What ‘deep concerns’ were aired as US Chamber of Commerce met Premier Li Qiang? China’s Ambitious Growth Plan Leaves Investors Wanting More
Exclusive Insight: Unlocking China's Consumption Potential: Breaking the Barriers to Sustainable Growth
Exclusive Insight: Unlocking China's Consumption Potential: Breaking the Barriers to Sustainable Growth
Li Weijun
The low proportion of consumption to GDP among Chinese residents has been a persistent issue. Compared to developed countries where this proportion stands around 70% (e.g., the United States, Germany, France, Japan), China's ratio remains at approximately 40%, even lower than that of fellow developing nations like Russia, Brazil, and India, which hover around 55-60%. Given consumption's pivotal role in directly impacting residents' welfare and its relative stability compared to investment and exports, it should ideally form the cornerstone of sustainable GDP growth. However, several factors contribute to China's lagging consumption rates:
Historically, China's economic model, inherited from the Soviet Union, prioritized investment over consumption to hasten industrialization. This legacy persists, with wage suppression being a fundamental reason. Chinese residents' wage income accounts for only about 25% of GDP, a stark contrast to the United States' 55%. Weak bargaining power of workers, ineffective trade unions, and the retention of profits by state-owned enterprises exacerbate this issue.
Transitioning from a planned to a market economy has introduced new challenges. The lack of a robust social security system leaves citizens burdened with hefty expenses for healthcare, education, and pensions. The commercialization of these sectors by the government further strains household finances, forcing individuals to save more as a precautionary measure, consequently dampening consumption.
Skyrocketing housing prices, fueled by local government reliance on land sales for revenue, impose an indirect tax on homebuyers, prompting them to cut back on consumption to afford housing. Additionally, widening income disparities, with the wealthy bearing lower tax burdens, exacerbate the consumption gap.
Addressing these issues necessitates systemic reforms to rebalance income distribution, strengthen social security, and mitigate housing price inflation. Merely relying on technological advancements to drive growth, while neglecting consumption, poses challenges in sustaining demand for high-tech products. Similarly, achieving breakthroughs in key industries like semiconductors won't translate to economic gains if domestic consumption remains sluggish. Ultimately, recognizing the importance of bolstering consumption and implementing comprehensive reforms are imperative for fostering sustainable economic growth in China.
What ‘deep concerns’ were aired as US Chamber of Commerce met Premier Li Qiang?
South China Morning Post
US businesses have expressed concerns about China's commitment to removing market barriers and uncertainties surrounding bilateral relations. During a visit to Beijing by a US business delegation, members of the US Chamber of Commerce met with Premier Li Qiang and officials from China's commerce ministry. The US chamber expressed doubts over the effectiveness of working groups established by the US Department of Commerce and Treasury, as well as China's motivation to resolve problems in the pharmaceuticals market. Despite the concerns, many multinational companies are not looking to leave China but are taking a wait-and-see approach to future investments.
EU reaches deal on forced labour ban, with China’s Xinjiang in its sights
South China Morning Post
The European Union (EU) has reached a provisional agreement on a ban of goods made using forced labor. The ban, which still needs approval from the European Parliament and Council, will target specific economic sectors in places where state-imposed forced labor is present, based on a European Commission database. China is not explicitly named in the legislation, but the initial proposal was driven by allegations of forced labor in Xinjiang. The ban will apply to products from all over the world, including the EU. The EU is under pressure to enact legislation on forced labor following a UN report on Xinjiang in 2022.
China’s Ambitious Growth Plan Leaves Investors Wanting More
Bloomberg
Chinese stocks struggled and government bonds advanced even as Premier Li Qiang unveiled an ambitious growth target at the National People’s Congress. The GDP growth target of around 5% for 2024 has underscored widespread scepticism over the strength of the nation’s recovery. Chinese stocks trading in Hong Kong slumped, with developers in the red amid disappointment that policy efforts have fallen short for the ailing sector. Shares traded on the mainland ended the day higher, likely propped up by state-fund purchases.
China is laying out ambitious growth goals for 2024, and even Beijing knows they'll be hard to hit
Yahoo US
China has set an ambitious economic growth target of 5% for 2024, despite facing challenges such as a property crisis, deflationary pressure, and a demographic crisis. Economists believe that Beijing may have to inject more stimulus into its economy to achieve the target, which is higher than the 5.2% GDP growth seen in 2023. The country's premier, Li Qiang, acknowledged the difficulties, but said that achieving this year's goals would require focused policies, redoubled efforts, and concerted efforts from all parties.
China Vanke pledges to repay offshore debts due soon amid liquidity concerns
South China Morning Post
China Vanke, the country's second-largest property developer, has stated that it will repay its outstanding offshore debts that are due soon, following rumours of liquidity distress. The company has prepared the necessary funds to repay a $630m bond due next Monday and is working on repaying its debts in an "orderly" manner. Shares of Vanke fell 2.5% to HK$5.46 at the Tuesday close in Hong Kong. Given its size, any signs of financial trouble at Vanke will cause concern for investors and further harm China's troubled real estate industry.
Exclusive-Country Garden lenders' group hires advisers for debt revamp talks, sources say
Yahoo US
China's Country Garden's creditor group has hired Deloitte and Allen & Overy as advisers as they gear up for debt restructuring talks. The Foshan-based developer, the country's largest private property firm by sales, is set to face a Hong Kong court on 17 May after a creditor filed a liquidation petition against it. The creditor group is believed to have around $4bn of credit exposure to Country Garden, which has $200bn of total liabilities.
Is China’s tourism industry overusing facial recognition technology?
South China Morning Post
A top political advisory body delegate has proposed that China's public security sector should scrap mandates requiring hotels, hostels, and bed and breakfasts to use facial recognition for registrations, in order to protect the privacy and data security of travellers. The use of facial recognition in hotels is based on the principle of "informed consent," where hotels agree to implement the technology at the request of the public security department. Hotels have complained that the use of facial recognition has reduced service quality and led to increased business costs.
What China’s 2024 Policy Goals Mean for Ties With the US
Bloomberg
China's annual policy report shows that it may have to cooperate with the US to counter its economic challenges. The report outlines goals including countering Washington-led efforts to curb Chinese tech advancements and boosting spending on defence, which indicates that tensions between the two countries will not go away. However, the report also mentions the need for cooperation to ensure foreign trade and investment remains stable. China's need to cooperate with the US is driven by the need to win back investor confidence and reverse the trend of foreign capital exiting the country. The report also pledges to speed up breakthroughs in science and technology, highlighting China's goal of self-reliance in technology. This is increasingly important as the US and its allies seek to limit China's ambitions in areas such as semiconductors, electric vehicles, and artificial intelligence. The report also promises to prevent overcapacity in key industries and address problems that hinder overseas investment. There are early signs of improvement, with a recent survey showing that foreign companies are optimistic about their profit potential in China.
Patent row between Amazon and Huawei ended
Yahoo US
Amazon and Huawei have reached a multi-year patent cross-licence agreement, ending a dispute over patents. The agreement resolves pending litigation between the two companies. In a statement, Huawei said that Amazon respects its worldwide patent portfolio and innovations. Scott Hayden, VP of Intellectual Property for Amazon, stated that the company also respects Huawei’s efforts to license its patents to other companies.
Russia’s Chinese Yuan Funding Lifeline Is Getting Too Expensive
Bloomberg
The lack of yuan financing in Russia is causing difficulties for companies already facing high domestic interest rates and a wave of debt due this year. Major energy and mining firms have been relying on the yuan for most of their foreign currency needs, but the insufficient liquidity in Russia and demand for the currency from importers has led to higher borrowing costs. This leaves companies with the choice of expensive ruble funding or the rising cost of domestic yuan debt. The average yield on yuan securities for issuers rose by nearly 2% last year, approaching 6%.
Goldman Sachs wealth-management executive warns against buying Chinese stocks
South China Morning Post
The chief investment officer of Goldman Sachs Wealth Management has warned against investing in Chinese stocks, citing moderation in growth, opaque policymaking and doubts over the authenticity of economic data. This reflects ongoing jitters among foreign investors despite state support and growing foreign inflows. Chinese policymakers are trying to halt a three-year stock market decline and encourage the return of overseas traders.
Apple's China iPhone sales plunge 24% in first six weeks of 2024, report says
Yahoo US
Apple's iPhone sales in China fell by 24% in the first six weeks of this year, while Huawei's unit sales rose by 64% in the same period, according to research firm Counterpoint. The decline in sales for Apple is attributed to increased competition from domestic rivals such as Huawei.
Alibaba Backs $2.5 Billion AI Firm in Second Big 2024 Deal
Bloomberg
Alibaba is leading a funding round of at least $600m for Chinese AI start-up MiniMax. The two-year-old firm has raised funds at a valuation of more than $2.5bn, with Alibaba and HongShan having committed to financing. The deal is part of an effort by Alibaba to resume its rapid pace of investments, which helped propel the rise of companies such as Didi Global. The company previously led a $1bn funding round in Moonshot AI.
As West wobbles on Ukraine war, China’s envoy kicks off European tour
South China Morning Post
China's special envoy for Eurasia, Li Hui, is touring European capitals to test whether China's view of the situation in Ukraine has changed and if it has a role to play in peace talks. China is eager to show itself as a responsible player on the international stage and gain influence in the global arena. However, China's close ties with Russia have dented its image in Ukraine and across Europe. A recent poll found that the majority of Ukrainians hold negative views towards China, and the public perceives China as a hostile country. Despite this, Ukraine is still interested in China playing a mediating role due to its unique position of being welcome in both Moscow and Kyiv. However, analysts say that China will need to offer more than just shuttle diplomacy to gain the trust of Ukrainians. China's involvement in peace talks could help legitimise Ukraine's position among countries that are not fully aligned with the West.
China’s economic managers have half a plan
Reuters BreakingViews
China's 2024 GDP growth target of 5% and inflation target of 3% remain unchanged from last year, despite a deteriorating economy. The economy grew 5.2% in 2023, but consumer prices rose just 0.2% in the same period, and the benchmark consumer price index has been in negative territory for four consecutive months. Achieving the 5% expansion target will require quarter-on-quarter annualised growth to average 5.3%, which analysts believe is not possible without fiscal support. The government plans to issue $139bn of special bonds this year, but details have not yet been released.
Chinese premier urges Hong Kong to ‘play to its strengths’ under bay area plan
South China Morning Post
Chinese Premier Li Qiang has urged Hong Kong to "play to its strengths" as it takes an active role in the Greater Bay Area scheme to better integrate with national development, pledging Beijing's support towards the upkeep of the city's long-term prosperity and stability.
China Calls for New Appliances, More Vacation to Revive Spending
Bloomberg
Premier Li Qiang has pledged to promote "consumer goods trade-in programs" in China to boost spending on electric vehicles, electronic products, and other big-ticket items. The announcement comes as part of China's efforts to stimulate weak consumer sentiment. The annual work report released by Li also promised to strengthen consumer rights and implement paid leave. Although Chinese labor law grants employees up to 15 days of paid leave, there have been calls to reform the system and provide more time off. However, the main challenge facing China is not the lack of time off but rather the lower per capita spending caused by ongoing economic pressures and deflation fears.
China's bankers exit industry amid crackdown on ‘hedonistic’ lifestyles
Japan Times
Finance workers in China are reconsidering their careers following President Xi Jinping's call for "common prosperity," which has led to reduced salaries and increased belt-tightening. The crackdown on alleged corruption has also unsettled the industry, with over 100 financial and executive officials being implicated in the past year alone. Many finance professionals are now considering opportunities in higher-paying Hong Kong and other overseas markets to escape the challenges they face in China.
China defense spending to climb 7.2% amid Sino-U.S. rivalry
Japan Times
China has announced a 7.2% increase in its defense budget for the coming year, the same rate of increase as the previous year. The 1.67 trillion yuan ($231.4 billion) budget marks the ninth straight year of rising budgets for China's military. This comes as China continues to modernize its military amid a rivalry with the United States and its allies. The announcement also sets a growth target of 5% for China's economy this year, similar to last year. Analysts believe that China's economy is facing deep-seated structural issues.
China to Refine Real Estate Policies to Support Ailing Sector
Bloomberg
China is set to refine its real estate policies in order to provide stronger support for the struggling sector. The government will treat real estate companies equally regardless of their ownership, and will focus on the construction of government-subsidized housing to help revive the sector. The move comes as the property crisis in China enters its fourth year. The government is also planning to increase loans to non-state-owned firms and expand bond issuance for such companies. Additionally, Beijing is ramping up stimulus for the economy, unveiling a 5% growth target and planning to issue 1 trillion yuan ($139 billion) of ultra-long special central government bonds this year.
China Vows to Mobilize Nation as It Fights US for Tech Supremacy
Bloomberg
China has pledged to use the country's resources to accelerate homegrown scientific breakthroughs, with the aim of becoming self-reliant in areas such as AI and chipmaking. The Chinese government plans to increase spending on scientific and technology research by 10% to CNY370.8bn ($51.5bn) in 2024. It also aims to promote national champions and involve enterprises in spearheading technological advances. China faces numerous challenges, including US efforts to restrict its progress in crucial technologies such as chips and AI. China's semiconductor industry is also facing difficulties in obtaining the equipment it needs to advance.
China’s financial clout will be hard to reverse
Reuters BreakingViews
China's accumulation of foreign assets worth $4.3tn is causing a second China shock in global finance, according to an op-ed in Breakingviews. The article argues that multilateral solutions are required to solve the issue, just as they were needed to address the first China shock in trade. China's net foreign assets initially took the form of official reserve assets, which were invested in US Treasury bonds and contributed to the financial crisis of 2008. However, China then implemented its Belt and Road Initiative (BRI) in 2013, which involved recycling the majority of its foreign currency earnings into infrastructure in developing countries. As a result, China has become the largest official creditor to developing country governments. However, the rising interest rates in the US and eurozone since 2022 have hampered private capital flows to developing countries, leading to a potential debt crisis. The article concludes that a multilateral approach is required to address the issue before the second China shock causes further unintended consequences.
AMD Hits US Roadblock in Selling AI Chip Tailored for China
Bloomberg
Advanced Micro Devices (AMD) has been blocked by the US government from selling an artificial intelligence (AI) chip tailored for the Chinese market. The US has been limiting Chinese access to advanced semiconductors and chip manufacturing tools out of concern that Beijing will gain a military advantage. AMD had hoped to sell the chip to Chinese customers but US officials determined that it was still too powerful. The company must now obtain a license from the Bureau of Industry and Security to sell the chip. It is unclear whether AMD will apply for a license.
China Spurns Ukraine Diplomats at Home, Undermining Peace Push
Bloomberg
China's special envoy for Eurasian affairs, Li Hui, has embarked on a trip to Europe to seek a political settlement to the ongoing war in Ukraine. However, while China has been engaging with European countries on the issue, it has been giving Ukrainian diplomats the cold shoulder. Ukrainian Ambassador Pavlo Riabikin has secured only a few meetings since his arrival in Beijing last summer, despite sending requests to almost 40 different ministries and municipalities. This contrasts with the warm relations China has with Russia, which has seen numerous visits by Russian officials to China.
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