China’s economy ends 2018 on a low note

Access Archive
Jeremy Goldkorn

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Today’s newsletter, the last in 2018, aims to provide you with a complete roundup of current China news on the eve of 2019. It has less commentary and analysis than usual, and more links as a result.

Happy New Year, and we will be back in your inbox on Wednesday, January 2.

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.

1. Economic woes haven’t stopped worsening

Bloomberg reports (porous paywall):

China’s economy slowed for a seventh straight month in December, as the trade war, subdued domestic demand and decelerating factory inflation combined to undercut growth.

That’s the signal from a Bloomberg Economics gauge aggregating the earliest-available indicators on business conditions and market sentiment. The data suggest the government’s stimulus approach and the trade war truce with the U.S. have yet to have much effect on the nation’s growth trajectory.

Bloomberg also notes that the “Shanghai Composite Index is 25 percent below where it started this year, making it the worst-performing major stock market in the world.”

But on the bright side, men’s underwear sales in Liaoning Province are up. That’s what nationalistic rag Global Times wants us to focus on, anyway:

<Global Times@globaltimesnews

The rise in sales of men’s underwear in Northeast China’s Liaoning Province has indicated the economic recovery of the province, and the region needs to strive to develop its new industries to keep up the momentum https://t.co/wjetWAzpC7

December 25th 2018

25 Retweets

But while the men’s underwear index is an actual thing in economics, the New York Times points out (porous paywall), “By almost any measure, China’s economy is slowing. Consumers are cautious. Apartments are sitting unsold. Industrial profits are falling, too.” Arthur Kroeber, a widely respected economist at Gavekal Dragonomics, told the Times, “The only relevant context here is that China’s economy is slowing markedly and official media have been ordered to smear the pig with lipstick.”

China Law Blog provides a helpful blog post explaining a list of the “top 10 issues” that China’s economy faced in 2018, which it says has been circulating on Chinese-language social media outside of China, written by an anonymous group of Beijing-based economists. Those 10 issues were:

1. Trade war with the United States.

2. The disappearance of Made in China 2025.

3. Frozen domestic real estate market.

4. RMB value is between a rock and a hard place.

5. GDP, debt and failure to deleverage.

6. Local government debt.

7. Collapse of non-bank capital markets.

8. Collapse of public stock markets.

9. The decline of the private sector.

10. Three engines of the economy become three horse carts…Investment, domestic consumption and exports have for the past two decades been the three engines of China’s economy and all suffered substantial decreases in 2018.

More links related to the Chinese economy right now:

—Lucas Niewenhuis

2. Beidou launches ahead of schedule, but with inferior accuracy

One of the important trends in Chinese technology we noted in our Red Paper is the Beidou navigation system, China’s answer to the American GPS system, which has been in development for some years. It was set for a complete rollout target of 2020, but the South China Morning Post reports that the government is launching an early version of it now instead.

Ran Chengqi, director general of the China Satellite Navigation Office, briefed media on Thursday, announcing completion of the global coverage of the third-generation positioning system, ahead of the previous roll-out target of 2020.

Beidou, the Chinese name for the seven stars that make up the Big Dipper, offers a worldwide location service with an accuracy of 5 metres within the Asia-Pacific region and 10 metres in other parts of the world…

The US GPS offers accuracy to within centimetres, but concerns over Washington’s ability to shut off service during wartime, prompted China, Russia and other nations to develop their own system…

Completion of the navigation system comes after China launched 19 positioning satellites this year, seen as enough to provide basic coverage. Twelve more will be launched over the coming two years to improve the precision of the system.

A Bloomberg article yesterday has more on Beidou:

  • China’s answer to U.S. GPS extends coverage beyond Asia Pacific / Bloomberg (porous paywall)
    “China’s alternative to the American-owned GPS extended its service beyond the Asia-Pacific region Thursday with a goal of becoming a dominating technology in the future. Called Beidou, the service works like GPS, using a series of satellites to provide users precision positioning with an error of about 10 meters. Most smartphone chips sold globally will be compatible with Beidou, the first navigation system to have built-in telecommunications features such as text messaging.”

3. Trade war, day 176: Foxconn shifting iPhone production to Vietnam and India

One of the most significant lasting effects of the trade war, it appears, will be the shift in supply chains. The multiplied uncertainty in U.S.-China relations has made many corporations, especially American and European ones, rethink their commitment to the Chinese market. Rising labor costs have pushed them to consider moving factories elsewhere, especially Southeast Asia. See our October 29 trade war roundup: “Trade war, day 116: More companies prepare to shift supply chains.”

The single most significant piece of directly trade-war-related news today, then, is this scoop from Reuters:

  • Exclusive: Foxconn to begin assembling top-end Apple iPhones in India in 2019 – source / Reuters
    “Foxconn will be assembling the most expensive models, such as devices in the flagship iPhone X family…The work will take place at Foxconn’s plant in Sriperumbudur town in the southern state of Tamil Nadu.”
    “For Apple, widening assembly beyond China is critical to mitigate the risks of the Sino-U.S. trade war. Foxconn, the world’s biggest electronics contract manufacturer, is considering setting up a factory in Vietnam, Vietnamese state media reported this month. If that goes ahead, it will be one of the biggest recent steps by a major company to secure an additional production base outside of China. Foxconn has previously admitted the China-U.S. trade spat was its biggest challenge and that its senior executives were making plans to counter the impact.”

Other trade-war-related links:

  • China confirms face-to-face talks in early January
    China says direct trade talks with U.S. in January, pledges more opening / Reuters
    MOFCOM spokesperson: “Even as the U.S side is in the Christmas holiday period, China and U.S. economic and trade teams have been in close communication, and the consultations are progressing in an orderly manner as scheduled.”
    But MOFCOM “did not comment directly when asked to confirm a media report on a U.S. trade delegation visit scheduled for the week of Jan. 7,” only saying that the “two sides have indeed made specific arrangements for face-to-face consultations in January.”

  • Rice imports
    China customs gives green light for US rice imports / Times of India
    Jorge Guajardo on Twitter: “Phytosanitary protocols is how China erects non-tariff barriers, ‘China opened its rice market when it joined the World Trade Organization in 2001, but a lack of phytosanitary protocol between China and the United States effectively banned imports’”

  • Financial opening
    China to Speed Up Approval for Foreign-Owned Financial Firms / Bloomberg (porous paywall)
    “China will speed up approvals for securities firms and fund-company joint ventures in which foreign investors have majority stakes, a senior official said, another sign that policy makers are pressing ahead with efforts to open up the country’s financial system.
    The comments were made by China Securities Regulatory Commission Vice Chairman Li Chao, according to the China Securities Journal. Li also said China must hasten to open up its capital markets, create globally competitive banks, and improve stock-trading links with Hong Kong.”

  • International business
    Barra Looks to China for GM’s Electric Rebirth / Bloomberg (porous paywall)
    China’s Zoomlion pursues overseas technology deals / FT (paywall)
    After a Comeback and a Name Change, Priceline Bets Big on China / WSJ (paywall)
    StanChart’s Gill Sees Short-Term Opportunities in China Amid Trade War / Bloomberg (porous paywall)

  • Tariff exemptions announced by Trump administration
    First Section 301 List 1 Product Exclusions Published in Federal Register / International Trade Law

  • Visa delays
    America’s EB-5 investor visa programme backlog is putting Chinese capital at risk / SCMP
    “A controversial investor visa programme that brought scandal to US President Donald Trump’s in-laws faces an uncertain future as US$17 billion in Chinese investments sits in limbo for longer periods due to a processing backlog in the popular programme.”

  • Germany’s increased scrutiny of Chinese deals
    Chinese Investment in Germany Plunged in Second Half, EY Says / Bloomberg (porous paywall)
    “Chinese companies spent far less on German firms in the second half of this year as Chancellor Angela Merkel’s government moved to tighten its grip on foreign investment, according to data compiled by business services provider Ernst & Young LLP.”
    “Chinese investment in German takeovers or in stakes in German companies plunged to $311 million during the period from almost $10 billion in the first half of 2018. The number of transactions for the full year dropped to 34, compared with 54 in 2017 and 68 the previous year.”

  • The TPP replacement comes into force
    The CPTPP will hit US farm exports instantly / Quartz
    “Donald Trump’s confrontational trade policy has already cost American farmers billions of dollars in lost sales due retaliatory tariffs imposed by China. Now they’re bracing for a different kind of loss: missing out on tariff reductions and other perks under a massive new trade deal among Pacific Rim nations.The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), will go into effect on Dec. 30 for six of its 11 members, Australia, Canada, Japan, Mexico, New Zealand, and Singapore. A seventh, Vietnam, will join them Jan. 14. (The remaining countries, which have already signed the deal, still have to ratify it internally.)”

  • Huawei in Britain and Czech Republic
    Britain’s defence secretary echoes the US with ‘grave, very deep concerns’ about Huawei / SCMP
    “The UK’s Defence Secretary, Gavin Williamson, said he has ‘grave, very deep concerns’ about using equipment from Chinese firm Huawei in Britain’s 5G infrastructure.”
    Opinion: With China, we don’t need a trade war but a truce on tech / The Guardian
    By Anne McElvoy, senior editor at the Economist.
    Czech Prime Minister Andrej Babiš hits back at Chinese diplomats’ Huawei and ZTE claims / SCMP
    “The Czech prime minister has hit back at a statement by the Chinese embassy in Prague, which claimed that he had said he did not want to ban products made by Huawei and ZTE. Prime Minister Andrej Babiš said on Thursday that he took warnings about the two Chinese telecoms giants from the country’s cybersecurity watchdog ‘very seriously’ and denied that he had told diplomats that the ban was a mistake.”

4. Canada-China relations spiraling: former Canadian ambassador chimes in

The Globe and Mail has placed itself at the center of the ongoing Canada-China hostage crisis, most notably by publishing a op-ed by the Chinese ambassador to Canada, in which it was basically admitted that this is, indeed, a hostage crisis. CNN reports that the latest detainee, an alleged Canadian drug dealer in China, will have his appeal heard by the Liaoning People’s Court.

The Globe and Mail has now published an op-ed by David Mulroney, Canada’s ambassador to China from 2009 to 2012, which aptly summarizes how the Canadian government and much of its people probably feel about the whole situation, and also about foreign relations with China in general. A few excerpts:

We need to understand that China behaves the way it does because it works. This is enabled by a chorus of advisers in the West who don’t seem particularly discomfited by how China treats people at home or abroad…

Our attention all too quickly shifts from stories about China’s assertiveness and repression to stories about its gleaming cities and globe-trotting ultra-rich. We seem incapable of seeing it whole…

…a larger narrative…is finally taking hold, one that concedes that China is an increasingly irresponsible power and partner, one that feigns compliance with international norms only when it is convenient to do so.

For too long the preferred approach to each successive China crisis has been to get back to normal as quickly as possible without doing or saying anything that might possibly harm China’s delicate feelings – or cause it to change its behaviour.

It’s time for a new normal.

5. Xinjiang update

Bitter Winter, the Italian magazine that reports on religion and human rights in China and obtained shocking footage of the prison-like interior of a “re-education camp” in Xinjiang, reports:

In August 2018, the Chinese Communist Party (CCP) authorities designated Bitter Winter a “foreign hostile website” for publishing secret documents and news reports about the CCP’s suppression of religious beliefs and human rights violations. The authorities have retaliated by launching repeated attempts to hack the website, and by targeting reporters and contributors…

Since August, at least 45 Bitter Winter contributors in mainland China have been arrested for filming incidents of, or gathering news about, the CCP’s persecution of religious freedom and violation of human rights.

Other links related to Xinjiang and the repression of Islam in China:

—Lucas Niewenhuis

Here are the stories that caught our eye this week:

  • Wáng Quánzhāng 王全璋, who defended Falun Gong practitioners and was detained in August 2015 during the “709 Crackdown” on human rights lawyers and activists, faced charges of “subversion” and “stirring up trouble” in a Tianjin court this week. Meanwhile, Qiū Zhànxuān 邱占萱, head of the Peking University Marxist Society, “was grabbed and forced into a black car outside the east gate of Peking University by a group of heavyset men who identified themselves as police,” reports Reuters.

  • Aslam Baloch, “one of the alleged masterminds” of the attack near the Chinese consulate in the Pakistani city of Karachi last month, has been killed in a suicide attack in Kandahar Province, Afghanistan, across the border from Balochistan. Five associates died with him, according to a statement released by the Baloch Liberation Army (BLA).

  • “A Chinese court will try a Canadian citizen on drugs charges on Saturday, a government-run news portal said, in a case that could further test already difficult relations between Beijing and Ottawa,” reports Al Jazeera. Although the Chinese government has not made an explicit connection between the case and the arrest of Huawei CFO Mèng Wǎnzhōu 孟晚舟, a concerted state media propaganda blast about the alleged drug dealer makes it clear that Beijing is linking the two. Two other Canadians, Michael Spavor and Michael Kovrig, remain detained on trumped-up charges of endangering national security.

  • A chemical explosion on campus at Beijing Jiaotong University killed three students on December 26. While no official word has been given on what caused the blast, it seems that the incident was foreseeable and preventable.

BUSINESS AND TECHNOLOGY:

  • False marketing on ecommerce sites
    E-commerce giants remove healthcare firm Quanjian’s products following false marketing claims / TechNode
    “China’s biggest e-commerce platforms have removed healthcare product manufacturer Quanjian Group’s listings following false marketing claims that allegedly caused the death of a four-year-old girl in 2015.”
    Chinese healthcare products maker Quanjian under investigation over girl’s death in 2015 / SCMP

  • JD.com, after CEO Richard Liu not charged with rape
    China’s JD.com Plans $1 Billion Share Buyback / WSJ (paywall)
    “Wednesday’s announcement of the buyback plan comes just a few days after authorities in Minneapolis declined to charge JD.com Chief Executive Liu Qiangdong in a sexual-assault case that arose in August.”
    “JD.com’s American depositary receipts have plunged 52.3% in the past year, closing at $19.75 on Monday. The buyback program is worth about 3.5% of the company’s market capitalization, and the company said it would be completed over the next 12 months.”
    People’s Daily cheers for Richard Liu / China Media Project
    “Either not understanding that insufficient evidence is not tantamount to a public statement of innocence, or wilfully twisting the news in favour of a homegrown entrepreneur, a news app operated by the Chinese Communist Party’s official People’s Daily newspaper made a post that bore the headline: ‘Liu Qiangdong Is Innocent!’”

  • Pop stars and fashion marketing
    Kris Wu Launches Fashion Brand With Xiaomi Affiliate / Caixin
    “Chinese-Canadian celebrity Kris Wu has launched a fashion brand with an affiliate of smartphone-maker Xiaomi [jewelry seller Xingyun-Ruwo]. The joint venture, Tianjin Xingyun Culture and Development, was registered with 1 million yuan ($150,000) in Beijing on Oct. 8.”

  • Slowing gas auto sales
    Nissan to make fewer cars in China in months ahead as demand slows: source / Reuters
    “Nissan Motor Co will produce 30,000 fewer vehicles in the coming months in China than what it had planned, a person briefed on the matter told Reuters, as global automakers grapple with falling demand in the world’s biggest car market. After Ford Motor Co and Hyundai Motor Co, Nissan becomes the latest automaker to cut production in the country, where slowing economic growth and a crippling trade war with the United States have pummeled vehicle sales in the past few months.”

  • Homegrown jetliners
    Third prototype of China’s C919 jet completes first test flight / Reuters
    “A third prototype of China’s home-built C919 narrowbody passenger jet completed its first test flight on Friday, its manufacturer said, in another step forward in the nation’s push to become a global civil aerospace player.”

  • The cool kids with their wearable tech
    Chinese children are driving wearable tech in China / TechNode
    “According to a third-quarter report by market intelligence firm the International Data Corporation (IDC), China’s smart wearables shipments reached 14.5 million in the third quarter, up 13% year-on-year.”
    “BBK Electronics tapped the kid’s smartwatch market in 2015 with the launch of Little Genius Y1, a watch featuring video calling, geo-fencing, and GPS tracking functions. A series of competitors, including Sogou, Huawei, Xiaomi, Qihoo 360, and Continental Wireless, have entered the vertical since then.”

  • Bike sharing ups and downs
    Despite Ofo crisis, a growing rival pockets funding / TechNode
    “Hellobike today told Tech in Asia that it has ‘secured billions of yuan in our latest round of fundraising, led by Primavera Capital and Ant Financial,’ confirming reports yesterday on Chinese tech media.”

  • Environmental regulation enforcement
    China to expand environmental inspections of state-owned companies / Reuters
    “China will expand environmental inspections to more central government-owned enterprises next year, widening its five-year anti-pollution campaign, a senior environment ministry official said on Friday.”
    Jiangsu Court Sides With NGOs in Polluted School Case / Sixth Tone
    “A high court in eastern China on Thursday overturned a ruling that had imposed ‘sky-high’ court costs on two nongovernmental organizations. The two groups — Friends of Nature and the China Biodiversity Conservation and Green Development Foundation — sued three chemical companies in April 2016 for polluting the site of a school in the city of Changzhou.”

  • Internet courts
    China’s Internet Courts are Spreading; Online Dispute Resolution is Working / China Film Insider
    “Following on the heels of China’s first Internet court in Hangzhou, two other internet courts have recently been established respectively in Beijing and Guangzhou.”

  • New applications of facial recognition
    Beijing turns to facial recognition to combat public housing abuses / SCMP
    As “part of efforts to clamp down on tenancy abuse, such as illegal subletting,” a “face-scanning system is expected to cover all of Beijing’s public housing projects, involving a total of 120,000 tenants, by the end of June 2019.”
    Chinese Airbnb Xiaozhu is using facial recognition to check in guests / Quartz
    “Xiaozhu, the Chinese home-sharing company akin to Airbnb, plans to add facial recognition-enabled door locks to 80% of its listings in the city of Chengdu, a popular tourist destination in southwest China and Xiaozhu’s second-biggest market by revenue.”

  • Financial reporting regulations
    Alipay denies plan to report RMB 50,000 transactions to China’s central bank / TechNode
    “Chinese social media brimmed with conversation following rumors that mobile payment platforms, including Alibaba-backed payment platform Alipay, would be required to report payments of RMB 50,000 (around $7,000) and above to the People’s Bank of China (PBoC), underscoring concern over regulation in the payments sector.”
    “Alipay denied the rumors of tightened control of money transfers on Chinese microblogging platform Weibo, saying the requirement applies to transactions of more than RMB 500,000.”

POLITICS AND CURRENT AFFAIRS:

SOCIETY AND CULTURE:

VIDEO ON SUPCHINA

We published the following videos this week:

FEATURED ON SUPCHINA

China sports year in review 2018: Lessons learned

What should be turning into a golden age for Chinese sport is fast being ruined by overzealous officials. That’s nothing new, of course, but the sector desperately needs to modernize if economic intent is allowed to translate into success in various sporting arenas. Let’s look at some of the biggest sports stories from the year.

China Business Corner: ‘There is no freedom on Douyin’

This week on The China Project’s weekly window into Chinese-language coverage of business, technology, and the broader economy: The “information cocoons” of Douyin, the video app also known as TikTok; an essay on “new opportunities for China’s urban development”; and how Western business practices were integrated into Huawei.

Lost Province: China’s Xikang — the province few know ever existed — at 80

The people of Xikang’s central region were known as Khampas until the Chinese Communist Party officially recategorized them as Tibetans after 1949. But before Xikang would be relegated to the footnotes of history, it was a fascinating place, one of experimental programs, rapid development, and even a brief war between the Dalai Lama and a warlord of Sichuan.

Mingbai: They sing, China listens — four pop stars all Chinese know

Jay Chou 周杰伦 (Zhōu Jiélún), Zhāng Xuéyŏu 张学友, Hán Hóng 韩红, Huà Chényŭ 华晨宇: This edition of Mingbai takes a look at four pop stars who are ultra megastars in China but not too famous globally. Mingbai (明白, meaning “understand”), written by Christian Føhrby and Deng Jie, is a newsletter that drops knowledge on things “everyone in China knows, but almost nobody outside the country knows.”

Chinese Corner: Best of 2018 — the nonfiction stories that captured China’s reading public

This year, The China Project launched a new weekly column called Chinese Corner, where we introduce and review interesting nonfiction writing from the Chinese internet. We’ve selected our favorite articles from the past six months and broken them down into categories. Just scrolling through the topics provides a good sense of what Chinese people read and discussed in 2018 — and what is on their minds heading into the new year.

Kuora: Here are some of my kids’ drawings. Happy holidays, everyone

A dragon. Beijing yesterday and tomorrow. Chinese New Year in Beijing. Yup, we’re looking at original artwork from Kaiser Kuo’s children in this week’s holiday-edition Kuora.

SINICA PODCAST NETWORK

TechBuzz China: Tencent Music — Totally Not China’s Spotify

In episode 33 of TechBuzz China, co-hosts Ying-Ying Lu and Rui Ma talk about Tencent Music (TME), which finally completed its $1.2 billion IPO after a two-month delay due to market volatility. The company rose 9 percent on its first day, but has traded below the initial offering price ever since. This episode covers the business model of TME, its market potential, and our co-hosts’ thoughts on its future outlook. Though often compared with Spotify, to what extent are these two companies truly similar?

All Sinica Podcast Network series will return to their regular publishing schedule after the holidays, in the second week of January.

PHOTO OF THE DAY

Girl in a barbershop

Wang Shuijing runs three different barbershops in the county of Lincang, in Yunnan Province. Each is only open one day a week, when the rotating market passes through. Wang had to drop out of school in sixth grade to help in the fields but eventually followed a boy to a nearby city and learned the craft of cutting hair. She now has a faithful customer base (myself included) and is proud to be her own boss. She said she has dreamed of having just one shop in the nearby city. Photo by Matthew Chitwood.

Jeremy Goldkorn worked in China for 20 years as an editor and entrepreneur. He is editor-in-chief of The China Project, and co-founder of the Sinica Podcast. Read more

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