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Growth in Beijing’s “Stability Maintenance” Spending Decelerates

The Second Session of China’s 14th National People’s Congress submitted a report by the Ministry of Finance regarding central and local government budgets in 2023. The report revealed that defense expenditure in 2024 will amount to 1.67 trillion yuan (US$ 230 billion), an increase of 7.2 percent from a year ago, while public security expenditure will be 2276.62 billion yuan, an increase of 1.44 percent. In 2023, public security expenditure (a.k.a. “stability maintenance” expenditure) was 2089.72 billion yuan, representing an increase of 6.4 percent from 2022. The growth rate for stability maintenance spending this year has dropped by nearly five percentage points.

A commentator attributed the decrease in the growth rate of stability maintenance funding to the reduction in central government fiscal revenue. To compensate for reduced fiscal revenue, Beijing has increasingly leaned on local governments and street offices to foot the bill for stability maintenance: “Some 20 percent to 40 percent of local fiscal revenue will be used for stability maintenance.”

To make up for insufficient stability maintenance funding, local governments and local police have been attempting to boost revenue by issuing fines. Some local governments have also implemented temporary policies to increase fees charged to enterprises and individual merchants.

Source: Radio Free Asia, March 6, 2024
https://www.rfa.org/mandarin/yataibaodao/zhengzhi/gt1-03062024014146.html

China Pilots “Vehicle-Road-Cloud Integration” Programs

China is promoting “vehicle-road-cloud” integration. The idea is to advance commercialization of smart vehicles by integrating intelligent driving technology with roadside perception and cloud control. On January 17, 2024, China’s Ministry of Industry and Information Technology issued a “Notice on Carrying out Pilot Projects for ‘Vehicle-Road-Cloud Integration’.” The ministry’s pilot program will run from 2024 to 2026.

“As of the end of 2023, China has set up 17 national-level test and demonstration zones, 7 vehicle networking pilot zones, and 16 pilot cities for development of connectivity between intelligent vehicles and smart cities. … There are now more than 22,000 kilometers of test and demonstration road; more than 88 million kilometers of road testing have been completed.”

One example involves autonomous driving technology company WeRide’s work in the Beijing High-Tech Autonomous Driving Demonstration Zone: WeRide has conducted “in-depth cooperation with the government” to integrate “roadside perception of traffic signals and dynamic blind spots, driving path optimization, unprotected left turns, two-vehicle collaborative control, status sharing, and more.” The article states that “as of now, 12 companies including Baidu, Pony.ai, WeRide, AutoX, NavInfo, and Audi have conducted development and testing of ‘vehicle-road-cloud integration'” in the Beijing Demonstration Zone.

Source: Stock Times, February 3, 2024
https://www.stcn.com/article/detail/1114322.html

People’s Daily: Measures to Address Agricultural Labor Shortage

People’s Daily republished an article from Economic Daily discussing how China might resolve its agricultural labor shortage problems. The article said that “the matter of ‘who will farm the land’ is an urgent issue” related to “national food security and rural revitalization.” With a large number of rural laborers migrating to cities, there is a prominent “structural shortage of labor” in rural areas of China. Below are some key ideas from the article.

“The rapid development of mechanization provides impetus for solving this problem. China’s agricultural industry has already realized a basic level of ‘machines replacing human labor.’ … The comprehensive mechanization rate of cultivation and harvesting of crops has reached 73.1 percent nationwide. … China’s agricultural industry is gradually shifting from small-scale household farming to large-scale and intensive development.”

One concept for the development of large-scale agriculture is a large-scale land management (i.e. land consolidation). “Various regions have started exploring [the technique of] ‘consolidating small fields (from different owners) into larger ones.'” Another concept is “large-scale service management, which involves providing fully-managed or semi-managed services to small farmers … who retain control of their land.” The article said that the latter concept “is more realistic for China’s agriculture industry.”

Source: People’s Daily, February 15, 2024
http://finance.people.com.cn/n1/2024/0215/c1004-40177697.html

Japanese Government: China’s Distressed Debt Securitization Increased by 46%

According to Nikkei Chinese Edition, the Cabinet Office of Japan has published its semi-annual “World Economic Trends” report. The report pointed out signs of stagnation in China’s economy and warned that they may last – “not only will the economy stagnate in the short term, but there are also concerns about halted growth in the medium-to-long term.”

Based on data from private Chinese databases, the Cabinet Office of Japan annually reports on the amount of securities issuance converted from non-performing loans. In China, loans with delinquent payments over 90 days are considered non-performing. For 2023, such securities issuance amounted to 46.6 Billion Yuan (US$ 6.5 Billion), a 46 percent increase from 2022 (32 Billion Yuan). This increase was significantly higher than in 2021 and 2022; those years saw year-over-year increases of less than 10 percent.

In 2023, half of the security issuance converted from non-performing loans originated from housing loans, amounting to 23.6 Billion Yuan. This figure was 2.5 times higher than the previous year’s metric for converted housing loans.

The Cabinet Office of Japan stated “It is necessary to continue monitoring whether there will arise an excessive transfer of (bad loan) risk onto the financial markets.”

Source: Nikkei, February 29, 2024
https://zh.cn.nikkei.com/china/ceconomy/54956-2024-02-29-09-41-11.html?start=1

Xinhua: Foreign Politicians, Scholars, and Media Talking Trash About China’s Economy

China’s Xinhua news agency has published an article countering the numerous reports and predictions by foreign media regarding China’s economic downslide. The article blames Western politicians, scholars, and media for wearing “colored glasses” (having a biased perspective), “doomsaying” China’s economy. The article states that such “doomsaying” has existed for several decades and has always been incorrect. The article does not provide concrete evidence in defense of China’s current economic situation.

Some of the sentiments expressed in the article include:

  • “Gordon Chang, a ‘China collapse theory expert,’ has become a laughing stock.”
  • “During the 2008 international financial crisis, some U.S. politicians and scholars blamed the U.S. real estate bubble and global economic imbalances on ‘the high savings rates of China and other emerging market countries.'”
  • “In 2015, Western media revived the ‘Chinese economic collapse theory'”
  • “The West has substituted China as a scapegoat, blaming it for economic crises and socioeconomic problems.”
  • The West has “a stubborn Cold War mentality and ideological bias, aiming to undermine the outside world’s confidence in China’s economy.”

Source: Xinhua, February 22, 2024
http://www.news.cn/mrdx/2024-02/22/c_1310764956.htm

People’s Armed Forces Departments Expanding Within Chinese State Owned Enterprises

Several Chinese State-Owned Enterprises (SOEs) have established People’s Armed Forces departments (人民武装部) within their organizations. Examples include the Shanghai Municipal Investment Group (Shanghai’s government financing company), the Mengniu Group in Inner Mongolia, as well as 10 SOEs in Wuhan City, Hubei Province and several SOEs in Huizhou City, Zhejinang Province.

Senior Colonel Wu Qian, the spokesperson of China’s Ministry of National Defense, stated at a press conference on October 26, 2023 that “Our national defense is the defense of the whole people. The People’s Armed Forces departments of state-owned enterprises are part of the national defense system and are the armed work departments of the Party within state-owned enterprises.”

Political observers suggest a few possible explanations for why Beijing is establishing these new People’s Armed Forces departments within state-owned enterprises. Integration between SOEs and the People’s Liberation Army (PLA) could help to quell potential domestic unrest resulting from China’s economic downturn. It could also help to save resources for the PLA and could potentially enhance the military’s ability to mobilize in preparation for an invasion of Taiwan.

Source: Deutsche Welle, February 23, 2024
https://www.dw.com/zh/中企纷纷设立人民武装部为哪般/a-68353845

China’s Household Bank Deposits Increased by 58 Billion Yuan Over Last Four Years

According to the latest data released by the People’s Bank of China, household bank deposits increased by a total of 58.24 Trillion Yuan (US$ 8 Trillion) during the period from early 2020 to January 2024. Of the increase, 82% was attributable to time deposits. The total increase in deposits over these four years is equivalent to the increase seen during the period from 2009 to 2019.

Commentators have attributed the influx in bank deposits to “the international and domestic situation.” Many affluent families decided to halt investments during the pandemic. Meanwhile, ordinary families, facing reduced income, chose to conserve their resources and earn interest by saving money in banks.

With the increase in deposits, Chinese banks have been under pressure to issue loans and generate returns. Since the start of the COVID-19 pandemic, China has seen reduced demand for bank loans due to the decrease in China’s overseas orders and the rapid shrinkage of the country’s investment in infrastructure / housing construction. Property values have been falling, the Chinese stock market is declining, and private capital investment have seen significant contraction. Apart from export-oriented companies with existing orders, other businesses learned the lesson that they should not make investments, putting banks in a difficult position.

Source: Radio Free Asia, February 26, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/gt1-02262024233157.html