Bull market or bluster?

Dear Access member,

• TOMORROW, October 23 at 11 a.m. EST, Darren Byler will join us on our Slack channel for a Q&A. Darren is an anthropologist who studies Uyghur culture and the ways that China is criminalizing it — you can read more about his work here. Also check out Darren’s website, The Art of Life in Chinese Central Asia, which features fascinating writing from him and other scholars of Xinjiang.

• If you’re in New York on November 13, please join us for The China Project’s second monthly women’s networking event with guest speaker Ingrid Yin, Ph.D., cofounder of MayTech Global Investments and a winner of the 2018 The China Project Female Rising Stars Award. Our theme is innovation in medicine and biosciences in China.

—Jeremy Goldkorn, Editor-in-Chief

1. Bull market or bluster?

“China’s beaten-down stock market had its best day in more than two and and a half years on Monday,” reports CNN: “The benchmark Shanghai Composite index surged more than 4% after a rare concerted intervention by senior officials to talk up the country’s struggling economy and markets.” The “rare concerted intervention” began last week with expressions of confidence in the stock markets and the real economy from four key economic officials — Liú Hè 刘鹤, Guō Shùqīng 郭树清, Yì Gāng 易纲, and  Liú Shìyú 刘士余.

Andrew Polk, co-founder of political and economic research house Trivium, tweeted that the foursome’s rare cheerleading “speaks volumes about how high the level of anxiety is right now.” I tend to agree. Polk’s tweet reminds me of an old truism in China: You can only be sure something is actually happening when the government denies it.  

Which is why this headline from CNBC on the stock market rally is perhaps a better summary of the real situation than CNN’s focus only on the good news: Chinese stocks surge, but looming uncertainties could drag markets down again. Even if the stock markets remain healthy after this propaganda-fueled bounce — I need hardly say — their performance is not a reliable indicator of the real economy. Trivium’s latest newsletter offers more detail on why today’s buoyant market might not mean anything:

Anxiety abounds in Beijing

There is palpable anxiety in Beijing these days. Q3 economic data showed a weakening economy. The worst part was that, so far, there has been little impact from the trade war. But those effects should start to be felt in the coming months.

Liu He and other top officials went on a high-profile media blitz on Friday to try and calm market jitters. Then Liu and other top officials met on Saturday to discuss financial risks.

The markets took all this to mean that stimulus is coming, and had a big day today.

We are far less certain. What’s clear to us is that presently there is no clear plan for how to address economic weakness. Instead, there is an active — and unsettled — debate about what to do.

Counterpoint: Economist and Sinica Podcast guest Andy Rothman, admittedly a permabull on China but one who is rarely wrong, in his latest research note:

On the one hand, China market sentiment and performance are weak. On the other hand, macroeconomic conditions and corporate earnings are strong. This great China disconnect is likely to narrow, although it isn’t possible to say exactly when that will happen.

Macro data published last night for the third quarter reflects a healthy Chinese economy, driven by domestic demand, limiting any leverage the Trump administration believes it will gain via tariffs. Beijing has not undertaken significant stimulus, but will do so if the tariff dispute escalates into a trade war.

2. Xi’s second Southern Tour

General Secretary Xí Jìnpíng 习近平 has set off on what the South China Morning Post calls a “highly anticipated trip to Guangdong at a most critical time with the Chinese economy at a new crossroads after four decades of almost uninterrupted boom.”

• The trip recalls “the famous Southern Tour by previous Chinese leader Deng Xiaoping in early 1992, when China was isolated by western countries after Beijing’s crackdown on the pro-democracy movement in 1989,” says the SCMP.

• To me at least, the trip also recalls Xi’s Southern Tour of 2012, and that did not lead to a new great opening up or reform, so I would not read much into the symbolism of Xi’s trip.

• Also see a separate SCMP report on part of Xi’s visit: Chinese President Xi Jinping to visit Qianhai economic test bed as US trade war takes toll.

3. Censoring the blockchain

In the first attempt to regulate the content of blockchain technology rather than its use for cryptocurrencies, the Cyberspace Administration of China (CAC) published a set of draft regulations (in Chinese) governing all blockchain-based information services. The public is invited to comment in the draft until November 2, but there’s no timetable when the law will take effect.

• In April this year, #MeToo activists called for an investigation into a coverup of a two-decade old sexual harassment case at the prestigious Peking University. When their social media postings were censored, they turned to the cryptocurrency Ethereum to record the case for posterity.

• When China’s latest toxic vaccine scandal exploded in July, some savvy users of cryptocurrency Ethereum inserted the text of a censored WeChat article into the metadata of a transaction to preserve it. TechNode reported the details: Chinese bet on blockchain to counter vaccine scandal cover-up.

• Preventing samizdat blockchains seems to be a major aim of the new regulations from the government. The South China Morning Post reports that rules stipulate that “entities operating in China that provide blockchain-based information services will have to ask users to register their real names and national identification card numbers, censor content deemed to pose a threat to national security and store user data to allow inspection by authorities.”

• But there’s a problem: the whole point of blockchain is that you can’t change or delete the information it records. So how will post hoc censorship even be possible?

—Jeremy Goldkorn

4. Trade war, day 109: Trump ‘wants them to suffer more’

Axios reported yesterday:

President Trump has no intention of easing his tariffs on China, according to three sources with knowledge of his private conversations.

• Trump “wants them to suffer more” from tariffs, believing it will give him more leverage, the sources say. One of those anonymous sources dialed up the bravado and claimed the trade war is only at the “beginning of the beginning.”

• The U.S. Treasury Department has been in contact with Beijing to “exchange information,” according to Axios, but it’s been “nothing close to real negotiation.”

• Beijing has “offered no sign that it was willing to meet US demands in a way that could lead to a breakthrough between the countries” ahead of an expected Trump-Xi meeting at the end of November, the Financial Times separately reports (paywall), citing comments from Trump economic advisor Larry Kudlow, who says that Xi and Beijing “have to make a decision and so far they have not, or they have made a decision not to do anything, nothing.”

Axios briefly alludes to Trump’s confusing conflation of the Chinese stock market drop with real economic health — if you took Trump by his word, you would think he already believes he has severely damaged the Chinese economy and that China is begging him to negotiate — but does not go into detail about the exact calculation that team Trump is making, other than that the President thinks “We are strong and they are weak.” Nonetheless, there may be a small bit of economic sense behind the insistence on waiting longer for tariffs to take a toll:

• “Chinese exporters are not yet suffering. Exports to the U.S. rose 14% YoY in September, the fastest pace of the last seven months, and roughly the same as a year ago.” So writes economist Andy Rothman in his regular Sinology report. Rothman also notes, though, that the impending direct impact from U.S. tariffs on Chinese companies won’t be large, when considering these three facts:

  • “Net exports (the value of a country’s exports minus the value of its imports) account for only 2% of China’s GDP, down from a peak of 9% in 2007”;

  • “China’s exports to the U.S. accounted for only 19% of total Chinese exports in 2017”; and

  • “About two-thirds of the largest exporting companies based in China are foreign-owned.”

More trade war news:

• What China’s leaders may not be hearing
  Chinese experts ‘filtered’ trade war advice to Beijing policymakers / SCMP
  “Chinese policymakers have been left searching for answers to the trade war with the US because the domestic think tanks Beijing has called on for guidance have provided ‘filtered information’ to avoid offending supervisors, sources close to the Chinese government and diplomatic observers said.”
  “Researchers have told the Post that Beijing has only allowed China’s policy specialists to make brief visits to the US, some as short as one week. The limitation makes thorough investigation and quality communication with American contacts impossible, the researchers said.”

• Capital movement
  Opinion: Beijing finds anti-Trump weapon in global indices / by James Kynge in FT (paywall)
  “A trade war is raging between the US and China, but somebody forgot to tell foreign portfolio investors. Surging inflows of foreign capital have headed to the Chinese bond and stock markets and helped to stem the depreciation of the renminbi against the US dollar.”

• Commentary
  US and China heading for lose-lose situation in trade war if they do not talk, says US garment trade chief Rick Helfenbein / SCMP
  “Rick Helfenbein, president and CEO of the American Apparel and Footwear Association (AAFA) – an advocacy group representing more than 1,000 major industry brands – described the present situation as ‘dangerous’ and likened the trade war to an approaching tsunami.”

• Products: Rubber
  Ivory Coast’s ‘devil’s milk’ at centre of US-China trade war / Al Jazeera
  “Rubber tree growers in Ivory Coast are emerging as the latest casualty of the trade war between the United States and China. It is Africa’s leading exporter of the valuable commodity, which was historically called ‘devil’s milk’ because of the brutal conflicts it fuelled.”

• Products: Liquefied natural gas
  Trade war: China’s natural gas tariff will kill off US projects, says Canadian firm / Reuters via SCMP

• Products: Pork
  America struggles to take its pigs to world’s biggest market / WSJ (paywall)
  “As a result of the Trump administration’s clash with Beijing over trade, China’s tariffs on U.S. pork have climbed as high as 70%, making U.S. imports more expensive. At the same time, an outbreak of African swine fever in China has increased demand for imported pork.”
  “To fill the void, Chinese customers are increasingly looking to companies in Europe and South America to fill their orders—and those companies aim to turn that opportunity into long-term business. The shift raises the prospect of not just a short-term hiccup for American hog farmers, but a fundamental realignment in the global supply chain in one of the world’s hungriest markets.”

—Lucas Niewenhuis

—–

Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@thechinaproject.com.

—Jeremy Goldkorn, Editor-in-Chief

BUSINESS AND TECHNOLOGY:

• Bankers fear travel to China
  Global banks curb China travel after UBS banker stopped from leaving / Reuters
  “Global banks including Citigroup and Standard Chartered have asked their private banking staff to postpone or reconsider travel to China after authorities there prevented a UBS banker from leaving the country, sources said.”

• Substandard food at subsidiary of British company
  Shanghai school investigated for serving substandard meals / Sixth Tone
  “The Market Supervision Administration in Shanghai announced Saturday that SMIC Private School had served rotten tomatoes, improperly stored meat, and expired spices — all prepared by the subsidiary of a British company — and suspended lunch service at the school pending an official inquiry.”
  China watchdog probes unit of catering giant Compass over expired school food / Reuters

• WeChat’s failure in India
  How WeChat faded into the silence in India / FactorDaily
  A good read on what went wrong when China’s killer mobile app went to India.

• Ride-hailing competition
  Briefing: Didi’s rival Dida becomes second China’s largest ride-hailing service / TechNode
  “Ride-hailing platform Dida Chuxing has recorded a jump to 10 million daily active users (DAU), making it the second most popular service following market leader Didi Chuxing.”

• Live streaming
  PandaTV says it‘s not dead and will file for an IPO this year / China Film Insider
  “PandaTV, Chinese live streaming platform specializing in e-sports and other entertainment content, plans go public by the end of this year, Chief Operation Officer Zhang Juyuan told local media.”

• Fashion industry
  LVMH’s largest open house draws a record number of Chinese visitors / Jing Daily

• Pork industry  
  China finds African swine fever in country’s south, fueling supply worries / Reuters
  “China’s three-month-old outbreak of African swine fever has spread for the first time to the country’s south, its major pork-consuming region, signaling how deeply the deadly disease has permeated the country’s pig herd, the world’s largest.”

POLITICS AND CURRENT AFFAIRS:

• Internment camps in Xinjiang ?
  Xinjiang authorities detain prominent Uyghur journalist in political ‘re-education camp’ / Radio Free Asia
  “Bahram Qurban, the son of former editor-in-chief of the official Xinjiang Cultural Journal Qurban Mamut, told RFA’s Uyghur Service that his parents visited him for a month in the U.S. beginning in February 2017, marking the first time the three had seen each other in more than nine years. After the couple returned home to the XUAR, 68-year-old Mamut went missing, and Qurban said that he later learned that his father had been taken to one of a network of re-education camps in the region.”
  No more singing and dancing? Xinjiang diffractions / Asia Dialogue
  “For a number of years a stereotypical image of Uyghurs as ‘good at dancing and singing’ (能歌善舞 nénggē shànwǔ) has been promoted by the Chinese authorities, and this fits well with the increasingly unified image being created of non-Han ethnic groups in the PRC: colorful dresses, women with plaited hair, and dancing and singing.”
  From denial to pride: How China changed its language on Xinjiang’s camps / Guardian

• Nuclear missiles
  China says US should ‘think twice’ about leaving missile pact / Bloomberg (porous paywall)
  “President Donald Trump said Saturday he planned to pull out of the Intermediate-Range Nuclear Forces Treaty, known as INT, claiming that Moscow had breached the agreement on intermediate-range conventional and nuclear weapons. The New York Times reported the move was in part to enable the U.S. to counter a Chinese arms buildup in the Pacific.”
  Trump threatens to build up U.S. nuclear arsenal against China, Russia / Reuters

• Bloomberg chip hacking story
  Super Micro to review hardware for malicious chips / Reuters
  Last Friday, Apple CEO Tim Cook took the unprecedented step of publicly calling for a media outlet to retract a story about his company.

• Death of Beijing’s man in Macau “not suspicious”
  Nothing suspicious in death of Zheng Xiaosong, China’s top official in Macau, police say / SCMP
  “Macau police on Monday said they had found nothing suspicious surrounding the death of China’s top official in the casino hub, after Zhèng Xiǎosōng 郑晓松 fell from a building on Saturday night. The death was confirmed in a short statement released on Sunday by the central government’s Hong Kong and Macau Affairs Office (HKMAO) in Beijing, which said the 59-year-old had ‘suffered from depression.’”

• Bridge to Hong Kong
  China’s new 34-mile bridge to link up 70 million people in planned megalopolis / WSJ (paywall)
  “The world’s longest sea bridge is set to open on Tuesday, snaking 34 miles across China’s Pearl River estuary to form a pillar of Beijing’s plan to merge 11 cities in its southern region into one megalopolis.”
  China will open the world’s longest sea bridge this week. A lot of people are unhappy about it / Fortune
  “Some critics see the Hong Kong-Zhuhai-Macau Bridge as an attempt by mainland China to tighten its grip on Hong Kong.” Other concerns include the loss of life during the construction of the bridge, and risks to the Chinese white dolphin, which lives in the waters underneath it.

• South China Sea — Asean and Japan
  Asean questions China and US over near-collision in South China Sea / Straits Times
  “Southeast Asian defense chiefs were worried enough about tensions between China and the US in the South China Sea to seek an explanation from the two powers at a just-concluded key security summit, and received some reassurance in return.”
  China, Asean hold inaugural joint naval exercise at sea / AP
  Japan defense chief says unilateral action in S. China Sea unacceptable / Kyodo News
  Recent developments surrounding the South China Sea / AP

• Taiwan punches back
  China attempting to meddle in Taiwan elections: intelligence chief / Focus Taiwan
  “China has been trying to sway next month’s local government elections in Taiwan by employing tactics such as pouring money into the campaign coffers of candidates it favors, Leu Wen-jong (呂文忠 Lǚ Wénzhōng), head of Taiwan’s Investigation Bureau, said Monday.”
  Taiwan to share Chinese hacking details / FT (paywall)
  “Taiwan is preparing to share the details of millions of Chinese hacks with private companies to help train artificial intelligence software to predict and prevent future cyber attacks.”
  Thousands rally in Taiwan, call for referendum on independence from China / Reuters
  “Several thousand pro-independence demonstrators rallied in Taiwan’s capital on Saturday to protest against Beijing’s ‘bullying’ and called for a referendum on whether the self-ruled island should formally declare independence from China.”
  Two US Navy ships sail through Taiwan Strait in move likely to anger Beijing / SCMP
  “A short statement released by the ministry did not give the names of the two US vessels, but said they passed through international waters of the Taiwan Strait and described the operation as ‘routine.’”

• Environmental protection failures
  Chinese regions accused of faking efforts to curb environmental problems / SCMP
  “Four more Chinese regions have been accused of faking efforts to rectify environmental problems and paying only lip service to the country’s war on pollution, according to reports published by the environment ministry on Monday. The provinces of Henan and Yunnan, as well as the region of Guangxi, were accused of ‘superficial,’ ‘fake’ or ‘perfunctory’ rectifications,” and “parts of Guangdong also reprimanded for not taking responsibility for violations.”

• Influence campaigns in the U.K.?
  Chinese threats to UK homes / Index on Censorship
  “Anonymous, threatening letters are being sent to UK homes to try to stop activities that the Chinese government disapproves of.”

• North Korea’s appetite for luxury
  North Korea bought at least US$640m in luxury goods from China in 2017, says South Korea lawmaker / Reuters via Channel NewsAsia

• Canadian use of Chinese research sensors
  Canada installs Chinese underwater monitoring devices next to US nuclear submarine base / SCMP
  Scholar of maritime security and geopolitics in Southeast Asia, Collin Koh, on Twitter: “This is not good, when one may pursue strategic military interests behind the veneer of supposed civilian marine scientific research collaboration. Need reminder that acoustic data collected through such means has both civilian and military applications.”

• Corruption allegations at Nanjing TV station
  Chinese broadcaster denies host spent US$865,800 on lavish light show for birthday / SCMP
  “A provincial state broadcaster in eastern China has denied online rumors that its star radio presenter spent 6 million yuan (US$865,800) on a lavish light show to celebrate her birthday in Nanjing last year — even though it said Dèng Huáng 邓煌 was warned for breaking the rules.”

• The Arctic
  China and the Arctic / Arctic Yearbook
  A variety of articles on the impact and implications of China’s presence in the northern polar regions.

• Academic fraud — Yè Xiàoxīn 叶肖鑫 case at Tsinghua
  Tsinghua University says it revoked PhD after blog reveals plagiarism and misconduct / SCMP
  “Tsinghua University has announced, a year after it made the decision, that it revoked a doctorate because of data manipulation and other misconduct by a student whose papers were retracted from international journals.”

• Bhutan
  With election over, Bhutan can woo China with India’s blessing / SCMP
  “There is also a strong undercurrent in the Himalayan kingdom for reducing its dependence on traditional ally and neighbor India and broadening its external relations. It has no diplomatic relations with China, which it shares a border with.”

• Social media regulation
  ‘WeChat is not a land outside the law’ / ChinaFile
  David Bandurski explains “How to read China’s regulations on Party members’ online behavior.”
  ‘Share this article now!’: China’s battle against clickbait / Sixth Tone

• Wildlife trafficking
  Chinese tourists detained in India for US$574,000 worth of endangered Tibetan antelope fur shahtoosh shawls / SCMP

• Coal miners trapped in Shandong Province
  China mining accident: 18 trapped in tunnel / CNN

SOCIETY AND CULTURE:

• Artificial intelligence and its impact on society
  China’s preeminent science fiction writer, Liu Cixin: A dialogue on AI / ChinAI
  A “sprawling, at times rambling and disjointed, but consistently interesting” dialogue about AI with Liú Cíxīn 刘慈欣, China’s most prominent science fiction writer, and author of The Three-Body Problem.

• #MeToo
  China’s #MeToo claim costs university professor his job / SCMP
  “Jilin Agricultural Science and Technology University fired computer science lecturer Wáng Dōnglái 王东来 after an internal investigation found him guilty of ‘violating a teacher’s professional code of ethics,’ according to an official Weibo announcement on Sunday.”
  “The incident allegedly took place at a student entertainment night at a karaoke bar the previous Sunday, which Wang attended against staff guidelines, the university said.”
  中國 #MeToo 調查全記錄 | 無法迴避的浪潮 / Initium
  Headline translation: “A survey of China’s #MeToo record | An unstoppable tide.” Reuters journalist Christian Shepherd on Twitter: “Great Initium News resource on MeToo in China … Has a timeline of cases, breaks them down by industry, brings in background data on laws and on social media reaction, etc.”

• Japanese table tennis
  ‘Japanese Doll’ Ai Fukuhara breaks China’s heart with retirement from table tennis / SCMP
  “Unusually for a Japanese player, Fukuhara has more than 3.9 million social media followers in China who adore her because of her deep ties to the country.”

FEATURED ON SUPCHINA

Kuora: Mao Zedong, Chiang Kai-shek, and the battle for Chinese hearts and minds

In which we look at the White Terror of April 1927, which killed off urban communists, and revisit the 1938 Yellow River flood (花园口决堤事件 huāyuán kǒu juédī shìjiàn), which ultimately contributed to Chiang’s demise.

‘Who on earth adds marijuana to maple syrup?’ Chinese consumers panic over Canadian legalization

On October 17, Canada became the largest country in the world to legalize recreational marijuana. While it’s still too soon to tell what kind of long-term impact the legalization may have on the country’s marijuana industry, the decision has already initiated a wave of panic in China, where customers are deeply concerned about getting stoned by mistakenly consuming THC-infused snacks brought from Canada.

China’s stringent nationality requirements is hurting its national teams

China is known to be looking at its nationality law with particular regard to athletes. Options that spring to mind could include a temporary swap of passports, an Olympic exception for dual nationality, or even widespread reform of the entire nationality law, allowing either dual citizenship or perhaps a true path to naturalization. Also: Zeng Cheng 曾诚 is awaiting punishment after wearing HUF’s “Plantlife” socks — which promote weed culture — in a recent game against Syria.

SINICA PODCAST NETWORK

Sinica Early Access: Danny Russel on the rebalancing and decoupling

This week on Sinica, Kaiser speaks with Danny Russel, career diplomat and former assistant secretary of state for East Asian and Pacific affairs from 2013 to 2017, and currently vice president for international security and diplomacy at the Asia Society Policy Institute (ASPI). The conversation centers on all things diplomatic in East and Southeast Asia: the Trans-Pacific Partnership; internet freedom in China; the country’s “illiberal turn”; espionage and intellectual property theft during his time in Washington; the Obama administration’s position on the Asian Infrastructure Investment Bank (AIIB); and, finally, reflections on the current state of the U.S.-China relationship.

• Sinica Early Access is an ad-free, full-length preview of this week’s Sinica Podcast, exclusively for The China Project Access members. Listen by plugging this RSS feed directly into your podcast app.

The Caixin-Sinica Business Brief, episode 66

This week on the Caixin-Sinica Business Brief: China’s slowing economic growth, a dispute between two state-run newspapers, corruption-related developments in Chinese banks, and Doug Young on a few stories this week on energy in China.

• Subscribe to the Business Brief on Apple Podcasts, Overcast, or Stitcher.

PHOTO FROM MICHAEL YAMASHITA

Raising hairy crabs

Fishermen set up nets to raise hairy crabs in October in Gaoyou, Yangzhou, Jiangsu Province, for the Shanghai market. Shanghai is the nation’s biggest consumer of hairy crabs, chomping through 80,000 to 100,000 metric tons of hirsute crustaceans every year, according to the Shanghai Restaurant and Cuisine Association. The hairy crab season usually starts between late September and early October and concludes in mid-December.

—Jia Guo