Nvidia to Release Three New AI Chips for China; How scary is China? U.S. Treasury's Yellen, Chinese vice premier He set to meet amid pre-APEC friction
Ping An Slump Shows Why a Country Garden Deal Would Be Dangerous; China is struggling woo back foreign investors
Welcome to this issue of The China Brief. Today is November 9, 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.
Nvidia to Release Three New AI Chips for China, Report Says
Bloomberg
Nvidia is reportedly set to release three new artificial intelligence (AI) chips for China following further restrictions on China's access to advanced semiconductors by the US. The new chips are based on the design of Nvidia's flagship H100 product. Chinese firms are expected to take delivery of the chips in the coming days. Nvidia's stock suffered a decline after the US government restricted the sale of AI processors designed for the Chinese market. Nvidia warned that its product development and ability to supply customers may be affected by the restrictions. Intel is also said to be planning to release a new AI chip for China.
Economist
The Economist has highlighted what it sees as China's military and economic weaknesses, arguing that the US needs to take a realistic view of China's capabilities and avoid an overly hawkish response. The article points out that while China's military is formidable and has been modernised over the past few decades, it still has significant weaknesses. The PLA struggles to recruit skilled personnel and has almost no experience of combat. The military-industrial complex lags behind in areas such as engines for aircraft and ships, and still relies on foreign parts. The article also highlights China's economic weaknesses, including a property crunch and the Communist Party's growing hostility towards the private sector and foreign capital. The IMF predicts that China's GDP growth will slow significantly in the coming years. Finally, the article argues that President Xi Jinping's personalised rule is bad for China and potentially perilous for the world. It suggests that the US should respond to China judiciously, avoiding policies that could provoke a disastrous war and instead focusing on maintaining economic and technological openness.
China's slow economy takes 9% off global manufacturers' profits
Nikkei Asia
China's economic slowdown is impacting the global manufacturing industry, with profits falling for the fourth consecutive quarter. Net income for major listed companies in the US, China, Europe and Japan during Q3 2015 totalled around $1.1tn, a decline of 9% from the same period last year. The chemical industry was the most severely impacted, with profits falling by 43%, followed by the electronics sector (-12%) and machinery sector (-10%). In contrast, nonmanufacturing sector profits increased by 16%.
India is in the midst of an unusual IPO boom
Economist
Indian companies that produce everyday consumer goods like tiffin boxes, pens, and furniture are experiencing a surge in popularity among investors. This comes as valuations in India's private markets collapsed, prompting investors to look for more stable and profitable opportunities. As a result, 194 companies have gone public in India so far this year, up from 144 in 2021. Investors are attracted to these companies' steady revenue growth and healthy profits, and many of them are benefiting from the Indian government's efforts to boost the domestic manufacturing sector.
Li Auto’s Revenue Beats Forecast With Over 105,000 EVs Sold
Bloomberg
Chinese automaker Li Auto reported better-than-expected revenue for Q3 2023 after delivering over 105,000 electric vehicles (EVs), up from about 26,500 a year earlier. Total revenue was CNY 34.7bn ($4.8bn) in the three months through September, a 271% YoY increase and 21% higher than the previous quarter. Net income rebounded to CNY 2.81bn from a CNY 1.65bn loss in Q3 2022. Li Auto's gross margin of 22% has helped it fare better than Chinese rivals Nio and Xpeng. The company aims to deliver between 125,000 and 128,000 EVs in Q4 and take its annual total to as high as 372,225 units.
U.S. Treasury's Yellen, Chinese vice premier He set to meet amid pre-APEC friction
Yahoo US
Janet Yellen, the US Treasury Secretary, will meet with Chinese Vice Premier He Lifeng over two days in San Francisco, with the aim of managing the economic fallout from the increasingly tense relationship between the two countries. Yellen will seek to emphasise the importance of maintaining open lines of communication on issues such as national security and climate change. She will argue that China and the US must pursue a "healthy competition" and avoid a forced decoupling of the two economies.
Ping An Slump Shows Why a Country Garden Deal Would Be Dangerous
Bloomberg
A potential takeover of developer Country Garden by Ping An Insurance Group could be risky for both companies and the Chinese financial system, according to Bloomberg. Analysts have put low odds on a deal materialising, but the possibility of a rescue has sent Ping An shares down almost 7% over the past two sessions to their lowest level in a year. A combination of the two companies could raise questions about the strength of Ping An’s balance sheet, which could result in a collapse of confidence in the insurer. Ping An’s investment in China Fortune Land wiped out about CNY24bn ($3.5bn) of its profit in 2021.
Citrix owner becomes latest US software company to quit China
South China Morning Post
Cloud Software Group, the parent company of Citrix, has announced that it will no longer conduct new commercial transactions in China, including Hong Kong and Macau, due to the increasing cost of operating in the region. The decision follows similar moves by other American tech firms, such as Microsoft's LinkedIn and Salesforce, who have scaled down their operations in China due to a weaker economic outlook and tightened data-security and cross-border data-processing requirements. China implemented the Data Security Law in September 2021, which has increased compliance costs for tech companies. Some consulting and investigation firms have also exited the Chinese market recently.
China urges Netherlands to continue cooperation ahead of hi-tech export curbs
South China Morning Post
China has called on the Netherlands to continue cooperating in areas including technology and supply chains ahead of the implementation of export controls on Dutch chip-making equipment. Wang Yi, China's foreign minister, urged the Netherlands to adhere to international trade rules and join forces with China to promote bilateral cooperation in various fields, including the economy, trade, science, technology and innovation. China has seen a significant rise in imports of lithography machines from the Netherlands as Chinese companies stockpile the equipment before export controls take effect next year.
US Won’t Lose Its AI Lead to China Anytime Soon, Inflection AI CEO Says
Bloomberg
Mustafa Suleyman, co-founder of Google DeepMind and founder of AI startup Inflection AI, has said that the US will still lead the development of artificial intelligence (AI) in ten years' time. He stated that the fundamentals of the US innovation ecosystem are "unquestionably the best in the world" and that Silicon Valley is "leading the pack". While China has made strides in AI development, Suleyman suggested that it is important not to overestimate the country's progress. US officials have recently imposed restrictions on investments in Chinese AI firms and advanced semiconductors capable of training AI algorithms.
China’s economic slowdown: why India isn’t about to pick up the slack
South China Morning Post
India's potential as a global growth engine should be treated with caution, according to Nicholas Spiro, partner at Lauressa Advisory. While India has seen strong economic performance in recent years, it remains a relatively small player on the global stage compared to China. India's economy is driven by domestic consumption, but its share of global consumption is below 4%, compared to China's 14%. Additionally, India faces challenges in reforming and modernizing its economy, including low labor force participation rates and the need to boost private investment.
China loaned Pakistan $21bn more than reported, study finds
Nikkei Asia
A study by research institute AidData has shown that Chinese lending to Pakistan between 2000 and 2021 was $67.2bn, $21bn more than previously estimated. AidData's method of measurement includes loans for which the central government or its agencies are liable for repayment, and it uses short-term debts, which it says are often rolled over with terms of 12 months or less, as a way of underreporting debt exposure. The increase in Chinese lending to Pakistan will heighten concerns over Beijing's increasing dominance in the Global South, where 80% of its lending involves countries in financial distress. Pakistan is the third-largest recipient of Chinese loans, but despite this, it has had to secure a $3bn standby arrangement from the IMF to avoid a debt default. An estimated $28.4bn of the loans provided to Pakistan were in the energy sector. The increase in Chinese lending is likely to be a focus of debate in the run-up to Pakistan's elections in February.
Singles Day: China’s e-commerce giants try to lure reluctant consumers with ‘truly low’ prices
CNN
China's economic struggles are impacting the country's largest shopping event, Singles Day, causing companies to engage in an aggressive price war. Chinese consumers are facing challenges such as high unemployment and stagnant wage growth, leading to decreased spending. To attract customers, e-commerce platforms are offering rock-bottom prices. However, analysts are uncertain if the lower prices will be enough to entice consumers. Some sectors, such as health and wellness, are still experiencing growth as middle and upper-class consumers look to upgrade their consumption in these areas.
Deutsche Bank boosts Asia bets as clients seek Wall Street alternative -CEO
Yahoo US
Deutsche Bank is investing more in Asia as clients seek alternatives to US banks amid geopolitical uncertainties, according to CEO Christian Sewing. The bank has hired about 60 managing directors for its global investment banking unit, with a third based in Asia. "From a capital allocation, technology allocation and a people allocation perspective, there is a direction of more resources to Asia Pacific," Sewing said. The bank generates about 15% of global revenue from the region, where it operates in 15 markets.
China smartphone market perks up as sales of new Xiaomi model off to roaring start
Yahoo US
Xiaomi has sold more than 1 million units of its latest smartphone within a week of launching, suggesting the slump in China's phone market could be coming to an end. Demand in the world's biggest smartphone market has been in decline for some time, but the COVID-19 pandemic and economic recovery have caused customers to wait longer before upgrading their phones. The success of Xiaomi's phone launch follows a period of strong sales for Huawei. The Chinese market is on track to achieve year-on-year sales growth in the fourth quarter after 10 consecutive quarters of decline, according to IDC.
China health sector sees better sentiment from anti-graft drive - execs
Yahoo US
Business activities in China's healthcare sector are returning to normal following a year-long anti-corruption campaign that began in July, according to two foreign industry executives. The campaign was initiated to target bribery of doctors in drug and medical equipment sales, disrupting many multinational pharmaceutical firms and causing healthcare stocks to tumble. However, both executives explained that the overall mood has improved over the past two months, with activities returning to normal following the latest announcements from the government to clarify the objectives of the campaign.
Chinese woman who argued with police deported, banned from Singapore
South China Morning Post
A Chinese national named Han Feizi has been deported from Singapore and banned from re-entering the country after she uploaded TikTok videos of herself arguing with the police in hospital. Han was sentenced to five weeks and five days' jail and a fine of S$600 ($438) for her actions. She had entered Singapore on a work permit but admitted that she had never worked for the company that had sponsored her. Instead, she said she had come to Singapore "for fun" and had worked as a freelancer during her time there. The Ministry of Manpower has revoked her work pass and she will be permanently banned from working in Singapore.
China-Philippines tensions roil, but it’s ‘business as usual’ for trade
South China Morning Post
The Philippines is hoping to boost exports of nickel and other critical minerals to take advantage of China's growing demand for energy and generate more revenue. The country, which is already a major nickel ore supplier to China, has more than 30 mines in operation. At the China International Import Expo, diplomats and trade representatives from Manila are working to make trade with China more balanced. The Philippines is China's top trading partner, but the trade deficit is in China's favour. The Philippines is also seeking to increase its agricultural exports to China, including durian fruit.
Beijing tells UK to stop using trade to improve Taiwan ties
Guardian
China has accused the UK of using trade cooperation as an excuse to enhance its ties with Taiwan, after the announcement of a bilateral trade talks agreement. Beijing objects to any international action that appears to recognise Taiwan's sovereignty, as it claims Taiwan as a province of China. Only 13 countries have official diplomatic relations with Taiwan's government, but many others maintain informal relations and economic ties. Taiwan is seeking to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, of which the UK is the newest member. Beijing, which is also lobbying to join the CPTPP, is opposed to Taiwan's inclusion.
Rio Tinto CEO says China still promising mineral market as EVs boom
Nikkei Asia
Rio Tinto's CEO, Jakob Stausholm, has stated that China remains a key market for the mining company despite concerns over Beijing's economy and political regime. Stausholm highlighted that the Chinese automotive sector is booming, specifically electric vehicle (EV) production, which has driven demand for iron ore and copper to high levels. He also noted that China has a strong focus on decarbonisation, which is encouraging for Rio Tinto as it supplies minerals for clean technologies.
Xi Move to Rule ‘for Life’ Has Created Challenges, Clinton Says
Bloomberg
Hillary Clinton has criticised Chinese President Xi Jinping's decision to stay in power beyond two terms, saying that it has caused problems for both China and relations with the US. Clinton highlighted the challenges within China's system and the economic problems it has faced during Xi's third term. She also expressed hopes for a meeting between Xi and President Joe Biden next week, calling it a "confidence-building opportunity" to reset relations. Clinton also commented on China's role in international diplomacy, saying that it had played an important role in sending a message to Russia's Vladimir Putin.
China’s economy tumbles back into deflation in blow to recovery
Financial Times
China's economy has entered deflation, with the consumer price index falling by 0.2% in October year-on-year. Falling pork prices were a key factor in the deflation, with the price of livestock and meat falling by 17.9% overall due to a 30.1% decline in pork prices. The producer price index also fell for the 13th consecutive month, dropping by 2.6% year-on-year. Analysts have blamed low consumer confidence for the economy's dip into deflation, and have called for more stimulus measures to boost domestic consumption and demand.
Hong Kong’s ‘back in business’ claim rings true to Deutsche Bank CFO
South China Morning Post
The chief financial officer of Deutsche Bank, James von Moltke, has called on global bank leaders to visit Hong Kong to see for themselves that the city is "back in business". Von Moltke's comments follow a board meeting held in Hong Kong by Deutsche Bank in response to a call from the Hong Kong Monetary Authority (HKMA) for global bankers to see the city's vibrancy. Von Moltke said that Hong Kong is "very much back in motion" and that it offers "enormous opportunities" and potential returns for money managers.
India tops China as biggest source of global migrants
Nikkei Asia
Mass migration around the world has resumed at record levels, with the number of people seeking permanent residency in OECD countries reaching an all-time high of 6.1 million in 2022. India surpassed China as the biggest source of migrants in 2020 and 2021. The US was the biggest destination, followed by Germany, the UK, Spain, and Canada. The growth in permanent migration is driven by the processing of applications delayed during the pandemic, labor shortages in OECD countries, and policy changes to accept more foreign workers. Temporary migration is also on the rise, with more than 2.4 million temporary migrants worldwide in 2022.
China is struggling woo back foreign investors
Japan Times
China is experiencing a decrease in direct investment from foreign companies, with more money flowing out of the country than coming in. This suggests that companies may be diversifying their supply chains to reduce risk. Direct investment liabilities have been slowing in the last two years, with a contraction of $11.8 billion in the third quarter of 2022. This is concerning as China is trying to attract more foreign investment, particularly in the manufacturing sector. It may indicate that investors are increasingly looking for alternatives to China for their investments.
Kishida-Xi talks eyed for sidelines of APEC meeting in U.S.
Japan Times
Japanese Prime Minister Fumio Kishida and Chinese President Xi Jinping are planning to hold talks on November 16 in San Francisco on the sidelines of a gathering of Asia-Pacific leaders. The summit would be the first between the two leaders since November last year and comes as bilateral ties remain strained over the release of treated radioactive water from the Fukushima nuclear power plant. Japan's top national security adviser, Takeo Akiba, is expected to lay the groundwork for the summit in his talks with senior Chinese officials in Beijing.
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