Exclusive Insight: Xi Jinping Abrogates Deng Xiaoping's Reforms - But Is He the Modern Embodiment of Yuan Shikai?
China’s Xi to Meet Putin in Moscow Next Week; China’s Communist Party Overhaul Deepens Control Over Finance, Technology
Welcome to today's issue of "The China Brief," where we cover the upcoming meeting between Chinese President Xi Jinping and Russian President Vladimir Putin, the impact of the Aukus accord on China's naval dominance, and the possibility of raccoon dogs as a Covid-19 source. Additionally, we'll discuss new regulations in China's private fund industry, the reorganization of its financial regulatory agencies, and the fallout from Deloitte's record fine. We also look at the crisis facing Australian grape growers due to Chinese tariffs, the Communist Party's overhaul to deepen control over finance and technology, and India's tightrope walk between the US and Russia.
In other news, we report on China's first reserve requirement ratio cut of 2023, the suspension of pricing data affecting bond trades, and the continued reliance on Chinese know-how as companies move production away from China. We also examine the rebound of ride-hailing giant Didi, the ban on TikTok for UK government devices, and China's investment in "little giants" to achieve self-sufficiency. Finally, we cover positive reviews for Baidu's Ernie Bot, TikTok's content moderation update, recommendations for reforming vocational education in China, the restructuring of Beijing's top office on Hong Kong affairs, and the potential expansion of Hong Kong's Top Talent Pass Scheme.
And here’s today’s exclusive insight:
Exclusive Insight: Xi Jinping Abrogates Deng Xiaoping's Reforms - Is He the Modern Embodiment of Yuan Shikai?
Wall Street Journal reporter Lingling Wei delivers a cogent appraisal of China's Two Sessions: the termination of Deng Xiaoping's reforms. This verdict is indisputable. Xi Jinping does not stand as Deng Xiaoping's successor. Deng's cognitive abilities waned in his twilight years, and he could never have envisioned that the inconspicuous son of a past comrade, returning to Beijing from Fujian, would dismantle his reforms.
Xi Jinping's father, Xi Zhongxun, arrived in Beijing alongside Deng Xiaoping in the 1950s. Few know of his crucial role in launching the Shenzhen Special Economic Zone in the 1980s. Deng was the chief architect of China's reforms, receiving the accolades.
The elder Xi’s exile to Guangdong by Deng was not the primary impetus for Xi Jinping to forsake Deng Xiaoping's course. Deng's reforms advanced China's development, widened the wealth gap, and fueled corruption.
China faced choices: adopt Western democracy, continue Deng's path, or steer the governance system in a new direction. Xi Jinping chose the third option, heralding a generational shift with the term "new era."
The recent overhaul of institutions doesn't fully capture Xi's plan, but it's a scale of change rarely seen in democracies.
The establishment of the Technology and Finance Committees epitomizes, paradoxically, both his aspirations and circumspection.
From fundamental science to technological implementation, China aspires to embrace the whole-nation approach to deliver breakthroughs. Although lagging significantly behind the United States, China is quickly catching up.
Finance embodies both the most exhilarating and the most precarious aspects of economic development. South America’s predicament, the Asian financial crisis, and the recurring turmoils within the US financial sector have instilled vigilance in Xi Jinping. His aides even speculated at one point whether the stock market crash in Shanghai was a financial coup.
Nonetheless, the Chinese stock market must extricate itself from its present moribund state. The inception of the Finance Committee and the Financial Bureau in this round of institutional reform corresponds with Xi Jinping's ambitious aspirations.
Chinese citizens who came of age during the 1980s often regarded the West as the standard for progress. Unsurprisingly, Xi Jinping does not exemplify the leader they desired. Despite voicing their grievances, they are unable to challenge Xi politically.
Indeed, Xi Jinping is neither Deng Xiaoping's nor Mao Zedong's heir. Some deride him as a contemporary Yuan Shikai with his removal of presidential term limits and the implementation of a more authoritarian governance style.
However, a fair comparison between Yuan Shikai and Sun Yat-sen may yield intriguing insights, captivating historians for years to come.
(Author: Ho Pin, an analyst for "The China Brief")
WSJ: China’s Xi to Meet Putin in Moscow Next Week
Chinese President Xi Jinping is set to visit Moscow next week for talks with Russian President Vladimir Putin. The visit aims to highlight the close relationship between the two countries and discuss the expansion of international cooperation. The meeting will also cover "topical issues of further development of the comprehensive partnership relations and strategic cooperation between Russia and China." The visit comes amid strained relations between the US and China, with Beijing providing economic support to Russia as it faces international isolation due to the ongoing war in Ukraine. The meeting will also involve the signing of several bilateral documents.
FT: Aukus, the Anglosphere and the return of great power rivalry
The US, UK, and Australia are renewing their alliance to counter China's naval dominance in the Pacific with the signing of the Aukus accord. The deal is centered on supplying nuclear-powered submarines to Australia and has already provoked controversy, with Australia repudiating a previous submarine deal with France, which briefly withdrew its ambassadors from Washington and Canberra. The Aukus pact is justified as a classic act of deterrence to dissuade China from deploying its military muscle against Taiwan or in the South China Sea. However, some strategists argue that the deal is contributing to a dangerous rise in military tensions with China.
Bloomberg: Raccoon Dogs Emerge as Possible Covid Source in New Analysis
New data suggests that raccoon dogs could be a possible source of Covid-19, according to an analysis of genomic data from samples taken at the Huanan market in Wuhan in January 2020, where many of the early Covid cases emerged. The raccoon dogs were reportedly sold live in the food market and are known to be susceptible to coronaviruses. The new findings provide “important incremental evidence” supporting the hypothesis that the virus originated in wildlife, rather than in a Chinese lab, according to Dominic Dwyer, a medical virologist, and infectious diseases physician.
SCMP: Could Chinese President Xi Jinping’s Russia trip help to end the Ukraine war?
Chinese President Xi Jinping's upcoming state visit to Russia is expected to address the conflict in Ukraine, with Chinese Foreign Minister Qin Gang recently calling for peace talks between Moscow and Kyiv. This follows China's recent success in brokering a deal between Iran and Saudi Arabia to resume diplomatic relations, which has raised expectations of Beijing playing an active role in resolving the Ukraine conflict. Despite a strong partnership with Russia, China has maintained communication with Ukraine since Russia's invasion and has called for an end to the war. However, some experts remain cautious about China's ability to help resolve the conflict.
Caixin: Regulators tighten grip on China's $2.9tn private fund industry
China's Asset Management Association (AMAC) has released new rules to tighten registration requirements for private fund managers and newly established privately offered funds. The rules, which will be effective from May 1, 2023, will quintuple upfront capital requirements for both the companies and funds. Under the new regulations, companies that want to become private fund managers will generally need to contribute a minimum of CNY10m ($1.5m) of paid-in capital, up from the previous minimum of CNY2m ($300,000). While the new regulations will block entry for many smaller companies, it will help larger private fund managers, including some foreign outfits, to expand their business.
Nikkei: China's regulatory restructuring targets conflicting roles
China's recently announced financial regulatory agency reorganization is aimed at filling gaps in its regulatory system that have emerged due to the rise of fintech companies and the conflicts in the roles of various regulators and local governments. The National Financial Regulatory Administration will take over the China Banking and Insurance Regulatory Committee's mission and supervisory role of financial holding companies and the Chinese Securities Regulatory Commission's investor protection role. The reorganization should give Beijing a stronger hand in protecting financial consumers and investors and in resolving urgent issues in the country's financial system.
Bloomberg: Deloitte Hit by Record China Fine, Suspension Over Huarong
China's Ministry of Finance has fined Deloitte $30.8m, suspended its Beijing office for three months, and ordered it to improve its audit quality following its work with China Huarong Asset Management between 2014 and 2019. The ministry identified serious audit deficiencies in Deloitte's work with Huarong, adding that the accounting firm ignored compliance approvals on major investments and failed to apply a sense of skepticism in its audit work. The fine is more than 25 times the combined fines that the ministry issued to accounting firms during inspections last year. The action follows calls for state-owned firms to stop using the four biggest international accounting firms in China.
NYT: China Wine Tariff Pushes Australia’s Grape Growers Into Crisis
Australian grape growers are facing a crisis as they suffer from plummeting grape prices and a glut of red wine after China imposed a punitive tariff on Australian wine in 2020, which caused sales to China to plummet 97%. The tariff was in response to Australia's call for an independent investigation into the origin of Covid-19. As China was the biggest buyer of Australian wine, accounting for 40% of exports, the impact on the industry has been devastating. Riverland farmers had added 1,600 acres of cabernet sauvignon, shiraz, and merlot vines in the last decade, even as the total acreage devoted to grape growing shrank. China went from being the biggest buyer of Australian wine to 23rd, below countries like Sweden and the Philippines. Farmers are now facing a choice between selling grapes at a huge loss or keeping costs to a minimum and not harvesting.
SCMP: International bankers, including HSBC and UBS bosses and tycoons in new chief executive advisory body to steer Hong Kong towards post-Covid recovery
The Hong Kong government has established a Chief Executive's Council of Advisers, a high-level advisory body comprising 34 members, including international bankers, tycoons, and scientists. The council, whose first term will run until June 2025, will be chaired by Hong Kong leader John Lee Ka-chiu and will be organized into three streams: economic advancement and sustainability, innovation and entrepreneurship, and regional and global collaborations. The government said it would work hard to advance Hong Kong’s economic development and prosperity, tapping into the enormous business potential in the innovation and technology sector, and deepening regional and global collaboration.
WSJ: China’s Communist Party Overhaul Deepens Control Over Finance, Technology
China's Communist Party has announced a broad overhaul, strengthening its role in managing finance, social affairs, and technological development to entrench top-down rule under Xi Jinping. The directive published last Thursday included creating new party agencies and restructuring existing bodies. This reinforces the party's dominance over government bureaucracy in policy-making, including the establishment of two new party bodies to manage China's financial system. Furthermore, new agencies will steer China's push for technological supremacy and engage with civic groups and the general public.
FT: US prosecutors probe ByteDance’s use of TikTok to track journalists
The US Department of Justice is reportedly investigating ByteDance's surveillance of American journalists via TikTok, after the Chinese-owned app admitted to obtaining user data to study journalists' locations. The DoJ and the US attorney's office for the Eastern District of Virginia have requested information from ByteDance on how staff used TikTok to find details on American journalists' locations and other private data. TikTok has faced scrutiny in the US over concerns that American users' data may be shared with the Chinese government, and US senators have introduced a bill that would give the Biden administration the authority to ban Chinese apps that pose security threats.
Bloomberg: Why India Walks a Tightrope Between US and Russia
India's Prime Minister, Narendra Modi, is balancing relationships with both the US and Russia, deepening security links with the US while purchasing military hardware and cheap crude oil from Russia. India is a "strategic partner" of the US, but the relationship has improved in large part due to shared concerns about an increasingly assertive China. India drew closer to Moscow’s sphere during the Cold War, but its dependence on Russia as its main supplier of weapons has decreased, although Russia remains its main supplier. India has faced little public blowback from the US over its ties with Russia, and the US has pushed for India to be a manufacturing hub, in another push against China. India is seeking to advance its own interests and to avoid alliances, identifying and exploiting opportunities created by global contradictions.
Reuters: China cuts banks' reserve ratio for the first time in 2023 to support recovery
The People's Bank of China (PBOC) has announced that it will cut banks' reserve requirement ratio (RRR) by 25 basis points (bps) to support a recovery in the country's economy. This is the first such cut in 2023 and follows a similar reduction in December 2022. The move will be effective from 27 March 2023 and will apply to all banks except those that have implemented a 5% reserve ratio. The cut was announced earlier than expected and reflects policymakers' desire to maintain economic momentum amid a gradual but uneven recovery in China.
FT: China bond trades hit by suspension of pricing data
Chinese authorities' suspension of data feeds to price aggregators has hit China's bond market as traders struggle to complete deals. The suspension of real-time quotes has forced traders to rely on messaging apps to agree on prices for deals in the interbank bond market, which accounts for 87% of the Chinese market. The move follows a decision to tighten regulatory oversight of data this month. Some money brokers have been told to stop offering data feeds to aggregators.
Nikkei: In China decoupling, companies still rely on Chinese know-how
As more companies move production away from China due to geopolitical tensions, many are still relying on the expertise of Chinese workers. This includes Tesla, whose Fremont plant in California had over 200 engineers from the automaker's Shanghai facilities assisting with expanding the production of electric vehicles. Experienced Chinese workers have crucial tacit knowledge that can be difficult to convey in a manual, making them invaluable resources for companies. However, as tensions continue to escalate, countries are increasingly seeing this reliance as a risk and are looking to cultivate a more sustainable supply of talent.
FT: Didi fights back in China
Chinese ride-hailing giant, Didi, has bounced back after an 18-month ban on signing up new customers, during which period competitors emerged to challenge its market dominance. However, new data analytics indicate that Didi has lost only 10% of its overall market share during the ban, despite subsidies paid to customers and drivers, and the encouragement of loyalty through incentives such as fine payment for drivers who lacked a proper taxi license. Rivals Meituan and T3 Chuxing were unable to make significant gains on Didi during this period. Meituan has decided to streamline its ride-hailing business and focus on its aggregator business.
NYT: U.K. Bans TikTok on Government Devices
The UK has joined the US, Canada, India, and New Zealand in prohibiting the use of TikTok on "government devices" due to security concerns linked to the app's ownership by a Chinese company. While the ban only applies to the official work phones of government officials, it comes as part of a hardening policy towards China, with Prime Minister Rishi Sunak recently describing China as an "epoch-defining challenge" to the international order. The US White House has previously told federal agencies to delete the app from government devices, while TikTok has long insisted that it does not pass on information to the Chinese government.
WSJ: China Cultivates Thousands of ‘Little Giants’ in Aerospace, Telecom to Outdo U.S.
China is investing in thousands of "little giants" in industries including aerospace, telecoms and semiconductors, in a bid to establish dominance in these fields and to achieve self-sufficiency. The government-backed program gives subsidies and support to small, specialized firms with the potential to master core technologies. The government is also identifying home-grown companies that could become global leaders in niche markets, which are labeled "single champions." The program has drawn interest from analysts as a harbinger of China's technological future. The little giants and single champions programs nurture some 10,000 firms in China.
SCMP: Baidu’s ChatGPT alternative gets positive reviews for the handling of Chinese translations as search giant’s stock jumps
Baidu's Ernie Bot, an alternative to OpenAI's ChatGPT, received positive reviews for its Chinese language capabilities, which led to a 15% surge in the company's stock price. Reviewers noted that Ernie Bot is better at translating English to Chinese than ChatGPT, while GPT-4 outperformed Ernie Bot in Chinese-to-English translations. Ernie Bot can generate words, images, audio, and video content and offers real-time information, which ChatGPT lacks. Baidu plans to integrate Ernie Bot into all its businesses, starting with its search engine. Other Chinese tech giants such as Alibaba and Tencent also plan to launch their ChatGPT alternatives.
Bloomberg: TikTok to Let Users Reset ‘For You’ Feed to Freshen Recommendations
TikTok will allow users to reset their "For You" feeds, which offer personalized recommendations of videos to users, to create a fresh list of content. The move comes as part of a content moderation update that aims to limit videos with themes of sadness, extreme exercise or dieting, or sexually suggestive. TikTok said videos featuring these themes do not technically breach its guidelines, but repeated exposure can be harmful. The change follows TikTok's efforts to persuade lawmakers in the US that the app is safe for users and amid increased scrutiny around the company's data privacy practices.
SCMP: China jobs: Beijing urged to reform vocational education and end discrimination to plug the skilled worker gap
Chinese lawmakers and policy advisers have said that the country must eliminate discrimination against technical professions and revamp vocational education if it wants to become an advanced manufacturing powerhouse. Delegates to China’s annual parliamentary meetings discussed the skilled worker shortage in the country, which is particularly pronounced in high-tech industries. Vocational colleges are facing declining enrolment, and graduates often face social discrimination, leading to a mismatch between labor supply and demand. Experts have called for social prejudice against vocational graduates to be broken down and for new pathways for academically gifted students to be created. By 2025, China is expected to have a shortfall of nearly 30 million workers in the manufacturing sector.
SCMP: Beijing’s top office on Hong Kong affairs gets revamp with wider scope, will report directly to Communist Party’s central leadership
Beijing's top office overseeing Hong Kong and Macau affairs will be restructured into a higher-level body reporting directly to the Communist Party's central leadership, a move seen as a promotion for the office and highlighting Hong Kong's importance in China's overall development plans. The new high-level body will be called the "Hong Kong and Macau Work Office of the Communist Party Central Committee," and its director, Xia Baolong, will stay on to supervise and implement the restructuring over the transitional period. The new body will commit to investigating, researching, coordinating, and supervising the implementation of the "one country, two systems" principle, safeguarding national security, guaranteeing people's livelihoods and well-being, and supporting Hong Kong and Macau to integrate into the national development plan.
SCMP: Hong Kong talent scheme: city to consider expanding policy to allow graduates from more top mainland Chinese universities to work locally
Hong Kong's Chief Executive, John Lee Ka-chiu, has said that his administration will consider expanding the "Top Talent Pass Scheme" to allow graduates from more elite universities in mainland China to work in the city. The scheme offers a two-year visa to successful applicants with a bachelor’s degree from the world’s top 100 universities. Lee said he had already directed the relevant departments to conduct a mid-year review based on the scheme's popularity, adding that he believed more mainland educational institutions would be considered.