Xi’s organs?

• The Producer Price Index fell by 4.4%, the 10th consecutive month of contraction.
• July was the first month since November 2020 that both price indices contracted.
• The numbers come after the release of official statistics yesterday that showed that China’s exports and foreign direct investment plunged last month.

Falling prices are an indication that Beijing is struggling to spur demand, and is under increasing pressure to pump more stimulus into the economy.

• But an even deeper anxiety is that China may be entering a period of extended deflation akin to Japan’s “lost decades.”

For now, such fears may be overblown:

• The drop in the CPI in July was mostly caused by a steep drop in the price of pork.
• Month-on-month, the CPI actually increased by 0.2%
• Core inflation (excluding food and fuel prices) increased even further in July by 0.8% year-on-year.

Much uncertainty remains, however, about whether Beijing will be able to substantially increase consumer spending, and when.

Barry van Wyk

Today, the Biden administration plans to issue new restrictions on American investments in certain advanced industries in China, according to sources cited by Reuters and the New York Times, which says the rules “would bar private equity and venture capital firms from making investments in certain high-tech sectors, like quantum computing, artificial intelligence and advanced semiconductors,” and would require companies to report various types of investments to the U.S. government.

The death toll in Beijing and environs rose to 33, with 18 people still missing as of yesterday at midnight, according to local authorities, as the devastating floods in the aftermath of Typhoon Doksuri continue to wreak havoc on the Chinese capital. The heavy rains from July 29 to August 2 were the biggest to hit Beijing since records began in the 19th century.

Cathay Pacific reported its biggest first-half profit since 2010, with net income totalling HK$4.3 billion ($550.22 million) from January to June this year due to strong demand and high ticket prices, according to a company statement today.

“While we are still only part way along our rebuilding journey, our results for the first six months of 2023 demonstrate that we are on the right track,” Cathay chairman Patrick Healy said. He also announced plans for the Hong Kong-based airline to order more planes and repay the city government’s rescue package, as travel demand continues to rebound after the city’s strict COVID quarantine rules.

Women are buying up more than a quarter of Ferraris in China, with female buyers on average accounting for 26% of the company’s sales in the country over the last five years. The proportion of Chinese women who purchase Ferraris far exceeds those of any other country, the company said per Bloomberg, boosted in part by trends on social media that showcase women behind the wheel of the luxury Italian supercars.

A Chinese city will pay couples 25,000 yuan ($3,466) to have a third child, local authorities in Hangzhou, the capital of Zhejiang Province, announced on August 7. Starting on September 10, couples expecting a third child are eligible to receive a one-time payment that includes a childcare allowance of 20,000 yuan ($2,779) and a maternity allowance of 5,000 yuan ($694) — one of the largest government handouts for having children in China.

Chinese state media: The People’s Daily’s top story today is about the meeting of senior Communist Party officials at the leadership summer retreat at Beidaihe with various science and technology experts last week. The experts left the meeting with these “clear goals”:

• Improving high-end manufacturing;
• Research on aging organs and longevity;
• The development of “electronic information materials” to master “key core technologies.”

Xinhua News Agency’s top story is a lengthy exposition of the scientific mindset of Xí Jìnpíng 习近平 who “stands in the wind and snow, walks in the mud, asks questions…listens to the truth, observes the truth, and makes good strategies,:” and so “sets an example for the whole Party to pay attention to research.”

• Sailing ships — even European ones — were not uncommon sights in these waters during the 16th century, but these stood out for their size and armament.
• The cannons they carried would help transform the nature of Chinese artillery, but for the moment their agenda was not military: they comprised the first formal diplomatic mission to China in nearly 200 years.

The mission failed — but perhaps for unexpected reasons, writes James Carter in This Week in China’s History.

James Carter

• The “dictator’s dilemma” arises from the incapacity of authoritarian leaders to calibrate repression and concessions because they cannot or are not willing to access information about elite dissatisfaction or popular discontent.

The two also discussed the various ways in which Chinese Communist Party leaders retain power, and how the Party handled the protests against COVID zero last year.

Christopher Marquis

Welcome to the Jing is a photobook project shot by French photographer Laurent Hou (罗鸿 Luó Hóng) between 2013 and 2017. The photobook captures a special moment in the city’s history: after the Olympics and before the citywide demolition of illegal buildings that began in 2017, Hou snapped around 100,000 shots, mostly of quirky people and happenings inside the city center.

Below are links from our NewsBase to other noteworthy reports published in the last 24 hours from and about China.

BUSINESS AND TECHNOLOGY:

Risky business
Law firm Dentons splits with China’s Dacheng as counter-espionage law takes hold / Reuters
“Global law firm Dentons said on Tuesday that it has split with its China branch, Beijing Dacheng Law Offices, in the wake of new national security restrictions imposed by the Chinese government. The 2015 combination between China’s Dacheng and U.S.-based Dentons created a 6,600-lawyer mega-firm, with Dacheng accounting for more than 4,000 of its attorneys.”

Development and real estate
Country Garden misses bond payments as China property fears flare / Reuters
“Country Garden said on Tuesday it has not paid two dollar bond coupons due on Aug. 6 totalling $22.5 million, confirming market fears that the biggest privately owned developer in China is slipping into repayment troubles.”
Another Chinese developer teeters, raising worries about the economy / NYT (paywall)
“Country Garden, China’s last real estate giant to avoid default, has spooked investors after missing key debt payments, rekindling memories of China Evergrande.”
Country Garden, China’s largest surviving developer, sinks into debt crisis / WSJ (paywall)
China’s Country Garden misses bond payments as turmoil grips property sector / FT (paywall)

China in deflation
Chinese economy falls into deflation as recovery stumbles / FT (paywall)
“China’s economy has fallen into deflation after consumer prices declined for the first time since early 2021, in one of the starkest indicators of the challenges facing policymakers as they struggle to revive consumption.”
China deflation provides limited relief for global central banks / Bloomberg (paywall)
“China’s consumer and producer prices fell together for the first time since 2020, a deflation cycle that could give global central banks some help in fighting inflation in their own countries but signals a worsening outlook in the world’s second-largest economy.”
China slips into deflation in warning sign for world economy / WSJ (paywall)
China learns the D-word / FT (paywall)
China consumer prices swing into decline as deflation risks build / Nikkei Asia (paywall)
China slides into deflation as consumer, factory prices drop / Bloomberg (paywall)

Private sector stimulus
China has a 31-point plan for private sector to kick-start economy. But are bruised business owners buying it? / SCMP (paywall)
“When Beijing released a 31-point guideline to ‘boost the development of the private economy’ last month, several top entrepreneurs – mostly current or former members of China’s top political bodies —– rushed to applaud the move via state media.”

TikTok and ecommerce
TikTok replaces top shopping executive with retail veterans / The Information (paywall)
“TikTok has hired two retail veterans who worked at Amazon and Meta Platforms to help oversee its ambitious push to build a giant U.S. ecommerce business…The shakeup comes as TikTok’s CEO Shou Zi Chew [周受资 Zhōu Shòuzī] is trying to build a big TikTok ecommerce business, including through the launch of a service called Shop, which lets people buy things in the TikTok app.”

Renewable energy
How China cornered the market for clean tech / FT (paywall)
“The country is the biggest supplier of materials vital for the energy transition. That could give it geopolitical leverage.”

Electric vehicles
Tesla relies on China for 40% of battery supply chain: analysis / Nikkei Asia (paywall)
“Nearly 40% of the suppliers for materials used in Tesla’s electric vehicle batteries are Chinese companies, a Nikkei analysis finds, underscoring China’s strong presence in a strategically important sector.”
Mazda to expand electric lineup amid weak car sales in China / Caixin (paywall)
“Mazda Motor Corp. will expand its electric vehicle lineup starting around 2025 in response to declining sales in China, seeking to catch up with EV manufacturers in the world’s largest car market.”
Opinion: In China, it’s already cheaper to buy EVs than gasoline cars / Bloomberg (paywall)
David Flicking writes: “A savage price war has been great for consumers, who are embracing plug-in vehicles much faster than predicted.”

Semiconductors
TSMC to build $11 billion German plant with other chipmakers / Caixin (paywall)
“Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has agreed to build a 10 billion euro ($11 billion) plant in eastern Germany in partnership with Infineon Technologies AG, NXP Semiconductors NV and Robert Bosch GmbH.”

China’s job market
Struggling Chinese graduates return to hometowns as job market sags / Reuters
“A growing number of Chinese graduates are abandoning the bright lights of the country’s mega-cities, with state media reporting almost half are returning to their hometowns within six months of graduation amid a sagging job market.”

SCIENCE, HEALTH, AND ENVIRONMENT:

Research
China universities waste millions, fail to make real use of research, audit finds in indictment of tech-sufficiency drive / SCMP (paywall)
“Universities in a southern Chinese region are not doing enough to turn academic research into market applications, and in maintaining large piles of idle funds, and the findings could raise questions about the nation’s ambitious tech self-sufficiency drive.”
China retains crown in scientific papers, widens lead over U.S. / Nikkei Asia (paywall)
“China has maintained its global lead in three measures of the quantity and quality of scientific research papers, a report from Japan’s education ministry shows, a testament to the country’s increasingly independent research system that does not rely on the West.”

Flooding
The human toll of North China’s historic floods / Sixth Tone
“For residents in rural parts of northern China, the scale of the impact of the historic flooding on their lives and livelihoods cannot easily be explained. From missing loved ones to tales of survival, here are some of their stories.”
Record flooding highlights rural-urban divide in China / Foreign Policy
“The aftermath of Typhoon Doksuri created record flooding across northern China last week, leading provincial authorities to divert water from overflowing reservoirs into populated areas to protect Beijing from the worst effects.The move fueled widespread anger…”

POLITICS AND FOREIGN AFFAIRS:

Taiwan
Taiwan reports second large-scale China air force incursion this week / Reuters
“Ten Chinese air force aircraft entered Taiwan’s air defense zone on Wednesday accompanying five Chinese warships engaged in ‘combat readiness’ patrols, the island’s defense ministry said, the second such incursion this week.”

U.S.-China competition and tensions
White House to detail plans restricting some U.S. investments in China — source / Reuters
“The White House on Wednesday will detail its plans to prohibit some U.S. investments in sensitive technology in China, and require that the government be notified of other investments, a senior government source told Reuters.”
Biden to restrict investments in China, citing national security threats / NYT (paywall)
U.S. to ban some investments in China / WSJ (paywall)
Two U.S. lawmakers raise security concerns about Chinese cellular modules / Reuters
“Two U.S. lawmakers on Tuesday asked the Federal Communications Commission (FCC) to address questions about potential security concerns involving cellular modules made by Chinese companies including Quectel and Fibocom Wireless.”

Japan
China considers holding leaders’ talks with Japan in September — Kyodo / Reuters
“China has notified Japan that it is considering holding talks between their leaders in Indonesia in September, Kyodo news agency reported on Wednesday.”
Pentagon confident on sharing intelligence with Japan despite China hacking report / Reuters
“The Pentagon said on Tuesday it was confident about sharing intelligence with Japan, despite a U.S. news report saying Chinese military hackers gained access to Japan’s most sensitive defense networks.”

Germany
China targeting German tech ‘through back door’ with licenses — report / Reuters
“China is going after licenses to boost its access to German technology as investment regulation makes company acquisitions in the sector increasingly difficult, the Handelsblatt newspaper reported on Wednesday, citing a study.”

New Zealand
Opinion: New Zealand’s new prime minister is making nice with China / Nikkei Asia (paywall)
Derek Grossman writes: “Since taking over as prime minister of New Zealand in January, Chris Hipkins has subtly stepped back from the assertive language predecessor Jacinda Ardern previously used in reference to China.”

The Philippines
Philippine leader says no promise made to China to remove grounded warship / Reuters
“Philippine President Ferdinand Marcos Jr on Wednesday denied making an agreement with China to remove a grounded warship that serves as a military outpost in South China Sea, and said if there ever were such a deal, it should be considered rescinded.”
Philippines says ‘promise’ to remove grounded warship ‘a figment of China’s imagination’ / SCMP (paywall)
China, Philippines cautiously flip trade dip as ‘hot economics, cold politics’ define relations / SCMP (paywall)
“Despite an ongoing dispute in the South China Sea, economic relations between China and the Philippines have remained ‘business as usual,’ but risks are also rising, according to experts.”

SOCIETY AND CULTURE:

Traveling
Extreme solutions: death in China desert sparks demand for survival tips as mainland tourists embrace adrenalin-fuelled adventures / SCMP (paywall)
“A vehicle-breakdown tragedy which claimed the lives of four tourists in the notorious ‘sea of death’ desert in China’s Xinjiang Uygur autonomous region has prompted warnings about the perils of unprepared travel.”
For Chinese parents, even vacations are opportunities for learning / Sixth Tone
“Parents are taking the old Chinese saying of ‘traveling thousands of miles is better than reading thousands of books’ very seriously.”

Are ethnic-themed photos appropriation or appreciation?
Clicking into the craze: Exploring the rise of “ethnic-themed photos” among Chinese tourists / Whats on Weibo (paywall)
“Patriotic, problematic, or purely photogenic? The trend of ethnic photoshoots has sprouted across Chinese social media platforms.”