China’s military shake-up may hint at corruption — or Xi Jinping’s weakness; China owes world explanation for abrupt removal of foreign minister
With ‘no downside’, Australia extends invite to Wang Yi; Biden to ask Congress to fund Taiwan arms via Ukraine budget; China owes world explanation for abrupt removal of foreign minister
Welcome to this issue of The China Brief. Today is August 2, 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 military shake-up may hint at corruption — or Xi Jinping’s weakness
Washington Post
China's President Xi Jinping is overseeing a purge of the Chinese military in an effort to assert more control over the People's Liberation Army (PLA) and secure loyalty. This comes as China's weapons program rapidly expands in an effort to take over Taiwan and challenge the United States in the region. Analysts say that the reshuffle marks the biggest purge in years, highlighting potential cracks in Xi's hold on power in his third term. Analysts also believe that the Chinese president may be encountering more difficulties when it comes to internal control. The PLA Rocket Force, which controls China's nuclear arsenal and conventional missiles, has been the target of Xi's purge. The firing of the missile force's commander, Li Yuchao, and his deputy, Liu Guangbin, followed their disappearance from public view for months. The ousting of the top two leaders of the PLA Rocket Force could have implications for the conflict over Taiwan, as the force's long-range conventional missiles could target US bases and aircraft carriers in the western Pacific, while its short-range ballistic missiles could target Taiwan.
Country Garden Services stock surges 18 per cent on buy-back plan
South China Morning Post
Shares in property-management affiliate Country Garden Services Holdings have surged 18% to regain $640m in market capitalisation after the company announced plans to buy back up to 10% of its shares. Country Garden Services said that the shares had been trading at a price level which did not fully reflect their intrinsic value. The stock had previously fallen by 57% this year due to concerns about the financial health of its affiliate, Country Garden.
With ‘no downside’, Australia extends invite to China’s foreign minister Wang Yi
South China Morning Post
Australia has invited Minister for Foreign Affairs Wang Yi to visit Canberra, according to sources close to the Australian government. Wang Yi was recently reappointed as China's foreign minister, replacing Qin Gang, who has not been seen in public since June. The invitation is seen as a step towards stabilising and reinvigorating bilateral relations between China and Australia, which have been strained since 2020. The two countries have been engaged in a trade dispute, with China imposing import tariffs on Australian barley and wine. The invitation is also seen as an opportunity for China to release detained Australians and improve the atmosphere for a visit by the Australian Prime Minister.
Chinese drone makers downplay impact of Beijing’s new export controls
South China Morning Post
Chinese drone makers have largely refrained from publicly commenting on the possible fallout from Beijing’s new export curbs on unmanned aerial vehicles (UAVs) with potential military applications, with only the world’s largest drone maker offering a curt statement. The new rules, introduced on Monday, came in the form of two new orders.
China's great race to build a SpaceX competitor
Nikkei Asia
Chinese private rocket company LandSpace Technology has successfully launched its Zhuque-2 (ZQ-2) rocket into orbit. The launch, which follows a failed attempt seven months ago, makes LandSpace the first private company in the world to launch a methane-liquid oxygen carrier rocket. The successful launch is a major breakthrough for China's low-cost liquid-propellant rockets and positions LandSpace as a potential rival to Elon Musk's SpaceX. LandSpace CEO Zhang Changwu stated that if a third test launch is successful within a year, the company will be able to deliver three to four rockets to the market starting next year. The Chinese private aerospace industry has been growing rapidly, with the valuation of some leading companies surpassing $1.4 billion. The industry has received strong policy support, and the market is expected to exceed $354 billion by 2024. However, private Chinese rockets currently only have a small market share, with state-owned companies accounting for the majority of rocket launches in China. Nevertheless, the private aerospace industry is seen as a development opportunity in the face of competition from the US.
Brazil now main holdout against BRICS expansion, sources say
Reuters
Brazil is resisting calls to admit more member countries into the BRICS group of emerging economies, amid concerns that an expansion could undermine the group's stature. China has long pushed for an expansion, while Russia and South Africa are also in favour of admitting new members. Brazil is concerned that the group will become something else if more countries are allowed in. Around 30 countries have expressed an interest in joining, with 22 formally applying.
India's dependence on Russia for nuclear power raises U.S. concerns
Nikkei Asia
India and the US have reconfirmed their nuclear cooperation with ongoing negotiations between Westinghouse Electric Company and the Nuclear Power Corporation of India Limited for the construction of six nuclear reactors in India, according to a joint statement released following Indian Prime Minister Narendra Modi's state visit to the US in June. India has refrained from criticising Russia's war in Ukraine and is dependent on Russia as a supplier of weapons. However, the US is keen to pull India away from Russia in terms of both its military and nuclear cooperation.
Former China men's soccer team coach charged with bribery - state media
Reuters
Li Tie, the former head coach of the Chinese men's national soccer team, has been charged with suspected bribery, according to state media reports.
Australia lawmakers recommend possible WeChat ban on gov't devices
Nikkei Asia
A Senate committee in Australia has recommended a series of rules and restrictions for social media platforms, including potentially banning Chinese messaging service WeChat on government devices. The committee's report contains 17 recommendations, including new transparency rules, expanding the existing TikTok ban on government devices to contractors, and investigating a ban on WeChat on government devices. The committee argues that platforms like TikTok and WeChat pose national security risks due to their parent companies being subject to China's national security laws. The report's recommendations are not binding.
BlackRock, MSCI draw US scrutiny over capital flow to Chinese companies
South China Morning Post
The US House of Representatives’ Select Committee on the Chinese Communist Party (CCP) is investigating BlackRock and MSCI for facilitating investments into blacklisted Chinese companies. The committee has found that the firms allowed for investments into dozens of blacklisted companies, which fuel China’s military advancement or human rights abuses. BlackRock has denied any wrongdoing and said it complies with all applicable US government laws.
How Hong Kong can become the Asian century’s financial linchpin
South China Morning Post
Hong Kong should position itself as the financial clearing house for the ASEAN region, according to Luanne Lim, CEO of HSBC Hong Kong. Lim argues that Hong Kong is well-suited to this role due to its deep, open and transparent capital markets, its position as Asia's largest wealth management centre and its access to China's vast economy and domestic markets. Lim also highlighted the potential of digital finance, including tokenisation and central bank digital currencies, as well as the opportunities presented by green finance.
Chinese carmaker BYD faces Indian tax investigation over EV parts: sources
South China Morning Post
Chinese carmaker BYD is under investigation in India over allegations that it underpaid tax on imported parts for cars it assembles and sells in the country. The Directorate of Revenue Intelligence (DRI) alleges that BYD underpaid tax of INR730m ($9m). The investigation is ongoing and could result in additional tax charges and penalties. BYD has already deposited the alleged underpaid amount after the DRI's preliminary findings. The investigation comes after New Delhi rejected BYD's bid to build a $1bn electric vehicle plant in the country.
Binance did monthly transactions worth $90 bln in banned China market- WSJ
Reuters
Binance, the world's largest cryptocurrency exchange, reportedly saw $90 billion worth of cryptocurrency-related assets traded by users in China in a single month, despite cryptocurrency trading being illegal in the country since 2021. The transactions made China Binance's biggest market, accounting for 20% of volume worldwide. Binance, which originated in China but withdrew from the country in 2017, did not respond to requests for comment. The exchange is also facing scrutiny from US regulators, including the Commodity Futures Trading Commission and the Securities and Exchange Commission. It is currently under investigation by the US Justice Department over possible money laundering and sanctions violations.
China owes world explanation for abrupt removal of foreign minister
Nikkei Asia
The recent removal of Qin Gang as China's foreign minister without a clear explanation highlights the opaqueness of China's politics. While the country's political structure may be different, Beijing has an obligation to explain such impactful actions to the international community. Qin's predecessor, Wang Yi, has been reappointed as foreign minister, and his experience should ensure no immediate problems for China's international relations. However, the lack of transparency raises concerns for foreign countries and makes it difficult for anyone to trust a government that refuses to explain the sudden removal of a senior diplomat. The future of Sino-U.S. relations and the possibility of a meeting between President Xi and President Biden may be affected by this political episode. Japan-China relations are also at a difficult stage, and hopes are high that Foreign Minister Wang will introduce new ideas for improving bilateral ties.
Taiwan boosts counter-espionage effort after suspected China infiltration
Reuters
Taiwan's military has pledged to increase counter-espionage efforts after several serving and former military officers were suspected of spying for China. China has been carrying out an espionage campaign to undermine Taiwan's military and civilian leadership. A lieutenant colonel and four retired military officers are among those being investigated. China has increased military and political pressure on Taiwan in an attempt to force acceptance of its sovereignty, which Taiwan rejects.
Taiwan VP to transit in New York and San Francisco
Nikkei Asia
Taiwan Vice President William Lai will make stops in New York and San Francisco during his upcoming trip to Paraguay, Taiwan's presidential office has announced. Lai's transits have sparked controversy, with Beijing accusing him of being a separatist. The US has urged China not to take "provocative" action in response to Lai's visits, describing them as routine. Lai is the front-runner for Taiwan's presidential vote in January. China views Taiwan as its own territory and has been increasing military and political pressure on the island to accept its sovereignty claims.
US-listed China ETF investors ignore pledge to boost the economy
Financial Times
US-listed China exchange-traded fund (ETF) investors largely ignored China's recent announcement of measures to support its economy. Data from VettaFi shows that only two China-focused ETFs attracted significant inflows. The KraneShares CSI China Internet ETF (KWEB) received inflows of $136.1m, while the Direxion Daily FTSE China Bear 3x Shares (YANG) ETF, which allows investors to bet on a fall in China's market, attracted $22.3m. Most of the 56 China-focused ETFs in VettaFi's database saw no inflows, and 12 experienced outflows, with the iShares MSCI China ETF (MCHI) seeing outflows of $47.6m.
Biden to ask Congress to fund Taiwan arms via Ukraine budget
Financial Times
The White House will reportedly ask Congress to fund arms for Taiwan as part of a supplemental budget request for Ukraine, in an effort to speed up the supply of weapons to the country amid the rising threat from China. The request comes after the White House announced that the US would supply Taiwan with $345m in weapons from stockpiles for the first time.
Unexpected rains around Chinese capital leave dozens dead, missing
The Sydney Morning Herald
Torrential rain in the areas surrounding Beijing, China, has killed at least 20 people and left 27 missing, as flooding destroyed roads, uprooted trees and caused power outages. The heavy rainfall, which took place in the wake of Typhoon Doksuri, has caused severe flooding in Beijing, which usually experiences dry summers. Other parts of the country have also experienced unusually severe summer flooding, leading to scores of deaths, while other regions are experiencing drought. President Xi Jinping has ordered local governments to rescue those trapped and minimise loss of life and property damage.
The End of China’s Economic Miracle
Foreign Affairs
China's economy is struggling with what some are calling "economic long COVID," a term used to describe the long-lasting effects of the country's stringent COVID-19 response. The Chinese government's arbitrary and heavy-handed control over economic activities has created a climate of fear and uncertainty, prompting individuals and businesses to prioritize short-term liquidity over long-term investment. As a result, private consumption and investment rates have declined significantly, household savings rates have soared, and economic growth has weakened. These trends are likely to persist and will have long-term implications for China's economy, including reduced productivity growth and increased public debt.
The Chinese government's interventionist policies and lack of credible self-restraint have eroded confidence in the private sector and exacerbated economic long COVID. The government's control over economic activities has become increasingly arbitrary, with decisions being made and reversed seemingly at whim. The resulting uncertainty has led households and businesses to become risk-averse and hold onto cash, stifling investment and spending. This downward cycle is likely to continue, leading to a more volatile economy and diminished growth prospects.
The negative impact of economic long COVID extends beyond China's borders. A slower-growing and less stable Chinese economy will contribute to a growing trade surplus with the rest of the world and will be less able to stimulate global demand during future recessions. Western policymakers should adjust their expectations downward and adopt a more welcoming approach to attract Chinese savings, talent, and investment. Removing barriers to Chinese capital and talent would not undermine US prosperity or national security but would make it harder for Beijing to maintain economic stability and control.
China issues draft guidelines to tighten limits on use of apps by minors
Reuters
China's cyberspace regulator has drafted guidelines to impose stronger restrictions on the use of apps, smart terminals, and app stores by minors. The guidelines are open for public feedback until September 2.
China is fed up with corrupt grain system, and it will pay you to snitch
South China Morning Post
China is offering cash rewards of up to CNY150,000 ($21,000) to individuals who expose corruption in the country's grain sector, as part of efforts to enhance food security. The move aims to "mobilise the public" in the poorly regulated grain reserve system, which Beijing regards as a key part of food security. China's top leadership has been increasingly emphasising the need to remain self-sufficient in feeding its 1.4 billion people amid climate change challenges and an uncertain global market. The cash reward initiative is part of a nationwide corruption crackdown in the grain sector.
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