Elon Musk's private jet has landed in Beijing - Reuters witness; Exclusive Insight: Japan's Downfall: Lessons Worth Learning for China
Covid lab leak theory cannot be ruled out, China's former top scientist admits; Biden’s five mistakes in Ukraine; Heavy Rains Threaten China’s Wheat Supply for Buns and Noodles
Welcome to this issue of The China Brief. Today is May 30, 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.
Exclusive Insight: Japan's Downfall: Lessons Worth Learning for China
In May 1989, the Bank of Japan embarked on a series of interest rate hikes, which were carried out five times by August 1990. Japan's formerly relaxed monetary environment ceased to exist. The inevitable burst of real estate and stock market bubbles followed.
It's crucial to note that while the bubbles popped, the enormous debt that fueled them remained very real and had to be repaid. For example, Japanese households that borrowed to purchase or speculate in real estate found their loans did not decrease along with the falling property prices – they still had to be repaid to the bank! If a significant amount of debt could not be repaid, a bank run could occur, leading to a financial crisis. The fundamental cause of Japan's economic growth and financial stability issues in the last century, following the bursting of real estate and stock market bubbles, was that while the bubbles were illusory, the debt was very real.
From a macroeconomic perspective, debt increased rapidly during Japan's real estate and stock market bubble period, largely driving economic growth. For instance, elements like glass in houses, plastic-steel windows, furniture, appliances, sanitary wares, etc., would not have been produced if there had been no housing bubble. It was investors chasing rising property prices and buying houses that triggered the demand for these products. The production of these items was inevitably debt-driven. As the housing bubble burst, the debt in these industries became problematic. In a nutshell, Japan's economy could not return to a normal growth track until it had fully digested the excess debt, along with the corresponding excessive business equipment, overcapacity, and unemployment. Prolonged stagnation was inevitable. And innovation has always struggled to become the engine driving Japan's economic growth to further increase, digesting these excesses is exceedingly challenging!
Which leads us to the natural question, what about China? Personally, I believe there are lessons worth learning from Japan:
The early "flying geese model" of economic growth, imitating and introducing technology, needs to shift towards independent innovation as soon as possible. Transitioning from being a "following goose" to a "leading goose" is fundamental to sustainable economic growth. Products based on independent innovation, which the "leading goose" cannot produce, will enable us to escape the competition with the products produced by the "leading goose" manufacturers, thereby reducing friction.
Try to avoid or delay any form of friction or conflict, especially those without substantive significance, with the "leading goose."
Control any form of debt-driven asset bubbles as soon as possible to prevent their burst and long-term economic adjustment, thus preemptively terminating the "flying geese model."
("The Reason for Japan's 30-year Economic Downturn" Part Three. The author of this article is Xin Jisi, a special correspondent economist for The China Brief.)
Covid lab leak theory cannot be ruled out, China's former top scientist admits
Telegraph
George Gao, the virologist who led China’s Centre for Disease Control (CDC) during the pandemic, has said that the theory that Covid-19 leaked from a lab in Wuhan “cannot be ruled out”. However, the Chinese embassy in the UK argued that the idea of a lab leak was a “lie created by anti-China forces”. An investigation into Wuhan Institute of Virology (WIV) was carried out by China’s government, Gao told the BBC Radio 4 podcast “Fever: The Hunt for Covid’s Origin”. However, it involved another, unidentified branch of the government, and Gao added that he had only “heard” the lab was cleared and had not seen evidence of its safety himself.
In February, the director of the US Federal Bureau of Investigation suggested that Covid-19 had “most likely” originated from the WIV, but there is no agreement between US intelligence agencies on this issue. Many scientists believe a natural origin is likeliest.
Biden’s five mistakes in Ukraine
Al Jazeera Opinion
Reports suggest that neither the US nor Russia have pursued diplomacy as purposefully and stubbornly as they have pursued war in Ukraine. Both sides are digging in for the long haul, stoking fears of nuclear annihilation (whilst hoping this will deter their opponents) and framing the conflict as a “win or die” situation. In such circumstances, the most likely outcome is a stalemate and the eventuality of a long-term cease fire, similar to that between North and South Korea. Fear of an escalation of the conflict has grown as Western leaders have sought to re-arm Ukraine in response to Putin's annexation of Crimea. Unfortunately Putin, like a long line of leaders before him, misunderstands the strength of Russian nationalism and the West's willingness to stand behind Ukraine. Across world capitals, there is a growing acceptance that, after 18 months of sanctions, there has not been any important changes in Russian policies. The Kremlin has largely been able to withstand falling oil prices and while the regions it has annexed will weigh down the economy in the long-run, utility prices have been rising.
Heavy Rains Threaten China’s Wheat Supply for Buns and Noodles
Bloomberg
Torrential rain has left China's wheat fields waterlogged and moldy at harvest time, with its major provincial producer, Henan, particularly hit. The condition of the crops remains uncertain, though conventional wisdom suggests that the damage could be significant as quality falls and more of the crop is forced to be used for animal feed, should sprouting occur. Henan is mobilising all harvest resources and drying machines in neighbouring provinces, as well as alternative locations including school playgrounds and village squares to save the crops. China is both the world’s largest producer and consumer of wheat, and any shortfall in production or quality could force the country to ramp up imports.
China's Jiangsu province eases age limit for construction workers
Nikkei Asia
Jiangsu province in China is raising the upper age limit for construction workers to address labour shortages. The national retirement age is 60 for men and can be as early as 50 for women. The province will allow 10% of a construction company's workforce to exceed the retirement age by up to five years for men, and 10 years for women. China is confronting issues associated with an ageing population and a declining workforce.
Elon Musk's private jet has landed in Beijing - Reuters witness
Reuters
Elon Musk, CEO of Tesla, has arrived in Beijing from the US, according to a Reuters witness. Musk is expected to meet with Chinese government officials and visit the company's Shanghai plant, the largest production hub for its electric vehicles, during his first visit to the country in three years. Tesla declined to comment on the reports.
Taiwan’s Lai Wants to Tell Xi Jinping to ‘Chill Out’ Over Dinner
Bloomberg
Taiwan's Vice President Lai Ching-te has named Chinese President Xi Jinping as the head of state he’d most like to have dinner with. Lai, who is the ruling Democratic Progressive Party’s candidate in next year’s presidential election, made the comments while taking part in a quick-fire question session at his former university. Beijing has in recent years ramped up military and diplomatic pressure on Taiwan, which it claims as part of its territory. Lai is running against Kuomintang’s Hou Yu-ih in January’s election that will decide who succeeds President Tsai Ing-wen, who will step down due to term limits.
Nvidia CEO Gets Rock Star Reception in Taiwan With AI Stock Surge
Bloomberg
The CEO of graphics processing unit (GPU) manufacturer Nvidia, Jensen Huang, has likened artificial intelligence (AI) to a “new kind of computer” that is “very easy to programme.” He claimed that the technology will come to be used across a range of industries, including pharmaceuticals, farming and even climate change. Huang made the comments during his fifth public appearance in seven days, at an industry summit in Taiwan. On Monday, Huang unveiled Nvidia’s supercomputer platform. On Wednesday last week, he announced revenue figures that were around 50% higher than analyst estimates, prompting a rally across global markets.
EU, US to weigh China, AI, trade strains at high-level Sweden talks
Reuters
Top US and EU officials are meeting in Sweden to discuss cooperation on artificial intelligence and other future technology, as well as EU complaints about Trump-era tariffs and US green subsidies. The two-day meeting, the fourth of its kind, will be attended by US Secretary of State Antony Blinken and European Commission Vice President Margrethe Vestager, alongside other officials. China is expected to be a major focus, and though the country only features twice in the draft joint statement, diplomats have suggested that the gathering is in response to the G7 leaders' meeting earlier this month, which China’s state-backed Global Times dubbed an "anti-China workshop".
Goldman’s China dealmaker stops tapping US investors
Financial Times
The head of Goldman Sachs’s Asia-Pacific private equity business, Stephanie Hui, will no longer seek investment in the US because of geopolitical tension between Beijing and Washington. Hui said she now focuses on southeast Asia, China, Japan and Korea, as these areas attract more interest. Her comments demonstrate North American investors, such as public pension funds, are less willing to invest during strained international relations. However, Hui's remarks are more a reflection of market sentiment than changes to the bank's strategies. It continues to raise funds from American institutions to invest worldwide.
China: Shenzhou-16 mission launched with a civilian on board
Deutsche Welle
China has sent three astronauts, including a civilian, to its Tiangong space station, marking the fifth manned mission to China's space station since 2021. The Tiangong space station is key to China's "space dream" and was meant to be developed after the US barred NASA from engaging with China. This launch is also the first time China has sent a civilian into orbit. Gui Haichao will be serving as the payload specialist on the mission and will manage experiments at Tiangong space station. China is also expected to send another crewed mission to the space outpost this year.
China Is Flirting With AI Catastrophe
Foreign Affairs
The risks of artificial intelligence (AI) are being grossly underestimated, according to an article in Foreign Policy, which states that catastrophic outcomes could stem from machine-speed interactions and accidents. It adds that failure to recognize such risks has resulted in China becoming particularly susceptible to undergoing potentially disastrous accidents because of unaccountable business owners and the fact disaster responses are routinely out of the public eye. China's grip on society's information aligns risks associated with AI with a drive for accelerated technological research, according to Foreign Policy.
However, those risks are still present. When drug researchers used AI to develop 40,000 potential biochemical weapons in less than six hours last year, they demonstrated how relatively simple AI systems can be easily adjusted to devastating effect. This could be applied to anything from the hacking of electrical grids and oil pipelines to large-scale financial market crashes. Jeffrey Hinton, known as the "godfather of AI", has therefore advocated that developing companies "refrain from scaling up AI technology until they have understood whether they can control it"."
The disparity in how much of a risk AI may pose in the US and China has been underlined by an IPOS report, which indicated that only 35% of Americans surveyed believed its benefits outweighed risks compared with 80% of Chinese respondents convinced of the technology's potential. China's leadership are enthusiastic about taking risks with AI because of what technology executive Kai-Fu Lee calls America's sensitive approach to risks.
China's tobacco monopoly swept up in corruption probes
Nikkei Asia
China's state tobacco monopoly, China National Tobacco, is facing an anti-corruption sweep which has ensnared around 20 senior executives and officials from the company and regulator the State Tobacco Monopoly Administration since 2021. China National Tobacco supplies the world's largest cigarette market and supplies one in every three smokers on Earth.
Small investors are souring on China's recovery
Reuters
Small-time China investors are turning away from equities as they put their savings into perceived safer assets. It was hoped that billions of yuan would be invested in the stock market this year due to uncertainty around real estate, but economic fears have prompted investors to turn elsewhere. The move represents a blow to China's faltering post-pandemic recovery as small investors comprise 60% of turnover in the Chinese market. "Safety is more important at this time ... I don't want to lose my principal," said Eric Yu, a Chinese programmer reportedly putting most of his monthly income into wealth and deposit products.
Europe’s Unwanted Coal Heads to China and India as Heat Builds
Bloomberg
Asian utilities are bulking up on coal, following a drop in natural gas prices of more than 90% since August 2015. About 7 million tonnes of coal, which was initially meant for European ports, will now be exported to Asian countries, such as China and India. Sweltering temperatures in Asia will increase the demand for coal as an energy source this summer, and a stronger economic performance in Asia's H2 will continue to bolster power needs. More coal is also being supplied to Asia from South Africa, as China ramps up its imports, alongside expanding domestic production in order to feed the reopening of its economy.
Taiwan rushes to prevent China from cutting off internet and phones
Japan Times
Taiwanese officials involved with digital affairs plan to help improve communication resilience on the island using over 700 satellite receivers positioned all over Taiwan by the end of 2022. The 700 receivers would be converted into a fixed and mobile configuration for Taiwanese cybersecurity, in the event of a major emergency, such as natural disasters or a potential conflict with China. Taiwan's digital economy, worth $740 billion, is incredibly vulnerable to attacks that cripple its digital infrastructure, and the government is looking for ways to enhance its digital resilience. However, Taiwan's plan depends on multiple private companies collaborating, which is expected to be a significant obstacle.
China Stock Gauge Slumps 20% From 2023 Peak as Pessimism Abounds
Bloomberg
The Hang Seng China Enterprises Index, a key gauge of Chinese stocks, is on track to enter a bear market amid a weak economic recovery and tensions with the US. It dropped as much as 0.7% on 15 June, marking the fifth consecutive day of losses and taking its losses from a 27 January peak to about 20%. Tensions with the US and a lack of catalyst for gains as the post-Covid recovery sputters are contributing to concern among investors, with some China bulls trimming portfolio allocations.
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