U.S. to Allow South Korean, Taiwan Chip Makers to Keep Operations in China; Exclusive: Shanghai's Power Shift and Chen Xi's Rise
‘No quick fix’ for China’s property sector as policy priorities shift: Goldman; Ex-Samsung Elec executive indicted over alleged data theft for China factory; China brings digital yuan machines to Sany
Welcome to this issue of The China Brief. Today is June 12, 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.
Shanghai's Power Shift and Chen Xi's Rise
Former General Secretary of the Communist Party of China, Jiang Zemin, hails from Shanghai and had promoted a large number of his Shanghai allies and subordinates to work in Beijing. Shanghai served as their long-term stronghold. In the past five years, Li Qiang, the former Shanghai Party Secretary from Zhejiang, together with his former colleagues, Gong Zheng, the Mayor of Shanghai, launched a campaign to remove many local cadres from Shanghai and replaced them with officials from Zhejiang.
Before the 20th Party Congress, Gong Zheng, the Mayor of Shanghai, was a popular candidate to succeed as the Shanghai Party Secretary. However, after Li Qiang was promoted to Premier, the position of Shanghai Party Secretary did not go to Gong Zheng, Li's former colleague from Zhejiang. Instead, it was given to Chen Xi, a protégé of Chen Jining, who was Li Qiang's old friend and student at Tsinghua University and had previously served as the President of Tsinghua University.
The arrangement of the Shanghai Party Secretary and the key leaders had two main objectives. First, to prevent Li Qiang, who was being promoted to Premier, from turning Shanghai into his and the Zhejiang faction's stronghold, thus consolidating their power. Second, to provide Chen Jining with some experience.
Let's take a closer look at the four key leaders in Shanghai: Chen Xi, the Party Secretary, is from Fujian; Gong Zheng, the Mayor and Deputy Party Secretary, is from Zhejiang; Zhuge Yujie, the Deputy Party Secretary, is a local Shanghainese (Note: at the time of writing this book, Zhuge Yujie had just been transferred to Deputy Party Secretary of Hubei Province, regardless of who takes Zhuge Yujie's position, Chen Xi will still face a large number of local cadres from Shanghai); and Li Yangzhe, the Discipline Inspection Commission Secretary, is from Shaanxi. The backgrounds of these four individuals align with the four provinces represented in the Politburo Standing Committee, making them completely matched!
Thus, from a horizontal perspective, Chen Xi faces a similar situation as Premier Li Qiang, with people from the other three provinces surrounding him, and even the whip-crackers from Shaanxi.
From a vertical perspective, Chen Xi's placement prevents Li Qiang from directly connecting with his team in Shanghai, and it also imposes certain constraints on Ding Xuexiang, who is from Shanghai.
After all, five years later, Chen Xi has great adaptability and can either succeed Li Qiang as Premier or replace Ding Xuexiang as Executive Vice Premier. This arrangement creates internal and intergenerational conflicts for Chen Xi with both Li Qiang and Ding Xuexiang, the two Standing Committee members. Of course, only by withstanding such tests can Chen Xi be ready for the next important task.
It is worth mentioning that Chen Xi is the only member of the Political Bureau who completed his doctoral degree at an overseas university and worked as a professor at an overseas university.
After returning to China in 1998, he initially taught at his alma mater, Tsinghua University, and gradually rose to leadership positions within the university. In 2012, he became the President of Tsinghua University. In 2015, Chen Xi entered politics and served successively as Minister of Environmental Protection and Mayor of Beijing before joining the Political Bureau seven years later. During his tenure as Mayor of Beijing, he effectively addressed the serious smog problem in the city.
U.S. to Allow South Korean, Taiwan Chip Makers to Keep Operations in China
WSJ
The Biden administration plans to extend exemptions for South Korean and Taiwanese semiconductor manufacturers, allowing them to continue chip-making operations in China without facing US reprisals. This decision has raised concerns about weakening US export controls aimed at slowing China's technological progress. The exemptions, initially granted last year and set to expire in October, acknowledge the challenges of isolating China in a globally integrated industry. The US has been striving to restrict advanced chip exports to China, but chip makers from allied countries and Asian and European governments have resisted such limitations. While some officials emphasize strategic restrictions without full decoupling from China, critics argue that exemptions weaken control and convey a message of weakness.
‘No quick fix’ for China’s property sector as policy priorities shift: Goldman
South China Morning Post
China’s property sector’s struggles are contributing to a weak economic growth outlook, warn analysts at Goldman Sachs, pouring cold water on recent bullish bets that have sent mainland Chinese developers’ shares soaring in May. The bank noted that the industry’s woes stem largely from issues in lower-tier cities and private developer financing. Policymakers are prioritising holding the slowdown in the property market instead of fuelling a fresh upcycle, creating an L-shaped recovery in the sector, which “will likely be a multi-year growth drag for China,” the report concluded.
Ex-Samsung Elec executive indicted over alleged data theft for China factory
Reuters
A former Samsung Electronics executive has been indicted by South Korean prosecutors on charges of stealing company technology to create a competing chip factory in China. The executive is suspected of illegally acquiring Samsung data to create a plant in Xian between 2018 and 2019. The executive, unnamed by officials, was arrested last month and has denied the allegations. Prosecutors say that the move could have cost Samsung an estimated KRW30bn ($23m) in losses; six other people have also been indicted for their involvement. South Korean President Yoon Suk Yeol has argued that competition in the industry is an "all-out war".
China brings digital yuan machines to Sanya to boost e-CNY use
South China Morning Post
China's Bank of China has launched a foreign exchange machine in Sanya on Hainan Island to allow tourists to exchange 20 currencies for digital yuan. The move will allow visitors access to the local mobile payment ecosystem without needing to open a local bank account. The machines allow currencies to be deposited and a physical card, loaded with e-CNY, to be received for payment purposes with participating merchants, such as accommodation and transport providers. The card can be topped up via the machine and can be used to pay for goods with physical taps and retrieves transaction documentation.
U.S. seeks to expand developing world’s influence at United Nations
Washington Post
The Biden administration is formulating plans to overhaul the UN Security Council in a bid to restore faith in the institution. The US proposals include adding up to six permanent seats to the council to better reflect global power, with such seats to be held by Latin American and African nations without veto power. Under the council’s current system, the US, the UK, Russia, China and France hold permanent seats with veto power, with another 10 non-permanent members chosen every two years. Despite the reluctance of the established powers to cement their position, the US has pushed for reform amid growing inconsistencies in the UN’s ability to prevent conflicts.
A reform of the Security Council would depend on the consent of at least 128 of the 193 member states, with broad consensus currently about the council’s shortcomings. Any changes to the UN Charter would require approval by all permanent members of the Security Council, including ratification by the US Senate, as well as by larger UN General Assembly members. The US must also navigate a range of competing proposals, prompting strong disagreement about the exact course of reform.
China says allegations of Chinese spying in Cuba are false
Reuters
China has denied allegations that it is using Cuba as a spying base and has denounced the US for releasing what it called inconsistent information. Last week, the Wall Street Journal reported that a new spying effort was underway on the island, citing US officials, while a Biden administration official said on Saturday China had been spying from Cuba for some time. The comment from China came ahead of US Secretary of State Antony Blinken's visit to China, which would be the first to the country by a US secretary of state in five years.
China's commerce ministry opposes new U.S. Iran-related sanctions on Chinese entities
Reuters
China's Commerce Ministry has criticized new U.S. sanctions on Chinese entities and individuals in relation to Iran, claiming they lack factual basis and due process. The Ministry has called on Washington to stop its "unreasonable suppression" of Chinese enterprises and individuals and take heed of the "legitimate rights and interests" of those affected. The Ministry vowed to take measures to protect Chinese businesses and individuals.
After Shangri-La Dialogue fuelled the fire, what’s next for US-China relations?
South China Morning Post
China and the US clashed at the Shangri-La Dialogue, with both sides playing a war of narratives and messaging. While the US called for a “free and open Indo-Pacific” and a network of Asian nations to push back against China’s “coercion and bullying”, the Chinese defence minister used his speech to attack the US and call for common ground to avoid a conflict. The Chinese delegation also defended China’s geopolitical positions. While both sides agreed on facts, they disagreed on interpretation. The US said China was unwilling to hold military dialogue, while China said there were smooth communication channels between the two sides. China’s messaging at the forum still has a long way to go, however, and actions instead of words are needed to win over critics.
Latest Covid outbreak has peaked with 164 deaths, China CDC says
South China Morning Post
China's latest wave of Covid-19 has peaked with fewer than 2,800 severe cases and 164 deaths, the Chinese Centre for Disease Control and Prevention has reported. The severe illness and deaths were mostly among the elderly population, with the average age of those who died being 79.3. More than 90% of those deaths were caused by underlying conditions combined with Covid. Although exact case numbers were not given, the Centre said that the Omicron variant XBB caused 92% of infections during the wave. Health data firm Airfinity had estimated the peak of the wave would see around 11 million weekly cases and 112 million people infected.
China, other states, fortify nuclear weapons arsenals: Report
Al Jazeera
China’s nuclear weapons stockpile grew by 17% in 2022, according to the Stockholm International Peace Research Institute (SIPRI), which also warned that transparency around these weapons had decreased in the US and Russia due to the ongoing conflict with Ukraine. The think tank estimated that China now possessed 410 nuclear warheads, up from 350 in January of last year, and said that the rise was at odds with China’s claims to only maintain a minimum nuclear deterrent. SIPRI noted that almost 90% of the world’s nuclear weapons were in the hands of the US and Russia.
China’s New Marriages Fall to 37-Year Low, Pressuring Population
Bloomberg
China's marriage rate has fallen to a 40-year-low in 2021, as new data shows an 11% YoY drop in the number of couples registering marriages. Some 6.8 million couples got married last year, the lowest number since 1985, when reliable government data became available. Reasons for the fall include fewer youngsters, a gender imbalance in which there are 10 million more men than women, Covid-19 disruptions, and changes in attitudes towards marriage. Demographics are expected to put pressure on China's economy, as an aging population delays getting married or having children. China saw its population shrink for the first time since the 1960s last year, with 9.56 million babies born, which was the lowest figure since at least 1950.
Dutch Seek to Bar Chinese Students From Tech Courses in Chip War
Bloomberg
The government of the Netherlands is reportedly preparing new legislation to prevent Chinese students from participating in programmes related to sensitive technologies like semiconductors and defence. The country appears to aim to restrict students from accessing sensitive material in their studies. The move follows the Netherlands' decision to join the US in efforts to limit semiconductor technology exports to China. The legislation on screening students will be country-neutral, though the people who spoke of its plans believe that the country's clear intention is to prevent Chinese staff or students from accessing sensitive material and technology during studies or work.
In the Market: For firms, China policy semantics are not the point
Reuters
Companies with China exposure are conducting contingency planning and deliberating how to conduct business amid proliferating regulatory rules. This comes as tensions between Western allies and Beijing grow, due to several factors, from sensitive technology to Beijing's positions on Russia and Taiwan. The latest sign of conversations becoming more urgent came when Sequoia said it would separate its Chinese and Indian businesses into two independent firms after concluding that geopolitics were complicating factors. Many other business executives have traveled to China in recent weeks to meet with staff, clients and officials; alternatives, such as moving supply chains entirely out of China, are costly and not practical for some.
China's dual aims in Myanmar: Indian Ocean access, crime fighting
Nikkei Asia
China is becoming Myanmar's dominant partner, with explosive growth in infrastructure projects connecting the countries and Beijing cracking down on international criminal gangs operating in the territory. On May 2, senior military figure Min Aung Hlaing met with Chinese Foreign Minister Qin Gang in Myanmar's capital, Naypyitaw; following the talks, China vowed to “continue to provide assistance within its capability for Myanmar's development” and “accelerate key cooperation projects of the China-Myanmar Economic Corridor”. The two countries share a border, and Myanmar acts as a key transport link in China’s Belt and Road Initiative, with a pipeline for crude oil shipped from the Middle East anchoring in the Indian Ocean before running up to Yunnan province. The strategic importance of this relationship has galvanised Chinese support for the military Government in Naypyitaw, including using its U.N. Security Council seat to oppose the sanctions-backed pressure campaign led by the U.S and Europe.
China Tells Last Indian Journalist in Nation to Leave This Month
Bloomberg
China has asked the last Press Trust of India journalist to leave the country as tensions between Beijing and New Delhi continue. India previously had four correspondents based in China, however, the Hindustan Times reporter departed at the weekend over visa renewal issues, while two Indian journalists from Prasar Bharati and The Hindu newspaper had visa renewals denied in April. Meanwhile, China currently has only one journalist remaining in India awaiting their visa renewal. The removal of the Indian journalists comes amid a fractious relationship between the two nations since a bloody brawl along their shared Himalayan frontier in 2020.
Saudi Arabia, China firm up ties to ensure food security
South China Morning Post
Calysseo, the joint US and Chinese venture between Calysta and China National BlueStar’s feed additive division Adisseo, plans to open a plant in Al Jubail, Saudi Arabia for microbiotic feed production. The plant aims to produce 100,000 tonnes of feedstock for animal feed a year by 2027, designed solution to a global food security problem. While the smaller plant in China will limit risk in the first phase of gas-to-feed techniques, according to Calysseo’s managing director, products in Saudi Arabia will mainly be earmarked for global markets.
Chinese tech groups suffer as foreign investors take flight
Financial Times
Chinese online entertainment company Bilibili has joined other tech firms in witnessing mass debt repayments after shares plummeted. With the company valued at $54bn two years ago, it has dropped to $6.5bn, causing Bilibili to cut costs drastically. Bilibili’s issues mirror those across the Chinese tech scene, with overseas investors selling shares even in profitable internet giants such as Tencent and Alibaba. The downsizing is beginning to affect cash-rich firms like Tencent and Alibaba, who are focusing on share buybacks to reduce costs. Prospects for Chinese internet groups are looking bleak, as the sector continues to suffer from higher capital expenses.
New Zealand PM Hipkins to visit China at the end of June
Nikkei Asia
New Zealand Prime Minister Chris Hipkins will lead a trade delegation to China at the end of September, including representatives from the dairy, tourism, education and gaming sectors. China is New Zealand's largest trading partner with exports worth more than NZD20bn ($12.2bn) annually, while New Zealand has taken a more conciliatory approach toward China than its allies in the Five Eyes intelligence and security alliance. However, New Zealand has also raised concerns over China’s human rights record and military expansion in the Pacific region.
China lures increasing numbers of research scholars from Japan
Nikkei Asia
An increasing number of Japanese academics are taking up research posts in Chinese universities and laboratories. China used to predominantly welcome Japanese company engineers but is now seeking scholars in more basic areas of science such as astronomy. This contrasts with Japan, where budget cuts have made it difficult for scholars to acquire jobs. China has expanded its research spending greatly over the last 20 years, rivaling the US in both the overall quantity and quality of research papers. Despite differences in research culture, Japanese scholars are also drawn to China for its access to well-equipped labs, generous salaries, funding, and incentives.
US and China take steps towards thaw as Blinken prepares to visit Beijing, but mistrust remains
The Guardian
US Secretary of State Antony Blinken is scheduled to visit Beijing on 18 June in the clearest sign yet that Joe Biden’s predicted “thaw” in US-China relations may come to pass. However, both the US and China will have to overcome mutual mistrust before relations can improve, following recent incidents including a global row over the use of Chinese spy balloons, and disagreement over the One China policy. Both nations also claim to want dialogue while taking actions to decouple their economies. Speaking about US policies, Wang Huiyao, the president of the Centre for China and Globalisation, recently pointed to Washington’s “double standards”.
Taiwan Extends Two-Year Rise in US Chip Exports Despite Downturn
Bloomberg
Taiwan's chip exports to the US rose for the 26th straight month in May, despite a slowdown in the semiconductor market. US semiconductors purchases from Taiwan rose 9% YoY, while exports to Hong Kong and China dropped 14.3%. The divergence could reflect a significant expansion of US chipmaking activity as Washington provides incentives for advanced manufacturing to come back home. Although the increase in US purchases helped, China still leads as the biggest buyer of chips from Taiwan, with its share rising by two percentage points to almost 54% in May. Overall, Taiwan’s chip exports slid by 8%.
China-Swiss chip deal poke in the eye for US
SCMP Opinion
European chip maker STMicroelectronics has partnered with China's Sanan Optoelectronics to construct a $3.2bn chip plant in Chongqing to meet the country's rising demand for silicon carbide device production for electric vehicles and other industrial power and energy sectors. The deal, still subject to regulatory approval, also includes the construction of a SiC manufacturing facility. The move comes amid a US-China chip war, with US authorities pushing European governments and corporations to choose sides, while more western businesses are reaffirming their commitment to China due to the country's position as a rapidly growing market.
China’s Covid-Positive Test Rate Jumped to 40% Last Month
Bloomberg
China has seen a Covid-19 resurgence over May, with the proportion of those testing positive rising more than five-fold since April, according to data from the Chinese Center for Disease Control and Prevention. Natural immunity among China's 1.4 billion people is thought to have waned, following the initial outbreak that infected around 80% to 90% of the country's population, the data suggested. The economic impact of the second wave has been muted so far, with many seeking domestic holidays, and doctors reporting that illnesses being mild. Some question how long that trend will last, though some believe the resurgence started to lose momentum at the end of May.
Goldman Expects ‘L-Shaped’ Recovery in China’s Property Market
Bloomberg
China's sluggish real estate industry is expected to experience a multi-year slowdown, according to analysts at Goldman Sachs, which will have negative repercussions for the country's economy. Despite existing government policies, homes sales in the country slowed to 6.7% in May 2021 from more than 29% in the previous two months, raising concerns. While China is believed to be introducing a new range of measures to support the struggling property market, analysts don't predict an up-cycle, with policies focusing on reducing economic and fiscal reliance on the industry.
Why the Battle for Supremacy in Asia Begins With China’s Coast Guard
NY Times
China has rapidly built up the world's largest coast guard fleet in recent years, and has increasingly been using it in foreign territories to assert its control over strategic waterways. Its rival nations, who are concerned about this expansion, have also resorted to rapidly increasing the size of their own coast guard vessels. 200 years of global coast guard tradition have been disrupted by the rise of China as a maritime power, according to analysts. These forces were traditionally used for policing smugglers and helping out with search and rescue operations.
China, on the other hand, is building up a military arm of coast guard vessels, with 150 such boats in its fleet. It has even deployed boats with 76-millimeter cannons and anti-ship missiles, leading other Asian nations to respond by increasing the size and firepower of their own coast guard forces. These nations, including Japan, the Philippines, South Korea, and the United States, are increasingly facing off against Chinese vessels in waterways throughout the South China Sea.
However, this arms race between coast guard vessels highlights a rising threat of a broader conflict between China and its rivals, as a simple accident or violent low-level skirmish in the vast space of the South China Sea could spark a war between major world powers. The assertiveness shown by China's coast guard, which patrols, prods, and intimidates other nations with near impunity, mainly via aggressive tactics and interference with other nations' boats, also poses a risk of increased international tensions in the region.
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