China's Xi urges stronger rule of law overseas amid 'external risks'; The Cost of Doing Business With China? A $40,000 Dinner With Xi Might Be Just the Start
PBOC Chief Warns of ‘Long and Difficult’ Economic Transformation; Taiwan Indicted Military Personnel Suspected of Spying for China; Quant hedge funds bet on China despite investor exodus
Welcome to this issue of The China Brief. Today is November 28, 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 Xi urges stronger rule of law overseas amid 'external risks'
Reuters
Chinese President Xi Jinping has called for stronger rule of law in foreign affairs as China opens up to the outside world. Xi emphasized the importance of protecting overseas citizens and interests through deepening international cooperation on law enforcement, strengthening consular protection and assistance, and building a strong rule of law. Chinese private companies have faced legal challenges abroad, including accusations of counterfeit goods and steps to ban the TikTok app. Xi also urged compliance awareness and the need for individuals and enterprises to abide by laws, regulations, and customs when expanding globally. China aims to develop foreign-related legal services and cultivate world-class arbitration institutions and law firms. The call for better protection of citizens abroad comes as China has organized evacuations in conflict-affected countries and dealt with consular protection cases involving millions of its people in the past decade.
Taiwan Indicted Military Personnel Suspected of Spying for China
Bloomberg
Taiwan has indicted 10 people, including active and retired military personnel, on suspicion of spying for China. The individuals were accused of building a spy ring and recruiting military personnel to collect state secrets. Two of the personnel were paid to film a video in which they pledged allegiance to the Chinese Communist Party. The US, Taiwan’s largest military backer, has long been concerned about Beijing’s alleged efforts to infiltrate the self-ruled island’s military.
PBOC Chief Warns of ‘Long and Difficult’ Economic Transformation
Bloomberg
China's central bank governor, Pan Gongsheng, has emphasised the need for tolerance of slowing growth in the short term as the country's economy transitions to new drivers of activity. He downplayed concerns over risks related to property and local government debt issues, saying that China's overall government debt is relatively low compared to other economies. The property sector's adjustment is beneficial for the economy in the long run, he said, and spillover effects from the sector to the financial system are "quite limited".
China says against supply chain decoupling, wants closer ties with all
Reuters
China's Premier Li Qiang stated that China opposes the cutting of supply chains and is willing to build closer ties with all countries. The statement comes as more countries express concerns about their dependence on China for their supply chains. The comments were made at China's first ever China International Supply Chain Expo, which is part of Beijing's efforts to increase foreign investment in the country. The value of announced US and European greenfield investment into China dropped significantly last year, while investment into countries like India increased.
Quant hedge funds bet on China despite investor exodus
Financial Times
Computer-driven hedge funds are defying the exodus of foreign investors, rising US-China tensions, and increased regulatory scrutiny to bet on China's financial markets. Some European quantitative funds are setting up offices in China and launching funds that exclusively trade Chinese assets, citing the low correlation of Chinese assets with the rest of their portfolios as a unique source of diversification. The withdrawal of other foreign investors is seen as an opportunity for quant traders to profit, as it reduces competition. However, the sector is facing increased regulatory scrutiny and criticism from some retail investors.
The Cost of Doing Business With China? A $40,000 Dinner With Xi Might Be Just the Start
WSJ
Chinese regulators have finally approved a takeover bid by US chipmaker Broadcom to buy enterprise software developer VMware, months after the deal was first announced in May 2022. The move is seen as an olive branch to US corporations wary of doing business in China and reflects the intensifying geopolitical competition between Washington and Beijing. However, the approval is unlikely to open the investment floodgates into China, as business executives remain cautious about operating in the country.
China coastguard says it warns off Japanese ships in disputed waters
Reuters
Chinese coastguard vessels have warned off Japanese ships that "illegally intruded" into disputed waters around the East China Sea islets. The Chinese coastguard took "necessary control measures" but did not provide further details. The waters around the Diaoyu Islands, also known as the Senkaku Islands, are claimed by both China and Japan. The two countries have faced off in the area, deploying patrol boats and urging each other to leave. China has called on Japan to immediately cease all "illegal activities" in the area.
China food delivery firm Meituan beats revenue expectations amid economic headwinds
Reuters
Chinese food delivery firm Meituan has reported a stronger-than-expected 22.1% rise in Q3 revenue, as it continues to recover from the impact of Covid-19. The company posted revenue of CNY76.47bn ($10.69bn) for the quarter, compared with CNY62.62bn in the same period last year. Meituan's Q3 2020 earnings were hit by Covid-related restrictions, which caused demand for delivery services to decline. While demand remains low, Meituan's Q3 result was boosted by a rebound in domestic travel, with transaction volume up 90% YoY. Meituan remains China's largest delivery platform with a 69% market share.
Australian Navy vessels need to act 'with prudence' in waters near China, top Chinese official says
ABC
A senior Chinese official has warned Australia to act "prudently" in waters near China following a confrontation that left two Australian divers injured. The incident occurred earlier this month when a Chinese warship deployed sonar while the divers were clearing fishing nets from its propeller in the East China Sea. The head of the Chinese Communist Party's International Department, Liu Jianchao, suggested that China used sonar to monitor the Australian ship due to previous accusations of "coercive" behaviour. Liu also warned that future confrontations in the East and South China Seas could escalate if not properly managed.
China Wants to Renew Australia Defense Ties, Senior Envoy Says
Bloomberg
China is seeking to renew its defense relations with Australia, according to Liu Jianchao, the head of the Communist Party's International Department. Liu acknowledged that there are concerns on both sides but emphasized the importance of resuming a relationship based on mutual respect and benefit. This comes after Australia expressed concerns about injuries to its navy divers caused by sonar pulses from a Chinese destroyer in Japan's exclusive economic zone. The dispute occurred shortly after a historic visit by Australian Prime Minister Anthony Albanese to Beijing. Liu also welcomed Australian journalists to return to China and criticized Australia's ban on Huawei from its 5G networks.
China central bank chief flags regional debt servicing 'difficulties'
Nikkei Asia
Pan Gongsheng, the governor of the People's Bank of China, has warned that weaker regions in the west and north of the country may face difficulty servicing local government debts. He also acknowledged that there are "lots of concerns" about China's property market, which is currently experiencing weak demand and falling prices. However, Pan stated that the downturn in the property market will prove beneficial for long-term economic development and growth sustainability.
Some Huawei car businesses moving towards independence, autos chief says
Reuters
Huawei has stated that some of its automotive partnerships are now ready to move towards independent operations and investment. The company's managing director and chairman of its smart car solutions unit, Richard Yu, made the comments at a launch event in Shanghai for the Luxeed S7 sedan, which Huawei developed with Chinese automaker Chery. Huawei recently announced it will launch a new joint company, owned up to 40%, with automaker Changan Auto. The Huawei-backed electric vehicle brand Aito has received over 100,000 orders for its revamped M7 model since going on sale two-and-a-half months ago. Huawei has previously said it does not make cars on its own, but rather helps other automakers improve their vehicles.
Can Taiwan continue to fight off Chinese disinformation?
Japan Times
This article discusses how China is using disinformation and deepfake videos to undermine Taiwan's democracy. The article mentions a recent incident where deepfake videos were circulated in Taiwan, seemingly showing the country's leader promoting cryptocurrency investments. The videos were deemed to be created by Chinese agents in an attempt to sow discord and undermine Taiwan's autonomy. This is part of a larger pattern of China using inaccurate narratives and conspiracy theories to divide the Taiwanese people and assert control over the island. As Taiwan's election in January approaches, concerns over Beijing's aggressive tactics and disinformation campaigns are growing.
Alibaba Cloud suffers second service outage in a month
Yahoo US
Chinese e-commerce giant Alibaba's cloud service experienced a two-hour disruption on Monday. The issue affected customers in mainland China, Hong Kong and the US, and was the second such outage for Alibaba Cloud in a month. The disruption affected several of Alibaba Cloud's database management products, and was resolved at 10:58 on Monday. Alibaba Cloud is China's largest cloud provider, according to research group IDC. The group had previously suffered a three-hour disruption that impacted a broad range of products.
Chinese firms set for best earnings growth in seven years in 2024
Reuters
Chinese firms are expected to see their strongest earnings expansion in seven years in 2024, according to the London Stock Exchange Group (LSEG). Analysts predict that these companies will experience a 16% rise in profits next year, which would be the highest since 2017. The improved performance is being attributed to government measures aimed at propping up consumer demand and the struggling housing market. China's post-pandemic economic recovery is currently considered fragile, but it is thought that government initiatives could boost growth and help asset prices recover by 2024.
Chinese AI firm SenseTime denies research firm Grizzly’s claim it inflated its revenue
Associated Press
Chinese artificial intelligence company SenseTime has rejected allegations made by short-seller Grizzly Research that it has falsely inflated its revenue. SenseTime stated that the report contained "unfounded allegations and misleading conclusions and interpretations." The company's stock tumbled over 9% following the release of the report. SenseTime, known for its facial recognition technology, said it was reviewing the allegations and considering its next steps. Grizzly Research's report claimed that SenseTime uses revenue fabrication schemes to inflate its sales data and suggested that the company lacks transparency about its business. SenseTime was blacklisted by the US government in 2019 over allegations that its technology has been used to oppress the Uyghur minority in China.
China details cyberbullying cases as it cracks down on internet violence
South China Morning Post
China's Ministry of Public Security has addressed 10 cases of cyberbullying in which individuals were detained, fined or jailed. The ministry's statement is the first time Beijing has published a cluster of examples since its directive to define and punish cyberbullying was issued in September. Cyberbullying has become more rampant in recent years, and some cases have led to victims killing themselves or suffering mental illness, the ministry said.
Hong Kong’s second-hand home prices skid to lowest since March 2017
South China Morning Post
Hong Kong's lived-in home prices fell by 2.16% in October, bringing the official index to its lowest point in over six and a half years. The Rating and Valuation Department's gauge of lived-in home prices dropped to 321.4 from 328.5 in September. Second-hand home prices have fallen by about 4% so far this year and have lost 19% from the index's record high in September 2021. The decline in October was less severe than the 2.4% drop in September, which was the steepest decline of the year. Analysts expect overall home prices to drop 5% to 6% in 2023 and an additional 3% to 5% in the first half of 2024.
One Corner of China’s Weak Market Is Seeing a $25 Billion Rally
Bloomberg
Investors in China are turning to small and volatile stocks listed on the Beijing Stock Exchange 50 Index due to a lack of returns in the broader equities market. The index has gained over 50% since its low on 23 October, but authorities have become concerned about the surge in trading volumes and have issued warnings against abnormal activity. Regulators are considering getting some stocks on the index listed on the main CSI indexes. However, the rally could be vulnerable as key stakeholders take profit and the stocks suffer from poor market liquidity, according to Zhou Nan, managing director at Shenzhen Long Hui Fund.
Slowing China still leads the race for commodities
Reuters
China's shift from a property-based economic model to a focus on green and high-tech industries is driving demand for commodities such as copper and aluminium. President Xi Jinping is trying to cool growth in the country's real estate sector, but is also keen to prevent social unrest, given that ordinary Chinese store 70% of their wealth in property. This means that distressed developers are still being encouraged to complete building projects, which will require copper. Additionally, the Chinese government wants to invest more in green and high-tech industries, which will also drive demand for commodities. For example, copper is essential for making electric motors and batteries, as well as for power grids and renewable energy initiatives. China's copper demand is expected to rise from 14 million metric tons in 2020 to around 18 million tons per year in 2030. Similarly, China's annual aluminium demand is forecast to grow from 37 million tons in 2020 to over 50 million tons per year in 2030. These factors are acting as a floor for Chinese growth, even as the country transitions to a new economic model.
Moderna begins work on China mRNA manufacturing site
Yahoo US
Moderna has started construction on its first facility in China to manufacture mRNA medicines, according to the US vaccine maker. Although Moderna's COVID-19 vaccine has yet to be approved in China, the company signed a deal with the Shanghai city government in July to research, develop, and manufacture mRNA medicines in the country. The facility in Shanghai will produce medicines for the domestic population, the second-largest in the world after India. Moderna did not disclose what it plans to produce at the facility or when production will begin.
Beijing Stock Exchange index slumps by record 5.2% after steps to curb gains
South China Morning Post
The Beijing Stock Exchange (BSE) 50 Index, which represents small-cap companies trading on China's smallest stock exchange, fell 5.2% on Tuesday after the bourse operator took measures to cool a rally that has seen the index surge more than 50% in the past month. The exchange had issued verbal warnings, supervision notices and written warnings for abnormal trading. The buying spree on the Beijing exchange was triggered after policymakers launched measures to bolster trading on the mainland's newest bourse.
How China's Shein became a fast-fashion giant
Reuters
Chinese fashion company Shein has confidentially filed for an initial public offering (IPO) in the US, according to unnamed sources cited by Reuters. Founded in 2012 by Chris Xu, Shein has grown into a global fashion marketplace and boasts more than 250 million social media followers. Although it does not publicly disclose its revenue, the company is said to have made around CNY100bn ($15.7bn) in 2021. Shein uses a direct-selling model and an on-demand manufacturing system, relying on third-party contract manufacturers in China. The company is said to have been valued at over $60bn in a $2bn private fundraising round in March.
China Seen Unleashing $319 Billion of Special Bond Quota Early
Bloomberg
China is expected to release 2.28 trillion yuan ($319 billion) of next year's special local bond quota by the end of December, according to state media. The move is seen as an early effort by Beijing to boost economic growth in 2024. The government is expected to distribute 60% of next year's special local government bond quota to provinces ahead of time, indicating a commitment to infrastructure spending and a willingness to issue bonds. China is on track to achieve or surpass its annual growth target of around 5% this year, but economists expect growth to moderate to 4.5% in 2024.
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