Not So Fast — China’s Regulators Are Not Finished Yet; Exclusive Insight: Zhejiang Government's Proactive Approach: From Service Halls to Rural Finances and Business Support
‘Secret’ US and Nato’s Ukraine war plans leaked online; Putin just got a helping hand in his economic war with the West
Welcome to this issue of The China Brief. Today is April 7, 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:
Zhejiang Government's Proactive Approach: From Service Halls to Rural Finances and Business Support
The development of Zhejiang province is closely related to the actions and service-oriented mindset of its government. The Zhejiang government has been a leader in serving its people in many aspects. For example, two decades ago, Zhejiang established a government service hall where various departments, including industry and commerce, finance, and taxation, were concentrated in one area. When individuals from different units go to the service window, their matters are promptly handled. If other units require a stamp, they can go to the neighboring window.
Zhejiang's proactive approach to government services is further exemplified by the Mayor's Hotline and the centralized management of rural finances. In the 1970s and 1980s, when I was part of a work team investigating the countryside, villagers voiced their primary complaint about the lack of transparency in managing village finances. Despite the small amount of money involved, they were dissatisfied with the arbitrary spending by village officials. This issue overshadowed other concerns like purchasing public grain, building houses, and family planning.
To address this problem, Zhejiang took a step forward by standardizing rural finance over 20 years ago. The province now collects and manages all village-level finances at the township level. Previously, village secretaries managed village finances based on their own judgment, without any oversight or accountability. Checking the accounts was a challenge, as there were no invoices or paper proofs, making it impossible to verify old accounts. With centralized finances, villages must follow a program when spending money, with the township paying the bill if it complies. Reimbursement is done through the formal financial system using invoices, effectively resolving the opaque situation.
The Zhejiang government has been instrumental in resolving specific difficulties faced by businesses. For instance, in the 1980s and 1990s, some entrepreneurs from Zhejiang invested in a scenic area in Shangrao, Jiangxi province. However, the other party changed the contract's terms, resulting in significant losses for the Zhejiang investors. Despite complaining to Jiangxi, the issue remained unresolved until the Zhejiang government sent a public letter to Jiangxi to resolve the issue.
Another example is the highly profitable mining industry in Shanxi. Small coal mines in Shanxi contracted for several hundred thousand yuan, but their value could rise to over 10 million yuan due to the rising coal prices. Zhejiang entrepreneurs borrowed high-interest loans or pooled their money to buy these coal mines. However, after they purchased the mines, Shanxi state-owned enterprises nationalized them and bought them back for only 2 million yuan, causing significant losses to Zhejiang's private enterprises. The Zhejiang business community, government, and the Administration for Industry and Commerce collaborated to resolve the issue.
(This is the ninth article in the series "Zhejiang, Zhejiang People, and Zhejiang Economy." The author of this article is Ye Feng, a Zhejiang researcher.)
Iran, Saudi Arabia restore diplomatic ties, eyeing more regional stability
CBC
Iran and Saudi Arabia have restored diplomatic ties after a seven-year rift, and further agreed to pursue economic co-operation and uphold regional stability. The agreement was reached in Beijing during a meeting between the Iranian and Saudi foreign ministers, a month after China brokered an initial reconciliation agreement between the two regional powerhouses. The latest understanding further lowers the chance of armed conflict between the rivals, both directly and in proxy conflicts around the region. The warming of ties shows that "regional countries have the will and ability to take the lead" in maintaining peace, a Chinese Foreign Ministry spokesperson said.
China’s firms ‘never want no experience’, graduates face another tough year
South China Morning Post
China's job market is about to be heavily impacted by a record number of 11.58 million new university graduates seeking employment in a dwindling number of opportunities. With China's job market already unable to absorb college students who finished during the pandemic, the graduates will compete against unsuccessful job seekers. Chinese securities firms, typically the most desirable employers for graduates, only want to fill roles with more experienced candidates. But, fewer job offers have been given as the economic boost created by China's reopening slows.
Less demand for graduates has brought attention to vocation education. Still, some industry leaders have stated that there is a mismatch between the jobs young people are looking for and the jobs that are in demand. Even so, vocational graduates–students who have studied a particular skilled trade, including welding and plumbing–have less trouble finding employment, with 95% finding work after graduation.
‘Secret’ US and Nato’s Ukraine war plans leaked online
South China Morning Post
Documents appearing to be "secret American and NATO plans" detailing Ukraine's combat readiness and preparations to attack Russia have appeared on various social media sites. One of the leaked documents details the expenditure rates of HIMARS artillery systems, information that is believed to have been kept closely guarded. Another describes the state of a dozen Ukrainian combat brigades, which includes their equipment and dates for when they would be ready to fight Russian forces. The documents are circulating on both Twitter and Telegram. While thought to be authentic, some experts have warned that the documents may have been altered for propaganda purposes. Nonetheless, questions are now being raised as to how the documents found their way into the public domain. "It raises questions of how our intelligence sharing partners are managing U.S. classified materials," said Mark Simakovsky, a former Europe and NATO director in the Office of the Secretary of Defense.
China’s stocks hit one-month high on rising turnover, policy support
South China Morning Post
Chinese stocks increased to a one-month high, bolstered by rising turnover and the government's continued commitment to supporting the chip-manufacturing sector. The Shanghai Composite Index rose by 0.3% to hit 3,323.98, heading for its best close since 3 March. The benchmark has been up 1.6% this week, marking a fourth consecutive weekly gain. The upbeat mood was also stoked by the state-owned asset regulator's remarks that it was stepping up policy support for the semiconductor industry. The healthcare and telecoms stock gauges saw the most significant rises of all the 10 industry groups on the CSI 300 Index, up by at least 1.5%.
‘Wishful thinking’ to expect Beijing to compromise on Taiwan: Xi Jinping
South China Morning Post
Chinese President Xi Jinping has said "wishful thinking" cannot be entertained over Taiwan, in his first public remarks since US House Speaker Kevin McCarthy met President Tsai Ing-wen in California recently. While meeting with the European Commission President Ursula von der Leyen in Beijing, Xi Jinping said the Taiwan issue was at the "core" of China’s interests and Beijing would never agree to anybody "making a fuss" about the One China policy. Xi's statement comes a day after Tsai and McCarthy, along with 17 other US lawmakers, were joined at Ronald Reagan Presidential Library by Taiwan supporters, a move criticized by China. The defense ministry also observed aircraft carrier groups sailing off the coast of Taiwan.
Rivals ByteDance's Douyin and Tencent reach cooperation agreement
Reuters
Chinese tech rivals ByteDance and Tencent have agreed to explore joint promotion of short and long-form videos. Douyin, owned by ByteDance, will also share its experience in artificial intelligence, stating that they welcome collaboration to jointly innovate the domestic consumption market. The two companies dominate China’s social media landscape, with Douyin boasting 400 million daily active users (DAUs) and Tencent's short video app Weishi coming in with 200 million DAUs. While the companies remain rivals in many areas, this partnership may provide a potential advantage over competitors such as Kuaishou and Bilibili. The collaboration comes at a time where ByteDance faces challenges from both US President Trump's order to divest TikTok and competition from Tencent in the gaming sector.
Putin just got a helping hand in his economic war with the West
The Sydney Morning Herald
Nine members of OPEC+ announced a voluntary production cut of 1.2 million barrels per day from May until the end of the year, driving up oil prices immediately. Brent crude oil jumped around 6% to over $85 per barrel, and Goldman Sachs has raised its forecasts for Brent crude for December 2024 to $US100. However, high oil prices will keep inflation up, and the move signals that Saudi Arabia is turning to China, undermining Western sanctions on Russia, where oil profits are about to surge. Every $1 increase in the price of crude oil will boost Russian export revenues by about $2.7 billion a year. “This is Saudi Arabia saying, ‘Hey, Russia - you’re our friend,’” says Bjarne Schieldrop, chief commodity analyst at SEB financial services. “What they are doing here is siding with Russia and the Chinese alliance.”
Beijing’s probe into US chip firm Micron could help Chinese suppliers, South Korean rivals
South China Morning Post
Micron Technology, the world's fourth-largest semiconductor company, has fallen under Beijing's cybersecurity probe, sparking concerns among analysts and industry experts that the memory chip supply chain in China could be affected. The move follows a rise in US sanctions on China's semiconductor and hi-tech industry, and Micron is the first US chipmaker to be investigated. China's Cyber Security Review Office is probing Micron's products on the grounds of "safeguarding supply-chain security of critical information infrastructure, cyber and national security". Micron has said that its product shipments and other functions "are operating normally" and is fully cooperating with the matter.
Single Chinese women seek fertility treatment in Hong Kong
Financial Times
Single women in China are traveling to Hong Kong to freeze their eggs or receive other fertility treatments that are only available to married women in mainland China. The country's shrinking workforce, declining birth rate and aging population have led policymakers to introduce measures to boost fertility, including cash incentives for couples with more than one child. Experts believe that greater access to fertility treatments could allow older women to have children and boost birth rates, but single mothers are stigmatized in Chinese culture, making it difficult for single women to obtain the procedures. Until recently, unmarried women were unable to freeze their eggs or access IVF, unlike unmarried men who could freeze their sperm. China's top health official has argued against relaxing the rules, stating that egg freezing incentivizes women to delay pregnancy, which it claims is unhealthy for both the woman and offspring. However, medical experts have rejected this argument, citing other reasons such as the desire to focus on education, career goals or meeting a partner, none of which are affected by the availability of egg freezing.
China’s Nasdaq-Style Index of Tech Stocks Is On a Tear in 2023
Bloomberg
China's Star 50 index, which is heavy on tech stocks, has posted a 19% gain this year as optimism grows around newly independent Chinese tech firms. The sector has been boosted by Beijing's support for self-reliance and a new appetite for artificial intelligence. Trade turnover for the Star board passed the 11% marker on Thursday, amounting to about a third of the Shanghai Stock Exchange's overall activity.
Morgan Stanley futures unit in China to tap the country’s US$77 trillion market
South China Morning Post
China’s securities watchdog, the China Securities Regulatory Commission (CSRC), has accepted Morgan Stanley’s application to establish a wholly-owned futures company in the country. Morgan Stanley became the second foreign firm for which the CSRC had granted permission to create an entirely self-owned futures company in China, after JPMorgan’s unit received authorization in 2020. Morgan Stanley has previously prepared for the business’s establishment in China, with three of its executives having passed the professional assessment for futures companies' executives in January 2022. China’s futures market achieved a trading volume of CNY534.93tn ($77.74tn) in 2021.
Chinese, French space team readies gamma-ray burst hunter for December lift-off
South China Morning Post
Scientists from China and France are preparing to launch a joint space observatory to search for gamma-ray bursts (GRBs), the most violent explosions in the universe. The Space-based multi-band astronomical Variable Objects Monitor (SVOM) project was launched in 2014 and is expected to launch from China’s Xichang spaceport in late December. The SVOM is equipped with four advanced telescopes that can observe how GRBs occur and evolve over time from a range of wavelengths. The most powerful gamma-ray burst hunter after Nasa’s Neil Gehrels Swift Observatory, the SVOM is the product of a joint mission between France’s National Centre for Space Studies and China’s National Astronomical Observatories.
Macron tries to convince Xi not to go all-in with Putin
Axios
French President Emmanuel Macron has told President Xi Jinping that he is counting on him to bring Russia to its senses. Macron and European Commission President Ursula von der Leyen met Xi Jinping in Beijing in what the BBC dubbed a “good cop, bad cop” act. The more hawkish von der Leyen arrived fresh off a major speech on “de-risking” Europe’s relations with China, while Macron brought 53 deal-seeking business leaders along on his three-day visit. The French priority is to convince Xi not to send Russia arms.
Macron’s advisers have discussed offering Xi a bargain whereby “France will resist US pressure to decouple from China if Beijing invests diplomatic capital in bringing about peace in Ukraine”. If China starts arming Russia, the next EU debate will be over sanctions on Beijing. Macron seems to be betting that persuasion is more likely to influence Beijing’s behavior than attempts at isolation. Appealing to Xi Jinping to recognize Russia’s responsibility for starting the war, Macron said in Beijing that Xi’s proposals, while imperfect, show “a will to play a responsible role and try to build a pathway to peace”.
The visit to Beijing comes at a sensitive moment in the debate among EU leaders over China, which is both a major trade partner and a “systemic rival”. Von der Leyen has been raising concerns about alleged Chinese intellectual property theft, the bloc’s growing trade imbalance with China, and over-reliance on China for certain goods. She's also warned about exports of certain sensitive technologies to China, a top priority for the US. The debate over how to proceed on EU-China trade could become intertwined with the war in Ukraine.
Ukraine still needs the West to be united
Telegraph
Ukraine has not changed its ultimate mission of defeating Russia on the battlefield and regaining all of its land, reclaiming previously annexed Crimea. Andriy Sybiha, deputy head of President Zelensky’s office, indicated that Ukraine may be willing to discuss Crimea's status if Ukrainian troops reach the peninsula's border, but his comments did not signify that Ukraine plans to back down from its goals. Instead, the statement was designed to give the Kremlin a choice: depart the Crimea in peace or have the land liberated by force. The West fears that Ukraine's invasion of Crimea could provoke Russia to use nuclear weapons. Ukraine's NATO allies continue to disagree on how far to go in arming the country and what constitutes Ukrainian victory. French President Emmanuel Macron focuses on finding a diplomatic solution through negotiation with Russia.
Zelensky’s aides send mixed messages on Crimea and the possibility of negotiations
NY Times
Officials in Ukraine President Volodymyr Zelensky's administration have reaffirmed their vow to recover Crimea, after a top Zelensky adviser suggested on Wednesday that Ukraine may be open to peace talks with Moscow if its forces successfully advanced to the Crimean border. Andriy Sybiha reportedly said: "If we will succeed in achieving our strategic goals on the battlefield, and when we will be on the administrative border with Crimea, we are ready to open [a] diplomatic page to discuss this issue." However, other senior officials, including head of the presidential office Andriy Yermak, quickly clarified that the return of all territories of Ukraine, including Crimea, remained the agenda. Mykhailo Podolyak said the basis of any negotiations had to be a complete withdrawal of Russian forces from Ukraine’s borders, which includes Crimea.
On Thursday, a joint call for peace talks was made by the leaders of France and China, even though a White House spokesman emphasized that only Zelensky could determine the terms of any negotiations. “Only President Zelensky can determine if and when he’s ready to negotiate, and in what context, and over what,” said the spokesman, John F. Kirby. Meanwhile, there is no agreement between the US and Germany over a proposed deal to allow the Nord Stream 2 gas pipeline to proceed. Germany reportedly agreed to invest in Ukraine and commit to sanctions and other pressure measures if Russia were to use energy as a weapon against Ukraine. A statement from the US and Germany did not refer to the pledge, however, prompting Republican senators to demand that Congress impose sanctions on Germany over the lack of transparency.
Ex-DOJ lawyer tells jury he met with Chinese to further illegal lobbying campaign
Reuters
George Higginbotham has testified that while working at the US Department of Justice, he also worked for rapper Pras Michel. Michel is accused of illegal lobbying on behalf of Malaysian businessman Jho Low, who is alleged to have embezzled billions of dollars from 1MDB, a Malaysian sovereign wealth fund. Higginbotham claimed in court that Michel asked him to communicate with the Chinese Embassy in 2017 to confirm that Donald Trump’s administration was considering extraditing the Chinese dissident Guo Wengui. Higginbotham stated he felt uncomfortable regarding the matter but “let his friendship with Michel cloud his judgment”. Higginbotham has previously pleaded guilty to charges relating to facilitating illegal communication between Michel and Chinese officials. Witnesses in Michel’s current trial have also included actor Leonardo DiCaprio and former Republican National Committee official Elliott Broidy.
Not So Fast — China’s Regulators Are Not Finished Yet
Bloomberg
China's regulatory crackdown on big tech may not be over, warns Bloomberg Opinion columnist Tim Culpan. Despite a lull in enforcement actions against companies for issues such as antitrust, Beijing is likely to remain vigilant as domestic regulation tightens and geopolitical tensions with the US increase. The recent surprise government investigation into Micron Technology, the US's largest memory-chip maker, suggests regulators will continue to scrutinize the technology sector. Beijing's enforcement actions will focus increasingly on issues of data privacy and national security, Culpan predicts.
Although there have been some policy shifts toward increasing the size of the middle class and reducing inequality, for example, through the recent decision to prohibit private schools from making a profit, the regime remains sensitive to threats to the state's authority. Didi Global, the ride-hailing firm, was fined $1.2bn earlier this year after Chinese regulators reviewed the company's data privacy practices. Companies such as PDD Holdings may come under similar scrutiny after potentially malicious malware was detected in its shopping app by researchers at Alphabet, the parent company of Google. Chinese authorities will take seriously threats to data privacy and cybersecurity, despite potential accusations of hypocrisy over the information they themselves collect.
China-linked US$2.3 billion battery factory in Michigan raises community alarm
South China Morning Post
Plans for a factory in Michigan making batteries for electric vehicles have led to protests amid concern surrounding the involvement of Chinese Communist Party linked firms. Gotion has said the investment in the factory could reach $2.3 billion, with the promise of creating more than 2,000 jobs. However, protests have centred around the plant's potential environmental damage, as well as the connection to China and Gotion's intentions to use the facility to promote communism. Michigan has approved incentives of almost $1.1 billion for the factory, of which $907 million would come in the form of tax breaks.
This is not the first time a US-based subsidiary of a Chinese company has faced heated local opposition. As Sino-US ties have plummeted, Chinese investment has come under heavy scrutiny by the American general public and politicians. Over the past 2½ months, Gotion has put together a “voluntary self-declaration” to the Committee on Foreign Investment in the United States, an inter-agency federal panel charged with investigating transactions involving foreign investments.
Chinese regulator mulls use of AI chatbots in financial regulation
South China Morning Post
A senior official at the State Administration of Foreign Exchange (SAFE), China's foreign-exchange regulator, has expressed interest in studying how artificial intelligence (AI) could be used in monetary policy. Lu Lei, deputy head of the organization, said the technology, including conversational chatbot ChatGPT, could help to form an "effective technical route" for financial development and governance. Lei, the first official to openly discuss the potential uses of ChatGPT and AI in financial regulation, said current regulation could make way for a new system largely targeting liquidity, fraud, and bad management based on real-time data. The comments were made at the annual conference of the China Society for Finance and Banking on Tuesday, which was also attended by central bank governor Yi Gang and former counterpart Zhou Xiaochuan, and Eddie Yue, CEO of the Hong Kong Monetary Authority.
Xi and Macron Call for Ukraine Peace Talks, but the Path Is Murky
NY Times
The French President, Emmanuel Macron, and the Chinese premier, Xi Jinping, have called on all parties to return to peace talks in Ukraine in a statement together in Beijing. Xi, however, did not confirm if he would utilize his relationship with Russia to ask for further negotiations. A meeting between the Ukraine's President, Volodymyr Zelensky, and Xi was suggested by the latter last month as a way of supporting Ukraine but hasn't happened yet. Russia last year annexed four provinces in eastern and southern Ukraine and has so far refused to negotiate a ceasefire while occupying them. Ukraine’s position is that Russia must withdraw from the territories it occupies, including Crimea, before peace talks can take place.
The meeting with Macron took place on the backdrop of deteriorating ties between the United States and China. Statements made by both suggest that ties between China and Europe are becoming closer at the expense of the US. During the meeting, Xi articulated his focus on European independence from the United States, stating that he sees Europe as a "pole" within a "multipolar world." Xi's stance marked a clear move away from America's alliance with Europe and provided further evidence of the shifting balance of world power as China gains in influence.
Can Europe persuade China to change course on Russia-Ukraine war?
Aljazeera
EU leaders, including French President Emmanuel Macron and European Commission President Ursula von der Leyen, are in China for a meeting with President Xi Jinping. Macron has urged Beijing to “bring Russia to its senses” and end the war in Ukraine, while von der Leyen has suggested that China’s stance on the conflict will shape future relations with the EU. It is unclear whether Europe will be able to shift China’s position on the war.
Flat owner gets tax bills for 11,000 Chinese firms
BBC
A man in Cardiff was bombarded by tax bills from 11,000 Chinese companies, amounting to £500k, after the companies fraudulently used his address to register for VAT. Dylan Davies received over 580 letters from HM Revenue & Customs (HMRC) over six months, with no system in place to flag the issue at the tax office, according to Davies. It was only when debt collectors started sending letters that HMRC started to take notice when Davies raised his concerns. The head of HMRC, Permanent Secretary Jim Harra, has admitted the issue in a letter to the Commons public accounts committee. Investigations have not found any fraud, with 70% of the business owned by overseas companies and operating in online marketplaces. Financial crime consultant Graham Barrow believes the firms are collecting VAT from their buyers but not paying it to HMRC, and says the situation demonstrates how easy it is to register for VAT in the UK. HMRC has said it is reviewing its operational processes for managing high volume address changes.
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