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China’s Mortgage Crisis Paralyzes Construction as Majority of Unfinished Buildings Remain Unfinished

It has been a year since the wave of unfinished construction projects hit China. Most affected developments have remained unable to resume work or meet delivery dates. Both citizens and banks have lost confidence in developers’ ability to address the issue. The Chinese government has not disclosed the nationwide count of unfinished projects. A survey revealed completion rates of about 56 percent in South China and 40 percent in North China, while Southwest and Central China had rates of only 15 percent and 16 percent, respectively. Henan Province had the lowest rate at 11 percent.

Xu Shirong, a professor at Taiwan’s National Chengchi University sees the unfinished building crisis as a political problem. Local influential figures engage in real estate transactions and development, attracting funds from banks under the influence of local governments. Xu believes relief measures have been aimed at reducing losses for upper-class developers who have influence on public policy.

The crisis emerged in 2019 due to increased government regulations leading to liquidity problems for real estate companies. Homeowners stopped making mortgage payments, triggering a financial crisis. Relief funds were introduced, but developers faced challenges in obtaining them, particularly when some were asked to repay loans. Only a few developers secured financing support from the “16 Financial Measures” policies.

The allocated relief funds of 400 billion RMB ($62 billion) are considered inadequate to address the crisis. Real estate prices have dropped significantly, and banks face risks when holding collateral. The motivation to buy houses has decreased due to factors such as the U.S.-China tech war and the pandemic’s impact on the economy. Commercial properties are difficult to rent out, affecting the sale of residential properties.

Developers’ promotions have not yielded expected results and people lack confidence in unfinished buildings due to their poor quality and a lack of confidence in real estate market policies. Local governments rely on real estate for their economies, and unresolved unfinished projects could burden their finances and create imbalances in urban development.

Source: Voice of America, June 20, 2023
https://www.voachinese.com/a/majority-of-china-s-stalled-residential-projects-yet-to-resume-20230620/7144861.html

Japanese Air Conditioning Manufacturers Shift Supply Chain Away from China

Japanese home appliance companies like Hitachi, Mitsubishi Electric, and Fujitsu General are taking steps to improve their supply systems for residential air conditioners following the challenges faced during the summer of 2022. The COVID-19 pandemic led to production stoppages and semiconductor shortages, impacting the sale of air conditioners. To avoid missed profit opportunities and meet the high demand for air conditioners in 2023, these companies are enhancing their production capabilities and supply chains.

Hitachi Johnson Controls Air Conditioning has established a new production line for indoor air conditioning units in Tochigi Prefecture, Japan. By increasing production capacity and adding around 200 workers, the company aims to meet the summer demand for air conditioners. Previously, most of their air conditioners were manufactured in China, but the temporary shutdown of the Shanghai factory in 2022 disrupted production and semiconductor procurement. Learning from this experience, Hitachi decided to shift production to Japan, increasing the proportion of air conditioners manufactured in Japan by 20 percentage points.

Mitsubishi Electric’s Shizuoka factory is operating at full capacity to produce lightweight outdoor units for high-demand models. The company incorporated feedback from construction workers and adopted a design that is easier to install. Fujitsu General, on the other hand, is intensifying production at its Shanghai factory targeting the Japanese market. The company implemented measures to overcome pandemic-related restrictions, such as using alternative components.

Japanese companies are collaborating closely in component procurement and production to improve the supply system. They are also implementing long-term measures to ensure a stable supply chain, such as adjusting product designs to reduce the number of components and localizing component procurement in various factories worldwide.

To address rising electricity prices and changing consumer preferences, companies are introducing energy-saving and eco-friendly air conditioner models with higher efficiency. Second-hand air conditioners have also become popular, leading to increased sales in this market segment.

Overall, Japanese home appliance companies are focused on building resilient supply chains and balancing stable supply with profitability. They have learned from the challenges of the past and are taking proactive measures to meet the demand for air conditioners and offer innovative, energy-efficient products to consumers.

Source: Nikkei, June 14, 2023
https://zh.cn.nikkei.com/industry/manufacturing/52674-2023-06-14-10-15-32.html

India Takes Legal Action against Xiaomi, Seizes over 55 Billion Rupees

According to a report from China’s Southern Metropolis Daily, Indian authorities investigating financial crimes have accused Xiaomi India, as well as the company’s director and three banks, of violating the Foreign Exchange Management Act (FEMA). As a result, Xiaomi’s funds of RMB 4.81 billion (US$0.67 billion) have been confiscated.

The Indian Enforcement Directorate (ED) alleges that Xiaomi India and its senior executives were involved in the illegal transfer of funds. Additionally, the three banks, Citibank, HSBC, and Deutsche Bank, were charged for not conducting proper due diligence and allowing royalty payments to be remitted out of the country.

Consequently, approximately RMB 4.81 billion (55.5 billion rupees) of Xiaomi’s funds were frozen in the banks, effectively being seized by the authorities.

Xiaomi had experienced significant success in the Indian market since its entry in 2014, reaching the number one spot in 2017. The company had announced plans to invest $1 billion in Indian start-ups over five years. However, as the five-year plan was nearing completion, law enforcement agencies took action against Xiaomi’s Indian branch.

In May of the previous year, the Indian Anti-Money Laundering Office (AMLO) accused Xiaomi and its Indian subsidiary of violating foreign exchange control laws. The AMLO claimed that, since 2015, Xiaomi had sent money to three overseas entities in the form of royalty payments, leading to the freezing of the subsidiary’s account assets.

Xiaomi India was also investigated for tax-related issues in December 2021, with the Indian Tax Intelligence Bureau notifying the company that it owed 6.53 billion rupees in import duties for the period between April 2017 and June 2020. A complaint filed by Xiaomi was rejected by the local Karnataka High Court in April of this year.

Source: Central News Agency (Taiwan), June 13, 2023
https://www.cna.com.tw/news/acn/202306130089.aspx

China’s Marriage Rate in 2022 Plummets to a 37-Year Low

China’s Ministry of Civil Affairs has released its quarterly statistics, revealing that the number of marriages in 2022 was 6.833 million, representing a decrease of 10.5 percent or 803,000 marriages compared to 2021. This marks the lowest number of marriages recorded since 1986 when the statistics were first published. It also marks the ninth consecutive year of decline since the peak in 2013 when there were 13.469 million marriages, indicating a significant drop of 49.3 percent over the past nine years.

Several factors contributed to this rapid decline in marriages. First, there is a trend of postponing marriage and childbirth, leading to a rise in the average age of first marriages. The average age of first marriages in China was 24.89 years in 2010, but it increased to 28.67 years in 2020. Second, there has been a decline in the number of individuals of marriageable age, affecting the pool of potential spouses. Additionally, changes in societal attitudes and the impact of the epidemic are also influencing factors.

The declining marriage rate will have profound implications for China’s future birth rate, particularly the first-child birth rate, which fell below 5 million for the first time in 2021, reaching 4.683 million births. The National Health Commission attributes this decline to the prolonged education and increased employment pressure faced by the younger generations born in the 1990s and 2000s, many of whom grew up and worked in urban areas.

Overall, the decreasing number of marriages in China indicates a significant shift in societal dynamics and will have long-term consequences for the country’s demographics.

Source: Central News Agency (Taiwan), June 12, 2023
https://www.cna.com.tw/news/acn/202306120030.aspx

China’s Unannounced Cremated Remains in Q4 2022

The Chinese Ministry of Civil Affairs (MOCA) has released civil affairs statistics for the fourth quarter of 2022 after a significant delay. However, unlike previous years, they did not disclose the cumulative number of “cremated remains” for the entire year of 2022. This has raised suspicions about the number of people who died from the epidemic during that period.

China’s National Bureau of Statistics had previously announced that 10.41 million people would die in 2022, based on data collected from November 2021 to October 2022. This data did not include the COVID-19 outbreak that occurred from November to December of the same year.

The Ministry of Civil Affairs has typically published civil affairs statistics every quarter, and the statistics for the fourth quarter are usually released by April of the following year at the latest. However, the statistics for the fourth quarter of 2022 were not released until June 9, and the cumulative number of “cremated remains” for 2022 was not disclosed as usual.

The ministry has not provided any explanation for the delay or the omission of the cremation data. Some independent media outlets have highlighted this unusual situation but have refrained from criticizing the authorities for potentially hiding the number of COVID-19 deaths.

According to previously released data from the Ministry of Civil Affairs, the number of cremated remains in the first three quarters of 2022 was 4.776 million, a 10 percent increase compared to the same period in 2021.

The cremation rate in China for 2021 was 58.8 percent, showing a 3.1 percentage point increase from 2020. However, the ministry has not announced the cremation rate for 2022, although estimations from the funeral industry suggest it could be over 60 percent.

Since the Ministry of Civil Affairs has not disclosed the number of cremated remains for the fourth quarter of 2022, it is impossible to estimate the number of deaths during that period. Therefore, the exact number of people who died from the epidemic during the outbreak remains unknown.

Source: Central News Agency (Taiwan), June 13, 2023
https://www.cna.com.tw/news/acn/202306130381.aspx

Scholar Discusses Distortion of Chinese Unemployment Statistics

As China’s economy continues to decline, the unemployment rate has been steadily rising. Recently, a Chinese scholar pointed out that the official unemployment statistics are distorted, and it is estimated that around 54 million young people have become unemployed since the outbreak of the pandemic, making the employment situation increasingly severe.

Amidst the ongoing pandemic, China’s economy has faced sluggishness, leading to unemployment becoming a pressing social concern. On June 1, a researcher from the Beijing Reform and Development Research Institute, a government think tank, shed light on three primary issues with China’s current unemployment statistics.

Firstly, the scholar highlighted that China’s official employment standards are set too low. China considers individuals employed if they work for just one hour per week. Meanwhile, the International Labour Organization defines employment as working for at least 10 hours per week, and the United States and France have higher thresholds at 15 and 20 hours per week, respectively.

Secondly, the inclusion of rural household registration holders in urban unemployment statistics skews the data. Many migrant workers, facing the high cost of living, are compelled to return to their hometowns after losing their jobs in cities. This migration makes it challenging to accurately capture this group in urban unemployment surveys, resulting in distorted data.

Thirdly, China has a significant number of “flexible employees” (people who work on flexible work and hours, such as Uber driver or food delivery), totaling 200 million, which accounts for roughly 40% of the urban employed population. However, less than 20% of this group participates in social security programs, making it difficult to assess the true employment situation using indicators such as unemployment benefits and registration.

According to the Ministry of Human Resources and Social Security’s latest data, the number of college graduates in China is expected to reach a record high of 11.58 million in 2023.

According to the analysis presented in the aforementioned WeChat article, after three years of the pandemic, approximately 15 million vocational school and college graduates in China are unable to find jobs. Additionally, the average number of employees in A-share listed companies has decreased by 11.9% over the past three years, indicating that around 10% of employees have become unemployed. The estimated number of employed youth aged 16 to 24 is approximately 25 million. Professor Lu Feng from Peking University estimates that around 23 million migrant workers have returned to their hometowns due to unemployment during the same period. Considering that 60% of this group are young people, there would be around 14 million unemployed young migrant workers. Consequently, “since the outbreak of the pandemic, the number of unemployed young people has increased by approximately 54 million.”

The article conservatively estimates that the absolute number of unemployed youth in China has increased by around 25-30 million compared to the pre-pandemic period. This figure accounts for approximately 6.2% – 7.5% of the total labor force in this age group or 2.8% – 3.4% of the entire working-age population in China.

Source: Radio Free Asia, June 6, 2023
https://www.rfa.org/mandarin/yataibaodao/jingmao/jw2-06062023132743.html

China’s First-Child Birthrate Drops to 0.5

From 2019 to 2022, China experienced a significant decline in its fertility rate for first children, dropping from 0.7 to 0.5. This decline has raised concerns among population experts, who are now urging attention be paid to the growing trend of lifelong singleness and childlessness. Chinese authorities had previously estimated that the total number of newborns in China last year fell below 10 million for the first time and it is expected to continue declining this year, dropping below 8 million.

The internationally recognized replacement level fertility rate is 1.5, which is considered a critical threshold. When the fertility rate falls below 1.5, a country enters a low fertility trap. The Population and Development Research Center of China, a government think tank, has observed that China’s total fertility rate dropped from 1.52 in 2019 to 1.07 in 2022.

Of particular concern is the decline in the fertility rate for first-child births, which has decreased from 0.7 to 0.5. Additionally, the average age of first-time mothers has increased from 26.4 to 27.4 years old. This decline in the first-child fertility is expected to further reduce the rates of second and third-child births, exacerbating the overall downward trend in fertility levels.

A recent article published by the magazine Chinese Philanthropist estimated that the latest maternal records in Chinese hospitals suggest that the number of newborns this year will be less than 8 million. Some doctors have even estimated that the number of registered pregnant women has decreased by one-third compared to previous years.

An online article highlights the seriousness of a mere 8 million new births. With a total of 3,032 obstetrics and gynecology hospitals in China, an average of only 7 newborns per hospital per day is far from normal. This situation may lead to a crisis in the entire industry, from childbirth to childcare, as it puts immense strain on resources and facilities.

Source: Central News Agency (Taiwan), June 6, 2023
https://www.cna.com.tw/news/acn/202306060108.aspx

Chinese Local Government Debts Crisis Continues

Local governments in China are grappling with significant financial pressure and are implementing measures to increase revenue and expedite debt collection.

In late May, the city government of Wuhan in Hubei Province issued a debt collection notice, demanding repayment of over 100 million yuan (US$14 million) in debt from 259 debtors, including state-owned enterprises and lower-level fiscal authorities in Wuhan. Around the same time, Kunming in Yunnan Province also reported debt problems with the city’s platform for financing infrastructure projects, which has 27.31 billion yuan (US$3.8 billion) of bonds maturing before the end of this year.

Furthermore, county-level governments in central and western China are actively auctioning off parking lot operating rights many years into the future so that they can get a large one-time payment now (at the cost of not receiving parking income in subsequent years). Companies that win the parking operator’s rights might impose higher parking fees to recoup costs and make money. Nanning City, Guangxi Zhuang Autonomous Region, is under public scrutiny for high parking fees.

Official data reveals that, as of the end of 2022, the balance of local government debt in China stood at approximately 35.07 trillion yuan (US$4.9 trillion).

He Qinglian, an economist living in exile in the United States, recently told Radio Free Asia that the financial strain at the local level could directly impact China’s moderate 5% economic growth target for this year. Local governments that are unable to repay their debts will face potential collapse of local financing platforms and credit defaults.

Source: Central News Agency (Taiwan), June 5, 2023
https://www.cna.com.tw/news/acn/202306050309.aspx