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2023 Saw China’s First Net Capital Outflow in Five Years

Amid a slowing economy in 2023, China saw a net outflow of funds from transactions with foreign countries for the first time in five years. Net outflows totaled 68.7 billion yuan. The outflows were driven by shrinking investments by foreign businesses into China as well as by affluent Chinese households’ increased travel and investment overseas.

China saw a net direct investment outflow of 118.5 billion yuan in 2023, the highest figure since 2010. It is unclear whether a bigger portion of this investment outflow resulted from transfers by Chinese firms or by foreign firms operating in China. On the one hand, Chinese companies’ expansion abroad has led to outflows; on the other hand, foreign companies’ downsizing and capital withdrawal from China has certainly contributed. A late-2023 survey of Japanese companies operating in China found that nearly 50% of respondents either reduced or did not expand 2023 investments in China compared with 2022. The number of foreign manufacturing and foreign industrial companies in China fell in November 2023 to its lowest level since November of 2004, dropping 0.4 percent compared with the same period in 2022.

China’s stock market hit new lows in late January 2024, down nearly 20% from the 2023 market highs. Meanwhile, feverish trading in foreign exchange-traded funds (ETFs) linked to the Nikkei and U.S. indices has led to a temporary suspension of those ETFs’ trading within China.

Following the end of Beijing’s zero-COVID policy in January 2023, affluent Chinese households increased their investment and travel overseas. This contributed to 2023’s capital outflows. The trend of capital flight from China persists in 2024.

China’s ability to attract foreign capital has weakened as the economy has slowed. The government faces challenges in restoring confidence and financial inflows. Ebbing confidence in China’s economic progress is reflected in the country’s investment outflows, foreign corporate downsizing, Chinese travel and investment abroad, and ongoing capital flight.

Source: Nikkei, January 25, 2024
https://zh.cn.nikkei.com/china/ceconomy/54665-2024-01-25-09-53-18.html

Briefings | | |   Economy/Resources

China Leads in Genetic Modification and Cloning of Monkeys

China is leading the world in terms of research on genetic modification and cloning monkeys, aiming to improve scientific understanding of human evolution and disease. In 2023, Chinese researchers published studies on monkeys whose genomes had been modified by adding human brain genes; these monkeys demonstrated better memory abilities compared to unmodified monkeys. The research could help explain millions of years of human evolution and the separation of humans from other primates. The experiments have raised some ethical concerns in the West.

In recent years, China has invested heavily in primate research at both the national and local levels, to the tune of 600 million euros. The country aims to establish monkey models of human diseases. The number of genetically modified monkeys remains small, however, as creating transgenic animals is a costly procedure. According to Pierre Savatier, a researcher at the French National Institute of Health and Medical Research, such a procedure costs around 1 million euros per animal. Although cloning can save some time, it is still a very expensive procedure with low success rates.

Some Western experts argue that, despite China’s demonstrated technological advances in genetic modification and cloning of primates, the scientific results of such experiments have been limited. Roger Le Grand, who leads the principal non-human primate lab at the French Atomic Energy Commission, noted that initial stages of transgenic mouse research were quote laborious before the associated techniques eventually became routine. Pierre Savatier commented that establishing stable lineages of genetically modified monkeys would take at least a decade.

Realizing pharmaceutical profits resulting from primate models would likely take 20-30 years. Currently, China is the only country devoting infrastructure and resources to support such long-term research. Public opinion in the U.S. and Europe generally opposes animal testing; China’s bets in this area, made “at the highest political levels,” are not being matched in Western countries.

Source: Radio France International, January 24, 2024
https://rfi.my/AHaD

Briefings | | |   Economy/Resources

Beijing Pushing Mid-to-Long-Term Investor Funds into Stocks to Support Chinese Stock Market

China’s stock market performed poorly in 2023. To help buoy the stock market, Beijing has increased its efforts to “introduce mid-to-long-term into the market.”

People’s Daily reported that Lin Xiaozheng, Deputy Director of the Department of Supervision of Securities and Fund Institutions at China’s Securities Regulatory Commission (CSRC), stated at a press conference that the CSRC will make greater efforts to introduce more mid-to-long-term funds into the market. Lin mentioned that, in recent years, “the CSRC has vigorously developed equity funds and actively promoted various mid-to-long-term funds’ participation in the capital market, achieving phased results. As of the end of 2023, various professional institutional investors, including social security funds, public funds, insurance funds, and pension funds, collectively held 15.9 trillion yuan of A-shares [in the Chinese stock market], doubling the amount held in early 2019. Their stock ownership ratio increases from 17% to 23%. These institutions have become a significant force in promoting the stable and healthy development of the capital market. Among them, public funds held 5.1 trillion yuan of A-shares, and stock ownership ratio increased from 3.8% to 7.3%, making them the largest professional institutional investor in A-shares.”

Source: People’s Daily, January 13, 2024
http://finance.people.com.cn/n1/2024/0113/c1004-40158192.html

Briefings | | |   Economy/Resources Government/Politics

People’s Daily: China’s Largest Corporation of Foreign Culture Performing Arts is Making Connections Abroad

People’s Daily Online interviewed Li Jinsheng, the Communist Party Secretary and Chairman of China Arts and Entertainment Group. Below are some excerpts from the interview:

“Established in 2004, China Arts and Entertainment Group originated from the China Foreign Performance Company and the China Foreign Art Exhibition Center, founded in 1957 and 1950, respectively. Over the past 70 years, especially in the nearly 20 years since its formation, China Arts and Entertainment Group has been dedicated to engaging in cultural exchanges, telling China’s stories, and spreading the country’s voice abroad.”

“As the largest and only state-owned enterprise specializing in foreign cultural exchanges, the group aligns its work with the country’s diplomatic priorities. One significant aspect is coordinating cultural activities in conjunction with major national events. Incomplete statistics show that, since 2013, the group has organized over 70 cultural performances and exhibitions in support for China’s major diplomatic activities.”

“In October 2016, under the guidance of the former Ministry of Culture, the Silk Road International Theatre Alliance was formed. As of today, the alliance has 155 member units from 45 countries and regions, including 83 overseas members and 72 domestic members. Since its establishment, the alliance has played an active role in information exchange, personnel exchanges, and collaboration in performance production among theatre members. It has fostered long-term and deepened cooperation in the field of performing arts with countries participating in the Belt and Road Initiative.”

Source: People’s Daily, November 7, 2023
http://www.people.com.cn/n1/2023/1107/c32306-40112644.html

Briefings | | |   Economy/Resources Geo-Strategic Trend

Economist: Pensions of China’s Rural Elderly Only a Few Dozen Dollar Per Month

On January 8, 2024, Lu Ting, Chief Economist of Nomura Securities in China, spoke at the 46th Tsinghua University Forum on China and the World Economy. According to Lu, China’s 170 million rural-area retired pensioners over age 60 receive an average monthly pension of only a little over 100 Yuan (US$14), with the majority not receiving more than 300 Yuan (US $41) per month. Lu mentioned that there is a vast disparity between the pensions of this group and those of retired department-level cadres, some of whom receive 70 to 100 times as much in their pensions.

Source: Epoch Times, January 11, 2023
https://www.epochtimes.com/gb/24/1/11/n14155803.htm

Briefings | | |   @CS Economy/Resources

Lianhe Zaobao: Hyundai Motor Sells Chongqing Factory at Half Price

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that South Korea’s Hyundai Motor Co.’s joint venture in China sold its factory in Chongqing for RMB 1.62 billion (around US$227.6 million), less than half the original asking price from when the factory was originally put up for sale in August of last year. Hyundai faces fierce price competition and slowing demand in China.

The factory started operations in August 2017 and is the second factory sold by Hyundai Motor in China. In addition to the recent sale, Hyundai Motor sold a Beijing-based factory in 2021. There are now three remaining Hyundai factories in China, down from five at the peak.

Hyundai said the sale was a move to optimize its business structure in China, aiming to shift focus from the volatile Chinese market to other Asian countries such as India and Indonesia. As China rapidly transitions to electric vehicles, South Korean carmakers Hyundai and Kia are facing difficulties in their China strategies. China is the world’s largest auto market. It’s worth noting that sales in the Chinese market accounted for only five percent of the two companies’ total global sales in the third quarter of 2023.

Source: Lianhe Zaobao, January 17, 2024
https://www.zaobao.com.sg/realtime/china/story20240117-1462659

Briefings | | |   Economy/Resources Geo-Strategic Trend

Mingpao: Moody’s Downgrades China’s Four Major Distressed Asset Management Firms

Mingpao, one of the primary Hong Kong newspapers, recently reported that rating agency Moody’s has just downgraded the credit ratings of the four major Chinese non-performing asset management companies.

  • Huarong’s (HKSE 2799) long-term issuer rating was downgraded by one notch to Ba1, a non-investment grade commonly known as junk level. The rating outlook for Huarong remained negative.
  • Moody’s also downgraded Oriental Asset Management by one level to Baa2.
  • Cinda (HKSE 1359) fell below A3 and was downgraded by one level to Baa1, the same rating as Huarong. The downgrade reflects continued tension in the Chinese real estate market and slowing economic growth. There is pressure on Cinda’s asset profitability, asset quality and capital position.
  • Moody’s also downgraded Great Wall Asset Management’s long-term credit rating by one notch to Baa3, just one notch above junk status. This was mainly due to Great Wall’s continued major deficiencies in corporate governance and pressure on its capital position – they delayed the release of the 2022 annual performance report.

The other two major rating agencies, S&P and Fitch, also downgraded the credit ratings of China’s four major asset management companies in September of last year and January of this year, respectively. According to the Mingpao article, there is a lack of sustainability and transparency in supporting asset management companies that have suffered large losses and capital erosion. Moody’s expects that Chinese officials will prioritize resources to support state-owned enterprises.

Source: Mingpao, January 20, 2024
http://tinyurl.com/mr23wrr5

Briefings | | |   Economy/Resources US-China Relations

Commentator: Local Government Debts Driving Chinese Market Decline

Lao Man (老蛮), a well-known Chinese Internet commentator, posted on the X platform about why China’s stock market keeps losing money:

“Local governments [in China] have been approved to issue 2.7 trillion yuan (US$ 380 billion) in bonds, and issuance of these debts is now underway. This is the fundamental reason for the continued decline in the stock market, draining over 20 billion yuan from the stock market every day.

In 2024, the most important economic factor [in China] is the local government debt. Keep an eye on it; it is the underlying factor behind all economic phenomena.”

Source: Twitter, @laomanpindao

Briefings | | |   Economy/Resources