February factory activity forecast to shrink

Announcement for Access members:

Please join us for a live Q&A with incoming FT Beijing correspondent Christian Shepherd. It will happen tomorrow, Wednesday, February 27, at 10 a.m. New York time (11 p.m. Beijing time), on our Slack channel. Please email lucas@thechinaproject.com if you need help logging in to Slack.

Christian was previously a reporter at Reuters, where he wrote about a wide array of fascinating political topics: everything from Erik Prince in Xinjiang to disappearing constitutional law textbooks, the struggles of Marxist student activists at Peking University, and a seemingly endless crackdown on Chinese rights lawyers.

After spending his early childhood in Beijing, Christian returned in 2013 to pursue a master’s degree in Chinese studies at the University of Nottingham Ningbo China and then studied Mandarin at the Tsinghua-based IUP.

—Jeremy Goldkorn and team

1. February factory activity forecast to shrink

At the end of 2018, China’s stock markets were deeply depressed, hit by months of bad news for the economy and tariff hike after tariff hike that hit consumer sentiment. Bloomberg crowned the Shanghai Composite Index as the “worst-performing major stock market in the world” due to its 25 percent drop over the year.

Now a rebound spurred by enormous January bank lending and increased optimism for U.S.-China trade negotiations has Shanghai and Shenzhen stock markets officially back in bull market territory. But the rapid change in sentiment has many people suspicious of a bubble — see Bloomberg, “China’s bull market in stocks feels fake,” and Caixin, “Stock surge sparks comparisons with 2015’s bubble and crash.”

Beneath the bubbly stocks lies continued contraction in factory output. Reuters reports:

The official Purchasing Managers’ Index (PMI) is forecast at 49.5, unchanged from January’s near three-year low and still below the 50 level separating expansion from contraction on a monthly basis, according to the median forecast of 36 economists.

The timing of the new forecast is significant because the annual meeting of the National People’s Congress is just a week away, starting on March 5. Reuters notes that the official government PMI and Caixin’s monthly measures of manufacturing and service sector performance will all be released between now and then.

The economy is just one of many reasons that, Chris Buckley at the New York Times says, “Xi is nervous” in 2019. An excerpt:

“Globally, sources of turmoil and points of risk are multiplying,” [General Secretary Xi Jinping] told the gathering in January at the Central Party School. At home, he added, “the party is at risk from indolence, incompetence and of becoming divorced from the public.”

The speech was one of Mr. Xi’s starkest warnings since he came to power in 2012, and has been echoed at hundreds of local party meetings nationwide…his remarks made clear that especially in 2019 — a year of politically sensitive anniversaries — the party would aggressively extinguish sparks that could ignite protests and turbulence…

Mr. Xi made clear that the economy was a major concern, telling officials to beware of “black swans” and “gray rhinos” — investor jargon for surprise economic shocks and financial risks hiding in plain sight.

But Mr. Xi identified dangers that extended far beyond the economy, especially political risks like the party’s ability to keep young Chinese from slipping from its ideological orbit.

Also in the New York Times and worth reading: Li Yuan reports on how “China’s entrepreneurs are wary of its future,” as “businesspeople worry that Beijing has become more interested in solidifying its control over people’s lives than promoting economic growth.”

—Lucas Niewenhuis

2. Pacific Reset update: Beijing plans for Mar-a-Lago summit

The South China Morning Post reports that Beijing has accepted Trump’s offer of a second summit at the president’s Florida golf resort, likely in the second half of March, to seal a trade deal.

Beijing has accepted Washington’s choice of the US president’s private resort in Florida as the venue and preliminary preparations are under way although many details, including the exact date, are still under discussion, a source said.

An earlier proposal by China to hold the summit in its southern island province of Hainan was rejected by the US.

Other Pacific Reset news today:

• Meng Wanzhou case — new details from HSBC
  HSBC investigation led to charges against Huawei CFO Meng Wanzhou, after US demanded bank’s help / Reuters
  “An internal investigation by HSBC Holdings into Huawei Technologies’ connections to a suspected front company in Iran found that the Chinese telecommunications equipment maker maintained close financial ties to the firm years after purportedly selling the unit, documents show.
  The HSBC probe of Huawei came in late 2016 and 2017 as the bank was trying to get the US Department of Justice (DOJ) to dismiss criminal charges for the bank’s own misconduct involving US sanctions.”

• Chinese tech in the UK: Pushing for a “diversified market”
  China’s tech giants are a security threat to the UK, says Brit spy bigwig / The Register
  “The world must ‘understand the opportunities and threats from China’s technological offer’, GCHQ director Jeremy Fleming said today as he observed that there are ‘no clear norms or behaviours’ for state-on-state cyber-squabbling.”
  “He also commented on Britain’s oversight of Chinese mobile network equipment company Huawei and its cybersecurity practices, saying: ‘Experience shows that any company in an excessively dominant market position will not be incentivised to take cybersecurity seriously. So we need a diversified market, competing on quality and security, as well as price.’”

• Domestic pressure on Trump
  U.S. lawmakers, industry fret over Trump’s China trade deal eagerness / Reuters
  Representative Earl Blumenauer of Oregon, the new Democratic chairman of the House Ways and Means trade subcommittee: “China’s forced technology transfers and IP theft practices are unfair and must be addressed… A simple commodities sales agreement does nothing to fix these problems.”
  Trump touts progress with China, but pressure grows for a tough deal / NYT (porous paywall)

• American business in China doesn’t like tariffs, but wants tough negotiations
  U.S. business lobby says most firms favor tariffs while China trade talks underway / Reuters
  Of American Chamber of Commerce in China members, there are mixed feelings on tariffs, but “43 percent advocated maintaining tariffs at 10 percent and delaying the increase for 60 days while negotiations continued.”
  Chamber president Alan Beebe “said 47 percent of members wanted the U.S. government to ‘advocate more strongly’ for a level playing field for U.S. businesses in the world’s second-largest economy… ‘That figure is almost twice what it was a year ago,’ Beebe said.”
  U.S. firms dial back China plans amid trade fight / WSJ (paywall)
  “About 32% of 314 U.S. companies that responded said they have no plans to expand investment in China or plan to expand less this year, compared with 26% last year.”
  The AmCham report: Growth Continues Amid Heightened Uncertainty

• Intel-Unisoc chipmaking deal dead?
  Intel’s 5G modem alliance with Beijing-backed chipmaker ends / Nikkei Asian Review
  “Intel’s partnership to share its latest 5G modem chips with China’s second largest mobile chipmaker [state-backed Unisoc] has ended amid concerns that the technology transfer could cause problems in Washington, sources have told Nikkei Asian Review.”

—Lucas Niewenhuis

3. The dog debate rages on

Dogs are polarizing creatures in China. In recent years, divisive opinions and sentiments about dogs and dog ownership have resulted in a series of deadly disputes and killing sprees of canines led by local governments and dog haters.

In the newest flashpoint of China’s dog ownership debate, a real estate developer in Yuncheng, Shanxi Province, has implemented a strict no-dog policy in some of its buildings, which ignited online conversations about how to balance the interests of dog owners and haters in China.

To read more, please click through to The China Project.

—Jiayun Feng

—–

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:

• New CRISPR baby story twists
  Chinese government may have funded ‘CRISPR babies’ project / STAT
  “Three government institutions in China, including the nation’s science ministry, may have funded the ‘CRISPR babies’ study that led to the birth last November of two genetically modified twin girls, according to documents reviewed by STAT.”
  CRISPR babies trial may have been government funded / Scientist Magazine

• One economist’s calculation of stimulus in January

<div class=”tweet” data-attrs=”{“url”:”https://twitter.com/HAOHONG_CFA/status/1100305478146375681″,”full_text”:”@fwred This is the NDRC total infrastructure investment approval. Tallied by hand. Including electricity, coal, water, transportation, warehousing, postal, hydropower and environmental protection. The actual amount will be spent in the coming 3-6 months.”,”username”:”HAOHONG_CFA”,”name”:”Hao Hong 洪灝, CFA”,”date”:”Tue Feb 26 08:04:03 +0000 2019″,”photos”:[],”quoted_tweet”:{},”retweet_count”:4,”like_count”:15,”expanded_url”:{}}”>

• On financial de-risking
  Today’s tip sheet from economics consulting firm Trivium begins: “Financial regulators hailed their recent progress in de-risking on Monday. Markets took it as sign that the de-risking campaign is being dialed back. They’re wrong.”

• Stimulus is good for fund managers
  Why some U.S. fund managers like China regardless of trade deal / Reuters
  “Some U.S.-based fund managers from firms including Wells Fargo Asset Management, Causeway Capital Management and Janus Henderson Investors say they are becoming more bullish on China regardless of whether a trade agreement is reached over the next few months.
  That is because China has responded to the threat of escalating trade tariffs by increasing its monetary and fiscal stimulus, softening the potential blow as its economic growth rate falls to the slowest pace in 28 years.”

• Xiaomi in Europe
  Xiaomi to triple European store count as Chinese smartphone makers double down on Europe / CNBC
  “The company, which opened its first European location in Spain in 2017, said it hopes to operate more than 150 stores in the region by the end of the year, up from fewer than 50 at the end of 2018.”

• Sportswear
  China’s Anta Sports posts record profits for 2018 / FT (paywall)
  “Anta Sports Products, China’s largest sportswear brand by sales, reported…[its] net profit rose 33 percent to Rmb4.1bn ($613m) in the year ended in December.”

• Electric vehicles
  BYD breaks ground on new 20 GWh battery gigafactory for electric cars / Electrek
  “The Chinese electric vehicle company is investing 10 billion yuan (~$1.49 billion USD) in the facility located in southwest China’s Chongqing Municipality. They announced that they have broken ground on the new factory last week and they plan to be done within a year.”

• Loan scams
  $527 million seized, 16,200 arrested in loan shark crackdown / Caixin (paywall)
  “China’s Ministry of Public Security arrested 16,249 suspects and seized 3.53 billion yuan ($527 million) in assets in a crackdown on loan scams in 2018, officials announced at a press conference on Tuesday.”

• Tim Hortons in Shanghai
  Tim Hortons opens 1st location in China — and a salted egg yolk timbit is on the menu / Global News (Canada)
  “Tim Hortons has opened its first restaurant in China, in the People’s Square in Shanghai…. The Canadian coffee chain expects there will be 1,500 locations opened across China over the next 10 years.”

POLITICS AND CURRENT AFFAIRS:

• Xinjiang camps showcased to friendly countries
  Achievements in Xinjiang showcased to diplomats / Xinhua
  “From February 16 to 19…diplomats from Pakistan, Venezuela, Cuba, Egypt, Cambodia, Russia, Senegal and Belarus spoke with trainees at vocational education and training centers, teaching clerics and members of the public.”

• Boeing and U.S.-China relations
  For company and for country: Boeing and US-China relations / MacroPolo
  A great read from MacroPolo:

When Henry Kissinger embarked on his secret mission in 1971 to lay the groundwork for President Richard Nixon’s historic trip to China, he was shuttled from Islamabad to Beijing in a Boeing 707. When Chinese President Xi Jinping arrived in Washington, DC, in 2015 for a state visit, he stepped off a retrofitted Boeing 747 emblazoned with Air China insignia. In those intervening 44 years, Boeing had been the preferred aircraft for every American and Chinese head of state between Nixon and Xi. In fact, every Chinese leader since Deng Xiaoping has visited Boeing’s factories outside of Seattle.

• Censorship and influence in New Zealand and Australia
  Chinese government censors ruling lines through Australian books / Sydney Morning Herald
  “Sandy Grant, of publisher Hardie Grant, said he had scrapped a proposed children’s atlas last year because the censors ruled out a map. Chinese authorities are extremely sensitive about maps, and any map appearing in a book must fit with the Communist Party view of the world.”
  Chinese institute expands influence in Auckland / Stuff (New Zealand)
  “The Chinese state spent close to a million dollars on promoting language and culture through the new Model Confucius Institute in Auckland, at a time when China’s relationship with the Western world is becoming increasingly tense.”

• South China Sea and Taiwan Strait
  Opinion: Gunboat diplomacy can only harm Britain’s relationship with China / Guardian
  An op-ed by Liú Xiǎomíng 刘晓明, China’s ambassador to the U.K.
  Chinese envoy hits back at Williamson’s ‘gunboat diplomacy’ / Guardian
  “China’s ambassador to the UK has fired an unmistakable warning shot in the direction of the defence secretary, Gavin Williamson, accusing him of ‘resurrecting the cold war and gunboat diplomacy,’ after the cabinet minister said the UK would send an aircraft carrier to the Pacific to challenge China.”
  China slams ‘provocative’ US Navy action in Taiwan Strait / AFP
  “China on Tuesday February 26 rebuked the US Navy for sending two ships through the Taiwan Strait, calling the operation a ‘provocative’ act.”

• Fracking project suspended in Sichuan
  Chinese authorities halt fracking in Sichuan after residents protest / AFP
  “Authorities have halted shale gas mining in a southwest Chinese county after thousands of protesters blamed fracking as the cause of three earthquakes that killed two people in two days.
  A 4.7-magnitude quake hit Rongxian County in Sichuan Province on Sunday, followed by an aftershock that day and another 4.9-magnitude jolt on Monday, the local government said.”
  Sichuan County suspends fracking after quakes, deaths / Sixth Tone

• Aircraft carrier trials
  ‘No-go zone’ in Yellow Sea for Chinese aircraft carrier sea trials / SCMP
  “China has announced a ‘no-go zone’ in the Yellow Sea while sea trials are carried out for two of its aircraft carriers — the Liaoning, which has just been upgraded, and its first domestically built carrier.”

• Continued detention of Jiang Tianyong
  Jailed Chinese rights lawyer won’t be allowed home on release: family / Radio Free Asia
  “Authorities in the central Chinese province of Henan say jailed rights lawyer Jiang Tianyong will be taken to a location chosen by police following the end of his prison sentence on Thursday.”

• The baby bust
  China isn’t having enough babies / NYT (porous paywall)
  “Fewer babies were born in China last year than in 2017, and already fewer had been born in 2017 than in 2016. There were 15.23 million new births in 2018, down by more than 11 percent from the year before. The authorities had predicted that easing and then abolishing the one-child policy in the mid-2010s would trigger a baby boom; it’s been more like a baby bust.”

SOCIETY AND CULTURE:

• Should you force someone to speak English or Chinese?
  Language power struggles, 9 years later / Sinosplice
  “Probably my most popular blog post ever has been the Language Power Struggles one from way back in 2010. It’s hard to believe it’s been 9 years since I wrote that, and I [have] realized that my attitudes have changed a bit over the years. The advice that I gave in that article still stands: that in a battle of wills where communication is not the goal of interaction, no one really wins.”

• Dating scams
  Chinese dating website sues catfishing user / Sixth Tone
  “One of China’s largest online dating websites on Monday announced that it is suing a user who lied in her profile to attract suitors and extort them for expensive gifts.”

• Sexuality and tolerance
  How ‘Boys’ Love’ authors are using love to make war on ignorance / Sixth Tone
  “Despite official resistance, Chinese BL fiction has helped raise public awareness of long-marginalized sexual minorities.”

• Censorship: The war on ‘sang’
  China’s censors are purging the internet of millennial angst / Tech in Asia
  Baidu’s page on sang culture (in Chinese) has not yet been deleted, but Abacus reports:

WeChat announced on Saturday that it’s banned more than 40,000 public accounts since the start of this year…and it’s only February. Among them were the usual suspects: vulgar and harmful content, scams and frauds. China is known for its tough stance toward undesirable content, so that’s nothing new. But there’s also a new target: so-called ‘sàng’ 丧 culture.

• Context from 2017: For Chinese millennials, despondency has a brand name / Reuters

VIDEO ON SUPCHINA

Adorable British shorthair kitty wears traditional Chinese attire!

Shanpang (山胖 shānpàng) is a 10-month-old British shorthair from Chongqing, China. Recently, the cat has captured thousands of hearts on Kuaishou, a Chinese short-video platform. Shanpang’s owner dressed it in traditional Chinese attire and even put a flower on its head, making it the most adorable kitty in the city. See for yourself!

FEATURED ON SUPCHINA

Young Taiwanese are dreaming of careers in China — but unification is still a nightmare

In the years since Taiwan President Tsai Ing-wen took power, Xi Jinping has dangled economic carrots with the hopes that political consensus will follow, and the Chinese government has offered incentives to Taiwan’s workers to get them to stay. But the majority of Taiwanese citizens, while they may appreciate the job opportunities across the strait, have little interest in abandoning their democracy. Meanwhile, Tsai is seeking measures to combat Taiwan’s “brain drain,” including strengthening relations with South and Southeast Asian countries via the New Southbound Policy.

SINICA PODCAST NETWORK

TechBuzz China: Podcasting in China — the Myth and the Reality

Episode 39 of TechBuzz China is on a topic of special interest to our co-hosts, Ying-Ying Lu and Rui Ma: podcasting in China! It was sparked by two recent pieces of news within the podcasting industry. The first was the acquisition of Gimlet Media, a podcasting network, by the newly IPOed music-streaming service Spotify for $200 million; the second was the $100 million raised by the podcasting platform Himalaya. In fact, Himalaya’s main investor, China’s Ximalaya FM, boasts 23 million daily active users and is rumored to be going for an IPO soon.

• Subscribe to TechBuzz China on Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

Middle Earth: How does China’s advertisement market work?

This episode is the second part of a two-part series about how the internet changed the way to consume and create content. Last time, the panel comprised people who earn a living by creating only on the Chinese internet, but today we meet the other side of the fence, the more “capitalistic” one: those who make, sell, or deal with advertisements.

• Subscribe to the Sinica Podcast on Apple Podcasts, Overcast, or Stitcher, or plug the RSS feed into your favorite podcast app.

PHOTO OF THE DAY

A Christian cab driver

Jordan Schneider, host of the ChinaEconTalk podcast, posted this unusual photo to Twitter with this caption: “First time seeing a DiDi driver with a cross swinging from their rear view mirror — usually you get Mao medallions.”