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China’s Real Estate Woes: 30% Surge in Non-Performing Loans, Government Responses Conflicted

Financial strains related to real estate in China are increasingly evident in local banks. By December 2023, non-performing loans (NPLs) had risen by about 30% compared to the previous year. This impedes banks’ ability to grow their lending, possibly hindering China’s economic recovery. Hong Kong investors are shying away from trading Chinese local bank stocks due to concerns over the banks’ exposure to real estate woes.

The rise in NPLs is confirmed by 2023 fiscal reports of 27 Hong Kong-listed large and mid-sized banks, with NPLs totaling 106.8 billion yuan, a 27% increase from the previous year. The average NPL ratio for real estate loans reached 6.5%, indicating a surge in bad loans.

Analysis shows a worsening situation for local banks in economically challenged regions, such as the northeastern provinces, with Jiutai Rural Commercial Bank experiencing a 37% increase in real estate-related NPLs.

Government responses have been conflicted, as it is difficult to stimulate the economy while also maintaining stability in the banking sector. The government introduced a mechanism for coordination of real estate financing, potentially aggravating financial risks by pushing banks to lend out funds to whitelisted projects. Meanwhile, concerns have arisen over banks’ ability to handle bad loans in the face of shrinking net interest margins (NIMs). By December 2023, NIMs had reached a historic low of 1.69%, prompting speculation that the People’s Bank of China (PBOC) may cut interest rates in the future to stimulate demand. At the same time, a further reduction in interest rates could lead to further strain on banks’ resources and ability to manage bad loans.


Source: Nikkei Chinese, April 9, 2024

Half-Stopped Factories Become Norm in Chinese Lithium Battery Industry

Shanghai-based Chinese financial news site East Money recently reported that, “as the period of frenzied investment has passed, the Chinese lithium battery industry has been shrouded in the shadow of overcapacity and price wars. .. After the Chinese New Year, which is often the peak period for job hunting and employment, many battery companies reported suspensions of production, layoffs, and salary cuts.” Below are some translated excerpts from the article.

The oversupply situation in the lithium battery industry has been reflected in all aspects of the entire supply chain. Some sources told the reporters that, in the new energy industry chain from top to bottom, no orders and half-stopped factories have become the norm. “The bosses themselves are looking to find a more stable job.” Starting this year, even large companies are in danger. Other than the two “super players,” CATL and BYD, the question is: how many battery companies can survive past spring?

The turning point for the lithium battery industry’s sharp decline occurred in the fourth quarter of 2022. The trigger was that the sales growth rate of new energy vehicles began to slow down significantly, which was not expected by the industry. Because of this, since 2023, the battery industry has fought a fierce price war, and capacity utilization has further declined as well. Even for CATL, its 2021 manufacturing capacity utilization rate was as high as 95 percent, dropped to 83.4 percent in 2022, and further dropped to 70.47 percent in 2023, which is still much higher than the industry average capacity utilization rate – around 41.8 percent.

Right now, the lithium battery industry is still facing the challenge brought by the worsen high EV inventories as the result of the rapid expansion of new energy vehicles. In the meantime, the battery inventory of the energy storage industry is piling up too. No one knows when the lithium battery industry will emerge from the bottom. A new round of elimination in the market seems to be just starting.

Source: East Money, April 1, 2024

China’s CRRC Drops Out of Bidding After EU Subsidy Probe

On February 16th, the European Union announced a subsidy investigation against China Railway Rolling Stock Corporation (CRRC). CRRC Qingdao Sifang Locomotive & Rolling Stock Co., Ltd. was suspected of relying on state subsidies to submit a bid with an undue advantage in the tender for electric trains in Bulgaria. The Bulgarian tender was for the purchase of 20 electric trains and maintenance for the next 15 years, with a total value of approximately 610 million euros (660 million US dollars).

On March 26th, the European Commission stated that CRRC withdrew its bid, and that because of the CRRC’s withdrawal, the EU will terminate the investigation.

Thierry Breton, the EU’s Internal Market Commissioner, said “In just a few weeks, our first investigation under the Foreign Subsidy Regulations has already produced results.”

The European Union has recently intensified its scrutiny of Chinese companies that may receive state subsidies to gain bidding advantages. Ursula von der Leyen, President of the European Commission, announced an investigation in September of last year into Chinese government subsidies potentially causing “artificially depressed” prices for Chinese electric vehicles hitting the European market.

Source: VOA, March 27, 2024

Charity’s Plan to Donate to Government Sparks Backlash in China

The Beijing Hemophilia Rare Disease Home Care Center recently announced plans to donate 1 million yuan ($143,000 USD) to the Chinese government and 100,000 yuan ($14,300 USD) to the Beijing government for construction purposes. This announcement from the charity organization, which relies on donations for its operations, sparked an outcry of criticism and skepticism online, with some saying “It seems the country has a rare disease.”

According to reports, the Center posted an official document on March 25th stating its decision to donate 1 million yuan to the People’s Republic of China for national construction. The next day, they announced a 100,000 yuan donation to Beijing for municipal construction. The Beijing Hemophilia Care Center was registered as a non-profit in 2012 and is a member of the Beijing Charity Association. It mainly provides aid for hemophilia patients and helps families by providing education, medical care, psychological counseling, and employment. Audits show that the group had total revenue of 24.7 million yuan in 2019. The revenue came almost entirely from donations, with zero government subsidies.

The organization’s announcements drew criticism online, with some questioning the legality of donating funds raised for unrelated purposes without obtaining donors’ consent. Some netizens joked that “It seems the country has a rare disease,” implying that the country is facing financial difficulties.

Legal experts stated that, under China’s charity laws, government agencies cannot directly receive donations meant for public welfare and must transfer such donations to approved charitable groups. Beijing authorities said they had received inquiries on the matter and had ordered the donation announcement to be retracted, which the Hemophilia Care group has now done. Some lawyers argued that the donation likely cannot proceed since no eligible recipient department within the government has been identified, and the charity failed to follow proper procedures like soliciting feedback from donors.

Source: Central News Agency (Taiwan), March 27, 2024

CNA: China’s Personal Income Tax Revenue Fell Significantly in First Two Months of 2024

Primary Taiwanese news agency Central News Agency (CNA) recently ran a story on statistics released by China’s Ministry of Finance. According to the data, Chinese tax revenue during the first two months of 2024 saw a year-over-year decrease of four percent, and personal income tax revenue suffered a significant reduction of 15.9 percent.

“Personal Income Tax Revenue Decline” quickly became a hot topic on Chinese social media, with more than 170 million topic views on Weibo. In online discussion boards, consensus has emerged among a majority of netizens that the driving reasons behind the decline in personal income tax revenue are lowered wages and widespread layoffs.

In China, generally speaking, those with an annual salary of less than RMB 100,000 yuan (US$14,000) do not need to pay personal income tax. Some experts pointed out that China’s post-COVID economic recovery in 2023 was not as strong as expected, and some companies reduced or did not pay year-end bonuses to employees. In addition, some foreign trade companies have seen business volume fall and staff salaries reduced.

Chinese government officials are optimistic regarding the rest of the year, expecting personal income tax revenue for the whole of 2024 to increase by about 6.3 percent compared with 2023.

Source: CNA, March 22, 2024

RTI: Japanese Company Bridgestone Closes Shenyang Factory

Radio Taiwan International (RTI) recently reported that Bridgestone, Japan’s largest tire manufacturer, announced the closure of its factory in the Chinese city of Shenyang. The company also plans to terminate the production and sales of commercial vehicle tires in China during the first half of 2024. The Bridgestone Group has been operating in China for more than 20 years. Bridgestone closed its tire factory in Huizhou, Guangdong Province at the end of 2021 and transferred production capacity and equipment to Shenyang.

Japan was the first country to have foreign businesses enter China during the modern era. In recent years, foreign companies, including many from Japan, have withdrawn from the Chinese market. Experts have said that Japan is a “weathervane” for foreign investment in China, and that foreign business withdrawals from China are now accelerating. This is quite inconsistent with the Chinese government’s messaging around business-friendliness. Since last year, world-renowned companies including Japan’s Canon, SONY, Toshiba, Nikon and South Korea’s Samsung have withdrawn from China, affecting tens of thousands of Chinese employees.

Source: RTI, March 15, 2024

Alibaba to Invest $1.1 Billion Expanding Business Footprint in South Korea

According to exclusive information obtained by the South Korean news agency Yonhap News Agency, Alibaba Group plans to expand its business footprint in South Korea over the next three years with $1.1 billion in new investment.

Alibaba recently submitted its business plan to the South Korean government. According to the plan, Alibaba will begin construction of a comprehensive logistics center in South Korea this year. The logistics center will comprise an area of 180,000 square meters, equivalent in size to 25 soccer fields.

Alibaba will invest $100 million to help South Korean sellers bring their products to foreign markets. In June, Alibaba will establish a procurement center to source high-quality Korean goods for resale via global sales channels. Alibaba plans to utilize its various e-commerce platforms to sell Korean products, including AliExpress, Lazada (one of the largest e-commerce operators in Southeast Asia), and Spanish e-commerce platform Miravia. Over the next three years, Alibaba aims to support 50,000 South Korean small- and medium-sized enterprises in exporting their products.

Source: Yonhap News Agency, March 14, 2024

Li Qiang: Resolving Local Government Debts Will be a Protracted Battle

On March 22, the Chinese State Council held a video conference on Preventing and Resolving Local Debt Risks. People’s Daily reported that “Premier Li Qiang gave a speech emphasizing that the work of preventing and resolving local debt is both an offensive assault and a war of attrition. All regions and departments should improve their political stance, strengthen their sense of responsibility and systems thinking, properly resolve risks from existing debts, and strictly prevent new debt risk. We must continue in-depth work to resolve risks from local government debt and resolutely implement requirements regarding tight budgets.”

Source: People’s Daily, March 23, 2024