US citizen sentenced to life in prison for espionage - Chinese court; Exclusive Insight: Zhejiang's Paradox: The Pioneer's Dilemma and the Quest for New Economic Frontiers
China's securities regulator, central bank cut staff pay budgets; Winners and losers in the artificial intelligence arms race; US staffs up for sanctions crackdown as companies face fresh scrutiny
Welcome to this issue of The China Brief. Today is May 15, 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.
Exclusive Insight: Zhejiang's Paradox: The Pioneer's Dilemma and the Quest for New Economic Frontiers
The issue with Zhejiang's economy is the loss of its first-mover advantage and the absence of new growth points. During the era of the planned economy, the private economy of Zhejiang did not perish but took the lead in starting up during the reform and opening-up era, thus gaining the benefits of being the pioneer. However, when the market economy and private economy became a national consensus, Zhejiang's policy and conceptual advantages ceased to be exclusive secrets. The crane stands out among chickens due to its long legs, but when the chicken's legs grow to match the crane's, the crane must reconsider its standing ground. It seems Zhejiang has not yet discovered its new growth points.
Moreover, the gap between the two Zhejiangs has been filled, and the people of Zhejiang lack new frontiers to explore further. The Hang-Jia-Lake Plain in northern Zhejiang has always been a land of abundance, while central and southern Zhejiang were relatively poor, hence the tradition of venturing out to do business. The so-called "Zhejiang Spirit" is more about the struggle of the impoverished to change their fate.
When the underdeveloped areas of Zhejiang approach and even surpass the original lands of abundance, when Zhejiang's businesses have encompassed the nation two decades ago and spread worldwide a decade ago, when Yiwu's small commodities have occupied the global market, the original development model has reached its endpoint.
In addition, Zhejiang's real estate sector is disproportionately large, and the government debt is too high. These two nationwide issues also exist in Zhejiang. Real estate can stimulate the economy and absorb social capital, but it also concentrates resources into one industry. Two decades of real estate economy have led to the myth of invincible house prices, attracting most private capital. The imbalance of China's economy and the real estate sector's hijacking of it have become realities. Once house prices fluctuate, once the real estate industry is unstable, it signifies turbulence in China's economy, proving that the proportion of real estate in the economic system is too high.
Correspondingly, the so-called city management by local governments, land banking, urban transformation, and direct investment have led to massive local debt. If these debts can't generate new economic growth points, they will become a massive burden.
(From "Zhejiang, the Zhejiang People, and the Zhejiang Economy" series, Article 25. Written by Ye Feng, a Zhejiang research scholar.)
US citizen sentenced to life in prison for espionage - Chinese court
Reuters
A 78-year-old US citizen and Hong Kong resident has been sentenced to life imprisonment by a court in eastern China for espionage. John Shing-wan Leung was also stripped of his political rights after a brief trial. The court gave no specifics of his alleged offence. Tensions between China and the US are at a high on a number of fronts, from accusations of Chinese spying and human rights abuses, to US efforts to build up military alliances to curb China's ambitions toward Taiwan and in the Pacific.
Ford Seen Laying Off 1,300 Workers in China, Local Media Reports
Bloomberg
Ford is reportedly set to cut more than 1,300 jobs in China due to declining sales. In 2022, the automaker's sales in the country fell to under 500,000 units for the first time in ten years. The company only has one electric model, the Mustang Mach-E, on sale in China. The firm has said it will invest $50bn in EV production globally by 2026. Earlier this year, it announced plans to cut 3,800 jobs across Europe due to the cost of transitioning to EVs.
Winners and losers in the artificial intelligence arms race
Japan Times
As generative artificial intelligence (AI) technology continues to develop, the question remains of which countries are best placed to benefit. The US, where AI models such as ChatGPT were pioneered, benefits from close collaboration between business and academia as well as a venture capital industry. Privacy concerns in the European Union have resulted in strict conditions being applied to AI’s use, potentially slowing development and adoption of the technology in the region. China, meanwhile, has similar levels of funding to the US for research and development and fewer data privacy concerns. Developing countries can benefit from AI technology and machine learning to reduce financial barriers and provide individualized learning assistants.
U.S.-Made Technology Is Flowing to Sanctioned Russian Airlines
NY Times
Illicit networks have reportedly been established to facilitate Russia's violation of international sanctions by delivering aircraft parts via straw buyers across the Middle East and Asia. Thousands of shipments valued at tens of millions of dollars were reported to have been delivered to United States- and European-sanctioned Russian airlines, including Rossiya, Aeroflot, Pobeda Airlines, S7 Airlines, Utair Aviation and Ural Airlines, largely between July and December 2021. William George, the director of research at Import Genius, added the trend in parts shipments indicated the networks "took time to establish" but were "now in a position to help Russian airlines source some key parts". Chiefs at Moscow Recycling, a metals trader, have also been indicted by a US grand jury for alleged involvement in a conspiracy to bribe officials at Russian state nuclear corporation Rosatom in order to win contracts between 2011 and 2016.
China's securities regulator, central bank cut staff pay budgets
Reuters
China's central bank and securities regulator have cut their budget allocations for employee salaries in 2023, in line with wider reforms aimed at reducing income disparities within the country. The China Securities Regulatory Commission's budget for staff salaries and benefits next year reached CNY170.3m ($24.64m), 17% lower than in 2022, while that of the People's Bank of China was down 10.6% at CNY21bn. The cuts follow an announcement in March stating that staff of financial regulatory bodies would receive wages on par with public servants and a 5% reduction in staff numbers.
US staffs up for sanctions crackdown as companies face fresh scrutiny
Reuters
US government agencies are mobilizing to increase sanctions and export control enforcement as the Biden administration uses economic warfare against Russia and China. US enforcement personnel are expanding beyond traditional areas, looking at cross-border economic activity across all industries. The Justice Department plans to hire more prosecutors for the National Security Division and is increasing funding for the unit dealing with banking industry sanctions. Increasingly businesses feel they are on the front line of national security and are vulnerable to national security legal risks in new markets and industries.
Mainland Chinese are snapping up luxury Singapore property at a record rate
South China Morning Post
The number of luxury homes in Singapore purchased by foreign buyers rose before being hit by increased taxes. Singapore saw 159 non-landed luxury homes purchased in the first quarter alone, a significant climb from the previous year's figure of 71. Of these acquisitions, Chinese buyers accounted for 111 units, up an impressive 158% YoY. The city-state's authorities have doubled property levies for international buyers to 60%, the highest among global finance centres, in a bid to cool its housing market. Despite this, agents have suggested that Singapore still remains attractive for investors, citing economic fundamentals and a safe haven status for those wishing to move offshore.
Korean player held in China on suspicion of bribery - diplomatic source
Reuters
South Korean footballer Son Jun-ho has been taken into custody in China on suspicion of bribery. Son is an international player, who represents Chinese Super League club Shandong Taishan, and was detained on Friday by the Liaoning Public Security Department, which alleges that Son bribed a “non-government official”. The South Korea diplomatic community is in contact with Son’s family and seeking a meeting with him.
Russian Premier, Sanctioned Tycoons to Visit China Trade Event
Bloomberg
Russian Prime Minister Mikhail Mishustin will lead a government delegation to the Russia-China Business Forum in Shanghai. Several sanctioned Russian tycoons have also been invited including Oleg Deripaska, Andrey Guryev and Andrey Melnichenko alongside Aexey Mordashov of steel and mining giant Severstal. However, it is unknown how many of the business leaders will attend in person, though their companies may be represented. These visits are part of Russia’s increasing dependence on China as it becomes increasingly isolated internationally following the Kremlin's war in Ukraine.
Ex-ByteDance employee claims China had ‘supreme access’ to all data
CNN
A former employee of TikTok's owner, Bytedance, has alleged that China's Communist Party had "supreme access" to all data held by the tech firm, including data stored on servers in the US. As we have previously noted, there has been intense scrutiny of Bytedance and TikTok in the US and other Western countries over fears that Beijing could exert control over the app's content. Many Western countries have also been concerned over how the app handles user data, with several imposing restrictions on its use.
Consultancy firms in China tested limits before Beijing's crackdown
Reuters
The crackdown on consultancy and due diligence firms in China has driven companies to review their operations; some firms tested the limits of the laws and Beijing's patience to meet surging demand as China emerged from its COVID-lockdowns. These consultancies thrived by providing investors, from global hedge funds to private equity firms, access to industry experts and investigators who could obtain valuable corporate information. Some information is sensitive and non-public in China, requiring careful navigation. Despite the dangers, the demand for information in the world's second-largest economy was too big to ignore.
Mysterious Killing of Chinese Gold Miners Puts New Pressure on Beijing
NY Times
The recent killing of nine Chinese workers at a remote gold mine in the Central African Republic by unidentified gunmen seems to underscore the growing security challenge facing the Chinese government as it expands the number of Chinese companies operating in unstable zones and conflict zones. Chinese workers have reportedly faced heightened threats in countries like Pakistan, Nigeria and the Democratic Republic of Congo. The attacks are believed to highlight the growing disconnect between China’s security apparatus and its economic ambitions abroad, as the country tackles the challenges posed by insecure zones, poorly-governed regions, and the involvement of various arm groups. Many analysts suggest that China's security apparatus abroad usually relies on a patchwork of local military, mercenaries and private firms to guard Chinese workers. China’s military is said to have a limited presence overseas and a limited ability to project force beyond its borders. Nevertheless, Xi Jinping's government has raised the pressure at home to show that China is taking steps to protect its citizens overseas.
China’s Ukraine envoy due to start Europe trip
The Toronto Star
China's former ambassador to Moscow, Li Hui, has been prepared as an envoy to visit conflict-ridden countries Ukraine and Russia; however, political analysts believe this action has little hope of bringing a peace agreement, given neither country is yet willing to stop fighting. The move has led to China’s ability to maintain its status as a global diplomatic force and also separate European allies away from the US. China's political support for Russia was evident in February's dismissed proposed peace plan for the Ukraine crisis.
China holds rates, adds more liquidity as recovery struggles
Nikkei Asia
The People's Bank of China (PBOC) is expected to begin monetary easing in the coming months in the face of an economic recovery slowdown, according to market experts. While the PBOC did not cut interest rates on maturing medium-term policy loans this week, signs of weak investor sentiment and subdued domestic demand suggest that more support may be needed. However, Beijing could struggle as its largest banks have reported shrinking margins, leading to analysts warning that additional rate cuts could harm their profitability and trigger financial risks.
World Bank Money to Suspected Huawei Firms Exposes US Disconnect
Bloomberg
The US Government Accountability Office (GAO) found that $10m in World Bank borrower funds were awarded to contractors with possible links to Huawei, after Republican senators requested the report. This exposes a rift between Washington’s national security priorities and the World Bank’s policies, where the US is the largest shareholder. The US has targeted Huawei over concerns that its equipment may be used to spy for China. Meanwhile, the World Bank only prohibits firms from bidding on borrower contracts if they’re under United Nations sanctions or banned for anti-corruption reasons.
Korea Imports More Beer from Japan Than China Again as Ties Warm
Bloomberg
South Korea's beer imports from Japan have overtaken those from China for the first time since July 2019, indicating that South Korean drinkers are turning to Japanese goods once again. South Korea imported 3,870 tons of beer from Japan in April, more than nine times the volume a year earlier, while imports from China dropped to 2,226 tons. This trend signals improved relations between the two nations.
China launches drive to convince women to marry and reproduce
The Sydney Morning Herald
The Chinese government is launching pilot projects in over 20 cities to promote marriage and childbirth in an effort to boost the country's falling birth rate. The Family Planning Association is rolling out schemes to promote appropriate childbearing ages, encourage parents to share childcare responsibilities, and end high bride prices. Measures being taken by provinces to encourage parents to have more children include giving subsidies for those who have three offspring and free education for all children. Politicians have also proposed access to IVF treatment and egg freezing for unmarried women.
What’s Joe Biden up to on his 8-day trip to the Asia-Pacific?
South China Morning Post
US President Joe Biden will begin an eight-day trip to the Indo-Pacific region this week, with visits planned to Singapore, Japan and Papua New Guinea. The US wants to show commitment to the Pacific region which has seen increased aid, development and security from China, as well as to strengthen bonds with long-standing allies. His administration has also recently opened embassies in the Solomon Islands and Tonga and plans to open one in Kiribati. Biden will also attend a meeting with Indian Prime Minister Narendra Modi and Japanese Prime Minister Fumio Kishida. US allies will be watching to see whether Biden can reassert US leadership in Asia and shore up comparisons with former President Donald Trump's isolationist policy to the region.
Venture capital crunch will hit India harder than U.S., China
Nikkei Asia
Private equity and venture capital firms in India are struggling as rising interest rates hit the cheap debt at the core of their business model. The sector has enjoyed a 15-year boom through India's negative real interest rates, but the end of that era last year has exposed those privately financed companies who are unable to grow quickly. The crisis currently faced by India's small banking sector is exacerbating the issue by pushing back products and ideal exits for investors and funds.
Tesla Contributes Almost 25% of Shanghai’s Total Auto Production
Bloomberg
Tesla's Shanghai factory generated about 23% of the city's total automotive manufacturing output in 2021, that's according to a senior Chinese official. Chen Kele of the Shanghai Municipal Commission of Economy and Information said Tesla's production value for the year was CNY183.9bn ($26.4bn). More than 50% of the EV manufacturer's deliveries last year came from the facility, which can produce a maximum of 1.1 million cars a year. Chen added that the company had created 100,000 jobs at suppliers and brought 60 Chinese parts makers into its global supply chain.
China's rising clout spotlighted at finance chief meetings before G7 summit
Reuters
A weekend meeting of finance chiefs from the Group of Seven (G7) advanced economies set the stage for the G7 summit in Hiroshima by signaling China will feature large on the agenda. While the meeting did not single out China as a threat, the aspirational outreach program to Brazil, the Comoros, India, Indonesia, Singapore and South Korea, with its focus on infrastructure investment, is seen as a tacit counter to China's Belt and Road initiative. Japan, as host, persuaded its fellow G7 members to commit to launch a program by the end of 2023 to diversify supply chains for strategically important goods away from China.
China launches projects to build 'new-era' marriage, childbearing culture
Reuters
China is launching pilot projects in more than 20 cities aimed at creating a "new-era" marriage and childbearing culture, in an attempt to boost the country's falling birth rate. The schemes, beginning in manufacturing hub Guangzhou and Handan in China's Hebei province, are being led by China's Family Planning Association, which is seeking to encourage women to marry and have children. Curbing high "bride prices" and establishing a shared approach to child-rearing are among the measures being promoted.
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