Macron in China wants 'common path' on peace in Ukraine; Exclusive Insight: Navigating Financial Turmoil: A Look at Silicon Valley Bank and Credit Suisse, and China's Stability
Ukraine war tops agenda for Macron, von der Leyen on China visit; Brokerage CICC slashes bonuses as Beijing dials up income disparity rhetoric;
Welcome to this issue of The China Brief. Today is April 6, 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.
And here’s today’s exclusive insight:
Exclusive Analysis: Navigating Financial Turmoil: A Look at Silicon Valley Bank and Credit Suisse, and China's Stability
The recent turmoil at Silicon Valley Bank in the United States and Credit Suisse in Europe has created turbulence in the global financial system. This article offers a brief explanation of the disposal methods of these financial institutions and an overview of China's financial stability.
Financial institutions can be differentiated based on their systemic importance, with Systemically Important Financial Institutions (SIFIs) being large institutions with extensive interconnectivity with other financial entities, while Non-Systemically Important Financial Institutions (NSIFIs) have fewer links and are generally smaller in size. Credit Suisse is an example of a SIFI, whereas Silicon Valley Bank is classified as an NSIFI.
When a SIFI is at risk of failure, the disposal method differs from that of an NSIFI due to the potential for significant financial instability. In such cases, a "purchase and assumption" approach is employed, whereby another financial institution purchases the institution in question and takes on all its debts. This facilitates the maintenance of the problem institution's business connections, especially its debts, with other financial entities, thereby preventing a chain reaction of risks within the financial system. Credit Suisse's acquisition of Credit Suisse serves as an exemplar of this approach.
In contrast, for NSIFIs such as Silicon Valley Bank, the disposal method of choice is usually "deposit insurance." Here, the government's deposit insurance scheme compensates depositors for their deposits, and the financially troubled bank enters bankruptcy proceedings, with its assets being disposed of either as a whole or in blocks. These methods are not unfamiliar in China, and their implementation is not complex.
China's People's Bank of China has a distinct advantage in its ability to provide unlimited liquidity support to financially troubled institutions, covering up financial risks and preventing them from exploding. This is a practice not permitted for independent central banks in Western nations. Although there are over 4,000 banks of all sizes in China, many are susceptible to the challenges faced by Silicon Valley Bank and Credit Suisse due to a multitude of factors. Nevertheless, China's advanced disposal methods, combined with the exclusive advantage of a non-independent central bank, offer the ability to mitigate the outbreak of a financial crisis for a limited period. However, this is not a permanent solution and not without cost. From a macroeconomic perspective, China is currently undergoing a challenging transformation from an investment-driven, technology-imitating, and export processing economy to a consumption-driven and innovation-driven economy. The transition will inevitably cause a significant number of bad debts in banks and asset bubbles, such as in the housing market.
While modern financial stability measures can temporarily avoid a financial crisis in China, returning to safety requires economic growth and transformation. The Communist Party of China's establishment of the Central Financial and Central Science and Technology Committees during a new round of institutional reforms likely reflects this deeper meaning. In the process of transitioning economic growth models, a mild bubble in the stock market may be a prudent measure to activate the overall economy.
(The author of this article, Chihori, is a financial professional and special analysis expert for The China Brief.)
Exclusive: Brokerage CICC slashes bonuses as Beijing dials up income disparity rhetoric -sources
Reuters
China International Capital Corp (CICC) will cut bonuses by up to 40%, following a renewed push by the government to narrow income disparity. A senior dealmaker revealed some employees at the firm will experience a cut of two-thirds to their 2022 bonuses. Chinese investment banks have seen declining wages over the past two years, with the trend intensifying as the country's employers cut pay in response to the government's "common prosperity" rhetoric. However, the bonus cut at CICC is considered particularly high, given payout levels have been at the high end in recent years. Reports from February revealed the Central Commission for Discipline Inspection pledged to eliminate "hedonism" and an excessive pursuit of "money only" in the sector. CICC sought approval for milder pay cuts from top shareholder China Investment Corp, but its proposal was not aggressive enough.
China’s coal power expansion hurts global efforts to end use of dirty fuel
South China Morning Post
China's expanding coal power projects last year halted global efforts to phase out existing plants, according to a survey by San Francisco-based Global Energy Monitor, as local governments prioritised energy security. Only China developed new coal capacity at a 38% rate up to 366 GW, while it fell 20% elsewhere, driving total global projects under development to 537 GW, up 12%. Coal-generated capacity fell in developed and developing regions with most new capacity driven by China, in contrast to UN Intergovernmental Panel on Climate Change recommendations of retiring current coal plants by 2030 (rich world) and 2040 worldwide. Lauri Myllyvirta, from the Centre for Research on Energy and Clean Air emphasised the need for greater global progress and enforcement on restriction policies, in contrast to China's increased coal production.
China hopes India will show goodwill, facilitate journalists -ministry
Reuters
China has called on India to show "goodwill" to Chinese journalists working in the country, following the suspension of visas of two Indian reporters in Beijing. The visa ban on the reporters followed India's decision to expel a Chinese journalist working in the country. Tensions between the two nations have been heightened by ongoing territorial disputes. Meanwhile, China is tightening its grip on social media and messaging tools. Smartphone users in the country are now required to scan their faces when registering new mobile phone services. The ruling, which came into effect earlier this week, follows new regulation stating that the country's citizens are required to use their real identities when using internet services. The Chinese government has denied the moves are part of a broader crackdown on political dissent. However, critics warn it's yet another blow to the country's beleaguered freedom of expression laws.
Ukraine war tops agenda for Macron, von der Leyen on China visit
Nikkei Asia
The presidents of France and the European Commission will raise the subject of China's role in the Ukraine conflict during a meeting with Chinese leader Xi Jinping in Beijing. Emmanuel Macron and Ursula von der Leyen are expected to present a united front on the issue despite differences in their public stances on China. Macron, who has pushed for greater EU strategic and military autonomy, has sought to forge a closer relationship with China, while Von der Leyen has recently accused Beijing of spreading fake news about Covid-19. China has been accused by some countries of supporting the Donbass separatists, who have been fighting against Ukrainian forces since 2014.
The meeting will also include discussions about climate change ahead of the global COP26 summit in Glasgow in November. The Chinese hosts are said to be keen on increased cooperation between Europe and China on carbon neutrality and sustainable development as China aims to reduce its carbon footprint. Environmental concerns have been a key area of cooperation between Europe and China in recent years, with the two sides forming a strategic partnership in 2020. The EU and China are also expected to discuss trade and investment opportunities, as well as human rights issues, during the meeting.
Iran, Saudi Arabia make diplomatic breakthrough in China
DW
On Thursday, Saudi Arabian and Iranian foreign ministers met in Beijing, marking their first official meeting in over seven years. During their meeting, Iran's Foreign Minister, Hossein Amir-Abdollahian, and his Saudi counterpart, Prince Faisal bin Farhan, spoke about the possibility of reopening embassies and consulates of the two nations. "The foreign ministers of the Islamic republic of Iran and Saudi Arabia negotiated and exchanged opinions with the emphasis on the official resumption of bilateral relations and the executive steps towards the reopening of the embassies and consulates of the two countries," Iran's foreign ministry said in a statement.
Saudi Arabia and Iran broke tie communication seven years ago when protesters in Iran attacked Saudi diplomatic missions. The two countries have supported conflicting sides in several countries across the Middle East, including Iraq, Lebanon, and Syria. If successful, the meeting will reshape the region's geopolitics, which has been unstable for decades. The meeting was brokered by China, showing China's growing influence in the area, and President Xi Jinping was involved in liaising on the deal last month.
The meeting between Tehran and Riyadh has dented the United State's image as the main outside power broker in the Middle East, and the US has welcomed the agreement with skepticism, stating that it remains questionable whether the Iranians will honor their side of the deal on reopening embassies and consulates for both nations.
Iran and Saudi Plot Path to End Rivalry That Drove Regional Wars
Bloomberg
The foreign ministers of Saudi Arabia and Iran met for the first time in China to discuss improving relations, including reopening embassies. The joint statement said the two sides would "eliminate any obstacles in the way of expanding cooperation" and grow security and trade ties. France's President Emmanuel Macron was also in China for a three-day visit but it was unclear if he met with the Iranian and Saudi officials. The talks confirmed China’s new status as a mediator in a region that is a critical source of energy supply at a time when Iran’s leadership is being challenged by widespread opposition and economic crisis. Saudi Arabia cut ties with Iran in 2016 after its Tehran embassy was mobbed and set on fire over its execution of a Shiite cleric. The two sides have backed opposing sides in regional conflicts including Syria and Yemen, where Iran-backed fighters have targeted Saudi oil infrastructure with drones and missiles.
As China, Europe and the U.S. power ahead with EVs, Japan clings to hybrids
Japan Times
Despite Japan pioneering hybrid and electric cars, uptake of electric vehicles (EVs) in the country lags behind other nations, with just under 2% of new car sales last year. The popularity of hybrids has hindered uptake of EVs as Japanese automakers comply with the country's desire to maintain the status quo for as long as possible. Driving the EV market is Tesla, introduced by Japanese company owner Atsushi Ikeda, whose club for Tesla owners is the main EV fan club in the country. Nevertheless, there is muted governmental incentive with an official from Japan's trade ministry warning EVs "are expensive, and resources are limited".
Japan is currently committed to hydrogen-powered vehicles and hybrids; the country has a target for all such vehicles to be zero-emissions by 2035. However, Japanese firms have recently increased electric vehicle production capabilities, launching "more ambitious" targets. Overseas automakers, too, are trying to establish a foothold in the country: Nissan recently launched its “Sakura” model, a fully electric car in the mini-sized kei section popular in Japan. The example may set a trend for smaller EVs, as Japanese lifestyle dictates low-mileage vehicles.
Macron in China wants 'common path' on peace in Ukraine
Independent
French President Emmanuel Macron will urge Chinese Premier Xi Jinping to use Beijing’s influence with Russian President Vladimir Putin to promote peace in Ukraine, when the two leaders meet today. Macron and Xi are likely to discuss "all the major conflicts and the difficult situations around the world", Macron said in a meeting on Thursday with ruling Communist Party’s number two, Premier Li Qiang. However, officials also noted they did not expect China to adjust its position after having declared it will take a secondary approach to the conflict. The comments come amid broader relations between Europe and China, which are currently experiencing turbulence due to the diplomatic and human rights spats that have erupted between them.
Japan's Kishida: hopes for peaceful resolution of Taiwan issue
Reuters
Japanese Prime Minister Fumio Kishida has called for a "peaceful resolution" to Taiwan-related issues through dialogue, emphasizing the importance of stability in the Taiwan Strait for international security. This comes as the Chinese military's Shandong aircraft carrier was spotted in the Pacific Ocean, raising tensions amid Taiwanese President Tsai Ing-wen's visit to the US.
Chinese premier hails ‘importance’ of relations with France as he greets Macron
South China Morning Post
During a three-day visit to China, French President Emmanuel Macron has touted commercial ties with Beijing, urging engagement and stating France would "commit proactively to continue to have a commercial relationship with China." Macron became the first major Western leader to visit the country since China's President Xi Jinping started his third term. China's Premier Li Qiang met with Macron and stated "the importance of the China-France relations" and how the "consensus" reached between the two nations would help to "chart the future development" of their relations. Macron, alongside European Commission chief Ursula von der Leyen, had recently travelled to China in a show of EU unity as they look to Beijing to play a greater role in curbing Russian President Vladimir Putin's invasion of Ukraine. However, von der Leyen warned that how Beijing interacts with Russia will determine China-EU relations. The EU has become increasingly critical of China's growing relationship with Russia during the Ukraine war.
Four Asian Countries Lead in US Chip Diversification Move
Bloomberg
Thailand, Vietnam, India, and Cambodia emerged as early winners in the semiconductor production industry this year as activity moves away from traditional centers such as Taiwan and China. The US has expressed concerns about its overreliance on overseas suppliers, including Taiwan and South Korea, for the most advanced chipmaking. US imports of chips reached $4.86bn in February 2021, a 17% increase from the previous year, with Asia accounting for 83% of that total. US officials have outlined the importance of diversifying the electronic supply chain; recent efforts to diversify include Apple Inc.’s gradual shift of iPhone production out of China to locations such as India. While traditional strongholds for chip packaging, such as Malaysia, have seen their share of US chip imports drop to 20% of the February total. Semiconductors are a critical component in everything from computers and phones to home appliances.
Signal president warns of risks from U.S.-China AI race
Nikkei Asia
The competition between China and the US to be the leader in artificial intelligence (AI) could result in harm to the environment and to civil liberties through greater government surveillance, and even the spread of fake news, according to Meredith Whittaker, president of the Signal Foundation. Whittaker, a former manager at Google, said that despite the technology being extensively advertised, only a small number of corporations and nations have the capability to create and use AI. Whittaker made her observations in Tokyo during an interview with Nikkei Asia.
Morgan Stanley a step closer to setting up futures company in China
Reuters
Morgan Stanley has had its application to set up a futures company in China accepted by the country's securities regulator. The China Securities Regulatory Commission approved the request on Monday, and Morgan Stanley issued a statement saying it was looking forward to establishing a domestic footprint in the second-largest economy. Rival bank JPMorgan Chase became the first foreign institution to fully own a Chinese futures company in 2020.
China tax department says economy's rebound to be further consolidated
Reuters
China's economy is expected to consolidate its rebound in the second quarter, says the taxation administration, with tax revenues potentially growing faster than predicted. However, it warned that the economy still faces a number of uncertainties, both domestically and internationally. The business sector will receive cuts in fees and taxes of over CNY1.8tn ($261.62bn) this year to spur growth, with tax revenues showing faster growth in the second quarter of 2021, thanks to a low base and large tax credit rebates last year.
China March services activity accelerates on new orders - Caixin PMI
Reuters
China's services sector grew at the quickest pace in two-and-a-half years for March, the Caixin/ S&P Global services purchasing managers’ index (PMI) shows, rising to 57.8 from 55 in February. The result was due to an increase in new orders and job creation, which led to consumption-led post-COVID recovery. The PMI figure echoed last week’s official PMI, which hit its highest level in over a decade. However, business confidence across the sector dropped to a three-month low. Economists suggest growth may not last long amid rising geopolitical tensions and financial issues outside of China.
Brands increase TikTok spending despite threat of US ban
Financial Times
The amount that advertisers are spending on TikTok is increasing, with leading brands such as Amazon, Apple, DoorDash and Pepsi among the top companies that have invested substantially in the social media platform. This comes despite growing concerns regarding the app’s data linkages with China, with the possibility of a US restriction continuing to loom. WPP’s GroupW and Onicom are among the leading advertising agencies that continue to support the platform, encouraging their clients to maintain their investment plans. Mobile data group Sensor Tower has estimated that TikTok advertisers increased their spending by 11% in March alone.
Despite pressure from regulators and governments to improve security data linkages, TikTok’s revenues are set to exceed $10bn globally, with analysts anticipating a forecast of $14bn in revenues for 2023 compared with $9.89bn in 2022, according to research group Insider Intelligence. On account of the Chinese government’s stance on sale refusal, TikTok is likely to experience challenges in finding serious prospective buyers in the future. While some brands are implementing contingency plans that will see them move their advertising to Google and other rival platforms, the general reaction from advertisers continues to reflect confidence in the platform.
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