Why It’s So Hard for China to Fix Its Real Estate Crisis; China’s anti-corruption watchdog vows crackdown on flood relief fund misuse
South Africa’s Ramaphosa welcomes China’s Xi ahead of BRICS summit; Missed payments by China's Zhongzhi hit listed companies; BRICS that expand too fast can fall apart
Welcome to this issue of The China Brief. Today is August 22, 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.
Why It’s So Hard for China to Fix Its Real Estate Crisis
NY Times
China's efforts to stimulate economic growth through increased borrowing and investment are proving less effective this time around. Policymakers have been urging banks to provide more loans and financial support for the economy, but demand for borrowing has weakened. The construction and sale of new homes have stalled, with more than 50 real estate developers defaulting or stopping payment on bonds. Meanwhile, companies are reluctant to borrow money for expansion as sales fall and the economy faces deflation. Local governments are heavily indebted and struggling to pay their civil servants. China's reliance on a credit boom and leveraging to stimulate the economy has reached its limit, according to Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance. The country has been urged by western economists to reduce its high rates of savings and investment and encourage more consumer spending, but little has been done to strengthen its social safety net. At the core of China's current economic troubles is the real estate sector, which represents a quarter of the country's economic output and at least three-fifths of household savings.
China’s anti-corruption watchdog vows crackdown on flood relief fund misuse
South China Morning Post
China's anti-graft body, the Central Commission for Discipline Inspection (CCDI), has vowed to crack down on corruption in the use of reconstruction funds after over 9 billion yuan ($1.25 billion) was allocated to flood-hit areas. Heavy floods have caused extensive damage in central and northern China this summer, resulting in dozens of deaths and widespread destruction. The CCDI called for local party committees and governments to prioritize post-disaster reconstruction and ensure transparency in fund management and construction standards. The move comes after an audit report revealed that around 10 billion yuan of reconstruction funds for summer flooding in Henan province had been misused by local officials.
South Africa’s Ramaphosa welcomes China’s Xi ahead of BRICS summit
Al Jazeera
Chinese President Xi Jinping arrived in South Africa for his fourth state visit to the country, coinciding with the 15th BRICS Summit. President Cyril Ramaphosa welcomed Xi, who will be hosted in Pretoria before the summit begins on 22 August. The BRICS bloc, which includes Brazil, Russia, India, China and South Africa, makes up a quarter of the global economy and over 40% of the world's population. Ramaphosa said that China has lifted nearly 800 million people out of poverty over a 40-year period, and that South Africa has a lot to learn from China's development path.
Missed payments by China's Zhongzhi hit listed companies
Nikkei Asia
The failure of one of China's largest trust companies, Zhongrong International Trust, to pay interest on its investment products has impacted at least six listed companies, in a sign that the turmoil in China's property market is spreading to the wider economy. Zhongrong's failure to make payments to investors has added to anxieties about the health of the wider economy as the nation's property market sags. Zhongrong International had assets under management of CNY 785.7bn ($109.1bn) at the end of last year.
BRICS that expand too fast can fall apart
Al Jazeera
The BRICS (Brazil, Russia, India, China and South Africa) summit is taking place in Johannesburg this week, and two key issues will dominate discussions: expanding the group and de-dollarisation. Over 40 countries have expressed interest in joining BRICS, with 22 formally requesting membership. This includes countries from Africa, South America, Asia and the Middle East. Meanwhile, China and Russia are keen to use the summit as a platform to push for de-dollarisation, aiming to reduce their dependence on the US currency and establish a new BRICS currency, potentially backed by gold. De-dollarisation would also be seen as a positive for Brazil, South Africa and India, who have better relations with the West but would like to have less reliance on the dollar. However, the plan for de-dollarisation is still unclear and the BRICS track record on this issue has been mixed. The stability and convenience of the dollar is hard to rival, and there is also a significant imbalance in resolve regarding de-dollarisation within the grouping. Furthermore, complex relations and differing approaches towards the West among the BRICS nations may undermine their political impact as a bloc.
South Korea's Yoon downplays Taiwan war risk after U.S. summit
Nikkei Asia
South Korean President Yoon Suk Yeol has sought to allay concerns that South Korea could be implicated in a potential conflict between China and Taiwan following the trilateral summit with Japan and the US. Critics argue that the agreement worsens national security and jeopardises ties with China, but Yoon's office has insisted the agreement does not confer military obligations. The agreement, called the Spirit of Camp David, commits the three countries to consult with each other to coordinate responses to regional challenges and threats. The agreement is not legally binding and does not mandate particular actions.
China's central bank faces dilemma: save bank profits or property
Nikkei Asia
China's central bank, the People's Bank of China (PBOC), surprised markets by keeping the five-year loan prime rate (LPR) unchanged at 4.2%, while only cutting the one-year rate by 10 basis points to 3.45%. The decision to maintain the five-year rate was seen as an attempt to protect commercial banks' net interest margins (NIM), and to ensure the financial system remains healthy. However, the move is not expected to benefit consumers or property developers, as mortgage payments will not be reduced and there will be little incentive for new loans.
China must not panic over deflation and reinflate a bubble
South China Morning Post
China's deflation is being driven by market-driven restructuring, which leads to more efficient resource allocation and greater purchasing power for consumers, according to economist Andy Xie. He argues that if China can resist the pressure to reflate the property and financial bubbles, it can achieve healthier and more sustainable growth, turning the country into a high-income economy. Xie also highlights the positive effects of competition and productivity in sectors such as autos and tourism, which are contributing to deflation. He warns against reviving bubbles through stimulus measures and urges a focus on real economic activities.
Russia and China seek to further political agendas at Brics summit
RFI
Leaders from the BRICS economic bloc, comprised of Brazil, Russia, India, China, and South Africa, are set to hold three days of meetings in Johannesburg. Chinese Premier Xi Jinping's attendance highlights the investment China has made in the bloc over the past decade. Russian President Vladimir Putin will appear via video link due to an International Criminal Court arrest warrant against him over the war in Ukraine. The summit is expected to call for more cooperation among countries in the global south, reflecting discontent over perceived Western dominance of global institutions. The possible future expansion of BRICS membership will also be discussed at the summit, with several African countries expressing interest in joining.
Telegraph
China's centrally planned autocracy is struggling with deflation after keeping Covid controls in place longer than Western countries. This has led to a decrease in consumer spending and production, resulting in layoffs and lower salaries. The country's economy relies on domestic consumption, which is being hindered by factors such as a low birth rate, high local government debt, a weak real estate market, and high youth unemployment. This situation has led to concerns about geopolitical consequences and the stability of the Chinese Communist Party. Experts suggest that China needs to shift away from state-led industrial policy and allow the market to determine prices.
China is on the verge of economic and social implosion
Telegraph
The Chinese economy is facing a perfect storm of challenges that will prevent the post-Covid economic rebound that Beijing has been heralding, according to analyst Jonathan Fenby. He argues that President Xi Jinping's programmes of economic reforms have failed, with the economy stagnating even before the pandemic hit. Fenby says that Xi's centralised economic authority has interfered with successful entrepreneurs and the fintech sector, while trade tensions with the US and Western criticism of abuses in Xinjiang have ended China's image as a benign force for globalisation. Domestic consumer confidence is plummeting and the yuan is spiraling downwards.
‘Australians know what this means’: Germany warns against relying on Beijing
The Sydney Morning Herald
German Foreign Minister Annalena Baerbock has praised Australia for resisting Chinese economic coercion, and called on democratic nations to seek alternative export markets and work together to prevent developing countries from "pivoting towards China". Baerbock warned that China is a systemic rival too unpredictable and secretive for other nations to rely on, and said that China's rise is challenging the "very fundamentals of how we live together in this world". She also warned Chinese President Xi Jinping against invading Taiwan, saying it would be "unacceptable".
Philippines completes mission to disputed shoal after Chinese water cannon incident
Reuters
The Philippines has successfully completed a resupply mission to its grounded warship on a contested atoll in the South China Sea, two weeks after a similar attempt was aborted due to interference from China Coast Guard vessels. China's Coast Guard claims to have allowed Manila to deliver food and necessities to the atoll on humanitarian grounds. The Philippines intentionally grounded the warship in 1999 to reinforce its sovereignty claim to the atoll. China maintains that the Philippines' occupation of the shoal is illegal.
Six arrested for CBD kidnapping after victim alerts friend via WeChat
The Sydney Morning Herald
Six individuals, all from China, have been arrested in Melbourne for their alleged involvement in the kidnapping of a Chinese teenager and attempting to extort money from him. The victim managed to contact a friend through the messaging app WeChat and informed them that he was being held hostage by armed men in a Melbourne apartment. The men demanded $200,000 from the teenager. Police located and rescued the victim without incident and subsequently arrested three men. Three more individuals were arrested later. The investigation is ongoing. This incident is part of a larger pattern in which Mandarin-speaking Chinese students have been targeted for extortion scams. Scammers often pose as Chinese government officials or police and threaten victims with charges or deportation if they do not transfer large sums of money.
‘Worrisome’ Asian environment draws US-Japan-South Korea closer: Washington
South China Morning Post
The US, South Korea and Japan have raised security cooperation due to rising anxiety and a "more worrisome" security environment in Asia, including China's military build-up, according to US officials. The officials said that Beijing had quietly supported Russia in its war in Ukraine, which was "deeply destabilising and concerning" to the region. However, they denied that the cooperation between the three countries was aimed at China, saying that it was intended to protect themselves in an increasingly uncertain world. The joint statement after the summit expressed shared concerns about possible military action by Beijing in the South China Sea and Taiwan.
China fines Mintz $1.5 mln for 'unapproved' work, after raiding its Beijing office
Reuters
China has fined US firm Mintz Group approximately $1.5m for conducting "unapproved statistical work" in the country. The Beijing Municipal Bureau of Statistics ruled that the firm had carried out "foreign-related statistical investigations" without obtaining the necessary approvals. Mintz has 60 days to file an appeal and six months to file an administrative suit. The firm has previously stated that it operates lawfully in China. Mintz's services include background checks on potential business partners and fact gathering for legal cases and internal investigations. In recent months, China has intensified its crackdown on consultancy and due diligence firms, including Bain & Company and Capvision Partners.
Revered and reviled, Thailand's Thaksin Shinawatra returns home
Reuters
Thaksin Shinawatra, Thailand’s deposed prime minister, has returned to the country for the first time since 2008, having gone into self-imposed exile to avoid corruption charges following his overthrow in a military coup. The 74-year-old’s return comes on the same day as the populist party he founded, Pheu Thai, is due to attempt to win power in an alliance with parties linked to the generals who ousted Thaksin’s last pro-Thaksin government. Thaksin, an influential political figure for decades, was the first Thai leader to pay attention to the needs of the rural masses.
China’s awkward power play at the BRICS summit
Washington Post
The BRICS (Brazil, Russia, India, China, and South Africa) summit is being held this week in Johannesburg, South Africa. The BRICS bloc, which represents around 40% of the global population and a growing proportion of global GDP, has struggled to find a shared agenda and purpose in the past. However, this year’s summit is expected to be more significant due to several intriguing factors. Firstly, the war in Ukraine is likely to be a key topic of conversation, as Russian President Vladimir Putin, the only BRICS leader not attending in person, is facing an arrest warrant from the International Criminal Court. Secondly, there is growing discussion around the role of the US dollar in the global economy and the potential for a BRICS-backed currency to rival the dollar’s supremacy. Finally, China is pushing to expand the BRICS bloc to include more countries, including Indonesia, Nigeria, Argentina, and Saudi Arabia, in order to present a more “inclusive” worldview and strengthen China’s influence on the global stage. Despite its struggles, the BRICS bloc continues to be seen as a vehicle for emerging and developing nations to challenge the dominance of Western-led institutions and promote a multipolar world order.
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