Is China’s Data Manipulated, or Flawed? Maybe Both; China’s shadow banking crisis could threaten broader economy, analysts warn
Biden hosts leaders of Japan, S Korea at Camp David; Japan scrambles jets to Russian spy planes in Sea of Japan, East China Sea; Chinese property giant Evergrande files for US bankruptcy protection
Welcome to this issue of The China Brief. Today is August 18, 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.
Is China’s Data Manipulated, or Flawed? Maybe Both
WSJ
China's youth unemployment rate reached a historic high of 21.3% in June, prompting the National Bureau of Statistics to stop publishing the rate. This move highlights Beijing's tendency to suppress negative information. However, this doesn't solve the underlying issue but instead reveals a problem inherent in autocratic societies – the inability to produce accurate and unbiased statistics. The discontinuation of data series is a pattern, often attributed to poor data quality, allowing the government to wait until the issue is forgotten.
China has taken various measures to address youth unemployment, such as permitting street vendors and increasing civil servant employment. Burying the data makes it difficult to gauge the effectiveness of these efforts. Private firms are now stepping in to provide alternative metrics, revealing that consumer sentiment among young adults in China is low and deteriorating.
This practice of hiding data is not new; the National Bureau of Statistics has previously discontinued several data series, impacting the accuracy of GDP statistics. Researchers have found that autocratic regimes tend to produce less accurate data than democracies. The reasons for this could range from deliberate manipulation to technical incompetence.
In China's case, both factors may play a role. The lack of political independence for statistical agencies makes manipulation possible, and the agencies often struggle to gather and report reliable economic data. Some improvements have been seen, but labor market statistics in China have long been flawed. For instance, the unemployment rate excludes rural residents, and China's definition of unemployment differs from international standards.
With government-supplied data lacking, determining the state of youth in China requires alternative methods. While there's hope for better quality data, the government's priority seems to be maintaining its image rather than addressing the issue at hand.
Biden hosts leaders of Japan, South Korea at Camp David
Deutsche Welle
US President Joe Biden is expected to announce new security cooperation as he hosts the leaders of Japan and South Korea in three-way talks at Camp David. The three leaders are expected to agree on a crisis hotline involving the three countries and take part in regular military drills along with annual summits. The talks come amid regional security challenges, including North Korea's potential launch of an intercontinental ballistic missile. The US attempts to bolster security ties with regional allies have also drawn criticism from China.
Japan scrambles jets to Russian spy planes in Sea of Japan, East China Sea
Reuters
Japan's defense ministry scrambled fighter jets to intercept two Russian IL-38 information-gathering aircraft that were flying between the Sea of Japan and the East China Sea. This comes after Japan spotted Russian and Chinese naval ships crossing waters between the southern Japanese islands of Okinawa and Miyako.
Chinese property giant Evergrande files for US bankruptcy protection
Telegraph
China's Evergrande, the world's most indebted property developer, has filed for bankruptcy protection in the US in an effort to protect itself from creditors while it works on a restructuring deal. Evergrande's filing comes after it revealed last month that it had made a £62bn loss and defaulted on its debts, triggering a property shock in China. This move raises concerns that the troubles in China's property sector could spill over into the wider economy. Another major property developer, Country Garden, has also faced financial difficulties and fears of a massive default. The bankruptcy filing by Evergrande deepens concerns for China's construction sector, which has been hit hard by the COVID-19 pandemic.
China confirms Xi will attend economic summit in South Africa followed by state visit
The Independent
Chinese President Xi Jinping will attend the BRICS summit in Johannesburg next week, followed by a state visit to South Africa. Xi will co-chair the China-Africa Leaders’ Dialogue with South African President Cyril Ramaphosa during his visit. Russian President Vladimir Putin will not attend the summit due to an arrest warrant issued by the International Criminal Court, although he may participate via video link. The BRICS summit comes as the bloc seeks new relevance amidst Russia's war in Ukraine, South Africa's struggling economy, and increased competition between China and India. Brazilian President Luiz Inácio Lula da Silva has stated his support for more countries joining the group, and around 20 countries have formally applied to join, including Argentina, United Arab Emirates, Saudi Arabia, Indonesia, Iran, and Venezuela. China and Russia have sought to expand their economic influence in developing countries, partly through the Chinese-backed New Development Bank.
China apparently building airstrip on disputed South China Sea isle
Nikkei Asia
China is reportedly constructing an airstrip on Triton Island in the disputed South China Sea, according to satellite photos analyzed by the Associated Press. Triton Island is also claimed by Vietnam and Taiwan. The construction is similar to previous work carried out on seven other artificial islands in the region. China claims the majority of the South China Sea, despite a ruling by an international tribunal invalidating its claim. The airstrip on Triton Island is currently long enough to accommodate turboprop aircraft and drones, but not fighter jets or bombers. China has refused to provide details of its island construction work.
Hong Kong Stocks Are in a Bear Market, Another Sign of Trouble in China
NY Times
Stocks in Hong Kong have entered a bear market, down 21% from their high earlier this year, as concerns grow over the deteriorating state of China's real estate sector and its impact on the broader economy. The slump in the Hang Seng Index comes as China faces weakening growth, reduced foreign investment, lower consumer spending, and turmoil in the housing market. A real estate crisis is at the heart of these concerns, with companies like Country Garden and China Evergrande facing significant challenges. China's economy has released concerning economic statistics, including falling prices, missed expectations in retail sales and industrial production, and dwindling real estate investments. Policymakers have implemented measures to encourage consumer spending and increase lending, but these have not generated greater economic activity or investor confidence. Debt, particularly at local governments reliant on the real estate market, is a major issue for China, with overall debt now larger relative to national economic output than in the US. Stocks have also declined in mainland China, with the CSI 300 index dropping around 10% since its January high.
Water Cannons and Lasers: South China Sea Standoff Around World War II-Era Ship Heats Up
WSJ
Tensions have risen between the Philippines, a U.S. ally, and China over a World War II-era ship grounded on a reef in the South China Sea. The Philippines ran the ship aground to assert its claim to the reef, known as Second Thomas Shoal, while China disputes this and has increased its presence around the reef. A recent incident involved a Chinese coast-guard ship using a water cannon to disrupt a resupply convoy for the ship, leading to concerns of potential conflict. The U.S. State Department reaffirmed its commitment to the mutual-defense treaty with the Philippines in case of an "armed attack" on its vessels. The dispute highlights broader tensions over China's territorial claims in the South China Sea.
In China, Bidding Wars for Lithium Top Out at 1,300 Times the Starting Price
WSJ
Chinese companies are engaging in bidding wars to secure domestic lithium sources, even as global lithium prices have more than halved in the first half of 2023. This is driven by the increasing demand for electric vehicles and energy-storage systems, with China's lithium-battery exports reaching $26.7 billion in the first five months of the year. Geopolitical concerns and potential restrictions on access to lithium reserves outside China's borders have also fueled the rush. China aims to develop its domestic lithium reserves due to growing concerns about supply chain security and national security issues related to critical minerals. China's domestic mines provide about 12% of the world's lithium supply, with most of the remainder being imported from Australia. However, China's lithium reserves are often of inferior quality and scattered in different places, posing technical and environmental challenges to extraction. Despite these challenges, the booming demand for lithium for electric vehicles and energy storage continues to drive interest in developing domestic lithium mines in China.
Russian and Chinese warships sail close to Japanese islands on eve of Biden’s trilateral summit
CNN
Japan has expressed "grave concern" after Chinese and Russian warships sailed close to its southern islands on Thursday. The 11 naval vessels were first spotted 280km northeast of Japan's southernmost Okinotori Island on Tuesday morning, according to a statement from Japan's defense ministry. The ministry said China and Russia have repeatedly conducted joint naval and aerial exercises near the country in recent years, which are "clearly intended as a show of force against Japan" and are of "grave concern" to national security.
China's central bank steps up defense of renminbi
Nikkei Asia
China's central bank, the People's Bank of China (PBOC), has taken steps to defend the renminbi as concerns grow over the health of the country's economy. The PBOC's efforts to halt the currency's decline have intensified following weak economic data releases and an unexpected interest rate cut earlier this week. The central bank has set the daily midpoint for the renminbi at a level higher than analysts' estimates, indicating its discomfort with the speed of the currency's fall. The PBOC injected CNY 757 billion ($104 billion) into the banking system this week, the largest such move since March.
China’s defence chief Li Shangfu on military ties mission in trip to Belarus
South China Morning Post
China and Belarus are strengthening military ties, with Chinese Defence Minister Li Shangfu and Belarusian President Alexander Lukashenko meeting on Thursday to advance the partnership. The two leaders committed to deepen defence and security ties when Lukashenko met his Chinese counterpart Xi Jinping in Beijing earlier this year. The eastern European country has been under international scrutiny for its cooperation with Russia’s invasion of Ukraine, allowing Russian troops to pass through its territory on their way to the war.
China oil buying frenzy cools as record inventory shields it from price rally
Reuters
China is using its record oil inventories to reduce purchases after OPEC+ supply cuts pushed global prices above $80 a barrel, according to traders and analysts. Chinese refiners have built up supplies in large storage tanks over the past decade, giving them the flexibility to increase purchases when prices are low. This could undermine efforts by major producers, led by the Saudis, to tighten supply and support prices.
How Southeast Asia can benefit as China seeks out more friends
South China Morning Post
China's recent high-level personnel changes at the foreign ministry have raised questions about the lack of organisational autonomy at the agency. Qin Gang was removed as foreign minister after just six months in the role, making him China's shortest-serving foreign minister. The Chinese foreign ministry has been ambiguous about the reasons for Qin's removal, raising questions about China's system of governance. Despite these changes, China's foreign policy, particularly its approach to Southeast Asia, is expected to remain largely unchanged. Southeast Asia has been a key area of focus for China, and the region is amenable to growing ties with Beijing. Wang Yi, who has been reappointed as foreign minister, is expected to retire after his current term but will likely have a stronger hand in delivering foreign policy outcomes for China. However, his effectiveness will depend on how well he can execute President Xi Jinping's ideas on foreign policy. Wang will need to strike a balance between being aggressive in standing up for China's interests and improving relations with key players such as the US and individual European countries.
China developer's profit falls 93% in fresh blow to property market
Nikkei Asia
Soho China, a Hong Kong-listed developer, reported a 93% drop in net profit for H1 2022. The company's revenue dropped 8% to CNY821.5bn ($1.89m), while gross profit and fair-value assessment declines resulted in more than CNY130bn being wiped off the bottom line. Soho China attributed the poor results to uncertainty in the first half of the year as many firms implemented strict cost control measures. The company also warned of "material uncertainty" due to an unpaid tax bill at a subsidiary managing Wangjing Soho, its main office and retail property in Beijing.
Xi urges speed in China’s rush to recover from devastating floods
South China Morning Post
Chinese President Xi Jinping has called for a strengthened push in the country's recovery and reconstruction efforts following devastating floods caused by Typhoon Doksuri. Xi said food security must be ensured and insurance payments speeded up, and he urged officials to make good use of disaster relief funding. The floods affected close to 4 million people, caused over 30 deaths and left dozens still missing. The Chinese leadership has called for damaged infrastructure, farmland and agricultural facilities to be repaired as soon as possible, as well as the restoration and reconstruction of public facilities and people's homes.
China’s shadow banking crisis could threaten broader economy, analysts warn
South China Morning Post
China's shadow banking industry is facing a liquidity crisis which could potentially trigger risks in the broader finance sector and challenge the country's weakening economy, according to analysts. State-backed Zhongrong International Trust, one of China's largest shadow banks, has missed payments on more than 30 wealth management products, sparking concerns about the health of the shadow banking system. Retail investors with exposure to Zhongrong products could see their wealth diminish, while listed companies could see reduced capital for growth and investment. Local governments could also face further hurdles in propping up China's declining economy.
Opinion | How to End the War in Ukraine — Even If Vladimir Putin Wants to Keep Fighting
Politico Opinion
The war in Ukraine must end on terms that are consistent with American interests and ideals, which means that Ukraine must be seen as the winner and Russia's invasion must be seen as a failure, according to an op-ed in Foreign Policy. There are three possible ways for Ukraine to achieve victory and for Russia to be defeated: military success, a diplomatic agreement, or through Ukraine joining NATO. While military success would be ideal, it may not be achievable in the next year or two, and there is no guarantee of continued support from the United States and its allies. A diplomatic agreement is also unlikely, as Russia has shown no interest in making concessions. Therefore, the best option may be for Ukraine to focus on defending and rebuilding liberated areas while integrating with Western institutions. Ukraine could then join NATO at the 2024 summit, which would guarantee the security of its territory under Article 5 of the NATO treaty. This would mark a victory for Ukraine and a defeat for Russia, as it would frustrate Putin's plan to draw out the war and absorb Ukraine into a Russian empire.
On topic: How bad off is China's property sector?
Nikkei Asia
China Evergrande Group, the world's most indebted property developer, has filed for protection under Chapter 15 of the U.S. Bankruptcy Code to shield its assets from creditors. This move is raising concerns among global investors and businesses about the future of China's real estate market and related businesses. China is experiencing a decline in residential housing prices, with concerns over the country's slowing economy and the shaky finances of some real estate developers weighing on market sentiment. Total investment in real estate development for the January to July period fell 8.5% from a year earlier.
China’s Nickel Plants in Indonesia Created Needed Jobs, Plus Pollution
NY Times
Chinese companies have invested heavily in the nickel industry in Indonesia. In exchange for investing in the country's nickel reserves, which are the largest in the world, China is able to move the pollution involved in the nickel industry away from its own cities. The Chinese companies have constructed a smelter near the home of Jamal, a local inhabitant, which has brought jobs to the region, but also caused the environment to suffer. The mine on Sulawesi's southeast coast is currently being excavated to supply a smelter at the Morowali Industrial Park. Among the stockpiles of nickel are mountains of coal waiting to be fed into the park's power plant to generate electricity. The smelters have altered local life. Indonesian workers are displeased with their Chinese counterparts, who earn more money and are given better benefits. Violent protests by Indonesian workers have prompted crackdowns by the police; a military unit has been called in to quash the protests.
Chinese buildings go unfinished as cash crunch hits local developers
Nikkei Asia
China's real estate slump is hitting local government-backed companies hard, particularly those that finance infrastructure projects through bond sales and bank loans. Zunyi Road and Bridge Construction Group, a local government financing vehicle, is an example of a company facing financial difficulties due to the country's real estate slump and the impact of COVID-19. The company's cash flows have deteriorated, it has faced lawsuits over unpaid bills, and construction on an office building remains stalled. Local government financing vehicles have become an important source of borrowing for local governments, but their ability to support these vehicles is being undermined by declining revenues from land-use rights. Defaults on bonds issued by these vehicles could have a far-reaching impact.
Taipei mayor to visit China as tensions simmer with Taiwan
Reuters
The mayor of Taipei, Chiang Wan-an, will visit Shanghai at the end of this month for the annual Taipei-Shanghai City Forum. This visit comes amidst frozen ties between the Taiwanese and Chinese governments, as China refuses to speak to Taiwan's government since President Tsai Ing-wen took office in 2016. However, Tsai's administration has been trying to reopen people-to-people links with China since lifting pandemic-related border controls late last year. The visit by Mayor Chiang, a member of the opposition party Kuomintang, is seen as an attempt to foster goodwill and dialogue with China. China claims Taiwan as its territory and has been carrying out military activities near the island.
U.S. nuclear boss says China's arms program not slowing down
Nikkei Asia
The US Strategic Command (STRATCOM) is closely monitoring China's nuclear development as it seeks to establish a full-fledged nuclear triad. Gen. Anthony Cotton, the head of STRATCOM, said that there are no indications that China is slowing down its nuclear programme. He added that China's ground-based systems, including both road mobiles and silo-based, exceed the numbers that the US has. In a letter to Congress earlier this year, he revealed that China has built hundreds of new intercontinental ballistic missile silos in the past three years. China is projected to have over 1,000 warheads by the end of the decade, up from 410 it had as of January.
Russian, Chinese navy ships jointly patrol Pacific - Russia's defence ministry
Reuters
Russian and Chinese navy ships have been conducting joint patrols in the Pacific Ocean and participating in naval exercises in the East China Sea, according to a statement from the Russian Defense Ministry. The ships have traveled over 6,400 nautical miles since the start of the patrols.
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