Putin and Xi discussed Chinese peace proposal; Exclusive Insight: Why it is appropriate for the highest level of leadership to take direct responsibility for managing finance
China's Xi to Putin: Russians will support you in 2024 election; China's new power structure tightens grip on data, tech, finance
Welcome to today's issue of "The China Brief," where we bring you the latest news and updates on China's politics, economy, and international relations.
In the spotlight today are Putin and Xi's discussion of China's peace proposal for Ukraine, the growing economic ties between Russia and China, and Xi's confidence in Putin's support from the Russian people in the 2024 election. Additionally, Hong Kong aims to attract billionaires in its family office push, and China gives select chip companies new powers to guide the industry recovery.
Other highlights include Cai Qi's appointment as Xi Jinping's new chief of staff, China's tightening grip on data, tech, and finance, Pinduoduo's disappointing Q4 revenue, Taiwan President Tsai Ing-wen's US visit, and the ongoing investigation into China Eastern Airlines Flight 5735's crash. We also cover China's central bank cutting the reserve requirement ratio, gaming stocks jumping as China approves more foreign titles, Google suspending Pinduoduo's app due to malware issues, and BYD reducing shifts at two EV plants in China.
Finally, we discuss the US's plan to resume domestic visa renewals for IT workers, the cancellation of a "Winnie the Pooh" horror film screening in Hong Kong, and Geely Automobile's earnings beating expectations. Stay tuned for in-depth analysis and insights on these stories and more.
And here’s today’s exclusive insight:
Why it is appropriate for the highest level of leadership to take direct responsibility for managing finance
In reality, the present framework for devising monetary policy was established during the 1970s oil crisis. At that time, the primary challenge confronting the global economy was addressing inflation caused by escalating oil prices. The financial system of that era, devoid of the intricate operations and complex relationships among various financial institutions we observe today, did not view financial stability as a significant concern.
Fast forward fifty years, and financial stability has become at least as crucial as economic (price) stability. The crises experienced by Silicon Valley Bank and Credit Suisse illustrate that monetary policy, designed to stabilize the short-term economy, can rapidly result in financial system instability. When financial instability arises, monetary policy constraints intensify: if the Federal Reserve ceases to raise interest rates, inflation will persist at high levels; if rate hikes continue, a financial crisis will be triggered, leading to immediate issues in both economic growth and prices, akin to a free-falling object.
China's newly planned central financial committee should learn the most significant lesson from the Silicon Valley Bank and Credit Suisse crises: the prevailing framework for formulating monetary policy, which neglects the trade-off between economic (price) stability and financial stability, is outdated.
When shaping monetary policy in the future, it is essential to consider not only the impact of such policy on economic (price) stability but also its effect on financial stability. This approach acknowledges that monetary policy should inherently possess macro-prudential characteristics, rather than simply severing the ties between monetary policy and financial regulation, particularly when China's financial system has amassed considerable risk due to historical factors.
In fact, it is fitting for the top leadership to directly oversee and coordinate monetary policy, financial regulation, and crisis management. The crux of the matter lies in effectively utilizing this framework to achieve economic stability, financial stability, and preemptively address potential issues.
(This is the second part of "Monetary Policy from a Macro-Prudential Perspective: The Implications of the Credit Suisse and Silicon Valley Bank Crises for China's New Financial Management Framework." The author of this article, Jin Huabin, is a financial professional and a contributing analyst for "The China Brief.")
Reuters: Kremlin says Putin and Xi discussed Chinese peace proposal
Russian President Vladimir Putin and Chinese leader Xi Jinping discussed Beijing's peace plan for Ukraine during their first day of talks in Moscow, according to the Kremlin. Kremlin spokesman Dmitry Peskov declined to give further details, but said the two leaders had a "thorough" exchange of views and talked about China's proposal, a 12-point paper calling for a de-escalation and eventual ceasefire in Ukraine. The Chinese document sets out general principles but contains no detailed plan for ending the war. The US has been dismissive of the proposal, given China's refusal to condemn Russia's invasion.
FT: Xi Jinping-Vladimir Putin talks highlight Russia’s role as ‘junior partner’ to China
Russian President Vladimir Putin and Chinese President Xi Jinping will discuss their growing economic ties in talks on Tuesday, highlighting Moscow's dependence on Beijing after its economy was largely severed from the west due to sanctions. Bilateral trade between Russia and China reached a record $190bn in 2022, with Moscow seeing its economic reliance on China as crucial to its prospects of winning the Ukraine war. Meanwhile, China's help in weathering the effects of US sanctions is irreplaceable, and Russia's wealth of natural resources will secure Beijing's continued support. The most hotly anticipated topic for discussion on Tuesday is the planned Power of Siberia 2 gas pipeline.
Reuters: China's Xi to Putin: Russians will support you in 2024 election
Chinese President Xi Jinping told Russian President Vladimir Putin that he believed the Russian people would support him in the next presidential election in 2024, even though Putin has not yet said if he will run again. Putin is the longest-serving Kremlin leader since Josef Stalin. Kremlin spokesman Dmitry Peskov said Xi had not specifically said Putin would participate in the election, but added that the Kremlin shared Xi's confidence in the Russians' support for Putin. The two leaders were due to hold one-to-one talks and then dine.
Reuters: Putin praised by China's Xi on visit to Moscow US denounces as cover for war crimes
Chinese leader Xi Jinping and Russian President Vladimir Putin held talks on Monday. They continued discussions on Tuesday, amid criticism from the West that the visit gave Putin “diplomatic cover” for his ongoing war in Ukraine. While China has attempted to position itself as a peace-maker in the conflict, the visit to Moscow highlighted a strengthening relationship between the two nations. The US had dismissed China’s peace proposal as a ploy to give Putin more time to solidify his grip on occupied land, and John Kirby, White House spokesman, said Xi should press Putin to withdraw troops from Ukraine.
NYT: As War in Ukraine Grinds on, China Helps Refill Russian Drone Supplies
According to official Russian customs data, China has sold more than $12 million in drones and drone parts to Russia since it invaded Ukraine. The shipments from DJI and other companies often came through small-time middlemen and exporters, making it hard to determine whether they contained American technologies that would violate US rules. China has become an increasingly important buttress for Russia in its war effort, militarily, diplomatically, and economically. Beijing has remained one of the largest buyers of Russian oil, helping finance the invasion. The two sides have held joint military exercises and assailed the North Atlantic Treaty Organization.
Bloomberg opinion: Mr. Zelenskiy, It’s Xi Jinping On the Line
Chinese President Xi Jinping is expected to make a video conference or phone call to his Ukrainian counterpart Volodymyr Zelenskiy after he meets with Vladimir Putin. Xi aims to push back globally against the US, pose as a global peacemaker, prevent a nuclear conflict, and enshrine his interpretation of sovereignty as a guiding principle in international politics. Zelenskiy should focus on Ukraine's sovereignty and territorial integrity as the basis of all subsequent talks and Xi's peace plan during the conversation. The call is expected to be stilted and awkward, and the nuances will be consequential for Ukraine's war of self-defense, global diplomacy, and world order.
Bloomberg: Hong Kong Opens Doors to Billionaires in Family Office Push
Hong Kong is hosting a summit to attract billionaires to set up and expand family offices in the city. The event, which will be attended by representatives from over 100 global family offices, will be held at the Hong Kong Palace Museum and will showcase the city's strengths in asset and wealth management. Officials said the event would build stronger connections and encourage more family offices to come to the city. Hong Kong has made attracting family offices a critical mission under Chief Executive John Lee. The city's global standing as a finance hub has been tarnished by protests, pandemic restrictions, and Beijing's tightening grip.
FT: China gives chipmakers new powers to guide industry recovery
China is giving select chip companies easier access to subsidies and more control over state-funded research as US controls on access to advanced technology force Beijing to reconsider its approach to supporting the sector. Semiconductor Manufacturing International (SMIC), Hua Hong Semiconductor and Huawei, and equipment suppliers Naura and Advanced Micro-Fabrication Equipment will benefit from the policy shift. The chosen few will have access to additional government funding without having to achieve performance goals that were previously necessary. They can also play a bigger role in state-backed research projects, reducing the influence of state-owned companies and academic institutes.
SCMP: China’s No 5 official Cai Qi named President Xi Jinping’s new chief of staff
China's No.5 official, Cai Qi, has been appointed President Xi Jinping's new chief of staff, succeeding Ding Xuexiang, who has been confirmed as executive vice-premier. Cai's appointment marks the first time in over 40 years that a Politburo Standing Committee member has concurrently held the title of chief of staff. The role demands absolute loyalty to the president and requires Cai to oversee logistics support for the party’s top leadership bodies and jointly oversee the Central Guard Bureau.
Nikkei: China's new power structure tightens grip on data, tech, finance
China is tightening its grip on data, technology, finance, and society as part of an overhaul of state and party institutions that is likely to further concentrate power in President Xi Jinping's hands. The restructuring includes the creation of a national data bureau to promote the country's digital economy, a CCP-led commission charged with ensuring technological self-reliance, and a new financial regulatory body. The reforms signal Beijing's priorities in the face of increasing pressure from U.S. export restrictions risks to financial stability, and slowing economic growth. The changes are considered security-minded, with a new body overseeing Hong Kong and Macao affairs and a mysterious social work department of the Communist Party's Central Committee responsible for dealing with public petitions and guiding industry associations and non-state-owned enterprises in "party building" work.
Reuters: Pinduoduo owner's revenue falls short on weak China consumer spending
PDD Holdings, the owner of discount e-commerce platforms Pinduoduo and Temu, reported Q4 revenue of CNY 39.82bn ($5.79bn), up 46% YoY but falling short of expectations, which sent US-listed shares down 13.9% in premarket trading. PDD’s revenue growth compared with single-digit gains reported by Chinese competitors Alibaba and JD.com for the same period. PDD's international platform Temu's gross merchandise value increased to $192m in January from $3m in September, with expansion planned for Canada, Australia, New Zealand, and the UK.
Bloomberg: Taiwan Leader’s US Visit Set to Test Xi’s New Peacemaker Image
Taiwan President Tsai Ing-wen's upcoming visit to the US during her tour of Central America raises tensions between the US and China. Tsai will make stops in New York and Los Angeles. A Taiwanese official suggested the visit was arranged to reduce the likelihood of an escalatory response from China, which tends to occur when US lawmakers visit Taiwan. China has filed a diplomatic complaint opposing Tsai's visit, claiming the real intention is to seek breakthroughs and propagate Taiwan's independence. The US-China relations remain tense after a spat over an alleged spy balloon derailed a push for warmer ties last November.
Foreign Affairs: Don’t Panic About Taiwan Alarm Over a Chinese Invasion Could Become a Self-Fulfilling Prophecy
The article argues that fears of a Chinese invasion of Taiwan are overblown and may become a self-fulfilling prophecy. There is little evidence to suggest that Chinese leaders see a closing window for action, and historically, they have tended to temper their foreign policy during times of domestic turmoil. Instead of worrying about Beijing creating a foreign crisis to bolster its standing at home or assuming that Beijing feels pressured to invade soon, the United States should focus on arresting the action-reaction spiral that has steadily ratcheted up tensions and made a crisis more likely. Washington should assure Beijing that it is not bent on promoting Taiwan's permanent separation or formal independence from China and should help bolster Taiwan's defenses without signaling dramatic changes in U.S. military support, which risk inadvertently creating the impression that Beijing has a limited window to invade.
Bloomberg: China Doubles Imports of Russian Aluminum Shunned by West
China's imports of refined aluminum from Russia have surged by 94% to 538,600 metric tons in the year since the invasion of Ukraine, according to customs data. China has nearly doubled its imports of Russian aluminum as some western buyers have snubbed supplies from Russia, the largest aluminum producer after China. China is also likely to continue importing the metal as Trafigura Group is in talks to buy about 150,000 tons of aluminum from Rusal. Meanwhile, exports from China to Russia of alumina, the raw material for aluminum, have surged to 1.08 million tons in the year to February, up from about 2,300 tons in the previous 12 months.
WSJ: China Plane Crash Probe, One Year Later, Offers No Cause
One year after the crash of China Eastern Airlines Flight 5735 that killed 132 people, Chinese aviation authorities are continuing their investigation but have not commented on the possible cause, which US officials initially assessed to be an intentional nosedive. The lack of answers has frustrated relatives of those who died in the crash, and experts have criticized China's failure to publish any meaningful information or findings. The Civil Aviation Administration of China said the technical investigation team had carried out a site investigation, data inspection, personnel interviews, and experimental analysis. Still, the investigation is continuing in depth because the accident is a very complex and extremely rare event.
Bloomberg: Xi Meets Russian Prime Minister After Long Chat With Putin
Chinese President Xi Jinping has met with Russia’s Prime Minister, Mikhail Mishustin, after spending more than four hours with Russian President Vladimir Putin the day before. The two leaders discussed the ongoing conflict in Ukraine, with Putin stating that he is open to discussing China’s proposed end to the war. However, the proposals have been rejected by the US and its allies and have been viewed as biased towards Russia. Xi’s visit to Moscow is his first since claiming a third term as President and sends a strong signal of support to Putin.
Nikkei: China's surprise loan easing to bolster fragile economic growth
China's central bank, the People's Bank of China, has announced that it will cut the reserve requirement ratio (RRR) for financial institutions by 0.25 percentage points, releasing 500 billion to 600 billion yuan ($72.6 billion to $87.2 billion) of liquidity into the market. The RRR cut, the first since December 2022, has come earlier than expected, and some see it as a move to bolster an economy that is making a tenuous recovery from zero-COVID policies and to guard against any financial headwinds from the West. Chinese officials appear watchful for any spillover from rising financial uncertainties in the US and Europe.
Bloomberg: Gaming Stocks Jump in Asia as China Approves More Foreign Titles
China's online gaming regulator has approved 27 imported games, including titles from Korean gaming companies Devsisters and Nexon Games. Shares of Bilibili, a Chinese video-sharing platform, and mobile game publisher, rose by more than 9% in Hong Kong and 6.5% in the US. The move indicates a "more supportive regulatory policy towards foreign titles that further support a healthier and normalized development of online gaming industry going forward", according to Citigroup analyst Alicia Yap. The latest approvals came three months after a batch of titles were endorsed.
AP: Google suspends China's Pinduoduo app due to malware issues
According to a Google spokesperson, Google has suspended the Play version of PDD Holdings' Pinduoduo app after malware issues were found on the Chinese platform. The Play version of the app has been suspended for security concerns, while "Off-Play" versions of the e-commerce app found to contain malware have been enforced via Google Play Protect.
Reuters Exclusive: BYD reduces shifts at two electric vehicle plants in China
According to sources, Chinese electric vehicle manufacturer BYD has reduced shifts at two of its car assembly plants in China, amid weaker industry-wide demand. Workers at BYD's Xian plant were asked to work four days a week, while the company reduced shifts at its Shenzhen plant from three to two per day. Despite the slowdown, BYD continues to take market share in China and outsold Tesla more than five times in the first two months of the year.
Nikkei: U.S. plans to resume domestic visa renewals for IT workers
The US State Department plans to resume domestic visa renewals for certain categories, including the H-1B visa, which draws many skilled IT workers from India and China. A pilot program will begin later this year before scaling up to all eligible visa holders. Domestic renewals were suspended in 2004, requiring visa holders to leave the US for the process. The move is seen as a relief for foreign workers, who often wait months for visa appointments abroad, and their employers, who need to ensure the continuity of their workforce.
Reuters: Screening of "Winnie the Pooh" horror film canceled in Hong Kong
According to movie websites, the screening of the British slasher film "Winnie the Pooh: Blood and Honey" has been canceled in Hong Kong for technical reasons. The film's main character, Winnie the Pooh, has been targeted by Chinese censors due to memes that compare the bumbling bear to President Xi Jinping. Some have used the image of Pooh to signal dissent. Hong Kong's censorship law bars films that "endorse, support, glorify, encourage and incite activities that might endanger national security". Two films were dropped from Hong Kong's international film festival last year after failing to get approval from authorities.
Bloomberg: China’s Geely Tops Estimates, Snapping Four-Year Profit Drop
Geely Automobile, a Chinese carmaker owned by billionaire Li Shufu, has posted earnings that beat expectations and forecasted sales growth this year. The company’s net income rose 9% to CNY5.26bn ($764m) in 2022, beating analysts' estimates, while revenue jumped 46% to CNY147.96bn. Geely has set a sales target of 1.65 million units for 2023, up 15% from last year. It also sees opportunities in autonomous driving and exports and will continue to leverage its relationships with partners such as Renault to promote overseas development. Geely is playing catch-up in electric cars, the fastest-growing segment in China's auto industry.
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