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Discrepancies in China’s Trade Surplus Data with the U.S.

On June 20, the U.S. Treasury Department asked China to explain the discrepancy in its two sets of trade surplus data with the U.S.

Data reported by the Chinese customs office shows China’s trade surplus for 2023 being nearly $230 billion higher than the surplus reported by China’s State Administration of Foreign Exchange (SAFE). In prior years (going back to 2000), the average discrepancy between these two sources of trade surplus data was only $7 billion. The U.S. Treasury Department called on China to provide further quantitative evidence clarifying the issue.

One commentator on China affairs gave three possible explanations for the large discrepancy in 2023 trade surplus data:

  1. The Chinese customs office may have exaggerated the country’s export trade figures.
  2. A large number of export enterprises may have, in preparation for potential exit from China, kept their dollars overseas instead of taking them back to China (i.e. instead of converting them to RMB). This could have resulted in those businesses’ trade numbers being counted by the customs but not by SAFE.
  3. There may be an acceleration in people withdrawing money to flee China.

Sources:
1. Radio France Internationale, June 21, 2024
https://www.rfi.fr/cn/美国/20240621-美财政部吁中国提高汇率透明度-并澄清贸易顺差数据出现巨额落差
2. Epoch Times, June 22, 2024
https://www.epochtimes.com/gb/24/6/22/n14275135.htm

Briefings | | |   Economy/Resources US-China Relations

Huawei Hires TSMC Talents to Build Out Chinese Semiconductor Capabilities

Financial journalist Emmy Hu recently revealed on her Facebook account “Emmy’s Drama Watch Time” (“Emmy追劇時間”) that Huawei is poaching talents from Taiwan’s chipmaker TSMC so that Huawei can expand beyond the telecommunications business into chip manufacturing. Huawei establishes new legal entities for such poaching operations, making it hard for outsiders to connect the dots back to Huawei.

As early as 2022, a TSMC employee informed Emmy Hu that Huawei had been conducting a lot of interviews with TSMC staff. Huawei poached a star TSMC plant manager using a legal entity “Sheng Wei Xu (昇维旭)” which claimed to be manufacturing memory chips. The interview questions posed were all about integrated logic circuits (logic ICs), however, and all the interviewees were Huawei personnel. “Peng Xin Wei (鹏芯微)” is another company established by Huawei. This company moved even faster in purchasing equipment than “Sheng Wei Xu.” Emmy Hu was told that Huawei aimed to poach 300 mid-to-senior level employees at once because Beijing realized that poaching a single person, like Liang Mong Song (currently the CEO of SMIC), would result in slower progress (in terms of setting up manufacturing capabilities) than poaching a larger number of people. According to Emmy, Huawei’s goal is to bring in an entire factory management team to ramp up operations quickly.

Emmy Hu mentioned that two years ago SMIC (a Chinese chipmaker) attempted to produce 7nm chips supporting Huawei’s new Mate60 smartphone, but SMIC could not handle the task by itself. Huawei masterminded the effort, putting to work its resources recruited from Taiwan. Fujian Jinhua Integrated Circuits, an independent Chinese company, now follows Huawei’s direction; it used to produce memory chips but now has switched to producing logic ICs. There are now a total of seven such logic IC chip companies working with Huawei; they are refer to the “Seven Little Dragons.”

Source: Facebook, account “Emmy追劇時間,” June 5, 2024
https://www.facebook.com/story.php/?story_fbid=1005948894485371&id=100052108087251&_rdr

Briefings | | |   Economy/Resources Geo-Strategic Trend Information/Technology

Banks in Shenzhen Require Reservations for Large Cash Withdrawals

Multiple banks in Shenzhen, China, have recently required customers to make reservations in advance if they wish to withdraw over 50,000 yuan (around $7,500 USD) in cash. Some banks even require reservations for withdrawals of over 20,000 yuan. Bank staff say this is to avoid scenarios where too many customers withdraw cash on the same day, leading to cash shortages at the banks.

Reporters at Southern Metropolis Daily have found that, at some Shenzhen banks, withdrawals of sums under 20,000 yuan can be made at ATMs, withdrawals of between 20,000 and 50,000 yuan can be made directly at the counter, and withdrawals of over 50,000 yuan require an advance reservation. Large withdrawals may require banking customers to document their intended use for the cash.

Specific withdrawal limits vary between banks. China Merchants Bank requires advanced reservations for withdrawals of over 20,000 yuan, whereas Shenzhen Rural Commercial Bank only requires it for sums of over 100,000 yuan. Hangzhou Bank requires proof of intended use for sums of over 200,000 yuan. China Construction Bank requires advance reservation (via an app) and approval for over withdrawals of over 200,000 yuan.

Staff at the Bank of Beijing and the Industrial Bank branches in Shenzhen said the 50,000+ yuan reservation requirement aims at preventing customers from making sudden large withdrawals. Such withdrawals could result in the branch having insufficient cash on hand. Customers are required to provide details when making their withdrawal reservation.

A branch manager at Postal Savings Bank said that reservations for next-day withdrawals must be made before 3pm.

A bank in Jilin province previously required police approval for withdrawals of over 20,000 yuan. This drew public controversy. The bank said that the requirement was for anti-fraud purposes.

The Southern Metropolis Daily report notes that bank staff will generally allow withdrawals after assessing the customer’s recent transaction activity, and that the process aims to be efficient for customers.

Source: Central News Agency (Taiwan), June 15, 2024
https://www.cna.com.tw/news/acn/202406150113.aspx

Briefings | | |   Economy/Resources

China Levies Heavy Corporate Back Taxes From Up to 30 Years Back

Many listed companies in China have recently received notices that they must pay back taxes from several years ago. Some back taxes date as far back as 30 years and amount to hundreds of millions or even billions of yuan. Private enterprises have gone silent after hearing this news, with some announcing that they will cease operations. Last week, seven large companies in Guangdong went bankrupt, including some that had been operating for 30 years.

A recent announcement that companies need to pay back taxes over a 30-year period has caused unease among many enterprises in China and has drawn public attention. On June 13th, VV Drink Co. announced that it had received a notice from China’s tax bureau requiring the company’s former subsidiary to pay over 85 million yuan in unpaid consumption taxes dating from 1994 to 2009. Other companies like Shanghai Shunho New Materials Technology Co., Peking University Healthcare Corp., ChinaLin Securities Co., and LianTronics followed with similar tax repayment announcements, with BoHui Chemical Technology Co. ordered to pay 500 million yuan (US$ 69 million) and consequently issuing a production halt notice.

A lawyer commented that retroactively taxing companies on the past 30 years presumes guilt and violates administrative law principles. He stated that China’s economic downturn has severely reduced government fiscal revenue, leaving tax collection as their only income source, but that pursuing more taxes will only force more private enterprises out of business and increase unemployment.

The report notes examples of companies in Guangdong being taxed retroactively for 20-25 years. A banker noted that, despite local government salary cuts, governments are still in need of more tax revenue due to strained finances. Concerns were raised that taxing private enterprises so heavily could threaten livelihoods.

Source: Radio Free Asia, June 18, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/ql2-06182024033604.html

Briefings | | |   Economy/Resources

“Southern Water” Has Become the Main Water Supply Source Supplying Beijing

China has a South–North Water Transfer Project to channel fresh water from the Yangtze River in southern China to the more arid and industrialized north, with Beijing as one of the destinations for water transfer. Xinhua reported that by June 12, the project has transferred 10 billion cubic meters of water to Beijing since December 2014 when the first phase of the project started operation.

According to Xinhua, the “southern water” piped in from the Yangtze has met the water quality requirement and directly benefited over 16 million people. It has become the main water supply source for Beijing. However, despite the “southern water” supplying Beijing, the megacity continues to face a severe water shortage.

Source: Xinhua, June 12, 2024
http://www.news.cn/politics/20240612/8bbcbe099a2c44b991261c19d9d1b2fa/c.html

Briefings | | |   Economy/Resources

People’s Daily: Help Graduates Create New Career Concept

As college graduates in China are having a hard time landing jobs, People’s Daily published an article suggesting that graduates “reset their career perceptions.”

The article acknowledged that college graduates are facing “employment difficulties.” However, certain small cities and rural areas and certain industries have “recruitment difficulties” and “labor shortages” — according to People’s Daily, the “job paradox” is due to graduates’ (possibly unrealistic) preferences for jobs with internet platform enterprises, technology companies, modern service industries, or government jobs. Among the 2024 job-seeking graduates, 62 percent want to work in state-owned enterprises or government agencies, the article reported.

The article’s proposed solution to the difficulties facing graduates is to “mobilize the government, universities, and companies to change students’ job perspective.” The government should increase its promotional efforts and actively guide college graduates to adopt new career perspectives; universities should actively develop new career concept training and labor education courses, strengthen school-enterprise connections, take companys’ order to train students with specific, targeted skills; companies should expand career development opportunities and enhance their attractiveness; families should create a diligent and progressive atmosphere for their children’s healthy growth and future career development; and university graduates should be independent and face the reality.

{Editor’s Notes: China produces around 10 million college graduates each year, and there are just not enough white-collar jobs to employ all of them. On the other hand, manufacturers face shortage of labors. Jobs in manufacturing, however, are not only low paid (many have been filled by migrant workers, i.e. rural peasants who have migrated to cities) but also lack in job security (as many employers in the manufacturing sector face the pressure of a tough economy and the squeeze from the State-Owned Enterprises (SOE’s) that the government wants to expand).}

Sources: People’s Daily, June 14, 2024
http://theory.people.com.cn/n1/2024/0614/c40531-40256286.html

Briefings | | |   Economy/Resources

China to Accelerate Cross-Border e-Commerce Activity

Beijing aims to increase activity by cross-border e-commerce merchants in an attempt to buoy China’s economy by expanding the country’s exports.

China’s Ministry of Commerce spokesperson He Yadong stated on May 30th that the Ministry is working to finalize a policy titled “Opinions on Expanding Cross-Border E-Commerce Exports and Promoting the Construction of Overseas Warehouses.” The policy’s goal will be to accelerate the development of cross-border e-commerce.

In the first quarter of 2024, China’s total import and export volume for cross-border e-commerce reached 577.6 billion yuan (US$80 billion), an increase of 9.6 percent. Of this volume, exports accounted for 448 billion yuan, a 14 percent increase. Preliminary statistics from various regions indicate that China has over 120,000 cross-border e-commerce entities, more than 1,000 cross-border e-commerce industrial parks, and over 2,500 overseas warehouses with over 30 million square meters of storage.

Source: Xinhua, May 31, 2024
http://www.xinhuanet.com/tech/20240531/1426a7a71be64b72a79ee7fa467ef159/c.html

Briefings | | |   Economy/Resources Geo-Strategic Trend

Guangming Daily: EU Commission Delays Decision on EV Tariffs, EU Motives Differ From US

Guangming Daily published an article analyzing why the E.U. has delayed its decisions regarding tariffs on Chinese new energy vehicles (electric vehicles). The decision was originally scheduled to be announced on June 5. The E.U. first announced an anti-subsidy investigation into Chinese new energy vehicles last September. The U.S. imposed a 100 percent tariff on Chinese electric vehicles in May.

The Guangming Daily article analyzed U.S.-based and E.U.-based media articles related to electric vehicle tariffs, saying that the U.S. and the E.U. have focused on the issue from different angles. Guangming Daily first analyzed reports on Chinese new energy vehicles by two E.U.-based media outlets, Euractiv and POLITICO Europe, finding that their reports from the past month used keywords such as “vehicles,” “sector,” “companies,” and “manufacturing.” In contrast, U.S. media reports on the same topic emphasize keywords related to diplomatic relations such as “tensions,” “relations,” “conflict,” and “politics.”

According to Guangming Daily, the U.S. is particularly concerned with future leadership, while Europe is purely for interests and ideas. In reports on Chinese new energy vehicles, the most frequently co-occurring words in U.S. media are “leadership,” “dominance,” and “foreign.” In European media, the words most frequently associated with “competition” are “fairness,” “domestic,” and “autonomy.”

The article additionally commented that Europe needs to support its domestic enterprises, which in turn relies on the assistance of the Chinese market and Chinese investment. For Europe’s large automobile manufacturers, China remains their largest single market, with Germany being a typical example. Moreover, Chinese new energy vehicle companies establishing factories in Germany have introduced new technological collaborations in areas such as intelligent battery swapping, smart transportation, and autonomous driving. Automotive manufacturers in France, Spain, and other EU countries are also replicating the “German model” by cooperating with China.

Source: Guangming, June 5, 2024
https://world.gmw.cn/2024-06/05/content_37363429.htm

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