Xi Aligns With Putin Against US, But Hesitates on Gas Deal; China capital Beijing experiences first population decline since 2003
Chinese Pressure Tactics Against Other Countries Largely Ineffective, Study Finds; China Approves an mRNA Covid Vaccine, Its First
Welcome to today's issue of The China Brief. The top story today is that China's coercive tactics and trade restrictions against countries seen as challenging its interests have largely failed to achieve the desired outcome, according to a study by the Center for Strategic and International Studies. In other news, Beijing's population decline is in line with China's national trends, which saw the country's population falling last year for the first time in six decades. During a two-day meeting in Moscow, Chinese President Xi Jinping and Russian President Vladimir Putin issued a joint statement criticizing US allies and NATO. Meanwhile, China's securities regulator, the China Securities Regulatory Commission (CSRC), is asking Dalian Wanda Commercial Management Group about its delayed IPO of Zhuhai Wanda Commercial Management Group. Finally, China has approved its first Covid-19 vaccine based on mRNA technology developed by CSPC Pharmaceutical Group Ltd.
WSJ: Chinese Pressure Tactics Against Other Countries Largely Ineffective, Study Finds
China's coercive tactics and trade restrictions against countries seen as challenging its interests have largely failed to get the desired outcome and, in some cases, have driven countries closer to the U.S., according to a study by the Center for Strategic and International Studies. The report analyzed China's use of coercive measures against eight countries, including Japan, Norway, and Australia, and found that while China's actions have caused some pain, they have failed to get governments to reverse their China policies. The report predicts that Beijing will continue to use the tactics despite their limited effectiveness.
Reuters: China capital Beijing experiences first population decline since 2003
Official data shows that Beijing's death rate surpassed its birth rate in 2022, resulting in a negative natural population growth for the first time since 2003. Beijing's population decline is in line with China's national trends, which saw the country's population falling last year for the first time in six decades. Factors such as rising living costs, weak economic growth and changing attitudes towards raising a family contributed to the decline. The birth rate of permanent residents in Beijing was low due to the city's high living and education costs and levels.
Bloomberg: Xi Aligns With Putin Against US, But Hesitates on Gas Deal
Chinese President Xi Jinping and Russian President Vladimir Putin issued a joint statement criticizing US allies and NATO during a two-day meeting in Moscow. While the visit marked a political win for both leaders, China hesitated to make any major energy deals with Russia, showing a reluctance to appear too close to the country in order to avoid facing economic sanctions that could damage China’s economy. The two leaders discussed military cooperation, but there were no signs that China would provide Russia with overt military support. The joint statements expressed concerns about US and UK plans to cooperate with Australia on nuclear-powered submarines and called on NATO to respect the “diversity of civilizations.”
Bloomberg: China Regulator Questions Dalian Wanda on Unit’s HK IPO Plan
China's securities regulator, the China Securities Regulatory Commission (CSRC), is asking Dalian Wanda Commercial Management Group about its delayed IPO of Zhuhai Wanda Commercial Management Group, and how it could affect the unit's debt repayment capabilities. Wanda Commercial may have to repurchase around CNY30bn ($4.4bn) of equity from pre-IPO investors if a listing doesn't occur by the end of 2023. The CSRC's questions come after major developer China Evergrande scrapped plans in late 2020 for a backdoor mainland listing, raising concerns of a cash crunch.
Bloomberg: Tencent Resumes Meager Growth After China Internet Sector Stirs
Chinese social media and games leader Tencent has reported a 1% growth in revenue after two quarters of contractions, helped by a 15% increase in online advertising revenue for the final quarter of 2022. The firm's results suggest an improving economy is spurring spending, and the market is hoping for regulatory relief after a crackdown since 2021 affected sectors from gaming to content. Although Tencent's growth rate is still a long way off from just a few years ago, the company's executives are optimistic about its prospects in international gaming and AI in 2023.
Reuters: Thick sandstorms shroud Beijing and several provinces in China
China's capital Beijing and several provinces are being hit by thick sandstorms that are severely affecting visibility, according to Chinese weather authorities. A yellow warning signal has been issued to 11 provinces, with sandstorms expected to move south and then weaken. China's four-tier, colour-coded weather-warning system has yellow as the third level of severity. Beijing, which has also been issued with a yellow sandstorm warning, has experienced sand and dust storms over the past several days, causing pollution levels to increase, with an air quality index of 500 recorded on Wednesday.
NYT: Xi and Putin Bind China and Russia’s Economies Further, Despite War in Ukraine
Russian President Vladimir Putin and Chinese leader Xi Jinping announced a long-lasting economic partnership, aiming to increase Russian energy exports to China and welcome more Chinese companies to Russia. The partnership aims to protect their countries from Western sanctions and other consequences of the war in Ukraine. The economic pledges indicate that China will continue to engage in business with Russia despite possible punitive measures from the US or Europe. Japan's Prime Minister Fumio Kishida visited Kyiv to show support for Ukraine, illustrating the geopolitical divisions caused by Russia's invasion. As the Russian economy suffers from isolation and Western sanctions, Moscow relies on China to compensate for lost business, which in turn gives Beijing more leverage over Russia.
NYT: China Approves an mRNA Covid Vaccine, Its First
China has approved its first Covid-19 vaccine based on mRNA technology, developed by CSPC Pharmaceutical Group Ltd. This homegrown vaccine comes after China refused to use foreign-made mRNA shots and instead promoted its own pharmaceutical firms, which rolled out a less effective traditional vaccine. The mRNA technology is considered among the most effective in the world and allows scientists to quickly modify shots to target new strains. The new Chinese vaccine is a source of national pride and a boon for the Communist Party leadership, as developing its own mRNA shot is no small feat. With little warning, officials ended China's "zero Covid" policy in early December, removing mass testing booths and pandemic protocols virtually overnight, leading to a Covid outbreak that overwhelmed ill-prepared hospitals with deadly consequences.
Reuters: China firm wins Solomon Islands port project as Australia watches on
The Solomon Islands has awarded a multi-million dollar contract to China Civil Engineering Construction Company (CCECC), a Chinese state company, to upgrade the Honiara international port in a project funded by the Asian Development Bank. The US and its allies, including Australia, New Zealand and Japan, have previously held concerns that China has ambitions to build a naval base in the region since the Solomon Islands struck a security pact with Beijing last year. CCECC was the sole bidder in a competitive tender, and the Solomons’ infrastructure development ministry said there would be “no expansion” of the project.
Reuters: China Evergrande set to unveil offshore debt restructuring proposal
China Evergrande Group is set to unveil a restructuring proposal for its $22.7 billion offshore debt that could shape investor sentiment towards the country's struggling property sector. According to two anonymous insiders, the proposal will offer creditors options to swap their debt for new bonds with extended maturity and equity in Evergrande's Hong Kong-listed units. The new bonds will have different tenors and coupons, with the longest at eight years and around a 9% coupon. Evergrande has more than $300 billion in total liabilities and has been at the centre of a property debt crisis in which multiple Chinese developers have defaulted.
Bloomberg: China’s Own Version of a Banking Problem
Small and medium-sized enterprises (SMEs) are proving to be China's biggest economic problem as the country tries to balance its 5% growth target. SMEs contribute around 60% of the country's gross domestic product, make up large parts of the manufacturing and industrial sectors, and are significant exporters. Despite President Xi Jinping's support and backing, these companies have been struggling since before the pandemic, and their situation has worsened due to loan repayment issues. To keep production lines running and comply with Xi's directive, loans to companies are rising quickly, but SMEs still lack funding and cannot access credit lines. As a result, they are turning to shadow banking, which is worrying. Moreover, smaller banks are not better off than SMEs, and their capital buffers are weak. Beijing wants more SMEs and innovation, but without substantial changes, their fate and that of their lenders are unlikely to improve.
Bloomberg: TikTok Snatched Defeat From the Jaws of Victory
TikTok had an opportunity to revise its public image and data policies in the four years since talk of a ban in the US first emerged. However, TikTok’s inability to shift public opinion has resulted in a loss of trust among political leaders. TikTok’s parent company, ByteDance, will have to find a buyer for the app to prevent it from being banned in the US and potentially other countries. However, with Chinese internet companies falling out of favor, it is unlikely that Beijing will allow TikTok to be sold to foreign buyers. The fate of the app now rests with governments around the world.
Reuters: China, Australia defense officials hold first formal meeting since 2019
Chinese and Australian defense officials held their first formal meeting since 2019 in Canberra on Wednesday, according to China’s Ministry of National Defense. The talks were aimed at developing a stable relationship between their militaries and improving mutual understanding, the ministry said. The dialogue was conducted “in a professional atmosphere with both sides exchanging views on regional security issues,” Australia’s defense department confirmed. Ties between the two countries have deteriorated in recent years but are now moving towards the resumption of Australian timber exports to China. However, the alliance of the United States, Australia, and Britain has made moves to counter China’s ambitions in the Indo-Pacific.
FT: RWE says US ban on imports from Xinjiang threatens solar ambitions
German utility company RWE has warned that the import ban on solar modules from China's Xinjiang region imposed by the US could significantly hinder its plans to build green energy infrastructure. RWE reported that the time-consuming reviews of solar module deliveries resulting from stringent checks on Asian imports had caused considerable project delays. The company has, therefore, suggested the need to beef up solar supply chains in the US and Europe, which could help alleviate the risk of delays and reduce bottlenecks in the supply chain.
NYT: Pulling the Plug on TikTok Will Be Harder Than It Looks
The Biden administration is facing challenges in making TikTok safe from Chinese exploitation, as concerns remain over whether it could be used as a tool for surveillance, disinformation, and as an entry point into American users' personal data. The issue will come to a head on Thursday when TikTok's CEO testifies before Congress. While the administration has received bipartisan support for several bills that would give explicit new authority to the president to shut down TikTok, concerns over the potential loss of 150 million users in the US, including small businesses, have led to questions over whether a total ban is politically feasible.
Bloomberg: Biden Stunts Growth in China for Chipmakers Getting US Funds
The Biden administration has announced new restrictions on chipmakers that get federal funding to build in the US, effectively hampering their attempts to expand into China. The $50 billion CHIPS and Science Act will stop companies that win grants from expanding output by 5% for advanced chips and 10% for older technology. The Commerce Department has outlined other measures including a $100,000 spending cap on investments in advanced capacity in China. Industry leaders including Taiwan Semiconductor Manufacturing, Samsung, and Intel, which all operate in China, could see their longer-term growth efforts affected by the restrictions. China's foreign ministry spokesman Wang Wenbin has said that Beijing will protect the rights and interests of Chinese firms, while the US says the measures are to ensure malign actors don't have access to cutting-edge technology.
SCMP: Hong Kong national security law: Beijing’s ‘3 red lines’ have ‘zero effect’ on my work, US envoy to city Gregory May says
The US Consul General for Hong Kong and Macau, Gregory May, has stated that Beijing’s “three red lines” for foreign officials in Hong Kong, laid out last month, have “zero effect” on his work. May reiterated that the US would continue to voice concerns over the “erosion” of Hong Kong’s autonomy. He also underscored the city’s importance to Sino-US relations, saying it offered access to the best experts on China, and provided freer communication channels than the mainland.
Caixin: China emerges from COVID, but flu epidemic concerns grow
China is facing a surge in flu cases across the country, with the rate of people testing positive for influenza up to 53.2% in the week ending March 12, more than 70 times higher than five weeks earlier. The rise in flu cases has coincided with the start of the spring semester, causing class suspensions at elementary schools and spurring a scramble for antiviral drugs. The dominant strain is H1N1, a subvariant of the influenza A virus that caused a pandemic in 2009, killing up to 575,400 worldwide. There are concerns of another pandemic just as the country emerges from three years of COVID-19.
SCMP: China’s Ukraine plan ‘an effort to show it backs peace rather than Russia’
China's recent initiative to end the war in Ukraine may be part of its effort to counter criticism from the West that it is supporting Moscow's war and to show that it is backing peace instead, according to an analyst. Chinese President Xi Jinping's trip to Russia is being closely watched as both nations highlight the strength of their relationship. Xi has used the visit to restate that China is committed to seeking a peaceful solution to the conflict following the release last month of its 12-point peace plan, which calls for a ceasefire followed by negotiations to settle the war. Russian President Vladimir Putin has welcomed China's peace proposal but said it could only be put forward "when the West and Kyiv are ready."
FT: Sri Lanka’s president has called on China and its other creditors to quickly reach a compromise on its debt restructuring or risk creating more economic peril
Sri Lanka's President, Ranil Wickremesinghe, has urged China and other creditors to compromise on debt restructuring to avoid further economic peril. The country owes approximately $40bn in foreign debt to bilateral creditors and commercial bondholders, and another $40bn in domestic debt, according to IMF figures. Analysts have stated that the reforms, which include the privatisation of state-owned assets, would be politically contentious. The IMF has approved a $3bn, four-year lending program, and an initial tranche of about $330mn is set to be disbursed, with the rest of the funds contingent on Sri Lanka making progress towards a preliminary debt-restructuring deal.
SCMP: US semiconductor firm Marvell lays off entire China research and development team in latest round of job cuts amid industry slowdown
US semiconductor company Marvell Technology is laying off its entire research and development team in mainland China as part of a 4% cut to its global workforce in response to an industry slowdown. While China remains an important market for Marvell, the company has decided to "concentrate our China-based resources on customer-facing teams to best support our local customers and business opportunities". The latest job cuts will eliminate its research and development roles on the mainland, following similar layoffs in October that affected its operations in Shanghai and Chengdu.
SCMP: Beijing’s Taiwan affairs chief pledges cross-strait exchanges, as island warns of mainland charm offensive
Beijing's Taiwan Affairs Office director, Song Tao, has pledged to promote cross-strait exchanges to woo Taiwanese and push for unification. Song also expressed his willingness to exchange views with a delegation from the General Chamber of Commerce of the Republic of China, Taiwan's official title, on how the two sides can develop relations and maintain peace. The Taiwanese delegation is in Beijing for a five-day visit, which includes meetings with mainland officials to discuss areas such as trade and business, the food industry, agricultural and fishery products, and financing for mainland-based Taiwanese businesses.
Bloomberg: Biden Team Reviews Impact of SVB Collapse on Chinese Startups
The Biden administration is reviewing whether the collapse of Silicon Valley Bank (SVB) inflicted more pain on Chinese technology startups than the Chinese government and companies have disclosed. The US government is gathering data on Chinese firms that may have had accounts with regional US banks and is trying to assess their exposure to the turmoil that has affected those lenders. One question is whether there is any risk of broader contagion in China's economy. The National Security Council and the State Department have not commented on the matter, while China's embassy in Washington also did not respond to requests for comment.
That’s it for today’s The China Brief. Please subscribe if you find our content helpful.