Xi’s Casual Chats on Stage; Exclusive Insight: Hong Kong Talent Exodus? Not So Fast
How much did China pay to vaccinate its population against Covid-19? The bill is in; China's debt-laden local governments pose challenges to economic growth, financial system
Welcome to today's issue of "The China Brief," where we bring you the latest news and analysis on China's politics, economy, and society. In this issue, we cover China's economic recovery, the deteriorating US-China relationship, China's antiviral drugs, and more. China's President Xi Jinping has secured an unprecedented third term as president, cementing his power, focusing on reviving the economy, and positioning China for an era of superpower rivalry. Meanwhile, the US-China relationship is deteriorating at an alarming speed, raising fresh fears of eventual conflict. The issue of China's massive local-government debt poses challenges to economic growth and the financial system. China's homegrown antivirals face uncertainties due to a lack of data on their effectiveness and competition from imported alternatives. We also cover news on Tesla's battery cells, China's EV industry, and TikTok's US woes. In addition, we bring you updates on China's COVID-19 vaccination program, trade relations with Australia, and Japan's chip export restrictions. Lastly, we cover China's new vice president and the appointment of a former anti-corruption chief as the head of China's top legislative body. Stay tuned for our in-depth analysis of these stories and more.
First, here’s today’s exclusive insight:
Exclusive Insight: Hong Kong Talent Exodus? Not So Fast
Hong Kong has witnessed a mass exodus of foreign ex-pats, particularly those in the finance industry, to Singapore over the past three years due to the city's imprudent pandemic measures. Strict entry restrictions have prevented many high-level decision-makers from visiting Hong Kong, causing a considerable migration of senior financial management personnel to Singapore.
However, the finance industry is opportunistic and stagnates in the absence of deals. As pandemic control measures are lifted, Hong Kong's biggest hurdle to economic recovery disappears, and its IPO market is poised for a gradual rebound. Common sense dictates that where deals are, people will follow. Hong Kong's proximity to mainland China, a source of a steady stream of pre-listed companies, will likely continue to attract IPO projects. Consequently, the ex-pats who left are likely to return, especially since remote command of the Hong Kong IPO market from Singapore is unrealistic, especially for decision-making layers of investment banks.
Despite the implementation of the national security law in Hong Kong, its foreign residents remain largely unaffected. Hong Kong's rich and colorful life, with its vibrant energy and cultural diversity, continues to hold an undeniable allure, particularly when compared to Singapore's reputation for strict adherence to rules and regulations.
(The author Shen Yeya is an accredited investor and special analysis expert for "China Brief." This is the second article in the series "Can Singapore replace Hong Kong?".)
NYT: China’s Xi Jinping Takes Third Term as President With Eye on U.S.
China's Communist Party-controlled legislature has unanimously endorsed Xi Jinping for an unprecedented third term as president, cementing his dominance and solidifying his status as China's most powerful leader in decades. With his power secure, Xi focuses on reviving the economy and positioning China for an era of superpower rivalry. He is casting himself as the strong leader China needs in a hostile world, dismissing criticisms that his autocratic style adds to the country's dangers. Xi is poised to install his trusted officials in a new government lineup that will carry out his agenda of reviving growth and guarding China against threats at home and abroad. However, his warnings against the West risk escalating tensions with Washington and undercutting China's economic recovery.
Bloomberg: US-China Downward Spiral Raises Fresh Fears of Eventual Conflict
The US-China relationship is deteriorating at an alarming speed, raising fresh fears of eventual conflict. China’s President Xi Jinping accused the US of leading a campaign to suppress China’s rise. At the same time, US Director of National Intelligence Avril Haines called China’s Communist Party “the leading and most consequential threat to US national security and leadership globally.” While the US and China have no signs of imminent military conflict, both are accelerating preparations for that scenario. Even worse, the escalating rhetoric is entrenching divisions that could make it harder for both sides to find a way to co-exist peacefully over the long term.
Reuters: China's February credit grows faster than expected, supporting recovery
China's credit growth for February was stronger than expected, with the broad measure of credit and liquidity in the economy rising to 9.9% YoY and outstanding total social financing expanding at the fastest pace since November 2022. The pick-up in credit has supported a nascent economic recovery as Beijing looks to lift business and consumer confidence after a COVID-induced slump. China's economic growth was the weakest in half a century in 2022, and the government has set a modest target for growth of around 5% this year. However, there are concerns that momentum could fade after the initial rebound.
Bloomberg: US Apparel Companies Can’t See a Future Without China
US apparel companies are finding it difficult to reduce their reliance on Chinese suppliers due to the country's dominance in manufacturing. China has invested heavily in infrastructure and has the machinery and expertise needed to produce quality products at a high volume and pace. Although rising geopolitical tensions and supply chain disruptions have led many companies to pledge to reduce their reliance on China, few factories outside China have the machinery or skilled workforce to produce quality products like clothing, shoes, housewares, and luggage. Furthermore, finding alternatives comes with political and economic complexities.
Reuters Analysis: China's debt-laden local governments pose challenges to economic growth, financial system
China's massive local-government debt, which has exceeded $9tn, could impede the country's economic growth and financial system as local governments struggle to meet debt obligations. Local Government Financing Vehicles have $790bn of onshore bonds due this year, the highest amount since 2021. Several of them have requested that banks extend maturities and reduce interest rates. Concerns are growing over LGFVs' ability to meet debt obligations and the potential impact on the broader banking sector and markets. LGFVs are key in funding infrastructure projects, a major growth driver for the world's second-largest economy.
Nikkei: China developer Kaisa loses one-third of value in resumed trade
Shares of Chinese property developer Kaisa Group Holdings fell by as much as 41% as they resumed trading following a one-year halt. The Shenzhen-based firm published its long-delayed earnings results, which showed significant losses and big drops in revenue. Kaisa is one of many Chinese developers that have defaulted on their offshore debt after the sector plunged into a debt crisis in late 2021 amid a cash squeeze and slowing sales.
Bloomberg: China’s Credit Climbs, Led by Companies, Local Governments
In February, China's credit growth reached 3.2 trillion yuan ($460 billion), driven by local governments and corporate borrowing, while mortgage demand remained subdued. Financial institutions offered 1.8 trillion yuan worth of new loans, higher than economists had projected and almost three times the amount in February last year. The broad M2 measure of money supply expanded 12.9% from a year ago, while the stock of credit rose at a slightly faster pace of 9.9%. The PBOC has urged lenders to boost loans to help support the economy's recovery, but it is shifting towards a more conservative stance in recent weeks.
Caixin: Uncertainties hurt prospects of China's homegrown COVID antivirals
China's homegrown antivirals, SIM0417 and VV116, face uncertainties due to a lack of data on their effectiveness and competition from Pfizer's Paxlovid, which is considered the most effective treatment for stopping a COVID infection from becoming life-threatening. SIM0417 and VV116 have yet to prove their efficacy in reducing hospitalizations and deaths. Investors' interest in antiviral drugs is also waning. However, some analysts believe that the lower price of SIM0417 and VV116 could help them quickly replace imported alternatives on the domestic market and benefit if the government starts purchasing more of them.
Reuters: Tesla taps Asian partners to address 4680 battery concerns
Tesla is recruiting materials suppliers in China and Korea to help reduce the cost and boost the energy of its newest battery cells. The electric vehicle maker has signed a deal with Korea's L&F to supply high-nickel cathodes, which could increase the energy density of its 4680 cells and tap China's Ningbo Ronbay New Energy and Suzhou Dongshan Precision Manufacturing to help lower the cost of materials. The company aims to augment its output with 4680 cells from Korea's LG Energy Solution and Japan's Panasonic. The Tesla-designed 4680 cell is crucial to future production plans.
Bloomberg: China EV Stocks Slip as Automakers Continue to Mark Down Prices
Chinese electric vehicle (EV) makers, including Great Wall Motor and China Meidong Auto Holdings, saw their stocks decline as BMW and Audi's dealers reduced the prices of their EV models by as much as CNY 100,000 ($14,350), following price cuts by Tesla earlier this year. The MSCI China Index also fell as a result of the pricing battle. Investors have become increasingly wary of the industry as many automakers turn to subsidies and price competition to boost sales. However, some EV suppliers, such as Chinese battery maker Contemporary Amperex Technology, view recent discounts as a long-term strategic move to share lithium mineral resources with clients rather than to deliver price cuts.
Nikkei: TikTok's U.S. woes grow as efforts to lobby Washington falter; Bipartisan senate proposal would enable the president to ban social media app
This week, a bipartisan group of senators introduced a bill that would give the US president authority to shut down foreign-owned apps like TikTok on national security grounds. The current occupant of the White House, Joe Biden, signaled he would support it. The concern among US officials is that the short video platform, which collects troves of data from tens of millions of mostly younger Americans, could be used for spying or disseminating propaganda by China. Despite efforts to make friends in Washington, TikTok executives say they have been met with closed minds when discussing protocols and safety measures to protect American data from Beijing's prying eyes.
SCMP: How much did China pay to vaccinate its population against Covid-19? The bill is in
China spent roughly US$2 per dose for its main COVID-19 vaccines and spent CNY150 billion (US$21.5 billion) inoculating its population, according to cost details released by the National Healthcare Security Administration. The inactivated vaccines cost CNY16 per dose on average, with most of the shots made by state-owned Sinopharm and private pharma firm Sinovac. Two other Chinese vaccines, an adenovirus-vectored jab by CanSino and a protein-based one mostly by Anhui Zhifei Longcom, also cost about CNY16 per dose. The NHSA said it spent CNY150 billion in 2021 and 2022 buying the vaccines and inoculating the population. Meanwhile, local governments shouldered the much bigger burden of enforcing the zero-Covid strategy.
Bloomberg: US Races to Close Loophole in Ban on China Tech Firm Inspur
The US Department of Commerce is working to close a loophole in restrictions imposed on Chinese server maker Inspur Group, which allows American companies, such as Intel and Cisco, to supply its affiliates. The department added Inspur and dozens of its peers to an export blacklist, but did not specify all of its affiliates. The move has led to concerns that Washington’s campaign to contain China’s tech sector is being undermined, as US companies continue to deal with Inspur without getting permission from the US government.
SCMP: China-Australia relations: Western Australia premier to visit Beijing, Guangzhou by mid-April on first China trip in 4 years
Western Australian Premier, Mark McGowan, is expected to visit China by mid-April, with stops in Beijing and Guangzhou to discuss tourism development, among other topics. The visit comes amid improving bilateral and trade relations between China and Australia, and is the latest in a series of high-profile visits between the two countries. Australian Prime Minister, Anthony Albanese, and Trade Minister, Don Farrell, are also expected to visit China this year. Trade officials from both countries are making progress in discussions to eliminate trade barriers and improve trade and investment.
Bloomberg: Japan Says No Decision Yet on Chip Export Restrictions
Japan's trade minister, Yasutoshi Nishimura, stated that no decision has been made regarding restrictions on the export of chip-making equipment. This follows the Netherlands' announcement that it would impose limits on the export of certain lithography products to China, adding to existing restrictions on the most advanced lithography machines. Many US allies are struggling to balance Washington's concerns about China's access to leading-edge technology with their reliance on the world's biggest manufacturer. Japan had agreed to join the US and Dutch curbs in principle.
Bloomberg: Xi’s Casual Chats on Stage Show Closeness With New China Leaders; President makes public display of easy manner with No. 2
Chinese President Xi Jinping's casual chats with top lieutenants on stage during the National People's Congress on March 10 showed evidence of the strong chemistry among China's new leadership team. The conversations drew a contrast with the awkward scene five months ago when former President Hu Jintao was escorted from party congress proceedings. The reshuffle of Xi's lieutenants has fuelled debate about whether the team of loyalists will be willing to challenge him or use their familiarity to help smooth over policy problems.
SCMP: Meet Han Zheng, the man just appointed China’s new vice-president
Han Zheng has been appointed as China's new vice-president, succeeding Wang Qishan. Han's duties will mostly be symbolic, such as representing the country at ceremonies overseas and receiving foreign guests. Although the role of vice-president has traditionally served as a training ground for the presidency, it remains unclear who will succeed President Xi Jinping. Han has extensive experience in managing foreign affairs, having worked with different bosses and holding various leadership positions in Shanghai. He was also the leader of the Belt and Road Construction Leadership Group and the Central Coordination Group on Hong Kong and Macau Affairs.
Bloomberg: China Hawks Are Throwing Away Their Strongest Weapon
Chinese leader Xi Jinping's direct criticism of the US at China's National People's Congress this week has renewed fears of the two countries heading for a full economic decoupling. However, most of China's $3.3tn in foreign exchange reserves are tied up in assets denominated in the US dollar and Euro, and its manufacturing sector, the world's largest, couldn't function without imports of Western technology. Under Xi, China is prioritizing technological self-sufficiency and growth driven by domestic rather than external demand. In the short term, an economic divorce is unthinkable, and the smart course would be for the West to decouple selectively while maintaining most other trade unhindered.
SCMP: Former anti-graft chief Zhao Leji appointed China’s top lawmaker
Former anti-corruption chief Zhao Leji has been appointed as the new head of China’s top legislative body, the National People’s Congress (NPC), with a unanimous vote during the annual session of the national legislature on Friday. As chairman of the NPC Standing Committee, Zhao is expected to prioritize President Xi Jinping’s vision in the country’s legislative work, including issues related to the United States and those concerning foreign entities and “foreign forces”. Zhao is seen as a trusted ally of President Xi Jinping and has years of experience in key party organs.
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