Chinese shadow bank Zhongzhi faces $36bn shortfall after ‘management ran wild’；China Weighs Unprecedented Builder Support With First-Ever Unsecured Loans
Rare warning over Chinese banks’ asset quality due to inflated, inaccurate data; China’s Labor Market Seen as Weaker Than Official Data Show
Welcome to this issue of The China Brief. Today is November 23, 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.
Chinese shadow bank Zhongzhi faces $36bn shortfall after ‘management ran wild’
Financial Times
China's shadow financing market has been hit by turmoil as Zhongzhi, one of the country's biggest groups, warned investors that it faces a shortfall of up to $36.4bn. In a letter viewed by the Financial Times, Zhongzhi blamed the situation on the departure of senior executives and the death of its founder. The company, which missed payments on several products last month, said "internal management ran wild" in the wake of the departures. China's shadow financing market is worth nearly $3tn and is exposed to the country's property sector crisis.
China Weighs Unprecedented Builder Support With First-Ever Unsecured Loans
Bloomberg
Chinese regulators are considering allowing banks to offer unsecured short-term loans to developers in an attempt to ease the property crisis which is slowing growth in China. Currently, loans to developers usually require land or assets as collateral. The new loans would be unsecured and would be available for operational purposes, potentially freeing up capital for debt repayment. This would represent China's most forceful attempt yet to plug an estimated CNY 3tn ($446bn) shortfall in funding needed to stabilise the industry and deliver millions of unfinished homes.
China’s Labor Market Seen as Weaker Than Official Data Show
Bloomberg
Alternative data sources indicate that China's labor market is weak, contrary to official data, which suggests a steady employment picture. Online job listings and independent economic and household surveys suggest that the job market deteriorated in Q3 2022, with some indicators showing continued weakness in October and November. Consumer confidence remains low, and Chinese companies are offering lower salaries to new employees. Economists believe that the official unemployment rate reported by China's National Bureau of Statistics does not accurately reflect the true situation and that the weak labor market is contributing to deflationary pressures in the country.
U.S. asset manager sees opportunity in China: 'It's a great time'
Nikkei Asia
Foreign financial companies with operations in China are in a better position than their competitors, according to the Asia president of Principal Financial Group, Thomas Cheong. He said the barriers to entry in China are growing for companies that have not yet invested in the country and that it is a "great time" to put some distance between themselves and rivals. Principal Financial Group has several joint ventures with China Construction Bank (CCB) and is keen to expand its holdings in those ventures.
Fidelity International raises $700 mln in its first China bond mutual fund
Reuters
Fidelity International has raised CNY 5bn ($700m) from investors for its first fixed income mutual fund in China. Despite stiff competition and Fidelity's limited track record in the country, the fund raised the sum mainly from institutional investors in a three-week period. Fidelity is lobbying Chinese regulators to relax data security rules to allow cross-border sharing of research. China has over 150 players in its mutual fund industry, including BlackRock and JPMorgan Asset Management.
Number of Hong Kong’s high-speed rail passengers exceeds pre-pandemic levels
South China Morning Post
Cross-border high-speed rail passenger numbers in Hong Kong have surpassed pre-pandemic levels, with over 17 million users this year, according to Hong Kong’s MTR Corporation. The operator reported that passenger figures for the National Day and Mid-Autumn Festival holidays reached a record high, with more than 100,000 passengers. The line between Hong Kong and the mainland Chinese city of Shenzhen has seen the most significant growth among high-speed routes. Mainland tourists have accounted for more than half of high-speed rail passengers since March, and the number of cross-border passengers has exceeded 2019 levels since July. The West Kowloon station in Hong Kong currently connects the city to 73 mainland destinations, with plans to open more routes and stations in the future.
Rare warning over Chinese banks’ asset quality due to inflated, inaccurate data
South China Morning Post
Lawmakers in China have expressed concerns about the accuracy of asset quality figures at small and medium-sized financial institutions, warning that they do not "truly reflect the actual situation". During a meeting of the Standing Committee of the National People's Congress, deputies called for more interventions to speed up the disposal of bad loans at these institutions. The non-performing loan (NPL) ratio of China's commercial banks was 1.61% at the end of September this year, compared to 1.66% in September 2019. However, many bad loans have been extended or provided additional credit, making the NPL ratio a poor reflection of asset quality.
US electric vehicle sales to hit record this year, but still lag behind China and Germany
Associated Press
Electric vehicle (EV) sales in the US are projected to reach a record 9% of all passenger vehicles this year, up from 7.3% in 2022, according to Atlas Public Policy. The country is expected to sell more than one million EVs in a single year for the first time, reaching between 1.3 million and 1.4 million vehicles. However, the US lags behind China, Germany and Norway, where EVs accounted for 33%, 35% and 90% of sales, respectively, in H1 2023. Price reductions, tax credits and falling battery costs have contributed to the growth of the US EV market.
Binance’s Zhao Shouldn’t Be Allowed to Travel to UAE, US Says
Bloomberg
US prosecutors are seeking to reverse a court decision allowing Binance CEO Changpeng Zhao to travel to the United Arab Emirates after pleading guilty in a felony criminal case. A US magistrate judge had granted Zhao's request to return to the UAE before his sentencing in February. Prosecutors argue that there is a "substantial risk" Zhao will not return to the US due to his significant assets and strong ties to the UAE, as well as the lack of an extradition treaty between the UAE and the US. Zhao and Binance pleaded guilty to anti-money laundering and sanctions violations earlier this week.
WHO asks China for more information about rise in illnesses and pneumonia clusters
Yahoo US
The World Health Organization says it has made an official request to China for information about a potentially worrying spike in respiratory illnesses and clusters of pneumonia in children. Both SARS and COVID-19 were first reported as unusual types of pneumonia. The agency advised people in China to follow measures to reduce the risk of respiratory illness, such as getting vaccinated, isolating if they feel ill, wearing masks if necessary, and getting medical care as needed.
Xi Jinping champions digital trade as China kicks off e-commerce expo
South China Morning Post
China has showcased its ambitions in global digital trade as it launched a major digital trade expo, promoting influential e-commerce players and advocating for a digital Silk Road. In a letter read out at the event, President Xi Jinping said global digital trade has become a highlight of international trade and that China has established a sound digital trade governance system. China hopes the expo will provide a platform for all sides to discuss cooperation and make digital trade a new engine for common development. The event comes as the US walks back its commitment to free trade.
Along the Koreas’ Dangerous Border, the Guardrails Are Now Down
WSJ
North and South Korea have suspended a military agreement struck in 2018 to reduce the risk of conflict along their shared border. North Korea's Defense Ministry said it would resume all military activities halted under the agreement and deploy new weapons along the border. Tensions between the two Koreas have grown following the election of the conservative government in Seoul and growing friction between its American ally and North Korea backers Russia and China. North Korea has ignored international sanctions and pursued deeper cooperation with Russia.
World in ‘transition’ from US-led order to multipolar one: Singapore’s George Yeo
South China Morning Post
Former Singaporean foreign minister, George Yeo, believes that the current tensions in the world are not signs of decline, but rather part of a transition from a US-led order to a multipolar one. Yeo spoke at a book launch event in Hong Kong, discussing a range of topics including US-China relations, the Israel-Gaza war, and the future of Hong Kong. He stated that the world is going through a great transition, fueled by the technological revolution, and that the tensions we are currently experiencing are birth pangs of a new world emerging. Yeo also talked about the rise of China, stating that it is not a threat to America but rather a threat to American dominance in the world.
Yeo also discussed the current Western suspicion towards Huawei, stating that the West has shaped policies against the company driven by intelligence considerations, which have ultimately hobbled themselves. He believes that the fall in foreign investment is not a threat to mainland China and Hong Kong, as China does not lack capital. He also believes that Hongkongers are more bothered by Singapore than Singapore is by Hong Kong, and that the rivalry between the two cities is driven by a sense of insecurity in Hong Kong. Lastly, Yeo discussed the corruption index in China, stating that if corruption increases it could be the beginning of a long decline for the country.
ByteDance brings AI to office tool Feishu, taking on Tencent and Alibaba
South China Morning Post
ByteDance, the parent company of TikTok, has launched an AI-powered version of its collaboration tool Feishu, called Feishu 7. The tool is designed to help Chinese enterprises prepare for the era of artificial intelligence by integrating large language models (LLMs) into workplace automation. Feishu Intelligent Buddy, an AI assistant, will be able to help users summarise meetings and unread messages, draft work documents, and analyse content from various file types. Feishu CEO Xie Xin stated that the aim is for the AI assistant to be like an "intelligent and capable person".
China says Philippines enlisted 'foreign forces' to patrol South China Sea
Reuters
The southern theatre command of China's military has accused the Philippines of enlisting "foreign forces" to patrol the South China Sea and causing trouble. This is likely a reference to the joint patrols conducted by the Philippines and the US near Taiwan earlier this week. China has stated that these joint patrols must not undermine its territorial sovereignty and maritime rights and interests. Relations between China and the Philippines have worsened over the South China Sea, as the Philippines seeks closer ties with the US for support in its maritime disputes with China.
China gearing up to take on pharmaceutical giants, drive biotech boom: innovator
South China Morning Post
China is set to lead the next research boom in innovative medicines due to increased investments, scientific advancements, and diligent researchers, according to biochemist Wang Xiaodong. China has become home to over 10,000 pharmaceutical enterprises that are conducting the second-highest number of new medicine research, surpassing the US. Wang’s company, BeiGene, spent $1.4bn on R&D in 2021 and has brought three innovative medicines to market. China’s pharmaceutical industry has prioritized innovation in the past decade, driven by new medical needs, market expansion, and regulatory reform. While most Chinese pharmaceutical companies are still in the early stages of innovative drug research, China has created a conducive environment for biotech and pharmaceutical companies to develop medicines. The Chinese government encourages multinational pharmaceutical companies to establish R&D centers and innovative production bases in China, while supporting domestic enterprises in importing advanced foreign technologies and products. The number of innovative assets under clinical development in China has tripled in the past five years, and the government aims to encourage these treatments to go global.
Germany needs to prove its new China strategy is more than talk
Nikkei Asia
German Chancellor Olaf Scholz is facing pressure from both China and NATO over his government's policies toward China. China has urged Scholz to keep Germany open to Chinese investors and to go easy on the EU's push to "de-risk" supply chains. Meanwhile, NATO Secretary-General Jens Stoltenberg has called for Germany to block Chinese companies Huawei and ZTE from supplying components for Germany's 5G networks. Scholz has so far avoided offending Beijing, but critics argue that Germany should take a tougher stance on China, particularly in the Indo-Pacific region.
China, Japan face multiple obstacles as diplomats aim to repair relations
South China Morning Post
China's top diplomat, Wang Yi, has said that now is an important time to improve the relationship with Japan based on what has been achieved so far. Wang made the comments during a meeting with a Japanese delegation in Beijing, led by the head of the junior partner in Japan's ruling coalition, Natsuo Yamaguchi. Yamaguchi's visit to China is aimed at easing strained bilateral relations between Tokyo and Beijing and building on the momentum following a recent meeting between the leaders of the two countries during the Apec summit.
Country Garden Shrugs Off Penny Stock Label Amid Sector Support
Bloomberg
Chinese developer Country Garden Holdings Co. is expected to be included in a draft list of firms eligible for financing support, easing investor concerns over its liquidity concerns. The stock surged 20% intraday to over HK$1 on Thursday, after spending two months below that level.
Debt-Strapped Chinese City Scraps Plan to Hand Cash for Couples to Have Babies
Bloomberg
A local Chinese government has reneged on its promise to provide cash incentives to parents who have a third child, potentially undermining the country's efforts to boost its birth rate. Authorities in Zhengzhou pledged to give handouts of up to CNY15,000 ($2,097) to parents of more than two children starting in September. However, the government has since turned down subsidy applications, citing funding as a factor in the policy's delayed implementation. The move comes as China's overall population began to shrink for the first time in six decades in 2022.
America and China Are Not Yet in a Cold War
Foreign Affairs
The idea that the world is witnessing the early stages of a new cold war between China and the United States has gained traction in many quarters, especially in Washington. However, the current situation does differ from the original Cold War in several key ways. The relationship between the US and Chinese economies is far more interconnected than that of the US and Soviet Union, and China does not seek to export its version of Marxism like the Soviet Union did. Additionally, the global context is different, with the world becoming more fragmented and de-globalised, and the US and China lack the crisis prevention and management mechanisms that the US and Soviet Union had.
However, there are also similarities between the two eras. Both the US and China are superpowers, and there is an ideological dimension to their competition, with China's embrace of communism contrasting with the US system of democratic capitalism. Both countries also compete for support and influence in the global South, just as the Soviet Union and the US did in the Third World during the Cold War.
To avoid a catastrophic conflict, it is crucial for both countries to understand how the US-China competition differs from the Cold War and to acknowledge the similarities and differences that make the current situation less dangerous in some ways but more dangerous in others. Economic cooperation and interdependence, defusing tensions over Taiwan, establishing crisis-prevention and crisis-management mechanisms, strengthening cooperation on health issues, and achieving tangible results in climate change coordination are all steps that can help stabilize the US-China relationship and prevent a hot war.
China launches social security fund-backed $707 mln investment fund in Shanghai
Reuters
China's National Social Security Fund has launched an investment fund in Shanghai with an initial size of CNY 5.1bn ($707.24m). The fund, to be managed by IDG Capital, will focus on supporting innovation in Shanghai and the Yangtze River Delta region. It will invest in strategic areas such as integrated circuits, biopharma and life sciences, artificial intelligence, new energy vehicles, high-end equipment, and advanced materials.
Taiwan Opposition Candidates Jump-Start Talks on Single Ticket
Bloomberg
Opposition candidates for Taiwan's upcoming presidential election, Hou Yu-ih and Ko Wen-je, are reportedly in talks to form a joint ticket to challenge the ruling Democratic Progressive Party. The two candidates, who have previously expressed a desire to hold talks with Beijing, have been trailing Vice President Lai Ching-te in recent polls. Foxconn founder Terry Gou, who is also a presidential candidate, is said to be brokering the talks between Hou and Ko. Friday is the deadline for candidates to register.
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