Xi’s Warm Words Jar With Reality for Foreign Companies in China; Who Wants to Catch Jack Ma’s Falling Knife?
Kishida and Xi agree to seek ways to end Fukushima wastewater spat
Welcome to this issue of The China Brief. Today is November 17, 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.
China’s Still Finding it Tough to Bring In Foreign Investment
Bloomberg
China's inbound foreign direct investment (FDI) has continued to fall throughout the first 10 months of 2015, highlighting the difficulty Beijing faces in attracting foreign investment. Actual utilised FDI dropped 9.4% in yuan terms from the same period last year, according to data from the Ministry of Commerce, worse than the 8.4% decline through September. Earlier this month it was reported that a measure of new foreign investment in China contracted for the first time on record. This growing slump poses a challenge for China's President, Xi Jinping, who has been working to attract foreign investment and promote a more business-friendly image.
Google claims it is beating Huawei in AI weather prediction
South China Morning Post
Google's DeepMind has developed a weather prediction model called GraphCast that offers improved accuracy and speed compared to Huawei's Pangu-Weather model. In tests, GraphCast outperformed Pangu-Weather in most scenarios, although the Huawei model led in some benchmarks, such as time-resolution. GraphCast was trained and operated on 7nm chips, while Pangu-Weather used 12nm. Both models surpassed the High Resolution Forecast system used by the European Centre for Medium-Range Weather Forecasts. The development highlights the ongoing competition between China and the US in the field of machine-learning-based weather prediction.
Kishida and Xi agree to seek ways to end Fukushima wastewater spat
Nikkei Asia
The leaders of Japan and China have agreed to find a solution to their differences over the release of treated water from the Fukushima Daiichi nuclear plant. The two nations agreed to seek ways to solve the issue through constructive discussions and dialogue, marking a change in the tone of their relationship. Additionally, Japanese Prime Minister Fumio Kishida called for an end to Chinese restrictions on Japanese seafood. The meeting came a day after Chinese President Xi Jinping met with US President Joe Biden and agreed to open or reopen several channels of communication.
China asks some lenders to cap interbank financing costs - sources
Yahoo US
China's central bank has asked some lenders to cap interest rates on negotiable certificates of deposit (NCDs), a popular short-term debt instrument issued between banks for their financing needs. The People's Bank of China also urged banks to keep interest rates stable ahead of the central bank's medium-term policy loan operations. NCD issuance rates have risen steadily since August and are now at near six-month highs.
How David Cameron tried to make his fortune with cash from China
Financial Times
Former UK Prime Minister David Cameron attempted to secure funding from China’s sovereign wealth fund, the China Investment Corporation (CIC), for a $1bn UK-China fund he planned to launch. Cameron’s efforts to raise money from the Chinese state are now under scrutiny following his appointment as foreign secretary. Anneliese Dodds, chair of the Labour party, has called for transparency in Cameron’s business and financial interests. Concerns have also been raised about potential conflicts of interest if Cameron was negotiating with a foreign government about funding a project that would have personally benefitted him. Cameron’s spokesperson stated that he had chosen not to proceed with the fund.
As prime minister, Cameron aimed to build closer ties between the UK and China. His most ambitious venture after leaving office was an attempt to set up a $1bn private equity fund. The fund sought to raise money from Chinese and UK investors and invest primarily in the two countries. Cameron returned to China several times to discuss the fund with senior Chinese government figures and CIC executives. However, the fund failed to materialise as UK-China relations cooled.
Cameron’s appointment as foreign secretary has been met with criticism. Some argue that his close ties to China and his lack of awareness of China’s global ambitions are worrying. Others contend that his policy of forging closer relations with Beijing made sense at the time. Cameron’s spokesperson stated that as foreign secretary, he would engage with China on global challenges while pushing back against any attempts by the Chinese Communist Party to coerce or create dependencies.
US, China must curb national security impact on trade: commerce minister
South China Morning Post
China's Commerce Minister Wang Wentao has urged the US to discuss the boundaries of national security in order to minimise the impact on normal trade and investment. During talks with US Secretary of Commerce Gina Raimondo, Wang raised concerns over US controls on semiconductor exports, sanctions against Chinese companies, investment restrictions, and punitive tariffs imposed during the trade war. Both sides agreed to hold further talks in the first quarter of 2022 and to establish an intergovernmental dialogue mechanism on standards and conformity assessments. China's Foreign Ministry spokeswoman Mao Ning also criticised the US's containment strategy to curb China's access to advanced technology products.
China’s Li Auto launches multipurpose vehicle model targeting the family segment
South China Morning Post
Chinese electric vehicle (EV) maker Li Auto has unveiled its first multipurpose vehicle (MPV), the Li Mega MPV, as it aims to expand its customer base in the family segment of the Chinese car market. The seven-seat MPV will be the first full-electric model built by the company and will be priced below CNY600,000 ($82,819). Pre-orders for the MPV have begun and production is expected to start in February 2024. Li Auto hopes that the MPV will attract wealthy customers looking for a larger family car.
Biden invites Kishida for a state visit in early 2024
Japan Times
Japanese Prime Minister Fumio Kishida has announced that he has been invited by US President Joe Biden to make a state visit early next year. The invitation comes as the two countries increase cooperation with South Korea in the face of security challenges in Asia. Kishida and Biden discussed their diplomatic engagements with China and agreed to continue close coordination.
China Fertilizer Group Calls for Export Cuts to Stabilize Prices
Bloomberg
Chinese fertilizer group, China Nitrogen Fertilizer Industry Association, has requested its members to limit exports and recall shipped cargoes in a bid to secure domestic supplies and stabilize prices. The group also advised producers to keep factory prices below levels recorded on 16 November and to lower sale prices if profit margins are high. The move follows similar measures by Beijing in September which led to a temporary cooling in the cost of local supplies before prices increased again last month. The restrictions are likely to further tighten the global fertilizer market, which has already been impacted by sanctions on major producers Russia and Belarus.
Biden-Xi meeting long in symbolism, short on substance
Japan Times
The article discusses the recent meeting between US President Joe Biden and Chinese leader Xi Jinping, highlighting the strained relations between the two countries. The meeting was seen as an opportunity to set a floor under the bilateral relationship and prevent it from escalating into open conflict. However, the author notes that while the two leaders acknowledged the need for clear communication and agreed to bound the competition, there are few reasons for optimism. The article suggests that the success of the meeting will only be determined with time.
First person charged under Australia's foreign interference laws denies working for China
Yahoo US
Lawyers for Melbourne businessman Di Sanh Duong, who has been charged under Australia's foreign interference laws, claim that a donation to a hospital made by Mr Duong to a federal government minister was not an attempt to influence the Chinese Communist Party. The donation was made to then-Cabinet minister Alan Tudge, with the money raised from Melbourne’s local Chinese diaspora. Prosecutors allege that Mr Duong expected Mr Tudge to become Australia’s next conservative prime minister, but Mr Tudge quit Parliament this year after the Labor Party won elections.
Mainland China, Hong Kong firms to gain as AI drives customer experience: report
South China Morning Post
Mainland Chinese and Hong Kong companies that quickly adopt artificial intelligence (AI) technology are likely to see a boost in revenue from honing their customer experience, according to a report by Euromonitor International. Over half of consumers in China said they used voice assistants this year when making purchases. More than half of the professionals interviewed said their companies plan to invest in generative AI over the next five years. The generative AI market is projected to be worth $1.3tn by 2032, compared with $40bn in 2022.
US renames key military unit in Japan’s Okinawa amid Chinese aggression
South China Morning Post
The United States Marine Corps has redesignated a key unit based in Japan’s Okinawa Prefecture as the 12th Marine Littoral Regiment. The move is designed to make the force operate more efficiently in the island environments of the Indo-Pacific and to be better able to respond to Chinese aggression within the region. There are some 18,000 Marines stationed in Japan, along with substantial detachments from the US Air Force, Navy and Army.
Alibaba goes back to the future with reversal of cloud spin-off
Financial Times
Alibaba's new CEO, Eddie Yongming Wu, has abandoned the company's major strategy shift of splitting off its cloud business and declared that cloud computing will be an important part of the company's future in the age of artificial intelligence. The move follows a period of investment in building up Alibaba's AI cloud infrastructure. However, the company is facing limited resources and US chip controls that threaten its ability to offer products and services. Wu claims the company is best positioned to solve the issue of the scarcity of high-end processors for AI computing power, which affects the entire Chinese market.
Chipmaking Gear Companies Get More Sales From China Than Ever
Bloomberg
Leading chipmaking equipment companies are experiencing a surge in revenue from China as the country stockpiles equipment to counter US trade restrictions on advanced semiconductors. The world's biggest suppliers of chip fabrication machinery drew over 40% of their revenue from Chinese customers in the most recent quarter. The latest tightening of US export restrictions has not yet affected sales to China; in fact, it may have accelerated orders. However, experts believe that China's massive front-loading of existing orders to beat further export restrictions will eventually run out of steam, and the market will discount future growth rates in China as unsustainable in the medium term.
Japanese seafood makes splash at APEC summit amid safety concerns
Nikkei Asia
Japan is seeking to boost seafood exports following the release of treated radioactive wastewater from the Fukushima Daiichi nuclear power plant in August. The release sparked safety concerns and led to some countries banning Japanese seafood imports. In an effort to encourage more seafood exports to the US and other APEC countries, the Japan External Trade Organization (JETRO) has set up an exhibition at the APEC CEO Summit in San Francisco offering free samples of fresh scallops flown in from Hokkaido, paired with Japanese sake. The exhibition has been successful thus far, with the majority of visitors being Asian and interested in tasting the seafood. The Japanese Prime Minister, Fumio Kishida, also hosted a seven-course seafood tasting event in San Francisco, where he called for a “calm and scientific” response to the release of water from the Fukushima nuclear plant and an immediate lift of the import ban on Japanese seafood.
APEC summit upbeat on AI as U.S.-China agree on dialogue
Nikkei Asia
Political and business leaders at the APEC summit in San Francisco expressed optimism about artificial intelligence (AI), emphasising the need for cooperation and regulation of the technology. US President Joe Biden and Chinese President Xi Jinping agreed to establish an intergovernmental dialogue on AI. Tech executives from Microsoft, OpenAI, Google, and Meta welcomed the agreement, citing the importance of comprehensive regulation and international cooperation. The CEOs of Google and OpenAI stressed the need for dialogue between China and the US, stating that AI requires a common framework and regulation.
Beijing touts 'historic' Xi-Biden meeting
BBC
The recent meeting between Chinese President Xi Jinping and US President Joe Biden continues to dominate Chinese media headlines. The meeting, which was hailed by Beijing as "historic," comes after strained US-China relations due to various issues such as China's claims over Taiwan and the South China Sea, as well as US export bans on advanced technology. The meeting resulted in some agreements, such as resuming military communications and combatting the flow of fentanyl into the US, but also highlighted the sticking points between the two countries, such as the chip wars and the issue of Taiwan. Chinese media portrayed the meeting as positive and constructive, emphasizing engagement and cooperation. Social media users in China expressed excitement and cautious optimism about the meeting, with some reacting with disbelief and amusement to Biden's comment that Xi is a dictator.
Measuring the US and China’s conscious decoupling
Reuters BreakingViews
The economic relationship between the US and China is showing signs of a structural decoupling, according to an analysis by Reuters Breakingviews. The report looks at various indicators including trade, finance, investment, people, and geopolitical tensions to assess the state of the bilateral relationship between the two countries. The analysis finds that while the headline numbers for US-China trade remain robust, growth in American imports from China is faster in goods not subject to US tariffs, indicating the impact of the trade war launched by former President Donald Trump. In finance, Western investors have reduced their exposure to China, with the average allocation of global equity funds to Chinese assets falling from 3.13% in 2015 to 1.75% in September 2023. Meanwhile, Chinese companies have largely stopped tapping American capital, raising just $529m from initial and secondary stock offerings in the US in the year to mid-October. The report concludes that while it will be difficult to untangle the links built up over many decades, a conscious decoupling between the US and China is set to continue.
China warns companies against selling equipment, precursors for fentanyl
South China Morning Post
China has warned its companies against selling equipment and precursor chemicals that could be used to produce fentanyl overseas, in a concession to the US. In response, Washington lifted Xinjiang-related sanctions on a lab affiliated with the Chinese police, saying the move was key to stopping the trafficking of precursor chemicals. China and the US have agreed to work together on narcotics control, and China's Office of the National Narcotics Control Commission has urged businesses and individuals to prevent the production and trafficking of narcotics, psychotropic substances, and precursor chemicals.
US Removal of Chinese Lab From Entity List Marks Rare Reversal
Bloomberg
The Biden administration has removed the Chinese Institute of Forensic Science from the US Commerce Department's entity list as part of a deal to combat the fentanyl crisis. The move is seen as a concession to Beijing's complaints over US trade restrictions. The Chinese police laboratory was added to the list in 2020 for being "complicit in human rights violations and abuses" in China's Xinjiang region. The entity list has been used for years as a tool to sanction individuals, companies, and organizations in China and elsewhere. Removing entities from the list is rare, with only about seven being taken off each year since 2008.
Japanese toolmakers scramble to combat dual-use export risk
Nikkei Asia
Japanese machine tool suppliers such as Fanuc and DMG Mori are taking steps to prevent their advanced technology from being used for military purposes. This follows an investigation by Nikkei which found that China's main research institution for developing nuclear weapons had used a state-of-the-art machine tool manufactured by a German subsidiary of DMG Mori. DMG Mori has installed sensors in its products to detect improper relocations, and can remotely shut down devices if necessary. However, the German subsidiary did not implement this tracking system until 2021.
Xi’s Warm Words Jar With Reality for Foreign Companies in China
Bloomberg
Chinese President Xi Jinping has promised to take more “heart-warming” measures to attract foreign businesses to the country, despite the fact that many companies have been facing increasing difficulties in China. The Chinese government has struggled to regain its footing in the wake of the pandemic, and the country’s business climate has notably deteriorated in recent years. Strict Covid restrictions, investigations into foreign companies, and increased compliance risks due to sanctions from the US and Europe have all contributed to a decline in foreign direct investment. In addition, a recent survey by the American Chamber of Commerce in Shanghai found that respondents were the gloomiest they’ve been about the business outlook in decades. Many foreign firms are grappling with a range of challenges, including unpredictable regulation, concerns over employee safety, and curbs on transferring data overseas. As a result, some of the world’s largest companies have transferred out key employees and hived off local operations. The challenges have also led some US brands to look to move manufacturing out of China.
Who Wants to Catch Jack Ma’s Falling Knife?
Bloomberg
Alibaba has suspended plans to spin off its cloud operations and paused the listing of its supermarket unit, causing its stock to drop and wiping $20bn off the company's market value. Founder Jack Ma's family trust also plans to sell 10 million shares within the next week. The company is undergoing a major business revamp and has been replacing much of its C-suite, while also needing to spend billions of dollars on new fields such as generative AI. Investors are concerned about who will be held accountable for the company's future spending.
China’s Xi Jinping pledges ‘heart-warming’ measures to attract foreign investors
South China Morning Post
Chinese President Xi Jinping has promised to introduce more measures to attract foreign investors to China. He stated that China's commitment to fostering a market-oriented, law-based, and world-class business environment will not change. The president also pledged to improve the protection of foreign investors' rights and interests and continue to strengthen intellectual property rights protection. This comes as foreign firms downsize their investments in China due to dampened confidence and concerns about increasing national security scrutiny. The aim is to create a more equitable market competition environment for foreign-funded companies and stabilize the expectations and confidence of foreign investors in long-term investments in China.
China’s draft rules on audit papers raise uncertainty over Hong Kong’s role
South China Morning Post
Proposed cybersecurity rules from China could threaten Hong Kong's role as neutral ground for settling disputes over auditing rules. The draft rules state that accounting firms must keep their audit working papers and relevant data within mainland China. This could increase costs and burdens for accounting firms and raise questions about the role of Hong Kong and the "big four" global accounting firms. Chinese authorities have long been reluctant to allow US regulators to inspect local accounting firms and access data concerning Chinese companies. Hong Kong's role as neutral ground could be a "temporary measure at best," according to experts.
Avoiding China Has Been a Winning Investment Strategy. But It Isn’t Easy.
WSJ
Investors are being warned against cutting their China exposure to zero as the Asian country makes up around 30% of the MSCI Emerging Markets Index, which has gained 2.8% this year. China is also a crucial trade partner for the US and for emerging economies such as Brazil and South Korea, according to the World Bank’s latest data. Investors who only want to put their money into funds that exclude China have relatively few products to choose from at present.
China’s rivalry with Musk’s SpaceX moves to even lower orbit
Japan Times
China is stepping up its competition against Elon Musk's Starlink satellites by planning to build its own state-owned low-Earth orbit (LEO) constellation. While SpaceX has deployed over 5,000 communication satellites in LEO, China has made little progress in its plans to build a 13,000-satellite constellation. China's move is seen as an attempt to challenge SpaceX's dominance in providing high-speed internet access.
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