Will tax cuts dispel the gloom and doom in China?

Dear Access member,

Our 2019 Red Paper is released today, and as promised, members get a special discount. That discount is: 100% off.

Click the image below to download the entire 60-page report, FREE for The China Project Access members only. The value of the paper, which comprehensively covers China news from 2018 and provides an outlook on China in 2019, is $48.88.

We hope that you find it to be the ideal resource to place all of this momentous year of China news into context, and feel fully informed as we head into 2019 together.

We also produced a Red Paper last year, though that one was considerably shorter — the “Great Recalculation” of Beijing’s relations with the world that we describe in this year’s Red Paper had only just begun. (Last year’s Red Paper is also available for free download for members).

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Thank you, as always, for being a member of The China Project Access.

—Jeremy Goldkorn, Editor-in-Chief

1. Will tax cuts dispel the gloom and doom in China?

Here is a sample of recent news items that seem to indicate times are tough, and they are going to get worse:

• “China’s economy is not on a cliff edge” says the Global Times, which makes one suspect that China’s economy must be on a cliff edge.

• Earlier this week, the New York Times reported (porous paywall):

Xiàng Sōngzuò 向松祚, a senior economist at Renmin University in Beijing… cited an estimate from researchers at an unidentified official institute who concluded that China’s real rate of economic growth this year could be just 1.67 percent, or even lower. That projection is at the very low end of economists’ estimates, but Chinese growth is widely believed to be lower than official estimates, which forecast an expansion of 6.5 percent this year. [You can see Xiang discussing his pessimistic views of the Chinese economy on Youtube – in Chinese.]

• “Meituan Dianping, the Chinese online services platform, joins other tech companies in making job cuts, while denying reports of large-scale terminations,” tweeted Caixin. Meituan Dianping is one of the success stories of 2018: The Tencent-backed company raised $4.2 billion when it listed in the Hong Kong in September this year.

• “China’s economy is far far worse than people realize. Consumer confidence is plummeting. This is the first time I’ve become outright bearish on China’s economy.” That was a tweet in response to the news of Meituan Dianping layoffs. The unusual thing about it is that it was written by Shaun Rein, an American who runs a market research firm in Shanghai and has been consistently bullish on China and supportive of government policies for more than a decade.

• The CEO of bike-sharing company Ofo, until recently a darling of the venture capital scene, “has been blacklisted by a Beijing district court… The news comes days after hundreds of Ofo customers showed up at the company’s headquarters in Beijing hoping to get their deposits refunded,” reports Sixth Tone. The company is apparently in real trouble.

• “Mounting trade risks are dragging down the the confidence of senior finance officers at companies operating in China, according to the results of a survey by Deloitte released Wednesday,” reports CNBC.

• “I think the data is going to come in very ugly,” said the head of research for the Bank of Communications’ Hong Kong subsidiary to Bloomberg TV. “For the coming six months, we’re going to see a visible, noticeable, broad slowdown in the Chinese economy.

I have chosen the gloomiest news here. Not everyone is this gloomy: we found surprising optimism in a spot survey of economists and investors we talked to for our latest Red Paper (downloadable free for you as an Access member). And yesterday, a Morgan Stanley executive said the firm “outright bullish” on Asian markets, especially China’s.

Deeper tax cuts and more infrastructure?

Nonetheless, the general consensus is that China’s growth will slow. This is the backdrop for  the Central Economic Work Conference (CEWC) chaired by Xí Jìnpíng 习近平 which began on Wednesday in Beijing, and concluded today with a speech by Xi. The meeting was the top story on all central state media today (English, Chinese). This is what seems to have emerged from it:

• “China’s top leadership has decided to rely on deeper tax cuts and larger fiscal spending to manage economic headwinds in 2019,” is the South China Morning Post’s takeaway from the meeting.

• The statement from this year’s CEWC was “much longer” than those in previous years, says an analyst cited by the SCMP, “showing the Chinese leadership’s intention to improve its communications and disclose more details of its policy intentions for next year to shore up market confidence.”

• “China must eventually rely on its home market alone for future prosperity,” was the consensus at CEWC, says the SCMP. This goal led the group reiterate “an older goal that China must ‘urbanise’ 100 million citizens by 2020.”

• 5G telecommunication networks, artificial intelligence, and rural infrastructure are sectors the government will continue to invest in.

• The Xi Jinping paradox appears again: China will both boost the state sector and the allow the private sector to flourish. The SCMP notes:

“China will stick to its goal of ‘making the state capital more powerful, better and bigger,” but at the same time, “Beijing has also promised that it will seek to ensure the property rights and personal security of private entrepreneurs.”

Related:  

• China offers low-cost loans to banks to help fund small businesses, shore up economy / SCMP

• China subway binge is back on track / FT (paywall)

• China’s state planner approves urban rail expansion projects in Hangzhou / Reuters

• China approves urban rail projects worth $43.3 billion in Shanghai / Reuters

—Jeremy Goldkorn

2. Trade war, day 169: China denies U.S. hacking charges

Britain, Australia and New Zealand joined the United States in calling for an end to what the U.S. Justice department says is a global campaign of hacking and intellectual property theft orchestrated by Beijing. China has denied the charges:

• “China’s Foreign Ministry said on Friday it resolutely opposed ‘slanderous’ accusations from the United States and other allies criticising China for economic espionage,” reports Reuters. Beijing also demanded that the U.S. also withdraw charges against two Chinese citizens accused of hacking.

• The response is Beijing boilerplate when accused of hacking: total denial, and a reminder about Edward Snowden. From the Foreign Ministry website:

China is a staunch defender of cyber-security and has been firmly opposing and cracking down on all forms of cyber espionage. The Chinese government has never participated in or supported others in stealing commercial secrets in any form.

It has long been an open secret that relevant departments in the US have been engaging in large-scale and organized cyber stealing, spying and surveillance activities on foreign governments, enterprises and individuals.

• The U.S. and China are both “trying to contain the damage” from the U.S. hacking accusations while trade talks are ongoing says the Wall Street Journal. (paywall)

• Japan also accused China of cyberattacks, reports the South China Morning Post, naming the same group indicted by the U.S.

• Reuters has details of the alleged hacks: “Hackers working on behalf of China’s Ministry of State Security breached the networks of Hewlett Packard and IBM, then used their access to hack into their clients’ computers,” according to five Reuters sources.  

• APT10 is the name of the hacking group named in the latest indictment. The South China Morning Post has an explainer on the group.  

Further reading:

• Chinese commercial espionage reaches into NZ, GCSB boss says / New Zealand Herald

• ‘New Cold War’: China-NZ relationship rapidly deteriorating / New Zealand Herald

• Australia joins condemnation of ‘huge, audacious’ Chinese hacking plot / The Guardian

Other news from the trade war and the Great Recalculation

• Canadian detainees
  China denies legal assistance to detained Canadian Michael Kovrig / FT (paywall)
  “‘Michael is being held at an undisclosed location with no right to an attorney or bail,’ a person familiar with Mr Kovrig’s case said. ‘He is questioned each morning, afternoon and evening.’”
  Michael Kovrig arrest: Canadian held in China ‘not allowed to turn lights off ‘ / BBC
  ‘Hundreds’ of Canadians held by China raises the stakes for Trudeau’s government / Toronto Star (porous paywall)

• Other trade war news
  115 percent of Trump’s China tariff revenue goes to paying off angry farmers / Council on Foreign Relations
  “‘Billions of Dollars are pouring into the coffers of the U.S.A.,’ tweeted President Trump last month, ‘because of the Tariffs being charged to China.’ It would be nice if it were true. But it is, in fact, doubly false.”
  Foxconn plans $9bn China chip project amid trade war / Nikkei Asian Review
  Chinese chip deals shift to Europe as U.S. clamps down / The Information (paywall)
  “Canyon Bridge partner Peter Kuo said that revisions to U.S. laws requiring national security reviews of deals from foreign entities “make it effectively impossible for certain state-linked buyers, especially Chinese ones, to buy even a share in U.S. businesses in sensitive areas like semiconductors.”   

—Jeremy Goldkorn

—–

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

Here are the stories that caught our eye this week:

• Xinjiang’s internment camps have reportedly begun forcing their detainees to do manual labor making textiles and other products. Some news publications suggest that this development is a resurrection of the reeducation through labor (劳教 láojiào) system, which was formally abolished in 2013.

• A third Canadian in China has been detained, amid a rapidly escalating tit-for-tat hostage situation following the arrest of Huawei CFO Mèng Wǎnzhōu 孟晚舟 in Vancouver at the beginning of the month. As the Canadian government decides on its strategy to get the hostages released, the Canadian Embassy in Beijing took to Weibo to register its displeasure via trolling.

• U.S. National Security Adviser John Bolton announced a “new Africa Strategy,” called “Prosper Africa,” in a speech on December 13. China is mentioned 14 times in the speech, and Russia six times. According to Bolton, one of the goals of the strategy is to dissuade African governments from dealing with or borrowing from China and Russia. He cites runaway debt to China and a military threat. However, Africans are not impressed.

• Ofo, one of two companies that came out on top of the bike-sharing gold rush of 2017, is now on the verge of bankruptcy. Meanwhile, about 11.7 million customers are still waiting to get their deposits back.

• China’s gender gap is getting worse. In the 2018 World Economic Forum (WEF) Global Gender Gap report released this week, China fell to 103rd place out of 149 countries, ranking behind places such as Myanmar and Russia. This is the first time China has dropped out of the top 100, and three places down from where it was last year.

• General Secretary Xí Jìnpíng 习近平 gave a speech this week in celebration of the 40th anniversary of the Third Plenary Session of the Eleventh Central Committee of the Communist Party. In the speech, Xi says, per the translation of the Associated Press and other media, “that no one can ‘dictate’ China’s economic development path.” Although the U.S. is not explicitly mentioned even once, the word 教师爷 jiàoshīyé (“master teacher”) used in the speech sends a very clear message to a domestic audience: Xi is going to stand up for China against America.

BUSINESS AND TECHNOLOGY:

• No rape charges for JD boss
  JD.com chief Richard Liu will not be charged with sexual assault / NYT (porous paywall)
  Richard Liú Qiángdōng 刘强东, “the Chinese billionaire accused of rape nearly four months ago by a young Chinese student at the University of Minnesota, will not be charged with sexual assault, prosecutors in Minneapolis said on Friday.”

• Tencent’s regulatory hold up over?
  Chinese Regulator Reboots Game Approval After 9 Months / Sixth Tone
  “China’s media regulator resumed the approval process for online games after a nine-month pause, ending the ‘cold winter’” that has mired the country’s multibillion-dollar industry in uncertainty.”
  Tencent shares jump after China watchdog flags video game approvals / Reuters
  “Tencent Holdings shares jumped by as much as 4.2 percent on Friday after a regulatory official said that some new games have been cleared for sale after a lengthy freeze in approvals.”

• Financial market opening
  China considers giving more investment options to select foreign investors / Caixin (paywall)
  A proposed expansion of the “Qualified Foreign Institutional Investor” program would give easier access to China’s bond and stock markets for foreign entities.

• Food: snacks and drinks
  Uni-President to acquire stake in South Korean food company / Focus Taiwan
  Uni-President Enterprises, one of the largest food production companies in Asia, and manufacturer of the popular Tǒngyī 统一 brand of instant noodles will acquire a 74.8 percent stake in Woongjin Foods for $229 million.

• Australian barley
  China opens anti-subsidy investigation into Australian barley imports / SCMP
  “China’s commerce ministry launched an anti-subsidy probe into Australian barley imports on Friday, ramping up pressure on suppliers and increasing uncertainty in the market after an anti-dumping probe announced last month.”

POLITICS AND CURRENT AFFAIRS:

• Xinjiang: Increasing pressure in Indonesia to speak out
  Indonesian Muslims protest against China’s treatment of Uyghurs / Reuters via Jakarta Globe
  “Hundreds of Muslims held a rally outside the Chinese Embassy in Jakarta on Friday to protest against the treatment of members of the mostly Muslim ethnic Uyghur minority…Opposition groups in Indonesia, the world’s largest Muslim-majority country, have criticized President Joko ‘Jokowi’ Widodo for not providing enough support for China’s Uighur community.”
  Calls mount for Indonesia to speak out on China’s treatment of Uyghurs / Radio Free Asia
  Indonesian Muslims protest China’s detention of Uighurs / AP

• From one-child policy to have-more-children policy
  China boosts childcare and maternal health services in bid to lift birth rate / SCMP
  “Beijing has gone from forced abortions and heavy fines during its notorious one-child policy to providing childcare services and encouraging people to have more children, as it grapples with a rapidly ageing population and falling birth rate.”
  Also see in Xinhua: 不想生、不敢生、托育难？计生协明年着力解决这些问题

• Corruption
  Chinese ex-official admits to making US$23 million from insider trading / SCMP
  “A former provincial vice-governor in southern China has pleaded guilty to engaging in insider trading and making 160 million yuan ($23.2 million) on illegal trades over the course of more than six years.”

• Death penalty
  China’s death penalty is popular and releasing data will fuel calls for more executions, judge says / SCMP
  “Top judges from China’s Supreme People’s Court have made a rare defence of the death penalty, with one saying ‘a life for a life’ is ingrained among the people, and backed ‘social credit’ blacklists as necessary to make people repay their debts.”

• Reciprocal Access to Tibet Act
  Trump signs law punishing Chinese officials who restrict access to Tibet / NYT (porous paywall)
  “President Trump has enacted a law that requires the State Department to punish Chinese officials who bar American officials, journalists and other citizens from going freely to Tibetan areas in China’s far west.”
  China’s top legislature expresses strong indignation at U.S. act on Tibet / Xinhua

• Censorship on Twitter
  Twitter allegedly subject to Chinese censorship reach through hacked accounts and deleted tweets / Australian ABC
  A review of the current campaign to silence Twitter users, and a brief history of Twitter censorship in China.

• Warship construction
  Major Chinese shipyard rapidly expands in size amid military buildup / CNN
  “Jiangnan is responsible for some of China’s most advanced warships… The assets produced at the shipyard form an important part of the People’s Liberation Army Navy’s modernization,” Matthew Funaiole, fellow at the CSIS’s China Power Project, told CNN.

• Wildlife conservation
  Chinese poachers to blame for sharp fall in turtle numbers off Japan, says conservation group / SCMP
  “A Japanese conservation group has accused Chinese poachers of being behind the sharp decline in the number of sea turtles coming ashore to lay their eggs on the southern island of Yakushima.”

• Surveillance in Latin America
  In Latin America, Big Brother China is watching you / SCMP
  “Chinese surveillance technology is being used by Latin American countries for everything from fighting crime to monitoring natural disasters — but critics fear it could be used for darker purposes, too.”

SOCIETY AND CULTURE:

• Palestinian rap through Chinese eyes
  Refugee camp to center stage: Palestinian rap group’s journey / chinarrative
  Translation of a profile (in Chinese) of Palestinian rap group Saaleek first published by Féng Shīháo 冯诗豪, who majored in Arabic at Shanghai International Studies University and holds a master’s in Middle Eastern studies from Hebrew University.

• PRC wives in Taiwan can remain after divorce
  Law amendment mulled to protect divorced Chinese spouses / Focus Taiwan
  “Laws are to be amended to allow Chinese spouses to continue to reside in Taiwan should they divorce, to better protect their rights and those of their dependent children, the Ministry of the Interior said Friday.”

• Too many sex dolls?
  It’s all in the best possible taste, insists Chinese man with collection of nine sex dolls / SCMP
  “A 60-year-old man from southwest China who has amassed a collection of nine silicon sex dolls has insisted that he does not care about being labelled as a ‘pervert’ because he regards them as his surrogate daughters.”

• Internet catchphrases
  China’s top ten buzz words and phrases of 2018 / What’s on Weibo
  Earlier translated here: These are China’s top ten words of the year / Radii China
  Chinese magazine Yǎowén Jiáozì 咬文嚼字, which is translated variously as “Correct Wording” and “Chewing Words,” turns a critical eye to the misuse and abuse of language in Chinese society. It has released its top 10 popular words of 2018 list, which are explained by Radii China.
  This year’s winner is “community of shared destiny” (命运共同体 mìngyùn gòngtóngtǐ), one of the favorite phrases of Xí Jìnpíng 习近平.
  You can read more about Xi’s “community of shared destiny” on The China Story.
  There’s more about Yaowen Jiaozi magazine on Danwei.org.

• Surrogacy in Cambodia
  As demand from China fuels Cambodia’s ‘womb for rent’ industry, surrogate mothers fear the law / AFP via SCMP
  “China, where more than 90 million women are eligible for a second baby after the one-child policy was eased, is driving demand in a womb for rent’ industry where impoverished young women bend and break the laws of their countries for financial reward.”

• Poisoning on American college campus
  Chinese chemistry student charged with poisoning US roommate / BBC
  “A Chinese chemistry student at a US university tried to poison his African American roommate over a period of several months, prosecutors allege.” The case is reminiscent of the 1995 thallium poisoning of Tsinghua University student Zhū Lìng 朱令, and the 2013 Fudan University case.

VIDEO ON SUPCHINA

Viral on Weibo: Watch a pro sugar painter in action!

Sugar painting originated during the Ming dynasty (1368–1644) and its techniques have been studied and improved by many practitioners. The artists typically use hot sugar, drizzling it from a small ladle onto a flat surface. There are few professional sugar painters nowadays and sugar painting has become an intangible cultural heritage in China.

We also published the following videos this week:

• Not your everyday cooking machines in the kitchen!

• Unusual music instruments!

• A high-speed train made of snow!

• Snow wonderlands in China

• Meet China’s celebrity goat

FEATURED ON SUPCHINA

Five Must-See Chinese Movies of 2018

2018 was a good year for Chinese movies. Here are five that particularly stood out, including Jia Zhangke returning to his roots in Ash Is the Purest White, Wen Muye’s critically acclaimed Dying to Survive, and a Zhang Yimou epic set during the Three Kingdoms period.

Chinese Corner: The education gap, the spectacular rise and fall of Ofo, and a sexual harassment victim speaks out

In this installment of Jiayun Feng’s weekly review of interesting nonfiction on the Chinese internet, she looks at China’s education gap, the rise and fall of Ofo, stan culture, and a woman at the center of China’s #MeToo movement.

Zhou Qi released by Houston Rockets, while Yao Ming referenced in racist Lil Pump verse

China’s national soccer team is preparing for the Asian AFC Cup in the UAE, but controversy swirls around one of its best players, Zhang Linpeng, due to his…tattoos. Zhou Qi was released by the Houston Rockets, while Yao Ming, the legendary former Rocket, was referenced in a Lil Pump song (he was not complimented). Finally this week: The latest proposals for the next Chinese Super League season.

Introducing: China Business Corner, a roundup of Chinese stories in business and tech

Welcome to the first issue of China Business Corner, a weekly window into Chinese-language coverage of business, technology, and the broader economy, brought to you by co-writers Huang Sizhuo and Jordan Schneider (who also hosts the ChinaEconTalk podcast). Earlier this week, on the heels of news about Huawei CFO Meng Wanzhou’s 孟晚舟 arrest in Vancouver, we translated a story on Huawei’s global expansion. But that wasn’t the only noteworthy news from this week. Check out these other pieces on Chinese efforts to “boycott Canada,” Shenzhen’s cooling real estate market, and Amazon’s activity in China.

‘Men are all pig’s feet’ — and other Chinese memes of 2018 that reflect our times

Memes have become a way to appreciate and participate in popular culture, a way to find solidarity, construct identity, and communicate with precision. This is no different in China. Here are five popular memes from 2018 that offer a snapshot of this year’s collective Chinese digital consciousness, a year in which online users saw through the BS and women said “Enough.”

Kuora: How to play the Chinese card game ‘Fight the Landlord’ (Dou Dizhu)

This week’s Kuora is an introduction to one of China’s most popular card games, Fight the Landlord (斗地主 dòu dìzhǔ). Admittedly, this is just one of several variations, but if you know the basics, you’ll be on your way to mastering it in no time.

The man who exposed China’s hotel hygiene horrors is receiving death threats

Beijing police have launched an investigation into death threats sent to activist blogger “Boss Hua lost the Monkey King’s magic wand” (@花总丢了金箍棒 Huāzǒng Diūle jīn gū bàng, hereafter Boss Hua). Boss Hua became a collective enemy of China’s hospitality industry this year after he posted a viral video showing insanitary conditions at several luxury hotels in the country, such as the Sheraton and Waldorf Astoria.

SINICA PODCAST NETWORK

Sinica Podcast: 40 years of reform and opening up, with Jude Blanchette

Jude Blanchette, the senior adviser and China practice lead at Crumpton Group’s China Practice, joins Kaiser and Jeremy to reflect on just how much the country has changed since 1978, and also restore figures like Zhào Zǐyáng 赵紫阳 and Hú Yàobāng 胡耀邦 to their proper place in the story of reform. In addition, Jude talks about the conservative reaction to reform — the topic of his forthcoming book, Under the Red Flag: The Battle for the Soul of the Communist Party in a Reforming China.

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

Caixin-Sinica Business Brief, episode 72

This week on the Caixin-Sinica Business Brief: A new report about China’s economy, the fall of Zhāng shǎochūn 张少春, the Made in China 2025 initiative, Doug Young on Apple in China, and more.

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

PHOTO OF THE DAY

Old house

This is a traditional mud-walled, wood-beam-framed house of rural southwest China. Built in 1982, it was abandoned in 2014 when the government provided poverty alleviation subsidies for villagers to build modern housing (aka three-story concrete structures). Needing a place to live in the village, this became my home. Photo by Matthew Chitwood.