How does China pick top officials? Beijing mouthpiece sheds new light on secretive standards; Exclusive Insight: President Biden lets down pro-US Chinese entrepreneurs
China Censors Talk of Xi’s Unanimous Presidential Confirmation; The remaking of China's Science and Technology Ministry; Honduras to cut ties with Taiwan in turn toward China
Welcome to today's China Brief. China's economy has rebounded following the dismantling of the zero-Covid policy, with retail sales and industrial production seeing growth in January and February. Meanwhile, founder of Sinovation Ventures, Kai-Fu Lee, believes China can catch up to the US in artificial intelligence thanks to companies such as Alibaba and Baidu. China's government has also shed light on the criteria used to select top government officials, with political loyalty being the most important trait. Honduras is set to recognize China as a diplomatic partner, ending its official relationship with Taiwan. Additionally, Baidu is set to launch its own generative AI model, Ernie Bot, to rival OpenAI's GPT-4 model. Finally, the US, Australia, and the UK's trilateral partnership, AUKUS, aims to maintain the US's undersea military advantage over China in the Indo-Pacific by sharing key defense technology to help Australia acquire nuclear-powered submarines.
And here’s today’s exclusive insight:
Exclusive Insight: President Biden Lets down Pro-US Chinese Entrepreneurs
The recent events have prompted my reflections on the Biden administration’s China policy.
Since taking office, President Biden has been dealt a good hand: The Capitol riot left Trump politically isolated, and many politicians have distanced themselves from him. In contrast, the Biden administration's decisive vaccine distribution program and responsible management of the pandemic have been praised by many.
Other countries are looking to the US for leadership and diplomacy, and Biden has signaled his intent to restore relationships with allies. Biden has a unique relationship with Xi Jinping, the Chinese president. While US-China relations remain strained, Biden's personal history with Xi could be an asset in easing tensions between the two countries.
As the US and the world emerge from the pandemic, economic recovery is a top priority. Admittedly, the Biden administration faces a complex and challenging environment in its relations with China. However, Biden's experience and relationships could be valuable assets in navigating these challenges and achieving a more positive relationship with China. But what are the results?
The US-China confrontation only intensified and now risks complete derailment. It's understandable for the US to keep China’s geopolitical ambitions in check. Unfortunately, the Biden administration has mishandled its cards, especially when it comes to broad-based sanctions and bans imposed on Chinese tech firms.
The US's recent crackdown on nascent Chinese firms has had unintended consequences for pro-American Chinese entrepreneurs. These entrepreneurs, who were once eager to invest in the US and expand their businesses, have been scared off by the unpredictable and at times, aggressive approach taken by US regulators towards Chinese firms. The ban on Huawei, the TikTok saga, and the more recent calls to delist Chinese firms have all contributed to a growing sense of unease and mistrust towards the US among Chinese entrepreneurs. This is a concerning development, as these entrepreneurs could have played a key role in bridging the gap between the US and China and fostering greater understanding and cooperation between the two countries.
Yes, all of the above is hindsight. However, the fact remains that the Biden administration has spent two years scaring away Chinese companies who look up to the US.
(This article is written by Lan Jianzi, a US-based entrepreneur and a special analysis expert for The China Brief.)
WSJ: China’s Economy Rebounds, Spurred by Consumption
China's economy rebounded in January and February following the dismantling of the country's zero-Covid policy. Retail sales grew by 3.5% compared to a 1.8% contraction in December, while industrial production rose by 2.4%. However, exports fell by 6.8% and unemployment rose slightly to 5.6% in February. Economists have warned that a consumption-led recovery may not be sustainable, with households remaining nervous about jobs and the housing market. Policymakers may need to provide more support to private businesses to weather the reopening disruption and create new jobs.
Bloomberg: China Can Quickly Catch Up to US AI, Says Venture Veteran Kai-Fu Lee
According to Kai-Fu Lee, founder of Sinovation Ventures, China can catch up to the US in artificial intelligence (AI) thanks to the expertise of companies such as Alibaba and Baidu. Despite the lead that American firms like Microsoft and Alphabet currently have, Lee believes that China will catch up through quick iteration from its private sector, as it did in the early days of the internet. Lee predicts that the AI market will dwarf the mobile revolution, with companies around the world rushing to show off their latest AI creations. Baidu is set to unveil its own ChatGPT rival, which Lee believes is China’s obvious frontrunner in this field.
SCMP: How does China pick top officials? Beijing mouthpiece sheds new light on secretive standards
A recent report from China’s state news agency Xinhua sheds light on the criteria used to select the country’s top government officials, including age and rank, with political loyalty being the most important trait. New nominees must be born after January 1955; meaning officials must be 68 or younger, with flexibility granted to officials from Hong Kong and Macau, ethnic minorities, and women. Officials who have served in leading positions at the provincial or ministerial level for more than five years are preferred for promotions, with flexibility granted to those who can serve two consecutive terms. President Xi Jinping was personally involved in consultations with certain senior officials about selecting state officials, according to the article.
Nikkei: Honduras to cut ties with Taiwan in turn toward China
Honduras has announced that it will begin the process of recognizing China as a diplomatic partner, effectively ending its official relationship with Taiwan. Honduran President Xiomara Castro cited expanding borders and fulfilling the government plan as the reasons for the move. China claims Taiwan as its own territory and does not allow countries with which it has official diplomatic relations to maintain formal ties with Taiwan. If formalized, the decision would leave Taiwan with 13 formal diplomatic partners. Analysts say the decision is unlikely to have a significant impact on Taiwan's domestic politics or diplomatic standing.
SCMP: Chinese online search giant Baidu to launch its answer to ChatGPT in shadow of OpenAI’s upgraded GPT-4 model
Chinese search engine giant Baidu is set to launch its own generative AI model, Ernie Bot, which will be available on its search engine, as well as other affiliated products. The service will be compared to OpenAI's GPT-4, which processes vast amounts of information to generate human-like text and answers. However, there are concerns that Baidu's model may have limited access to web page information in Chinese, leading to less impressive performance. OpenAI products are not officially available in China, leaving the domestic market up for grabs. Other Chinese tech firms, including Alibaba and Tencent, are also developing their own generative AI products.
Caixin: The remaking of China's Science and Technology Ministry; Pushing for technology breakthroughs and self-reliance
China is restructuring its Ministry of Science and Technology to push for technology breakthroughs and self-reliance. The shake-up will leave the ministry with a smaller role in evaluating and managing research projects and focus more on coordinating science and technology with economic and social development. A central science and technology commission will oversee and coordinate science-related policymaking, and divest some of the ministry's divisions to other government departments. The restructured ministry will play a bigger role in optimizing sci-tech innovation and mobilizing resources to achieve technological breakthroughs. The move is seen as a key step for China to strengthen a state-led campaign to seek technology breakthroughs and push forward the application of new technologies.
Bloomberg: China Censors Talk of Xi’s Unanimous Presidential Confirmation
The Chinese government is censoring discussions surrounding Xi Jinping's unanimous confirmation for president in the nation's legislature, following sarcastic comments on social media platforms like Weibo, which referred to the decision as the "largest-scale democratic vote exercise." The #2952 hashtag, which started after the vote took place, has been blocked, and only state media outlets like the People's Daily have been permitted to report the news. This move is in line with the government's history of barring content deemed critical of Xi and his policies, including the banning of images of Winnie the Pooh in 2017.
Nikkei: China's flying car developer eyes ASEAN aerial tour market
Chinese flying car developer EHang is eyeing the Southeast Asian tourism sector as a potential market for air mobility systems, according to its CFO Richard Liu. Liu said that countries where tourism is an important industry, such as Thailand, Indonesia, and Malaysia, could be key markets. The company expects the aerial sightseeing tours to be less expensive than traditional helicopter tours, as the autonomous EH216-S would require less maintenance and no pilot onboard. EHang has conducted test flights over Bali island with Indonesian partners, and Liu said the company expects to obtain certification for the EH216-S soon.
Bloomberg: UAE Spy Chief’s Firm Buys Into ByteDance at $220 Billion Value
Abu Dhabi AI firm G42 has bought a $100 million-plus stake in ByteDance, TikTok's parent company, at a valuation of around $220 billion. The deal was done through 42XFund, G42's fund for investing in technology companies across emerging markets. ByteDance's valuation has been fluctuating amid uncertainty over whether the US may outlaw TikTok, following allegations it is a national security threat. Some investors believe China's embattled tech sector may be poised for growth despite lingering concerns over Beijing's intentions for the private sector.
Bloomberg: TikTok Considers Splitting From ByteDance If Deal With US Fails
TikTok is considering separating from its Chinese parent company ByteDance, which could result in a sale or initial public offering, as a last resort if the company’s existing proposal with US national security officials is not approved. TikTok’s US business could be valued at $40 billion to $50 billion based on social media multiples and other factors, according to Bloomberg Intelligence analysts. The US is reviewing TikTok’s national security risks as it is owned by a Chinese company, and some members of the Committee on Foreign Investment in the United States have been unwilling to accept TikTok’s proposal.
Reuters: Time and money for love: China brainstorms ways to boost birth rate
Chinese political advisors have suggested over 20 recommendations to boost birth rates, ranging from subsidies for families raising their first child to expanding free public education and improving access to fertility treatments. Demographers warn that China is getting old before it gets rich, as its workforce shrinks and indebted local governments spend more on their elderly population. While experts praised a proposal to scrap all family planning measures, including the three children limit and the requirement for women to be legally married to register their children, others said policies focusing on gender equality and better employment rights for women would be more impactful.
Bloomberg: China’s Nascent ‘Free Trade Zone’ Bonds Are Set for Record Sales
Issuance of bonds registered in China's offshore corporate bond market, the Shanghai Pilot Free Trade Zone (FTZ), is set to reach a record this year as investors keen for yield put their money into such debt. Firms have sold CNY 29.2bn ($4.3bn) of FTZ bonds this year, with Eastspring Investment Management (Shanghai) saying higher US Treasury rates and credit market volatility have made such bonds "a preferred alternative" to dollar and onshore bonds, especially for China's local government financing vehicles with refinancing needs for dollar bonds this year.
FT: Hong Kong to make first ministerial visit to UK in 3 years
Hong Kong's Financial Services Secretary, Christopher Hui, is planning to visit the UK in April, marking the territory's first ministerial-level trip to the country in three years. Hui's proposed visit comes amid a global charm offensive by Hong Kong to restore business ties after lifting pandemic restrictions. The UK-China relations have soured following Beijing's crackdown on Hong Kong and the UK's offer to Hongkongers of a route to citizenship. Hui is expected to meet with UK officials and business representatives in London.
Bloomberg: The Yuan Is an Unlikely Winner From Russia’s Growing Isolation
The yuan has become the most traded currency on the Moscow Exchange with a market share close to 40% of trading volume. The Chinese currency's rise is due to the Kremlin’s war in Ukraine and Western sanctions against Russia, which have led to the yuan becoming the dominant regional currency in northern Eurasia. The share of Russian exports settled in renminbi grew from 0.4% to 14% in the first nine months of 2022, and yuan deposits have become available in all major banks. Russia's increasing trade dependency on China may lead to the gradual formation of a yuan-centered regional financial architecture in China’s neighborhood, further fragmenting the global economy into Beijing-led and Washington-led blocs.
Nikkei: Chinese auto chips only: Inside Xi's self-sufficiency campaign
As China enters Xi Jinping's third term as president, the government is ramping up efforts to strengthen the country's chip sector, starting with the automotive industry. Auto industry insiders at the recent National People's Congress have suggested increasing the use of domestically produced chips in vehicles, highlighting China's goal to boost self-sufficiency in semiconductor production. China's auto industry leads the world in both production and sales, and a coordinated shift to Chinese chips could have a significant impact on related businesses. China's dependence on foreign chips is cause for concern, but it also highlights the potential for Chinese manufacturers' growth.
Bloomberg: China to Let Power Prices Turn Negative in Solar-Rich Province
China's Shandong province has set the lowest price on its spot electricity market below zero, allowing power traders to ask to be paid for taking electricity as the province's growing rooftop solar capacity threatens to overwhelm the grid. Negative prices encourage generators to switch off and have regularly occurred during the trial period of Shandong's market over the past year. Shandong has the largest amount of distributed solar capacity in China, with over 30 GW, and the move toward negative pricing suggests another step forward in China's slow march toward liberalizing its power sector.
Bloomberg: Traders in China’s $21 Trillion Bond Market Turn to WeChat After Some Price Feeds Halted
China’s bond market was disrupted after the regulator reportedly told money brokers to suspend their data feeds due to security concerns. Some information platforms that provide real-time bond quotes from money brokers were showing blank screens. Traders have resorted to social media platforms such as Tencent’s QQ and WeChat to share quotes. The result of the reported ban will be falling trading volumes and a rise in conflict of interest due to inconsistent information. China’s bond market is predominantly over-the-counter, where identifying counterparties and accessing market quotes have been a long headache for traders.
Reuters: China's property sector draws closer to exit from a protracted slump
China's property market is showing signs of recovery, with narrower declines in home sales, developer investment, and construction starts reported in January and February 2023 compared to the previous year, according to official data from the National Bureau of Statistics. The slump in home sales fell 3.6% YoY, while property investment by developers fell 5.7%, compared to a 24% decline in sales and a 10% decline in investment in 2022. Analysts expect property sales to turn positive in Q1 of this year and investment to rebound in H2. Despite this, half of the 30-odd Chinese developers listed in Hong Kong have defaulted on or delayed bond payments.
Nikkei: U.S. guards undersea superiority with Australia-U.K. nuclear submarine deal
The US, Australia, and the UK’s trilateral partnership, AUKUS, aims to maintain the US’s undersea military advantage over China in the Indo-Pacific by sharing key defense technology to help Australia acquire nuclear-powered submarines. The vessels are not expected to reach Canberra until the 2030s, while concerns mount over the possibility of Beijing invading Taiwan within the next several years. In the meantime, the US and the UK plan to put up to five submarines on rotating deployments in Australia as early as 2027. Australia having facilities that can maintain and repair nuclear submarines would benefit the US's strategy of dispersing its forces in the Indo-Pacific.