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Ministry of State Security: Be a Firm Guardian of Financial Security!

China’s Ministry of State Security published an article to state that it will safeguard China’s financial security, and that others should do the same. Commentators suggested that the article indicates China is running out of options for sustaining its financial market and is looking to expand the police forces for support. The following is a translation of the article:

Financial security is an important part of national security. The maintenance of financial security is a major responsibility with strategic and fundamental importance concerning China’s overall economic and social development. To promote high-quality development of China’s financial industry, we must build a solid defensive perimiter for financial security and limit what financial risks we are willing to accept.

Some countries treat finance as a tool for geopolitical games, repeatedly acting as currency hegemon and [threatening others by] waving the “financial sanctions” stick. Some ill-intentioned people [within China] have tried to stir up turmoil and make money during the [resulting] chaos. There are not only people who short-sell Chinese assets when they anticipate China’s financial market will fall, but also people who advocate for the fall of the financial markets or who steal money from the financial markets. They have attempted to shake the confidence of the international community in investing in China and to trigger financial turmoil in China. These factors have brought new challenges to the maintenance of financial security under present circumstances.

State security organs should place greater importance on preventing and resolving financial risks; actively participate in the development of national security systems in the economic and financial fields; closely monitor, accurately predict and effectively prevent national security risks in the financial field; crack down on and punish illegal and criminal activity in the financial field that jeopardizes national security; act as a steadfast protector of financial security; and make contributions for the sake of national security to the advancement of high-quality financial development [of China] and high-level opening up. (Ministry of State Security)

Source: Sina, November 3, 2023
https://finance.sina.cn/2023-11-03/detail-imzthyww3984891.d.html?oid=%E8%B4%A2%E7%BB%8F%20%E6%97%A0%E9%94%99%E7%89%88%E7%BB%B4%E6%8A%A4%EF%BC%88kxys.vip%E7%94%B5%E6%8A%A5%EF%BC%9A@kxkjww%EF%BC%89.smb&vt=4&cid=76654&node_id=76654

Briefings | | |   Economy/Resources Government/Politics

CCP Reform Committee Calls for Optimization of State-Owned Enterprises

The 3rd meeting of China’s Central Committee for Comprehensively Deepening Reform of the Chinese Communist Party was held on November 7th. Directives from the meeting stressed the importance of “optimizing the layout of state-owned enterprises, strengthening supervision of monopolistic industries, improving the state capital operating budget system, and emphasizing fiscal discipline.” The Committee is chaired by Xi Jinping, who presided over the meeting.

Other dictates resulting from the Committee’s meeting include:

  • The state capital operating budget is important and should be improved to expand its scope, strengthen its functions, better manage revenue and spending, and increase fund effectiveness.
  • Adhere to Party leadership and fully utilize the [Chinese] system’s advantage of concentrating resources on major initiatives. The goal is to optimize the distribution and structure of state-owned enterprises, concentrating state capital in key national security industries, public services, emerging strategic industries, and improving people’s livelihoods. This will allow state enterprises to better align with national strategies.
  • For natural monopoly industries like electric power, oil, gas and rail, regulation should focus on ensuring that those industries fulfill national security duties, social responsibilities, and business scope limits.

The Committee meeting reiterated the principle of “overcapacity reduction” and the idea of “living a tight life” fiscally. It called for strengthening budgetary constraints, promoting performance management, rationalizing revenues and expenditures, improving people’s livelihoods, and ending extravagance and waste.

Source: Central News Agency (Taiwan), November 7, 2023
https://www.cna.com.tw/news/acn/202311070369.aspx

Briefings | | |   Government/Politics

Local Governments’ Illegal Debts Highlight Fiscal Strain on China

China’s Ministry of Finance disclosed eight cases of illegal debt held by local governments, highlighting the seriousness of local debt issues facing the country. Since 2018, local governments have violated national-level policy by forcing state-owned enterprises and banks to advance billions of yuan in funds for urban development, infrastructure projects, and other expenditures that should have been funded by municipal or provincial budgets instead. This has created tens of billions of yuan in “hidden debt” in certain cities.

Examples include Hubei Province’s creation of 21.48 billion yuan (US$2.95 billion) in hidden debt through land development projects, Guangxi Province’s 17.7 billion yuan (US$2.43 billion) of debt for land projects, and Shaanxi Province’s 2.6 billion yuan (US$360 million) for a conference center. Other cases involved hundreds of millions of yuan in illegal advances for flood relief and other spending.

Banks were found complicit in the practice, with the Agricultural Development Bank of China’s Shaanxi branch illegally providing 1.3 billion yuan (US$180 million) that went toward river management projects in Xi’an. The Agricultural Bank’s Wuhu branch was found to have illegally loaned 471 million yuan (US$64.7 million) to the local government.

China’s Finance Ministry released information about these cases to hold local officials and banks accountable and warn others against engaging in the practice. The release highlights the financial difficulties faced by local governments, where even basic infrastructure and public works spending has required procurement of illegal hidden debt, typically via shell companies owned by the local government.

Beijing’s attempt at introducing accountability through publicity will likely be insufficient to resolve the issue absent more comprehensive reforms.

Source: Central News Agency (Taiwan), November 6, 2023
https://www.cna.com.tw/news/acn/202311060331.aspx

Briefings | | |   Economy/Resources

Plummeting Fertility in China Likely to Sustain Population Decline into Next Century

China’s birth rate has fallen sharply, leading to negative population growth that is likely to continue into the next century, according to Chinese economists. This will not only affect the labor supply but also slow economic growth. Zuo Xuejin, former Shanghai Academy of Social Sciences executive, said at a recent economic forum that coping with demographic changes and creating high-quality growth [in the Chinese economy] would require speeding up the country’s transition to a demand-centric economy and increasing investment in human capital.

Since the country’s total fertility hit a record low in 2022, China’s various policies aimed at increasing the birth rate have met with limited success. Experts believe negative population growth will persist as fertility remains far below the replacement level of 2.1 children per woman. Modeling shows that, even with optimistic assumptions regarding a rebound in fertility, China’s population decline could continue through 2097. If current lower fertility rates continue, negative growth may persist into the 2100’s.

The urban concentration of population and economic activity in major coastal and inland city clusters will continue even as cities face depopulation. Local governments would do well to avoid wasted infrastructure investment in the face of population decline.

Source: Central News Agency (Taiwan), November 5, 2023
https://www.cna.com.tw/news/acn/202311050119.aspx

Briefings | | |   Economy/Resources

Lianhe Zaobao: China’s Most Popular Online Maps Do Not Show Israel

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that the name “Israel” no longer appears on major Chinese online electronic maps such as Baidu Maps and AMap. Israel does still appear if the user specifically searches for the word “Israel.” All other nations in the region still have their names correctly displayed.

At a press conference of China’s Ministry of Foreign Affairs, a reporter asked about the reason behind this change in the apps’ behavior, inquiring whether Beijing had required the apps to remove Israel. The spokesperson of the Ministry responded that “the relevant country is clearly marked on the standard map issued by the Chinese competent authorities.” He also stated that the Chinese position on the Palestinian-Israeli situation is: “China has always condemned and opposed all acts that harm civilians and violated international law, and has always been committed to working with the international community to promote ceasefires, ensure the safety of civilians, improve humanitarian assistance, and prevent serious humanitarian disasters.”

Source: Lianhe Zaobao, October 31, 2023
https://www.zaobao.com.sg/realtime/china/story20231031-1446946

Briefings | | |   Geo-Strategic Trend

North Korea Closes Consulate in Hong Kong

According to well-known Chinese news site NetEase (NASDAQ: NTES), North Korea has just announced the closure of its Consulate General in Hong Kong. The move follows the closing of North Korean embassies in many African countries such as Angola and Uganda.

It is reported that North Korea plans to close 12 of its embassies and consulates in Spain, Hong Kong and other places, accounting for nearly a quarter of its 53 diplomatic missions around the world. These closures have triggered widespread attention to changes in North Korea’s foreign policy.

North Korea has long implemented a planned economy, and the size of the country’s economy has continued to shrink. According to one estimate, closing an embassy or consulate could save the North Korean government approximately US$500,000 per year. North Korea may also believe that, given the current diplomatic environment, it does not make sense to maintain North Korean diplomatic missions in countries with which the country has less friendly or less important relations.

Although North Korea’s move will affect the relationship between China and North Korea to some extent, the Chinese Ministry of Foreign Affairs stated that it respects North Korea’s decision. This statement from China likely creates international space for North Korea to further adjust its foreign policy. If China were to strongly oppose or criticizes North Korea, on the other hand, this would inevitably lead to a rebound in North Korean public sentiment and cause unnecessary negative impacts on relations between the two countries.

Source: NetEase, November 1, 2023
https://www.163.com/dy/article/IIFOSRAG05562Z7A.html

Briefings | | |   Geo-Strategic Trend

UDN: Canadian Bans WeChat on Government Devices

United Daily News (UDN), one of the primary Taiwanese news groups, recently reported that Canada has banned the use of Chinese messaging app WeChat on government-issued mobile devices, citing privacy and security risks. The Canadian government stated in an announcement that the applications WeChat and Kaspersky will be removed immediately from government-issued devices and that users of those devices will be blocked from downloading those two programs in the future.

The new bans follow action by Ottawa authorities to ban TikTok on government devices in February of 2023. Anita Anand, chairwoman of the Canadian Treasury Board, which oversees Canada’s federal public services, said Canada’s information chiefs believe the two apps “pose an unacceptable risk to privacy and security.” She added that no information leaks have been detected yet, but that the two platforms’ data collection methods on mobile devices “provide substantial access to device content.” She concluded that “the decision to remove and block WeChat and Kaspersky apps is to ensure that Canadian government networks and data remain secure and protected, in line with the practices of our international partners.”

According to UDN, WeChat did not respond to a request for comment.

Source: UDN, October 31, 2023
https://udn.com/news/story/6809/7541156

Briefings | | |   Geo-Strategic Trend Information/Technology

Chinese Automakers to Produce Cars in Mexico

Chinese automakers are eyeing the American car market, making substantial investments in Mexico so that they can take advantage of geopolitical and trade agreement benefits. Since China faces high tariffs and restrictions on exporting cars to the U.S., Mexico’s strategic location and the USMCA trade agreement have made the country a favorable location for Chinese companies to produce electric vehicles (EVs) for export to the U.S.

Beijing’s strong support for China’s domestic electric vehicle industry, along with the prominence of Chinese company CATL as the world’s largest lithium battery producer, has positioned China as a major player in the EV market. Chinese automakers, such as JAC and Giant Motors, have already been assembling cars in Mexico for several years. Recently, Chinese companies Chery and Foton also began setting up factories in Mexico.

Source: Voice of America, November 1, 2023
https://www.voachinese.com/a/focusing-on-the-us-ev-market-chinese-companies-invest-heavily-in-mexico-20231031/7335006.html

Briefings | | |   @CS Economy/Resources Geo-Strategic Trend US-China Relations