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LTN: China’s Financial Industry Asks Employees to Give Up Deferred Bonuses

Major Taiwanese news network Liberty Times Network (LTN) recently reported that, since Chinese leader Xi Jinping launched the “Shared Prosperity” campaign, several companies in China’s financial industry have implemented strict new restrictions on their senior employees to coordinate with the Xi’s policies. The era of high salaries for Chinese financial workers is coming to an end. China’s largest financial groups have asked senior employees to forego deferred bonuses and, in some cases, return salary from several years ago to comply with a pre-tax annual pay cap of RMB 2.9 million yuan (around US$399,047). Some mutual fund managers are also facing pressure to return non-compliant wages from previous years. Chinese state-owned financial institutions such as China Merchants Group, China Everbright Group and CITIC Group have conveyed the above guidance to employees in some of their departments in recent weeks, people familiar with the matter said. Highly paid financial workers, including investment bankers and fund managers, have been denounced by Beijing as “hedonistic” for their extravagant lifestyles and are among the groups hardest hit by Xi Jinping’s “shared prosperity” campaign. It is unclear at this moment how many financial institutions are subject to the guidance. The incomes of most of the high-ranking financial managers are from deferred bonuses.

Source: LTN, June 27, 2024
https://news.ltn.com.tw/news/world/breakingnews/4719200

Briefings | | |   Economy/Resources Social Stability

China’s Venture Capital Crunch: Funding Decline Spurs Overseas Shift

China’s venture capital market is experiencing a sharp decline in investment funding. This downturn is attributed to global trends, such as rising U.S. interest rates, as well as specific factors like U.S.-China economic decoupling and a sluggish real estate market. As a result, some investors and entrepreneurs are shifting their focus to overseas markets like Japan.

The Hong Kong Stock Exchange recently celebrated a rare high-profile IPO by XtalPi, an AI-driven drug discovery company. However, despite efforts to attract innovative companies, Hong Kong’s IPO market is struggling, with predictions of falling to 10th place globally in the first half of 2024.

Venture capital investment in China dropped 66% in 2023 compared to its peak in 2021, with foreign investments declining by nearly 90%. This reflects the impact of U.S.-China tensions and increased U.S. scrutiny of investments in sensitive technologies.

Chinese startups are facing difficulties securing funding, with local government and private equity investments becoming scarce. Many are turning to tech giants like Tencent and Alibaba or seeking opportunities abroad.

The current situation is pushing both startups and investors to explore international markets. Japan, in particular, is attracting interest from Chinese entrepreneurs and tech talent. While China’s venture capital industry is not considered to be in decline due to its strong talent base and government support in strategic sectors, the ongoing shift towards overseas markets could reshape the future landscape of the industry.

Source: Nikkei Chinese, June 21, 2024
https://zh.cn.nikkei.com/columnviewpoint/column/55913-2024-06-21-05-00-06.html

Briefings | | |   Economy/Resources

Lianhe Zaobao: China’s Actual Use of Foreign Capital in the First Five Months Declined

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that China’s actual use of foreign capital fell 28.2 percent year-over-year in the first five months of this year, showing that the Chinese government still faces challenges in attracting overseas investment to boost the economy. Data just released by China’s Ministry of Commerce shows that, the actual use of foreign capital in the first four months fell by 27.9 percent year-over-year, and the decline in May further widened. The downward trend in China’s actual use of foreign capital began in June last year, reflecting a decline of 12 consecutive months. China’s business environment is unstable and economic growth prospects are bleak, with overseas capital inflows experiencing a historic decline. The continued decline in foreign direct investment shows that China is no longer attractive to foreign investors. Although foreign investors have not completely withdrawn investment in China, the number has become smaller and smaller. When Chinese Premier Li Qiang held an executive meeting of the State Council on February 23, he said that stabilizing foreign investment should be an important focus of economic work this year.

Source: Lianhe Zaobao, June 22, 2024
https://www.zaobao.com.sg/realtime/china/story20240622-3960937

Briefings | | |   Economy/Resources Geo-Strategic Trend

Oriental Daily: Hong Kong Bankruptcy Petitions Surged by 35 Percent

Oriental Daily News, Hong Kong’s number one newspaper in circulation since 1976, recently reported that, although the Hong Kong government announced a complete withdrawal of the housing market, the decline in real estate prices has not stopped. Many Hong Kong residents’ assets have evaporated and they have fallen into the black hole of insolvency. Hong Kong’s Official Receiver’s Office just announced the latest bankruptcy and liquidation petition data for May. The number of bankruptcy petitions in May rose to 871, the highest in more than two years, an increase of more than 17 percent month-over-month, and a year-over-year surge of nearly 35 percent. In the first five months to May, a total of 3,797 bankruptcy petitions were filed, an increase of 25 percent from the same period last year. There were 61 compulsory liquidation petitions in May, up nearly 85 percent year-over-year. Experts pointed out that the unemployment rate in Hong Kong is currently at a low level, and the chance of bankruptcy due to unemployment is expected to be low. It is more likely that the increase in the number of bankruptcies may be related to the bank’s collection of loans. The borrowers went bankrupt due to temporary inability to repay.

Source: Oriental Daily, June 22, 2024
https://hk.on.cc/hk/bkn/cnt/news/20240622/bkn-20240622033026593-0622_00822_001.html

Briefings | | |   Economy/Resources

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