert on Iran.
Can America’s south-east unseat Detroit as ‘Motown’ of the EV age?
Financial Times
Foreign automakers are increasingly choosing the US Southeast as the location for their electric vehicle (EV) and battery manufacturing facilities. This shift away from the traditional automotive hub of Detroit has been underway for decades, with European and Japanese manufacturers leading the way. The trend has accelerated in recent years, with major automakers investing billions of dollars in the region. Since 2010, over $70 billion has been invested in EV and battery manufacturing in the US Southeast, compared to $51 billion in the Midwest. Georgia, Tennessee, and North Carolina are among the states vying to become the EV and clean energy capital of the world.
The tax credits and green subsidies provided by the Biden administration's Inflation Reduction Act have helped drive this trend. Foreign investors, particularly from South Korea, have been attracted to the US by the $7,500 EV tax credit, which requires vehicles to be assembled in the US and source batteries from North America. In addition to tax incentives, states in the US Southeast have also offered generous subsidies and incentives to attract automakers to the region. However, the Midwest is not giving up on foreign investment, with Michigan, Ohio, and Indiana also offering significant incentives to automakers.
A major factor in the decision of automakers to locate their EV manufacturing facilities in the US Southeast is the region's right-to-work laws, which make it harder for workers to unionize. The United Auto Workers (UAW) union has been pressuring automakers to accept unionization of their battery plants, but many EV and battery facilities in the US are not yet unionized. The Biden administration's push for EVs to create "good-paying union" jobs may be at odds with the reality of the EV manufacturing landscape in the US.
Stellantis to invest €1.5bn for 20% stake in Chinese EV maker Leapmotor
Financial Times
Stellantis, the automotive company created by the merger of Fiat Chrysler and PSA, plans to invest €1.5bn ($1.8bn) in Chinese electric vehicle start-up Leapmotor, to acquire around a 20% stake, as part of a joint venture to sell Leapmotor’s EVs outside China. Leapmotor, which listed in Hong Kong last year, is among the scores of Chinese EV companies affected by China’s slowing economic growth and a price war. The move follows Volkswagen’s recent announcement that it would invest $700m in another Chinese EV manufacturer, Xpeng, to bolster its weak sales in the country.
China swaps Western tech for domestic options as U.S. cracks down
Japan Times
China is stepping up its efforts to replace Western-made technology with domestic alternatives as the US tightens restrictions on high-tech exports to China, according to government tenders, research documents, and sources familiar with the matter. China has already spent heavily on replacing computer equipment, and the telecom and financial sectors are likely to be the next targets. State-backed researchers have also identified digital payments as vulnerable to possible Western hacking, making a push to indigenize such technology likely.
China’s Communist party beefs up new financial regulator to tighten control
Financial Times
China's new Central Financial Commission, created to regulate the country's financial sector, is recruiting nearly 100 officials ahead of a key leadership meeting next week. The commission, which will weaken the power of state institutions such as the People's Bank of China, will serve as the de facto watchdog and decision maker for China's $61tn financial sector. The commission is part of President Xi Jinping's efforts to govern through special Communist Party organs, enabling him to exert greater influence while diminishing longstanding government institutions.
Biden Warns China Not to Attack Philippine Ships After Incidents
Bloomberg
President Joe Biden has warned China that the US will intervene if Beijing attacks Philippine vessels in the South China Sea. The warning comes after two separate collisions between Chinese and Philippine vessels in the disputed waterway over the weekend. Biden stated that the US defense commitment to the Philippines is "ironclad" and that any attack on Filipino aircraft, vessels, or armed forces will invoke the Mutual Defense Treaty between the US and the Philippines. The remarks from Biden come as Chinese Foreign Minister Wang Yi visits Washington for high-level meetings, including one with Biden on Friday.
Chinese airlines take 'all you can fly' promotions international
Nikkei Asia
China Southern Airlines has introduced an "all you can fly" international pass for its frequent flyers, expanding on its existing unlimited domestic flights program. The move comes as the country's airlines face excess capacity on domestic routes and a slow season for international travel. The pass initially applies to flights to Asian countries and targets frequent flyers. Budget carrier Spring Airlines and Shandong Airlines have also recently launched similar offerings. Chinese airlines have suffered significant losses during the pandemic, with combined losses of CNY 216bn ($33.4bn) in 2022.
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