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Thursday, July 5, 2018

SupChina - Weekly China News Newsletter

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TOP STORIES

GIF by Lucas Niewenhuis. View pronunciation video from Jia.

Dear reader,
Last Monday, we noticed that our website could no longer be accessed from within mainland China. After a series of tests, we confirmed that we have indeed been blocked. This is the reality of doing honest news coverage about China, and we don't feel all that upset — after all, we've joined a club that includes the likes of the New York Times, Wikipedia, YouTube, and my old website, Danwei — as some of you might remember. We have always known this day would come, and now that it has, we can stop worrying about the inevitable. For practical purposes, absolutely nothing will change: We will continue writing about China, talking about it in podcasts, and gathering the best news sources we believe will help you understand this difficult and ever-changing place. Our WeChat account and podcast streams are unaffected.
Thank you for your ongoing support. If you find value in what we do, please consider becoming an Access membersubscribing to our WeChat, or coming to our next happy hour or live Sinica Podcast in Beijing, New York, or Washington, D.C. (to be announced).
—Jeremy Goldkorn, Editor-in-Chief

1. Trade war: The clock is ticking

“Tariffs on $34 billion of Chinese goods are scheduled to take effect at 12:01 a.m. in Washington, the U.S. Trade Representative confirmed in an email,” reports Bloomberg. China is expected to retaliate immediately, although the Wall Street Journal says (paywall) Beijing has retreated from an earlier plan to put its tariffs into effect 12 hours before America’s hit. Two commentators I respect have this to say today:
Economist Andy Rothman on Sinology:
A key conclusion is that if either side chooses war, the impact on the Chinese economy and on the majority of listed Chinese companies will be quite modest, because it is not an export-driven economy.
China-watcher Bill Bishop in Sinocism (paywall):
I worry that Trump has underestimated Beijing's resolve, and that in fact believed that his "friendship" with Xi would keep China from retaliating, and that some of Trump's advisors have been telling him that the Chinese will have to cave quickly because otherwise their economy will collapse in the face of US tariffs. I would place those things into the category of "dangerous, wishful thinking."
There’s plenty more commentary out there, but below I’ve selected only stories that contain news rather than punditry:
COMPANIES IN THE CROSSHAIRS
Between tariffs and growing national security worries in the United States, the tech and auto industries of both sides of the Pacific are facing an uncertain near-term future.
  • The planned purchase by T-Mobile US of Sprint is under threat as U.S. lawmakers plan to pressure the Trump administration to closely scrutinize the deal, “arguing the acquisition poses a threat to American security because the owner of Sprint has ties to Chinese telecommunications company Huawei,” according Bloomberg (paywall).
  • Micron, the American semiconductor group, confirmed that a Chinese court “has granted a preliminary junction that bans its Chinese subsidiaries from manufacturing and selling some of its products,” reports CNBC. Taiwan’s United Microelectronics Corporation (UMC) and its Fujian-based partner Jinhua “sought the sales ban, alleging that Micron violated its patent rights in China. UMC and Micron have gone back and forth in the courts, alleging various intellectual property violations.” The dispute predates the trade war, but Micron is likely to face additional hostility in the current climate, and Bloomberg says (paywall) that “the tussle appears to be less about the law and mostly about the Chinese government's efforts to develop a homegrown computer-chip industry at any cost.”
  • Japan’s biggest auto-parts supplier, Denso, with a market value of $37 billion, sees the threat of a trade war as a “grave concern,” according to Bloomberg(paywall). Denso is currently readying “an expansion in China, along with a war chest worth at least $9 billion for investments aimed at broadening its business beyond top customer Toyota.”
  • ZTE has some respite: “The Trump administration has temporarily lifted part of a ban it had placed on ZTE Corp, allowing the Chinese telecommunications giant resume some of its business activities while the Congress continues to weigh penalties on the company,” says the South China Morning Post.
RIPPLE EFFECTS
Countries and entire industries are worrying about how their world will change, starting tonight.
  • “China’s ambitious push to use biofuel in cars nationwide by 2020 is in doubt amid concerns about supplies of raw material such as corn, complicated by an escalating trade dispute with Washington,” reports Reuters.
  • U.S. companies in China think the government is already messing with them,says the Washington Post, noting stepped-up inspections and problems at customs reported recently by American firms.
  • South Korea “will be one of the hardest hit economies in the world if an all-out trade war breaks out,” said a senior South Korea trade official, according to the South China Morning Post.
  • “Taiwanese businesses are weighing up whether to move manufacturing operations from the Chinese mainland if the US trade dispute worsens,” says the South China Morning Post. “Such a move would be hugely expensive, but the island’s companies are likely to be one of the main losers in the event of a full-blown trade war between the world’s two largest economies.”
ECONOMIC SIGNALS FROM CHINA
Here are some tea leaves to read:
  • China’s manufacturing activity expanded slightly in June, “with rising domestic demand balanced by a deterioration in new orders from overseas amid growing trade tensions with the U.S., a Caixin survey showed.
  • But China is heading for a record number of corporate bond defaults because of a weakening currency and a slowing economy, according to Bloomberg (video).
  • Central bankers are hinting that China will ease its war on debt, “seeking to strike a balance between deleveraging and protecting a slowing economy that is showing growing signs of financial distress,” reports Caixin (paywall).
  • “The Chinese yuan surged against the dollar on Wednesday,” after the head of the People’s Bank of China (PBoC) vowed to keep the exchange rate stable, reports the Wall Street Journal (paywall).
  • The yuan’s rebound failed to soothe investors’ nerves as Chinese stocks resumed their downward trajectory, according to Bloomberg (paywall).
  • Global stock markets remain skittish: “World shares were mostly lower on Wednesday as European shares tracked losses in Asia and on Wall Street,” says the Washington Post (paywall).
FINANCIAL SECTOR OPENING?
U.S.-based Bridgewater Associates, “the world’s largest hedge-fund firm, has won approval to sell investment products to institutional and high-net-worth investors in China,” reports the Wall Street Journal (paywall).
  • The Shanghai-registered unit of Bridgewater “obtained a license on June 29 to be a private fund manager,” according to the Journal.
  • Does this mean that China will follow through on promises made last November about opening up the financial sector to much greater foreign involvement, despite the impending trade war?
MADE IN CHINA 2025
Made in China 2025 is the Chinese government policy that seeks to make the nation dominant in a range of high-tech sectors, and it is causing a great deal of unease in Washington, D.C., right now.
  • SupChina’s most recent explainer is all about Made in China 2025: It's a 10-minute read that will give you everything you need to know about the policy as well as a bunch of links for further reading.
  • “China will succeed in building a powerful technology industry that will rival the United States, even if President Trump starts a trade war to stop it,” argues Li Yuan in this New York Times article (paywall), because companies and local governments are as committed to the plan as the central planners.
—Jeremy Goldkorn

2. HNA’s chairman, Wang Jian, falls to accidental death in France

Wang Jian 王健, the chairman of HNA (formerly Hainan Airlines), one of China’s largest conglomerates, died while on a tourist excursion during a business trip to France on July 3, CGTN reports. According to a statement from HNA, the 57-year-old sustained a serious injury from falling off a 15-meter-tall wall, and did not recover after receiving medical attention.
The company that he leaves behind was already in a tough place, and the tragedy only adds to the sense of uncertainty about its future.
  • HNA is one of China’s “gray rhinos,” called out by state media a year ago as the government cracked down on the country’s most heavily indebted companies. The meaning of the phrase is large and obvious “dangers we ignore” until they start running too fast.
  • Wang had led his company through a dealmaking streak of jaw-dropping proportions. By the New York Times’s count (paywall), HNA had clinched 123 deals in just three years, landing the company more than $90 billion in debt.
  • Shares of HNA subsidiaries sunk upon news of Wang’s death, Caixin reports, with “three mainland-listed units that are still trading lost between 1% and 4.3% during the day.” Many other subsidiaries have suspended trading for months during HNA’s debt-restructuring process.
  • A third of the company’s debt is due this year, and the conglomerate has been scrambling to sell off assets to make ends meet, going so far as to announce it was exiting its $6.3 billion stake in Hilton in April.
  • The sell-offs this year have neared $15 billion, according to Bloomberg (paywall), which reported that the People’s Bank of China offered in June to help pitch in and “support HNA’s future bond issues.”
—Lucas Niewenhuis

3. Closing down foreign education partnerships

Joint venture schools and Sino-foreign partnership programs at universities are under scrutiny from the Ministry of Education.
  • Despite their popularitySixth Tone says such schools and programs “have been regularly criticized for poor teaching, skyrocketing fees, and chaotic management, with some even accused of cooperating with diploma mills.”
  • The Ministry of Education has now closed “more than a fifth of Sino-foreign partnerships in tertiary education,” and “terminating 234 partnerships between Chinese and overseas institutions, including five jointly managed institutions.”
  • A number of well-known American, Australian, and European school names are on the list. This page (in Chinese) has download links to Excel spreadsheets with lists of the affected schools and programs.
—Jeremy Goldkorn

4. Air pollution: Two steps backward, one step forward

With seemingly contradictory headlines appearing on the same day, recent events are representative of China’s mixed record on climate issues:
  • China recently scaled back a proposal to ban transporting bulk commodities in trucks, which are more polluting than alternative measures such as rail and water transport, according to Caixin (paywall). The change reportedly came after pushback from industry players regarding price and logistics.
  • China also backed out of a UN deal to decrease aviation emissions, Reuters reports. It is not clear why China left the deal, which would have required airlines to “limit their emissions or offset them by buying carbon credits from designated environmental projects around the world.”
  • On the positive side, China recently published the 2018 to 2020 Pollution Action Plan, which aims to decrease coal, coke, and aluminum consumption while increasing electric vehicle sales, Reuters reports.
  • Beijing, Tianjin, Hebei, Shandong and Henan will be required to cut coal consumption by 10 percent over the 2016 to 2020 period, while the Yangtze delta region will have to cut coal use by 5 percent over the period.”
  • In other environmental news, water shortages in Si County of Anhui Province have gotten so bad that officials are rationing water by the hour, Sixth Tone reports. One resident recounts, “Sometimes there is no water for 10 days straight.”
—Lucy Best

5. Belt and Road bumps in Malaysia

China’s Belt and Road Initiative has been served a major setback from Malaysia, as its newly elected Prime Minister, Mahathir Mohamad, delivered an order to suspend three China-backed projects in the country, according to Reuters.
  • The victims are a “US$20 billion East Coast Railway Link (ECRL) and two pipeline projects worth US$2.3 billion,” all three of which involved Chinese state-owned firms and had been agreed to by the previous Malaysian government.
  • The previous government underestimated the costs of these projects, Malaysian Finance Minister Lim Guan Eng argued, according to the Associated Press. Taking into consideration land acquisition, interest, fees, and other operational costs, Lim said that the project’s actual cost is 81 billion ringgit ($20 billion), nearly 50 percent higher than that estimated by the previous government.
  • We will be friendly with China, but we do not want to be indebted to China,” Prime Minister Mahathir Mohamad has recently said. He is now planning to visit China in August to negotiate the terms of the rail link project.
  • The former Malaysian prime minister Najib Razak, who was courted by the Chinese but ousted in an election in May, now finds himself deeply involved in the allegations of corruption at the scandal-ridden fund, 1MDB (1Malaysia Development Berhad), Reuters reports.
  • “Other governments along...may get similar ideas” and “push to use more domestic contractors or seek better debt terms,” making this “just one of many bumps to come,” Clara Ferreira Marques argues in Reuters Breakingviews.
—Amy Tianyi Zhao

VIRAL VIDEO ON WEIBO

Viral on Weibo: Longest high-speed train debuts in China

China has the world’s longest railway network, measuring about 22,000 kilometers (13,700 miles). In the past decades, it has focused on high-speed railways. This bullet train measures more than 400 meters long. It has 16 carriages, twice the number of normal bullet trains.

NEW SINICA PODCAST

Sinica Podcast: China’s growing hacking power, with Kevin Collier and Priscilla Moriuchi

How is China’s cyber power evolving? BuzzFeed reporter Kevin Collier and NSA vet Priscilla Moriuchi join Kaiser and Jeremy to discuss China’s first DEF CON, Sino-American cyber relations, and more.
Subscribe to the Sinica Podcast via Apple PodcastsOvercast, or Stitcher, or plug the RSS feed into your favorite podcast app.

TODAY ON SUPCHINA

China Unsolved: Dead of Night

Five bodies were in the recreation room, one woman died in the kitchen, another outside; one was found in a ditch beside his motorbike on the factory road. The youngest victim was just five days shy of his 10th birthday. All of them were killed, expertly, by knife.

Recently concluded Shanghai International Film Festival seeks international cooperation

The 21st Shanghai International Film Festival (SIFF) concluded on June 25, having showcased 500 films in 30 categories across 55 countriesOut of Paradise, directed by Batbayar Chogsom, won Best Feature Film, while Ala Changso, from Tibetan director Sonthar Gyal 松太加, won the Jury Grand Prix.

Taiwan ministry issues statement in simplified Chinese, to the chagrin of mainlanders

Taiwan's Ministry of Foreign Affairs recently made the decision — an intentional and pointed one, observers say — to issue a statement in simplified Chinese, in response to a remark made by Beijing. This is widely believed to be a sign of gamesmanship from the Taiwanese government, a jab of sorts at Beijing.

TODAY’S NEWS ELSEWHERE ON THE WEB:

BUSINESS AND TECH:
POLITICS AND CURRENT AFFAIRS:
SOCIETY AND CULTURE:

PHOTO OF THE DAY

Chinese drums in D.C. for July 4th

A man plays traditional northwestern Chinese waist drums to celebrate Independence Day in Washington DC on July 4th. His unit, "Greater Washington Chinese American Community," is made up of 35 drum performers and Uyghur dancers. Photo taken by Ying Wang.
View on SupChina | View all photos

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