Merkel, in Beijing, talks Hong Kong

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Our word of the day is “German Chancellor Merkel” (德国总理默克尔 déguó zǒnglǐ mò kè ěr).

—Jeremy Goldkorn, Editor-in-Chief

1. Merkel, in Beijing, talks Hong Kong

Per Agence France-Presse or in video from Reuters: 

German Chancellor Angela Merkel is in Beijing, where she said, during a press conference today with Premier Lǐ Kèqiáng 李克强, that the rights and freedoms of people in Hong Kong “must be guaranteed” and that only a “political” solution was acceptable. Li said that Beijing supported an end to violence, but that the situation in Hong Kong was a matter for China and Chinese people alone to resolve. 

Xí Jìnpíng 习近平 also met Merkel today, which was the top story on all central state media (English, Chinese). Naturally, no mention of Hong Kong is made in the official reports. 

Charlotte Roule, the vice president of the European Union Chamber of Commerce in China, gave a TV interview to Bloomberg in which she says their members have three hopes for Merkel’s visit: 

• Gaining clarity on China’s corporate social credit system

• The EU-China Comprehensive Agreement on Investment

• WTO issues

Roule also says that the EU Chamber “agrees with the [American] diagnosis of the lagging Xi reform agenda, but disagrees on the method of tariffs.” She notes that 25 percent of EU Chamber members make goods in China that are exported to the U.S.

2. Fitch downgrades Hong Kong’s credit rating

The New York Times reports (porous paywall): 

Hong Kong’s economy, already damaged by weeks of protests, was dealt a further blow on Friday when Fitch Ratings downgraded its credit rating on the territory, citing China’s growing influence in the territory’s affairs.

The move will make it more expensive for Hong Kong and many companies closely tied to its fortunes to borrow money. But more broadly, the downgrade signals the growing belief within the financial world that the barriers between Hong Kong and mainland China are weakening, a development that could threaten the city’s longtime status as a global financial hub.

But at least one banker in Hong Kong has a rosy outlook. The South China Morning Post has a short video on Twitter of “banking veteran Richard Harris [saying] that with other Chinese cities on the mainland not ready to take up the $1.2 trillion role of Hong Kong, Beijing cannot afford to destroy the city’s commercial freedoms.” Which is why he says Beijing desperately needs Hong Kong, and the idea that Beijing could replace Hong Kong with any other mainland city is “poppycock.”

In other news from the City of Protest: 

“The Chinese central government rejected Lam’s proposal to withdraw the extradition bill and ordered her not to yield to any of the protesters’ other demands at that time, three individuals with direct knowledge of the matter told Reuters.”

“Nearly a thousand alumni and students across Hong Kong added their voices to a citywide protest on Friday, as demonstrators called on the government to meet all their demands and do more than just withdrawing the extradition bill,” reports the South China Morning Post. 

An “urgent notice” from the propaganda authorities to media and internet companies is translated by China Digital Times:  

All websites and new media, the Hong Kong Special Administrative Region announced the formal withdrawal of the draft “Extradition Regulations.” Do not re-publish, do not follow up, do not report, and strictly dispose of foreign information posted to social platforms. Close relevant comment sections, and strictly handle accounts who attack the government in the name of patriotism.  

2. Beijing blasts Trudeau for mentioning arbitrary detentions of Canadians

Agence France-Presse reports on the reaction in Beijing to the Canadian prime minister’s concern about the kidnapping of his fellow citizens Michael Kovrig and Michael Spavor:

On Thursday, Mr Trudeau told the Toronto Star editorial board that China’s use of “arbitrary detention as a tool to achieve political goals” was concerning not only to Canada but to Western allies.

“The remarks made by the Canadian leader misrepresent the facts and make fake accusations,” said Chinese foreign ministry spokesman Gěng Shuǎng 耿爽 at a press briefing in Beijing.

“Canada arbitrarily detained a citizen of a third country…and is cooperating with the U.S. to cook up the Mèng Wǎnzhōu 孟晚舟 incident,” he added.

Meng is on bail, enjoying a transparent legal process after being arrested because Canada was honoring extradition treaty commitments. Kovrig and Spavor are detained in unknown circumstances on vague charges for which not a shred of evidence has been presented. 

—Jeremy Goldkorn

3. $126 billion stimulus

Caixin reports (paywall):

China to lower banks’ reserve requirement, releasing $126 billion

China’s central bank announced on Friday that it will cut the amount of cash lenders must set aside as reserves, freeing up additional liquidity in the banking system in a bid to support the economy. The People’s Bank of China (PBOC) will lower the reserve requirement ratios (RRRs) by 50 basis points for all banks on Sept. 16, according to its statement (in Chinese).

Bloomberg points out that this month’s cut “is more than the previous cuts in January and May, which released 800 billion yuan ($112 billion) and 280 billion yuan ($39 billion), respectively, the PBOC said at those times.”

The shift is aimed at supporting demand by funneling credit to small firms and echoes the earlier cuts this year. While limited, it could also put pressure on the already weakening yuan which may antagonize President Donald Trump. 

The New York Times says (porous paywall) the move also shows the government is willing to back off on its years-long deleveraging campaign to reduce debt and financial risk in the economy.

—Daniel Schoolenberg 

Here are the stories that caught our eye this week:

• Carrie Lam finally withdrew the extradition bill, meeting one of the five key demands of Hong Kong protesters. But after nearly three months of mass demonstrations, many Hongkongers rejected the chief executive’s move as “too little, too late.” Of the four other demands, Lam only partially addressed one on police conduct — but the Independent Police Complaints Council (IPCC) that Lam tasked with a fact-finding exercise is not seen as independent by protesters, nor powerful enough to hold police accountable. We expect the protests to continue well into the fall, likely until at least the November 24 district council elections. 

• Lam said on tape that she wished to resign during a meeting with city businesspeople last week reported by Reuters. In her comments, she also stated that she did not have a choice to resign, confirming earlier Reuters reporting that indicated Beijing is wielding veto power over Lam when it comes to addressing the protest demands. She then denied that she wants to resign. 

• Xi Jinping has a new favorite word: struggle (斗争 dòuzhēng). He and state media have used the word more frequently of late, indicating the pressure that Beijing feels to handle economic headwinds. It also continues Xi’s campaign of directly linking himself to China’s revolutionary leaders, including and especially the former chairman Mao. 

• New Trump tariffs went into effect on September 1 on $112 billion worth of Chinese goods, including many consumer items that were previously unaffected by rising import taxes. Then, during a moment of calm in the U.S.-China techno-trade war, a group of American lawmakers led by Republican senators Steve Daines and David Perdue visited Beijing, meeting with Vice-Premier Liú Hè 刘鹤 and Lì Zhànshū 栗战书, chairman of the Standing Committee of the National People’s Congress. 

• More trade talks were scheduled for early October in Washington, though these will most likely function as a placebo to maintain the status quo through the end of the year. 

• Heparin, a heart disease drug, may face shortages because of China’s African swine fever epizootic. The active ingredient of the drug is sourced from pig intestines, and as many as 200 million pigs in China may have died from the disease. 

• A single mother in Shanghai is fighting for maternity benefits in a lawsuit against the Shanghai Social Insurance Management Center. The high-profile case has been taken up by the city’s highest court. 

• Russia is going Huawei, all the way. According to Alexander Gabuev, senior fellow and chair of the Russia in the Asia-Pacific program at the Carnegie Moscow Center, “consensus in the Kremlin is tilting toward” using Huawei to develop the country’s 5G networks. 

• Canada has a new ambassador to China, and Beijing greeted the appointment of Dominic Barton — former global managing director of consulting firm McKinsey & Co — with a demand to release Huawei CFO Mèng Wǎnzhōu 孟晚舟. The Canadian government has not publicly responded to this message, and continues to barely say anything about the two Canadian hostages that Beijing holds in retaliation for Meng’s arrest (Trudeau’s comments noted above being a rare exception).

• A star private equity investor has bet big on Chinese biotech. The Hong Kong–based PAG private equity firm led by Shān Wěijiàn 单伟建 has paid $540 million for a controlling stake in Hisun BioRay Biopharmaceutical. Hisun Pharma is best known for co-developing an Ebola remedy, and is at the leading edge of China’s emerging power in pharma and biotech. 

• The People’s Daily went after Apple for privacy controversies, and also took a swipe at FedEx, in what can be seen as non-tariff measures in the trade war to counteract Chinese enthusiasm for American brands. 

• China is tracking the movements of Uyghurs in Central Asia and Southeast Asia by hacking telecom networks, according to intelligence and security consultants. Meanwhile, anti-Chinese sentiment is rising in Kazakhstan. 

• Dài Tiěláng 戴铁郎, the animator who created the beloved Black Cat Detective (黑猫警长 hēi māo jǐngzhǎng) cartoon in the 1980s, died at age 89 on September 4. 

• Fast-fashion giant Zara denied supporting strikes in Hong Kong, after mainland Chinese internet users noticed it had closed four stores in the city on September 2. The brand also reiterated that it “fully endorses China’s territorial integrity” for the second year in a row, after last year having apologized for listing Taiwan as an independent country on its website. 

BUSINESS AND TECHNOLOGY:

• Indian pharma
  Indian pharma in China / China-India Networked newsletter
  Links and analysis of the Indian pharmaceutical industry’s activities in China. 

• Alibaba gobbles up Kaola
  Alibaba buys rival e-commerce platform NetEase Kaola for $2 billion / Caixin

Alibaba Group Holding Ltd., China’s largest e-commerce giant by market share, said on Thursday it will pay $2 billion to acquire cross-border ecommerce platform Kaola from NetEase Inc.

The announcement, which comes after Caixin reported a potential deal last month, marks the latest consolidation in China’s ultra-competitive online shopping market. NetEase Kaola, the biggest import retail e-commerce platform in China, is an archrival of Alibaba’s Tmall Global.

• In other Alibaba news, the company announced it will use blockchain technology to protect third parties who donate money to charity on its platforms, in a bid to increase philanthropy in China. 

The initiative, which is called “Charities on the Chain” and abbreviated as “CoC,” is jointly developed by Alibaba’s philanthropy unit and its fintech arm, Ant Financial. CoC-powered charity projects will allow Alibaba to “transparently” trace donations and help to raise more than 200 million yuan ($28 million) this year, the company said.

• Context: The problems with giving it all away: Philanthropy in China.

• Curbs on facial recognition in schools
  China to curb facial recognition and apps in schools / BBC
  China’s Ministry of Education has pledged to make new rules to curb the use of facial recognition technology in schools. The decision comes at the start of the school year, and after reports of universities deploying facial recognition for registration, and tech giant Megvii coming under fire for demonstrating its use in the classroom.

• Libra and China’s planned digital currency
  China says new digital currency to be similar to Facebook’s / The Irish Times

China’s proposed new digital currency would bear some similarities to Facebook’s Libra coin and would be able to be used across major payment platforms such as WeChat and Alipay, a senior central bank officer said.

• 5G buildout
  China Mobile builds 20,000 5G base stations / Xinhua
  China Mobile “will invest 24 billion yuan (3.39 billion U.S. dollars) to accelerate the construction of the 5G network and has launched 5G network construction in about 300 cities.”
  Meanwhile, Caixin reports that China Unicom will set up a “fund of funds” (FOF) “for 5G projects with 10 billion yuan ($1.4 billion) in initial financing.”

The fund will accept investments from local governments, state-owned enterprises as well as non-state owned companies, China Unicom said on its official Weibo account during the 2019 World Internet of Things Exposition in eastern China’s Wuxi city. The fund will also provide financial tools to implement mixed-ownership reform at some of China Unicom’s tech subsidiaries, the company said.

• Rules to force state-owned companies to pay SMEs
  SOEs told: Pay your bills on time / Caixin
  According to a draft (in Chinese) of rules on “Administrative Measures for Timely Payment of Small and Medium-Sized Enterprises (SMEs),” any company that doesn’t pay back businesses will be named and shamed on a “dishonest” entities blacklist. The new measures are aimed specifically at helping “millions of struggling small companies with new rules to curb abuse by government agencies, state-owned enterprises (SOEs) and large companies.”

• Shanghai stock market up
  China stocks turn hot, lure most foreign inflows since November / Bloomberg (porous paywall)

The Shanghai Composite Index climbed 3.9 percent this week, its best performance since June, while the small-cap ChiNext gauge is on the brink of a bull market. Overseas investors pumped a net 28 billion yuan ($3.9 billion) into the nation’s domestic stock market via exchange links this week, the most since November.

• Yu’e Bao’s money dries up
  World’s no. 1 money-market fund shrinks by $120 billion in China / Bloomberg (porous paywall)

The world’s biggest money-market fund, which once offered annualized returns of nearly 7 percent, is on track to lose its crown after shrinking by more than $120 billion in just over a year.

Known as Yu’e Bao, the Chinese fund operated by an affiliate of Alibaba Group Holding Ltd. had 1.03 trillion yuan in assets under management at the end of June, or an equivalent of $144 billion based on current exchange rates, down from a peak of $270 billion on March 31, 2018.

• Chinese tourism in Asia slows
  Asia’s beaches go quiet as China’s economy slows and tourists stay at home / SCMP

From quiet beaches in Bali to empty rooms in Hanoi’s hotels, pangs from China’s economic malaise and weakening yuan are being felt across Southeast Asia’s vacation belt. 

A boom in Chinese outbound travel in recent years that stoked tourism across Southeast Asia is now in reverse gear.

• Computer processing breakthrough
  Chinese scientists develop atomic-level graphene-folding technique / Caixin
  “Chinese scientists have developed a method of folding graphene with atomic-level precision, potentially opening the door to an array of new technologies including faster, more powerful computer processors.”

SCIENCE, HEALTH, AND THE ENVIRONMENT: 

• Authorities desperate to solve pork shortage
  China tapping national pork reserves will not satisfy shortage of the culturally symbolic meat, analysts warn / SCMP

China has begun to tap its national pork reserves, a sign of Beijing’s urgency to curb widespread discontent over the sharp spike in pork prices, but analysts warn that stocks are nowhere near big enough to keep the popular meat on dinner tables across the country.

“Securing the supply [of pork] affects people’s livelihoods and overall situation,” vice-premier Hu Chunhua said last week, adding that Beijing would use all means at its disposal to keep the supply flowing.

• One of those means might be to get “fine pig sperm” from abroad, according to Bloomberg via The Hindustan Times.

Foreign pigs may be the answer to China’s pork shortage, but not for their meat. Rather, it’s the sturdier semen of hogs in Northern Europe that could help bolster the fertility of breeding sows.

With pork supplies tumbling due to the spread of African swine fever and prices at record highs, the Chinese government is encouraging farmers to breed quickly. “Fine pig sperm” should be used for artificial insemination, authorities said.

• Chinese medicine the cure to cotton virus?
  Chinese medicine herbs could defeat devastating cotton virus, study suggests / SCMP

Chinese scientists have found chemicals in medicinal herbs that could tame a destructive plant virus threatening the cotton industry in its western Xinjiang region.

Some small-molecule chemicals in herbs commonly used in Chinese medicine can effectively suppress cotton leaf curl Multan virus, according to ongoing research led by Professor Yè Jiàn 叶健 at the Institute of Microbiology in Beijing.

• Pet cloning
  Copy cats: pet-cloning in China – in pictures / Science
  “As Chinese spending on pets increases by up to 27 percent year on year, a Beijing firm has created its first cloned kitten.”

POLITICS AND CURRENT AFFAIRS:

• U.S.-China techno-trade war, day 428
  Markets soar as China, U.S. resume trade talks in Washington in October / Washington Post (porous paywall)
  Although both governments are interested in a deal, they remain at odds over several key issues, including U.S. demands for structural changes in China’s state-led economic system:

“I don’t see any real sign that they’re coming back to the table because positions have changed,” said Rufus Yerxa, president of the National Foreign Trade Council. “They don’t want to look like they’re not willing to engage. Both sides are hunkering down for a longer fight.”

• A profile of the Mar-a-Lago trespasser
  Naive tourist? Bumbling spy? Months after her arrest at Mar-a-Lago, Zhang Yujing remains a cipher / SCMP

Zhang, expected to appear next week in federal court on charges that carry up to six years in prison, is representing herself…a former FBI agent “said it was ‘absolutely’ possible that she had been pressured to fire her defense lawyers — as she did in June, against the advice of the judge — in an attempt to weaken her case and increase the likelihood of a swift jail sentence.

If Zhang, who told the judge she made the decision of her own volition, was being used by Chinese intelligence officials, [the former agent] said, “they absolutely could [not] care less if this woman spent two years or 10 years in a federal prison in the United States — especially if it’s a way of distancing themselves from that person.”

• Harassment of Chinese-Australian journalist
  Outspoken journalist in Australia and father in China harassed online / Sydney Morning Herald

Online threats against a Chinese journalist working in Australia have now extended to a US publication and her family in mainland China.

Anonymous online users have called Vicky Xiuzhong Xu‘s father, from whom she is estranged, to be “punished” for his daughter’s views and to be expelled from China.

• Two views of China from Australia
  How Parliament learned to say ‘no’ to China / The Age 

Years of work went into an extradition treaty between Australia and China that came dangerously close to reality during the toxic transition from Tony Abbott to Malcolm Turnbull as prime minister.

It is astonishing that Australia once contemplated the sort of law that has ignited protests in Hong Kong, triggered police brutality and prompted mainland Chinese forces to assemble at the border to potentially crush dissent.

• Let’s cool it on the anti-China hysteria / The Age
  Former prime minister Kevin Rudd writes:

The most important thing about Australia having a national China strategy is to have one. At present, we do not. What we have instead is a government with a series of attitudes about China, rather than a coherent policy for dealing with China.

• Chinese students denied entry to U.S.
  Nine Chinese Arizona State University students detained at LAX and sent back. ASU demands answers / LAT (porous paywall)
  “Nine Chinese students who attend Arizona State University were denied entry into the U.S. when they arrived at Los Angeles International Airport last month and university officials are demanding to know why the students were sent back to China.”

• China expert whitelist?
  What China experts have to do to get on Beijing’s visa ‘whitelist’ / Washington Post
  Isaac Stone Fish talks to a Chinese official who explained that Beijing “wanted to reward academics, scholars and business people who spoke positively about the U.S.-China relationship, promoted engagement and overlooked Chinese human rights abuses,” by giving them special treatment when applying for visas.

• The unbearable heaviness of being Xi
  Xi Jinping’s claim to Mao’s mantle carries risks / FT (paywall)
  Julia Lovell, author of Maoism: A Global History, writes that “though Mr Xi has purged the party and filled its top echelons with loyalists, even senior cadres still dare to snark about this ‘21st-century Mao.’” She concludes that his “retrenchment of party power will only work while Mr Xi’s health, luck and the economy hold firm.”

• Nigeria, and Kenyan donkeys
  The week in China-Africa news / China Africa Project
  This week’s briefing on China-Africa news includes these items:

  • China’s top diplomat heads to Nigeria for talks with President Buhari

  • Chinese demand threatens to wipe out Kenya’s donkeys

  • U.S. tariff wars penalize Chinese development and African futures

SOCIETY AND CULTURE:

• Suicide in Hong Kong
  Woman jumps from Hong Kong residential building, landing on another woman, killing her and herself / SCMP
  “Two women died after one jumped from a residential building in Kwai Chung, and then landed on the other on a platform early on Friday afternoon.”

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