Suspicion deepens as absence of China's foreign minister persists; China's state banks seen selling dollars offshore to slow yuan declines
Xi meets Kissinger as US seeks to defrost China ties; China mulls easing mortgages to spur homebuying in big cities; TSMC delays U.S. chip plant start to 2025 due to labor shortages
Welcome to this issue of The China Brief. Today is July 20, 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.
Xi meets Kissinger as US seeks to defrost China ties
BBC
Former US Secretary of State Henry Kissinger met with Chinese President Xi Jinping in Beijing. Kissinger, who played a crucial role in helping China emerge from diplomatic isolation in the 1970s, is likely acting as a backchannel for US-China negotiations. The Chinese government has struck a conciliatory tone in its statements on the meetings, emphasising the need for respect, cooperation, and peaceful coexistence between the two countries. Kissinger's visit comes amid a flurry of visits by top US officials to China, including Treasury Secretary Janet Yellen and US Special Envoy for Climate John Kerry. Kissinger is highly regarded in China for his role in normalising US-China diplomatic relations and opening up China to the world.
China mulls easing mortgages to spur homebuying in big cities
South China Morning Post
Chinese regulators are considering relaxing home buying restrictions in the country's major cities, according to sources. The government is considering scrapping rules which disqualify people who have ever had a mortgage from being considered a first-time buyer in major cities. Currently, homebuyers with a mortgage record are still subject to higher down-payment and more restrictive borrowing limits applied to those buying a second home. The property market in China has weakened in recent months, with prices slumping across the nation, putting the government's 5% economic growth target at risk.
Chip giant TSMC cuts revenue outlook amid persistent market slump
South China Morning Post
Taiwan Semiconductor Manufacturing Co (TSMC) has lowered its revenue outlook for 2023, warning investors that the global electronics slump may continue despite the boom in artificial intelligence (AI) development. The chip maker for Apple and Nvidia projected a 10% fall in sales this year, compared to a previous forecast of a single-digit decline. TSMC also reported a 23% drop in net income for the quarter and revealed that it will push back the start of output from its new Arizona plant to 2025 due to a shortage of skilled workers.
Suspicion deepens as absence of China's foreign minister persists
Reuters
China's Foreign Minister Qin Gang has been missing from public view for nearly a month, prompting speculation about the reasons for his absence. China has said that Qin is off for unspecified health reasons, but this has not been confirmed, leading to concerns over the lack of transparency from the Chinese government. The absence of a high-ranking official such as Qin from the diplomatic scene creates uncertainty and confusion over China's decision-making process, which may undermine trust in Chinese leaders and officials.
Exclusive: China's state banks seen selling dollars offshore to slow yuan declines - sources
Reuters
China's major state-owned banks were reportedly selling dollars to buy yuan in the offshore spot market in an effort to slow the decline of the yuan. The country's central bank also relaxed a cross-border financing rule, making it easier for domestic firms to raise funds from overseas markets and ease depreciation pressure on the yuan. As a result, the offshore yuan strengthened by more than 0.7% against the dollar. However, the yuan is still down about 4% against the dollar this year, making it one of the worst performing Asian currencies for 2023.
TSMC delays U.S. chip plant start to 2025 due to labor shortages
Nikkei Asia
Taiwan Semiconductor Manufacturing Co. (TSMC) has postponed the start of mass production at its Arizona plant to 2025 due to a shortage of skilled workers and technicians needed to move equipment into the facility. The chipmaker said it is encountering challenges due to a lack of workers with the specialised expertise required for semiconductor-grade facility equipment installation. TSMC is sending experienced technicians from Taiwan to make up for the delays. Construction of the Arizona plant began in mid-2021 and mass production was previously scheduled to begin late next year.
China vows to support private businesses in bid to boost economic growth
CNN
China has released a policy document aimed at supporting and strengthening private businesses in the country. The document, issued by the ruling Communist Party and the State Council, includes measures to break down barriers to market access for private firms, implement fair competition, and strengthen enforcement of anti-monopoly laws. This move comes as China's economic growth has slowed, prompting calls for more stimulus from Beijing. However, analysts have noted that the effectiveness of the policy will depend on how it is executed.
China’s biggest fund manager sticks to behemoths despite poor second quarter
South China Morning Post
China's biggest fund manager, Zhang Kun, is betting on China's biggest companies, including Tencent and Kweichow Moutai, to deliver sustainable returns. Zhang's flagship fund, E Fund Blue Chip Selected Mixed Fund, lost 10.9% of its value in Q2 2019, while Tencent and Kweichow Moutai slumped by 14% and 7.1% respectively. Zhang believes the long-term valuations of high-quality companies are already "very attractive" and plans to stick to his current investment strategies.
Are China and the US listening to each other?
Al Jazeera
The US has been involved in numerous invasions, regime changes, and wars in its hemisphere, often aimed at strengthening US-friendly regimes or toppling unfriendly ones in Central and South America. The concept of "spheres of influence" is often applied selectively, with the US extending its influence far beyond its own hemisphere through its military bases in 80 countries. The US has recently been increasing its military alliances and partnerships in the Indo-Pacific region, particularly as a response to China's assertiveness in the East and South China Seas. The AUKUS security pact between Australia, the US, and the UK, as well as the trilateral strategic grouping composed of Japan, the Philippines, and the US (JAPHUS), are examples of these alliances. These alliances aim to preserve the US's "sphere of influence" in the region and counter China's claims to disputed territories. However, meaningful dialogue between the US and China is increasingly difficult, with both sides engaging in monologues disguised as dialogue, according to philosopher Martin Buber.
China’s foreign minister goes missing
Economist
The sudden and unexplained disappearance of China's foreign minister, Qin Gang, has led to speculation about his fate and the secretive nature of Chinese politics. Qin has been absent from his duties since June 25th, with the official reason given as health issues, although no further details have been provided. The silence surrounding his absence has led to rumors and theories circulating in Beijing's elite circles and among foreign diplomats. The lack of information has highlighted the strict codes of silence and secrecy that govern Chinese politics, with leaders expected to be vigorous and any sign of frailty seen as risky. Qin's rapid rise within the Chinese Communist Party, including his appointment as foreign minister, is seen as an indication of his close relationship with President Xi Jinping. Qin is known for his diplomatic skills and pragmatism, but also for his ability to be menacing and assertive when necessary. His absence has been felt in diplomatic circles, where his knowledge of the Western world and ability to engage with foreign officials has been appreciated. The episode has shed light on the opaque nature of Chinese politics and the challenges faced by those trying to understand and navigate its inner workings.
Taiwan detects 22 Chinese military aircraft around the island
Reuters
Taiwan's defense ministry reported that it had detected 22 Chinese military aircraft near the island on Thursday. This is the latest in a series of incursions by China into Taiwanese airspace.
Hong Kong police target more family members of wanted democracy activists
Japan Times
Hong Kong authorities are investigating the family members of two exiled democracy activists wanted for alleged violations of the National Security Law. Former lawmaker Dennis Kwok and unionist Mung Siu-tat are among eight activists being sought by authorities, with arrest warrants and bounties announced in July. Kwok's older brother was taken in for questioning, while the home of Mung's older brother was raided and family members taken into custody. No arrests have been made so far. Family members of another targeted activist, Nathan Law, were also questioned earlier this month.
Made in Russia? Chinese cars drive a revival of Russia’s auto factories
Japan Times
Chinese carmakers are gaining market share in Russia, taking advantage of the departure of Western, Japanese, and South Korean players who previously dominated the market. Imported Chinese cars now account for 49% of Russia's market, compared to a prewar share of just 7% in June 2021, according to analytics firm Autostat. Chinese carmakers' exports of passenger cars to Russia in January-May 2023 increased 5.2 times year-on-year to almost $3.6 billion. China is also increasing its sales in Russia through vehicle assembly at factories formerly owned by European, Japanese, and US carmakers, with six factories now producing Chinese models or planning to do so. China's growing influence in Russia's automotive sector is benefiting the country by enabling the restart of production at idled factories and keeping workers employed. However, the dependence on importing assembly kits from China means that Russia's domestic production is increasingly reliant on the yuan exchange rate.
Odd bedfellows: U.S., India unite against China's military threat
Nikkei Asia
The recent meeting between U.S. President Joe Biden and Indian Prime Minister Narendra Modi showcased growing solidarity and cooperation between the two countries. While the U.S. has historically been critical of Modi's alleged human rights violations, the meeting highlighted how the U.S. is willing to overlook these concerns in order to build closer ties with India. The joint statement released after the meeting outlined agreements in various strategic areas, including military cooperation, investment plans, and cooperation in technology. The military cooperation is particularly significant, as it reduces India's dependence on Russian arms and helps forge a united front against China.
However, the checkered history of the U.S.-India relationship raises questions about the depth of their ties. India has often prioritized its own interests over cooperation with the U.S., and the U.S. has made several missteps in its courtship of India. The U.S.'s withdrawal from the nuclear deal with Iran and its military withdrawal from Afghanistan have allowed China to expand its presence in the region, threatening India's national interests. Furthermore, India's tradition of strategic nonalignment raises questions about whether the U.S. can trust India in times of security crises in Asia. The world has come to know India's "strategic autonomy" through its response to Russia's invasion of Ukraine, but it remains to be seen how reliable a partner India can be for the U.S.
Overall, the U.S.-India agreement to expand cooperation, particularly in the military field, shows that the two countries are willing to set aside their differences and past sentiments to fight their common foe, China. While the alliance may be expedient, it could have a significant impact on the world.
Can China’s new 31-point plan stabilise economy, bring market peace of mind?
South China Morning Post
China has announced a 31-point action plan to support the country's private sector, which has been hit hard by the economic slowdown and regulatory crackdowns. The plan aims to improve the business environment, remove market-entry barriers, prevent payment defaults, protect intellectual property rights, and provide legal protection for private entrepreneurs. The private sector is crucial to China's economic growth, job creation, and technological innovation. The action plan is part of the government's broader efforts to stabilize the economy and boost investor confidence. However, investors and analysts are calling for quick and effective implementation of the plan.
Why Heat Waves Are Deepening China’s Addiction to Coal
NY Times
China's response to heatwaves is to burn more coal, despite its position as the world leader in renewables. The country is already responsible for almost a third of global energy-related greenhouse gas emissions. While China has significantly increased its renewable energy capacity, it has also ramped up coal usage. This is partly down to energy security, with China having the world's largest underground coal reserves. In September 2021, grid failure and blackouts prompted China to increase coal mining and build more coal-fired power plants. Energy security has become more important since Russia's invasion of Ukraine, which disrupted Russian energy supplies to Europe. These factors, along with the high cost of ultrahigh-voltage power lines needed to connect renewables to coastal areas, have led to China building coal-fired plants alongside wind and solar projects. The country's heavy reliance on coal has also resulted in significant methane emissions from underground mines. A slowing housing market is unlikely to lead to a reversal in China's coal investment, potentially hindering the country's efforts to address climate change.
China says its ‘priority’ is to stop Taiwan VP visiting U.S. next month
The Globe and Mail
China's ambassador to the US, Xie Feng, has said that it is a "priority" for China to stop Taiwan's vice president and presidential front-runner, William Lai, from visiting the US next month. China views Taiwan as its own territory and has been increasing military and political pressure on the island to accept Beijing's sovereignty claims. Lai is making stopovers in the US on his way to and from Paraguay, drawing the anger of Beijing, which sees him as a separatist. Xie called the moves by Taiwan's "separatists" dangerous and said that they should be contained. The US diplomat in Taipei said that there was no reason for China to take "provocative" action in response to Lai's visit.
Evergrande offers an ugly view into China’s property woes
The Sydney Morning Herald
China's property development sector is facing a major crisis, as evidenced by the financial statements of Evergrande, one of the country's largest property companies. Evergrande incurred losses of $120 billion in the past two years, has total liabilities of $335 billion, and a deficiency in shareholder funds of $83 billion. The company has proposed a restructuring of its $20 billion of offshore bonds, but even if creditors agree, Evergrande will need to borrow tens of billions of dollars to complete its uncompleted developments and service the new debt. The entire sector is operating with liabilities exceeding assets, incomplete projects, and large amounts owed to trade creditors and apartment buyers. Property prices and sales have been falling, with property sales down 28% in June compared to the previous year. The challenge for developers is their financial position combined with weak demand, making the equation difficult to solve. The longer the authorities try to prop up the sector, the more daunting the equation becomes. The distress in China's property sector threatens the country's economic growth potential significantly.
China cautiously eyes defence production opportunities in Turkey
South China Morning Post
China's defence industry is considering setting up production facilities in Turkey in order to expand its international market share. However, analysts have warned that the industry will need to carefully consider risks such as pressure from the US and a less than satisfactory track record with Turkish business partners before venturing into the new market. Chinese defence producers are reportedly interested in buying Turkish companies, particularly in the drone sector, in order to expand into NATO system-using markets. However, it remains to be seen whether China will transfer core drone technology to Turkey.
BofA cuts China's 2023 growth forecast to 5.1%
Reuters
Bank of America Global Research has cut its economic growth forecast for China this year to 5.1%, down from its previous forecast of 5.7%. The downgrade comes as a result of disappointing second-quarter GDP growth and a potential delay in forceful policy response. The bank also lowered its growth forecast for China in 2024 to 4.8% from 5%. Bank of America expects a more cautious view on investment and consumption growth in the third quarter, but believes that policy makers will increase easing efforts later in the year, leading to a modest pick-up in growth in the fourth quarter.
How Hui Ka-yan plans to rescue Evergrande from China’s corporate graveyard
South China Morning Post
China Evergrande Group, the country's largest property developer, is facing a critical period as it seeks to prevent its heavily indebted empire from collapsing. The company reported a net loss of CNY105.9 billion ($16.4 billion) for the year ended December 2022, following a CNY476 billion deficit in 2021. Its revenue fell to CNY230.1 billion in 2022 from CNY250 billion the previous year. Evergrande has CNY2.44 trillion in total liabilities, with trade and other payables accounting for CNY1 trillion. The company had CNY4.3 billion of unencumbered cash at the end of 2022. The worst-case scenario is that offshore unsecured creditors may recover just 2.05 to 3.53 cents for each dollar owed, while shareholders may see their capital wiped out. Evergrande plans to issue new bonds to its creditors, as well as hybrid securities that can be converted into shares. The company will also pledge non-core offshore assets to creditors. Evergrande expects the restructuring to be legally effective by late September and will file for Chapter 15 proceedings in a US bankruptcy court to gain worldwide recognition for the plan.
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