Why China may be reluctant to play Sudan peace role; Exclusive Insight: Hidden Liabilities of Chinese Local Governments
Will a price war accelerate the switch to electric cars? Why Poland will be Europe’s next superpower; Banks offer ‘barbecue loans’ to businesses in China’s new grilled-food capital
Welcome to this issue of The China Brief. Today is May 7, 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: Hidden Liabilities of Chinese Local Governments
The debt of local government financing platform companies does not appear on local governments' balance sheets and is commonly referred to as "hidden local government liabilities," which need to be estimated. According to research by the International Monetary Fund, by the end of 2022, the total scale of hidden local government liabilities in China was approximately 70 trillion RMB, accounting for about 58% of GDP.
Hidden local government liabilities can generally be divided into three categories: (1) bonds publicly issued on the bond market by local government financing platform companies, which are traded as "corporate bonds" and amounted to approximately 14 trillion RMB, or 11.6% of GDP, at the end of 2022; (2) loans directly borrowed from banks by local government financing platform companies, the total of which is unknown, and I will denote it as X; (3) funds raised by local government financing platform companies through various complex financial engineering products. These types of liabilities are characterized by opacity, high interest costs, complex product structures, long debt chains, and poor project quality. The total amount of such local government debt is also unknown, and I will denote it as Y.
The sum of all types of debt from central and local governments is approximately 129 trillion RMB, representing 107% of GDP. This level is not high compared to the government debt scale of major economies worldwide. For example, by the end of 2022, the ratio of federal government debt to GDP in the United States was approximately 123%, and in Japan, it was around 226%. In the United Kingdom, France, and Germany, this ratio was 106%, 113%, and 69% respectively at the end of 2021. However, the combined total of X and Y, defined earlier, accounts for approximately 37.4% of GDP, with Y carrying immense risk. A default could easily trigger systemic financial risks.
(From "Evolution and Current Situation of China's Local Government Debt" series, Part 3, by Li Weijun, Contributing Economist for The China Brief)
Why Poland will be Europe’s next superpower
Telegraph
Poland is becoming the new superpower of Central Europe with an economy on track to become wealthier than Britain by 2030. The country, which underwent a post-communist economic boom, has become a hotbed for future industries such as battery manufacturing and technology. Poland is also growing in military might and is rapidly strengthening its army with plans to double its size to 300,000 soldiers equipped with state-of-the-art Western technology. This is part of Warsaw’s strategy to transform the country into a formidable fighting force against Russia. Poland has raised its military spending to 4% of GDP this year with plans to sustain or increase these levels. This makes its war chest one of the largest in NATO. Poland is also bringing military leadership with a strong economy, and GDP per head is now £28,200 compared to £35,000 in the UK, which is projected to overtake by 2030 at its current trajectory rate.
Hong Kong-based femtech founder fights ‘period poverty’ across Asia
South China Morning Post
Hong Kong start-up Luüna Naturals is working to eradicate period poverty across Asia by dispensing free, eco-friendly menstrual products in washrooms of offices and schools since 2019. Founder and CEO Olivia Cotes-James undertook the initiative as she believes period products often are ignored by institutions when the focus should be on one's menstrual health, making it awkward to speak about. Luüna Naturals has worked with companies like Visa, UBS, and Bloomberg to offer menstrual care to over 300,000 users across several countries with its certified B Corp standards of social and environmental performance, transparency, and accountability.
Floods force thousands to leave homes in eastern China
South China Morning Post
Heavy rains have caused flooding across the Chinese provinces of Jiangxi, Fujian and Guangdong, forcing around 10,000 people from their homes. Almost 300,000 people have been affected by the flooding in Jiangxi, prompting the launch of a level-IV emergency response in the region. Forecasters have warned that the Yellow River’s middle and lower reaches, the Hai and Songliao rivers in the north and Pearl River basin in the south, are all at risk of heavier rainfall and with China’s flood season starting early this year, concerned officials have urged governments to enhance their rescue efforts.
Banks offer ‘barbecue loans’ to businesses in China’s new grilled-food capital
South China Morning Post
Chinese banks have launched low-cost loans at a breakneck pace as they attempt to capitalize on the craze for outdoor barbecuing in the industrial town of Zibo, Shandong province. Qishang Bank and other lenders have swiftly introduced schemes like the Bozi offering an interest rate of as little as 3.65% after Zibo became a popular tourist destination thanks to a viral trend for barbecued food. The rush follows a major gap between loan demand and deposits last year, putting pressure on banks to lend more money even in the short term during time-limited trends such as the hunger for barbecue food.
China’s Belt and Road to Enter Afghanistan in Taliban’s Victory
Bloomberg
China and Pakistan have agreed to extend the Belt and Road Initiative to hit-in Afghanistan, signaling the potential of billions of dollars being spent on infrastructure programs. Chinese Foreign Minister Qin Gang and Pakistan Foreign Minister Bilawal Bhutto Zardari vowed to work for relief, economic and infrastructure development of Afghanistan, extending special economic zones under CPEC, and will continue to enhance cooperation for development. The Taliban, which controls Afghanistan, have expressed interest in participating in the project in order to receive much-needed investment.China’s Belt and Road to Enter Afghanistan in Taliban’s Victory
The Toronto Star
Canadian Conservative MP Michael Chong expressed his disappointment upon learning that he and his family were targeted by Chinese state interference in 2021. Chong, a staunch advocate for the protection and preservation of democratic institutions, discovered through a news report that a Toronto-based Chinese diplomat attempted to gather information about his family for intimidation purposes, in response to Chong's support for Uyghur minority rights. The MP criticized the Canadian government for not informing him about the situation nor taking action against the diplomat. Chong believes Canada's democratic institutions are under attack and that the government seems indifferent, exemplified by Prime Minister Justin Trudeau reportedly stating that Canada won't meet the 2% defense spending target. Chong hopes that the exposure of his case will encourage a more serious approach to countering foreign interference and protecting Canadians.
Why China may be reluctant to play Sudan peace role
South China Morning Post
China is unlikely to take an active role in resolving the crisis in Sudan, despite previous interventions in the region, according to experts. In the current conflict, which began between loyalist factions on 15 April, more than 500 people have been killed and thousands injured. Despite China’s positive role in peace talks in Ethiopia between the federal government and the Tigray People’s Liberation Front, analysts believe Beijing will be hesitant to become as involved in the Sudanese conflict as it was during the war in Darfur or South Sudan’s civil war. Analysts said that China’s relationship with Sudan is complex and extends beyond the country’s leadership after Omar al-Bashir and his subsequent ousting in 2019. Chinese oil and construction firms are among numerous Chinese corporations with significant investments in Sudan, although the country is no longer as crucial a partner as it once was.
‘Missing her kids’: Aussie journalist Cheng Lei reaches 1000 days in Chinese jail
The Sydney Morning Herald
Australian journalist Cheng Lei has been held in a Chinese jail for 1,000 days, accused of national security crimes. Detained since 14 August 2020, the Australian government has raised her case alongside fellow imprisoned countryman Yang Haungjun, with Chinese officials. The detention of Cheng and Yang and the ongoing uncertainty of their sentencing is placing increasing pressure on Australia-China diplomatic and trade relationships, with campaigners urging the Australian government to explicitly link Cheng's fate to the broader economy.
Will a price war accelerate the switch to electric cars?
Financial Times
While Tesla has started cutting its prices in an attempt to spur demand for its products and achieve its ambitious sales goals, other automakers have claimed that they will not follow suit, citing stable demand for their products. While some automakers such as Ford have cut prices for their electric vehicles (EVs), they have stated that they are unwilling to price just to gain market share. However, behind the scenes, discounting by stealth has crept into the industry, with some dealers, analysts, and lease providers stating that under-the-radar discounting is starting to occur in mainstream brands. Additionally, the International Energy Agency has noted that more than a dozen Chinese nameplates are now targeting Europe, which has become the western crucible of EVs, thus resulting in growing competition in the EV market and more affordable models being offered. There is evidence that the price cuts may actually be increasing the prices of some EVs or slowing their journey towards affordability because of the residual value, or the second-hand value, of a car.
The Forces Behind South Korea’s and Japan’s Thaw
NY Times
The advent of new administrations in South Korea and Japan, under President Yoon Suk Yeol and Prime Minister Fumio Kishida, respectively, has led to a rapid thawing of relations between the two nations. This is being driven largely by a mutual need to align more closely with Washington as China’s promotion of an alternate vision of the world reduced the power of the US. With North Korea’s growing nuclear and missile threat an incentive, Seoul and Tokyo recognized the need for the strategic value of building up trilateral cooperation with the US. Both nations are expanding military cooperation on the understanding that the fast-changing geopolitical environment has created challenges they cannot deal with alone. The joint maneuverings by Chinese and Russian military aircraft near South Korean and Japanese airspace in recent years helped emphasize this point, with North Korea having not only fired missiles over Japan but also threatened a nuclear attack on South Korea.
‘I’m scared of getting caught’: boost for China’s hawkers as curbs lifted
South China Morning Post
The Chinese government will allow street vendors to operate in designated areas starting from September. The move is part of a broader strategy to boost consumption and create employment opportunities for migrant workers. Street vendors have been subjected to strict enforcement measures for years as officials sought to remove street stalls from the cities. The policy change was reportedly endorsed by some members of the Standing Committee of the Municipal People’s Congress, who justified their decision on the grounds that street stalls would help to restore the economy and promote consumption growth. However, some commentators argue that the policy, although appropriate for China’s post-Covid recovery as small- to medium-sized companies have collapsed, is unlikely to have a significant impact on underlying consumer spending.
As Japan’s Leader Goes to Seoul, South Koreans Are All Ears
NY Times
Japan's PM, Fumio Kishida, has traveled to Seoul in a bid to improve relations between the two countries, which have been strained for years due to historical grievances that include brutal Japanese colonial rule of the Korean Peninsula. This visit comes several months after the South Korean president, Yoon Suk Yeol, visited Tokyo. Since diplomatic exchanges between the countries were curtailed in 2011, the US has been pushing for both countries to improve relations for mutual strategic interests. These two important partners have much to offer Washington in terms of keeping North Korea in check and countering China's power. Yoon announced in March that South Korea would no longer demand Japanese compensation for forced labor during the Second World War but would instead pay victims with a fund made of South Korean money. The olive branch from Yoon has been positive both globally and domestically. However, much depends on what Japan thinks of its colonial era and what is said by Kishida during this trip, which is viewed as a significant test of his leadership.
China’s Gold Splurge Reaches Sixth Month as Reserves Rise Again
Bloomberg
China has increased gold reserves by 8.09 tons in April, marking a sixth straight month of accumulation. Total reserves now sit at 2,076 tons after the country added 120 tons of the precious metal to its reserves in the five months through March. Central banks globally have been diversifying assets and bulking up gold reserves, especially in the last year, to defend against a weakening US dollar and rampant inflation. The recent wave of Chinese demand, which began in November 2020, followed a 10-month run that ended in September 2019.
Japanese companies seeking US deals fear more scrutiny of China links
Financial Times
Japanese companies hoping to increase their acquisition activity in the US may face tribulations due to enhanced scrutiny of their business endeavors in China, according to trade attorneys. Concerns about the Committee on Foreign Investment in the US (CFIUS) are being discussed among Japan's largest corporations as the body has intensified scrutiny of buyers’ links to the East Asian mega-economy. The warnings come amid growing numbers of Japanese acquisitions in the US, and an increasingly hardline stance towards Chinese buyers hoping to make purchases in America.
Buffett prefers investing in Japan not Taiwan due to US-China rivalry
South China Morning Post
Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway, has said he is more comfortable investing in Japan than Taiwan due to the rising tensions between the US and China. Buffett revealed that Berkshire has recently increased investments in five Japanese trading houses and said that he was comfortable with the company's investment in Taiwan Semiconductor Manufacturing until the US-China dispute escalated. The comments came as Berkshire Hathaway reported a $35.5bn profit for Q1, largely due to strong financial markets. In the quarter, the firm sold $13.2bn of equities and bought just $2.8bn, dramatically reducing its exposure to stocks.
Australia Treasurer Warns China Boom Can’t Stop Global Headwinds
Bloomberg
Australia's economic rebound from the Covid-era lows has helped it return to surplus for the first time in 15 years. Treasurer Jim Chalmers announced that strong revenues from commodities exports and the labor market, as well as the Chinese economy developing more quickly than anticipated in the past six months, have boosted the budget's coffers. However, Chalmers also warned that despite the easing of Covid-19 restrictions in China, this surge could not offset the worldwide economic downturn's impact on the Australian economy.
China forex reserves rise to $3.205 trln in April
Reuters
China's foreign exchange reserves, the largest in the world, rose by $21bn to $3.205tn in April, beating the forecast of $3.192tn. The yuan fell 0.63% against the dollar last month, while the dollar fell 0.94% against other major currencies. Meanwhile, China's gold reserves rose to 66.76 million fine troy ounces, worth $132.35bn at the end of April.
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