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China Sees Fewer New Unicorn Startups Amid “Contractionary” Policies

Taiwan’s Central News Agency (CNA) recently reported on data from Shandong-based Chinese weekly newspaper Economic Observer, saying that China saw the emergence of only 15 new “unicorn companies” (startups valued at over $1 billion) during 2023. Meanwhile, the United States added 179 unicorns during the same time period.

Lu Ming, executive dean of the China Development Research Institute at Shanghai Jiao Tong University, noted a widening economic gap between China and the US in the digital sector. Although China ranked second globally in terms of number of unicorn companies, with a total of 316 such companies in 2023, the addition of only 15 new unicorns in 2023 represented a sharp decline compared with new unicorn formation in previous years.

Lu cited four reasons for the widening gap between China and the US: technology, talent, capital markets, and policy factors:

  • The US has a strong advantage in generative AI technology and innovation, particularly in language models trained on vast English content.
  • The US remains a talent hub.
  • Foreign capital markets are better at valuing the growth potential of emerging industries, attracting more investment. In contrast, China’s capital markets lack openness and inclusiveness.
  • “While the US government takes a more diversified approach to emerging trends, China sometimes introduces ‘contractionary’ policies. ‘[The Chinese government] is more sensitive to negative sentiments, and uses contractionary policies to avoid problems. This leads companies to become overly cautious, hampering their development and potentially creating vicious cycles.'”

The CNA article went on to say, “Although the [Economic Observer] report did not provide specific examples, China’s recent antitrust crackdown on platform companies and proposed regulations to tighten control over online games have been seen as ‘contractionary policies that suppress industries,’ affecting business expectations and economic growth. Officials have repeatedly stressed the need for caution in introducing contractionary or restrictive measures.”

Source: Central News Agency (Taiwan), March 11, 2024
https://www.cna.com.tw/news/acn/202403110306.aspx

Briefings | | |   Economy/Resources

2023 Saw Record High Purchases of South Korean Real Estate by Foreigners, 70% Were Chinese

According to a report by Yonhap News Agency on March 10th, data from the South Korean court’s property registration website showed that in 2023, over 15,000 foreign nationals applied for property ownership transfers in South Korea after purchasing real estate, accounting for 0.9% of all property registrations. The number of foreigners earning rental income is also increasing.

When the collection of such data began in 2010, only 4,307 foreigners purchased properties in South Korea, making up just 0.2% of total buyers. However, this number has been rising annually since 2014, reaching a new high last year. Among foreign buyers, mainland Chinese accounted for the largest group at 113,840 or 72.9%. They were followed by Americans (7,892), Canadians (1,627), Taiwanese (521), and Australians (510).

By property type, 12,027 foreigners purchased multi-family housing units, comprising 1.21% of all such buyers. The city of Incheon had the highest proportion of foreign-purchased multi-family housing units at 2.09%, followed by South Chungcheong (1.74%), Gyeonggi (1.68%), Jeju (1.53%), and North Chungcheong (1.21%).

As foreign ownership of Korean properties increases, more foreigners are earning rental income. In 2023, 17,786 rental contracts were signed by foreign landlords, the highest number since collection of such statistics began in 2010.

Source: Sputnik News, March 10, 2024
https://sputniknews.cn/20240310/1057570944.html

Briefings | | |   Geo-Strategic Trend

Hong Kong’s Proposed Article 23 Law Would Sever Foreign Ties, Restrict Information Flow

The Hong Kong government has proposed draft legislation to implement Article 23 of the Hong Kong Basic Law. The proposed law has provisions that increase prison sentences for various crimes if they involve colluding with “foreign forces.” Legal scholars have said that the broad definition of “foreign forces” in the draft, combined with the explicit criminalization of espionage-related activities, forms a stronger “firewall” that could cut off international connections to Hong Kong.

The draft states that “foreign forces” include foreign governments, foreign political parties, overseas organizations pursuing political agendas, and international organizations. “Colluding with foreign forces” refers to cooperating with them or acting under their control or funding. Some crimes would carry heavier sentences if foreign forces are involved.

A new “foreign interference crime” prohibits actions aimed at interfering in policymaking, elections or judiciary operations in Hong Kong using improper means like intentionally making false statements. This is punishable by up to 14 years in prison.

Eric Lai, a research fellow at Georgetown Center for Asian Law, points out that the broad definitions and heavy penalties for collusion appear aimed at severing connections between Hong Kong and overseas entities, impeding the flow of information, resources and funds. The draft also criminalizes illegally obtaining or disclosing state secrets under a broad definition.

Lai argues these measures create a stronger “firewall”, allowing authorities to block outbound information flows on national security grounds while restricting inbound overseas information. Certain provisions also give police powers to restrict detainees’ access to lawyers in national security cases.

Source: Central News Agency (Taiwan), March 12, 2024
https://www.cna.com.tw/news/acn/202403120330.aspx

Briefings | | |   Government/Politics

China Unveils Plan to Bolster Industrial Data Security Capabilities Amid Security Concerns

China’s Ministry of Industry and Information Technology (MIIT) has released a new plan aimed at enhancing data security capabilities in China’s industrial sector over the period 2024-2026. The plan emphasizes the importance of ensuring data security as crucial for national security and economic development. It calls for promoting the application of technologies like secure multi-party computation, anti-ransomware, data traceability, and commercial cryptography in the industrial field.

Specific measures include selecting a batch of general data security technologies and products with broad application value across industries; developing data security solutions tailored for different industries, scenarios, and small-to-medium enterprises; and creating typical data security use cases to promote across regions. The MIIT plan aims to train over 30,000 people and cultivate more than 5,000 data security talents by the end of 2026. It targets having over 45,000 enterprises implement classified data protection, covering at least the top 10% of large industrial firms (by annual revenue) in each province.

This push for data security comes amid Chinese government efforts to accelerate its replacement of foreign software and hardware with domestic alternatives as a response to recent years’ national security concerns.

Beijing has also been making efforts to strengthen its oversight of user data for reasons related to national security. One manifestation of this is in a $1.2 billion file levied on Chinese company Didi in 2022 over data security violations. Another is in plans announced by China’s Ministry of State Security in December 2023 regarding inspections targeting security risks related to handling of geographic data. The Ministry of State Security alleged that “certain foreign organizations” have made attempts at intelligence theft via mapping software.

Source: Central News Agency (Taiwan), February 26, 2024
https://www.cna.com.tw/news/acn/202402260267.aspx

Briefings | | |   Information/Technology

China Faces Continued Youth Employment Pressures Despite Job Creation Goals

Beijing recently released a government work report, setting a goal of creating over 12 million new urban jobs this year. The report said that China currently has an urban unemployment rate of around 5.5%. The report proposed policies to stabilize employment and increase incomes.

China will have over 11.7 million college graduates this year, another record high, posing significant challenges to the overall youth job market. Zhang Chenggang, a scholar at the Capital University of Economics and Trade, said that college graduate employment remains challenging. He believes new areas for youth entrepreneurship and more effective paths for youth employment need to be explored. He noted issues including slow wage growth, workers exiting the labor market, and prolonged working hours for employees under competitive pressures (which reflects insufficient vitality in the job market).

Source: Central News Agency (Taiwan), March 5, 2024
https://www.cna.com.tw/news/acn/202403050298.aspx

Briefings | | |   Economy/Resources

China’s Official Media Blasts European Parliament Statements on Taiwan

China Daily, the official English-language mouthpiece of Chinese government, recently published an editorial criticizing the European Parliament (EP) for making statements about Taiwan.

During a recent plenary session, the EP adopted the “Annual Report on the Implementation of the Common Foreign and Security Policy, 2023” in a vote of 338 in favor, 86 against and 122 abstentions. The report included language stating that “Neither Taiwan nor China is subordinate to the other” and “only Taiwan’s democratically elected government can represent the Taiwanese people on the international stage.” China Daily has argued that this wording is “problematic” and an “infringement on China’s sovereignty and territorial integrity.”

The annual report also calls for supporting Taiwan’s participation in international organizations. China Daily has responded by accusing the EP of “interfering in China’s internal affairs.” It argues that the report will negatively impact China-EU relations, accusing some European Parliament politicians of being influenced by a “Cold War mentality” or “instigated by Washington to challenge China over Taiwan.”

Source: China Daily, March 3, 2024
https://global.chinadaily.com.cn/a/202403/03/WS65e4799fa31082fc043ba45f.html

Briefings | | |   Geo-Strategic Trend

China’s Foreclosure Market Sees Record Listings, Flat Sales in 2023

Data from China Index Academy, a Chinese real estate research firm, shows 100,400 foreclosed properties were put up for auction in January 2024, a 48.2% year-over-year increase from January 2023. About 12,700 foreclosed properties sold in January 2024 for ¥27.31 billion (US$ 3.8 billion). The transaction rate of 12.63% was lower than the 15.8% seen in January 2023.

Foreclosure transaction rates were higher in economically strong regions. Five provinces/municipalities – Shanghai, Zhejiang, Beijing, Tianjin and Fujian – saw rates of over 20%. Shanghai had the highest rate, at 38.6% (154 out of 399 listings sold). Zhejiang had the second highest rate, 35.94% (1,185 out of 3,297 sold).

China’s foreclosure market has seen increased attention in recent times due to economic headwinds and uncertainty. The China Index Academy estimates that there are about 800,000 foreclosure listings in China in 2023, a record 36.7% year-over-year increase compared with 2022. Only 149,000 of these 2023 listings transacted, however, totaling ¥300.41 billion (US$ 41.7 billion), on par with the total for 2022.

Industry insiders believe foreclosure listings and transactions will keep rising in 2024, indicating a hot foreclosure market. The economic climate and real estate conditions will continue to be key factors influencing supply and demand.

Source: Central News Agency (Taiwan), February 25, 2024
https://www.cna.com.tw/news/acn/202402250010.aspx

Briefings | | |   Economy/Resources

Chinese E-Commerce Giants Temu and SHEIN Gain Ground in Japan

Chinese e-commerce platforms like Temu and SHEIN have seen large gains in Japan by offering low prices and decent quality. Temu, which focuses on daily essentials, has acquired over 15 million monthly active users in Japan within 6 months of its launch. This figure already exceeds 50% of the average user base of Japan’s top 3 e-commerce sites – Amazon Japan, Rakuten Ichiba, and Yahoo Shopping. Meanwhile, SHEIN has surpassed leading Japanese fashion marketplace ZOZOTOWN with 8.39 million users in January 2024, more than triple the number from a year earlier.

The secret behind behind the business models of Temu and SHEIN is the direct supply chain they have with small and medium manufacturers in China. This allows them to offer competitive pricing without compromising much on quality. Aggressive marketing tactics like heavy discounts and coupons have also helped them to rapidly gain market share.

As growth in the overseas footprint of Chinese ecommerce firms (now including TikTok) continues, they face barriers ranging from national security concerns to consumer rights and competition / IP infringement issues.

Some have voiced concern that the rise of Temu and SHEIN in Japan could threaten existing Japanese players. Moreover, these firms may face issues with the Japanese government over human rights concerns and intellectual property violations affecting the companies’ supply chains. SHEIN is also facing a lawsuit from leading Japanese fashion brand Uniqlo.

In the US, Temu and SHEIN are already in the crosshairs of the US-China Economic and Security Review Commission for links to forced labor in Xinjiang as well as IP theft.

Source: Nikkei Chinese, February 21, 2024
https://zh.cn.nikkei.com/china/ccompany/54870-2024-02-21-05-00-53.html

Briefings | | |   Geo-Strategic Trend