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Xi Jinping Calls for Strengthened Farmland Protection

Chinese President Xi Jinping recently stressed the importance of food security, calling for enhanced protection of China’s farmland, improved quality of the farmland, and full utilization of the potential of saline-alkali land to boost agricultural production.

On July 20, Xi chaired a meeting of the Chinese Communist Party’s (CCP) Central Financial and Economic Committee to study the issues of strengthening farmland protection and comprehensive improvement of saline-alkali land. The meeting notes say that China’s situation, with a large population and a small amount of land, has not changed, and that the country still faces prominent problems around use of farmland for non-agricultural purposes. The meeting stressed the need to “ensure that the red line of 1.8 billion mu (120 million hectacres) of farmland will never be broken.”

The meeting stated that the central government should motivate farmers and local governments to protect farmland and promote grain production, establish a mechanism to guarantee the income of grain farmers, and develop various forms of moderate-scale agricultural operations.

The meeting pointed out that the comprehensive improvement and utilization of saline-alkali land is an important aspect of farmland protection and improvement. China has a large amount of saline-alkali land, and the trend of saline-alkaliization of farmland in some areas is becoming more serious. The meeting notes said that it is of great significance that China launch a project of comprehensive improvement and utilization of saline-alkali land, fully tapping the potential of saline-alkali land, strengthening the improvement of existing saline-alkali farmland, and effectively curbing the trend of saline-alkaliization of farmland.

Source: Central News Agency (Taiwan), July 20, 2023
https://www.cna.com.tw/news/acn/202307200385.aspx

Briefings | | |   Economy/Resources

LTN: The Illusion of China’s GDP

Major Taiwanese news network Liberty Times Network (LTN) recently published a commentary on China’s Gross Domestic Product (GDP) authored by Yen Qingzhang (顏慶章), who served as Taiwan’s Minister of Finance and was the first ambassador of Taiwan to the World Trade Organization (WTO). Below are some key points made in the article.

GDP has become the main data point for measuring national output and economic activity across the world. China’s official records state that, in 1985, the country’s State Council gave approval for the National Bureau of Statistics to calculate China’s GDP using the System of National Accounts (SNA) methodology recommended by the United Nations. However, on March 18, 2022, China’s National Supervision Commission for Central Discipline Inspection (中央紀委國家監委) officially stated that “in recent years, the National Bureau of Statistics has resolutely investigated and dealt with statistical violations of disciplines and laws, but the problem of persistent statistical fraud is still relatively prominent.”

In 2019, a joint publication by University of Chicago Economist Xie Changtai and three scholars from the Chinese University of Hong Kong concluded that China’s economic data, including industrial exports and investment amounts, have been skewed for a long time. The paper indicated that China’s annual GDP growth from 2008 to 2016 was exaggerated by an average of two percentage points per year. Cumulatively, the official figures for 2016 are exaggerated by 16 percent, equivalent to more than US$1.5 trillion.

The tragic truth of China’s economic development, putting aside controversy around GDP exaggeration, is that the “achievements” of China’s economic growth have not resulted in accumulation of national wealth. To the contrary, the country’s wealth has been hollowed out. First, as far as residential construction and real estate are concerned, there are as many as 60 million empty housing units. What a waste of GDP! Second, investment by local governments in public facilities, originally an important factor driving local GDP, has been corrupted to the point of being unusable with the passage of time. Although future demolition of unnecessary construction projects will contribute to GDP, such demolition will not create any real wealth. Third, public investment by the central government in major projects such as China’s highspeed railway system have suffered from major losses. The highspeed railway’s income can only compensate for its electricity consumption, and by the end of 2022 the railway system’s liabilities totaled RMB 6 trillion (around US$0.834 trillion).

Source: LTN, July 23, 2023
https://ec.ltn.com.tw/article/breakingnews/4365526

Briefings | | |   Economy/Resources

CNA: Taiwanese Businesses Withdrawal from China

Taiwan’s Central News Agency (CNA) recently reported that Taiwanese capital is leaving mainland China at an accelerated rate. This is due to geopolitical concerns linked to post-pandemic changes in international supply chains.

In the past, the primary reasons Taiwanese companies might leave China were economic — businesses wished to optimize production costs or avoid high tariffs under the Sino-US trade war after 2018. Now, the primary reason for Taiwanese businesses flight from China is due to international political factors.

New Taiwanese investment in China during the period between January and May of 2023 decreased by 4.05 percent year-over-year. Taiwan-funded consulting companies have been holding lectures on how to close companies and sell factories in China, and Taiwanese companies have been withdrawing large sums of money from the country. Taiwanese listed companies repatriate a total of NT$114.4 billion (around US$3.7 billion) in investment profits from China in 2022, the highest figure since 2013.

In the meantime, Taiwan’s total overseas investment in countries excluding China surged by 197 percent during the period from January to May, totaling US$8.3 billion. Taiwanese investment in Southeast Asia has almost doubled.

In addition to imposing export controls on high-tech products to China, the United States has been promoting the concept of “friend-shoring,” advocating that production should be outsourced to allies with similar values rather than to strategic competitiors like China and Russia.

Source: CNA, July 21, 2023
https://www.cna.com.tw/news/acn/202307210113.aspx

Briefings | | |   Economy/Resources Geo-Strategic Trend

China’s Rare Earth Manufacturers Struggle to Profit

(Editor’s Note: Ever since the US began negotiating with China over fair trade and tariffs under the Trump administration, some Chinese scholars have talked about restricting rare earth exports from China as an powerful weapon against the US. However, recent news showed that Chinese manufacturers of rare earth cannot generate large profits, making people wonder if Beijing really has the power to control the rare earth market.)

China’s online news media Sina reported that, in the first half of this year, Chinese rare earth companies experienced a significant drop in revenue and profits due to falling demands and prices. This contrasts sharply with the high prosperity of the same period last year. Companies like China Rare Earth (中国稀土), Northern Rare Earth (北方稀土), Rising Nonferrous Metals Share (广晟有色), and Xiamen Tungsten (厦门钨业) all reported a slump in net profits. Additionally, industry leader Jiangsu Huahong Technology (华宏科技) went from being profitable to reporting a loss. Experts attribute the continuous decline in rare earth prices to insufficient demand and increased supply. The second half of the year remains uncertain, as the future trend depends on whether demand will increase substantially.

Source: Sina, July 19, 2023
https://finance.sina.com.cn/jjxw/2023-07-19/doc-imzcfekt6975040.shtml

Briefings | | |   @CS Economy/Resources

Zhejiang Province Starts Residence System Reform

(Editor’s Note: China has long implemented a Hukou system (户籍制度, meaning residence system) where a person is tied to a specific place and his social welfare benefits, including his children’s education, are all tied to that place. People who move to another city cannot enjoy certain public services in that city. Migrant workers are the worst off. They are tied to villages so, even if they live and work in a city, they are not eligible for the city’s benefits and even their children are not allowed to attend the public schools in the city.)

China National Radio reported that the Zhejiang provincial government recently began to reform the province’s Residence system. The administration issued an implementation plan to promote the integration of migrant workers into urban life. It calls for removal of the hukou restrictions throughout the entire province except for in the province’s capital city of Hangzhou. The move aims to attract more qualified labor to the province. This could be seen as Zhejiang’s efforts to mitigate the shortage of young labor in China as the country’s population ages.

The article said that the initiative is expected to have a positive impact on Zhejiang’s economic growth, population structure, urbanization level, and equality of public services, providing valuable experience that can be replicated across the country.

Source: China National Radio, July 19, 2023
https://zj.cnr.cn/zjyw/20230719/t20230719_526334886.shtml

Briefings | | |   Economy/Resources Government/Politics

Guangming Daily: Stimulus Policies Should Switch to Consumer Spending

Guangming Daily website, a major Chinese Communist Party mouthpiece, recently published a theoretical article suggesting that Beijing re-orient its economy stimulus policies around consumer spending rather than investment. The article stated that, to stimulate consumer spending, the focus should be on delivering money to residents through reasonable, legal, compliant, and economically-sound channels. Macro-economic policies need new measures and targets, shifting the focus from investment to consumption, addressing current economic bottlenecks and weaknesses more directly.

The article suggested that reforming the residence identification system (户籍制度) can have an immediate and substantial impact on consumption. (Editor’s notes: The reform here refers to giving people more freedom to move between cities and also letting migrant workers (peasants) enjoy the same benefits given to city dwellers.) According to the article, studies show that migrant workers’ consumption is suppressed by 23 percent due to limited access to public services and social security given the migrants’ lack of urban household registration. Reforms that alleviate this suppression could raise consumption by almost 30 percent even without considering income growth.

The article also suggested improvement of the social security system, as China has a rapidly aging population. Between 2022 and 2035, the ratio in China of elderly to working-age population will grow significantly, increasing the pressure on pension funds and eldercare services. The author argued that a substantial expenditure in the area of social security would serve as a short-term economic stimulus.

Source: Guangming Daily, July 17, 2023
https://theory.gmw.cn/2023-07/17/content_36700264.htm

Briefings | | |   Economy/Resources Government/Politics

Siemens Terminates Partnership with Chinese Military Company Amidst International Concerns

Siemens has terminated its partnership with Beijing Transemic Technology (北京天圣华信息技术有限公司), a Chinese company accused of using Siemens technology to upgrade Chinese military equipment. The US placed Transemic on its sanction list on June 12 for its involvement in developing supersonic weapons as well as design and manufacturing of air-to-air missiles. It was also reported that Transemic resold Siemens software to China’s defense research universities linked to the Chinese military. Siemens was initially reluctant to terminate the partnership despite negative media coverage, but the company eventually decided to end all dealings with Transemic.

The European political sphere has become more sensitive to China’s military expansion, with the President of the EU Commission warning future relations with China in sensitive high-tech areas. Germany’s Foreign Minister has also advocated for stricter controls over exports to China,
particularly for “dual-use” products with both civilian and military applications.

Source: Deutsche Welle, July 17, 2023

https://www.dw.com/zh不卖了压力山大-西门子终止与中企合作/a-66253259

Briefings | | |   @CS Defense/Military Economy/Resources

China’s Housing Market Continues Decline, Early Mortgage Repayment on the Rise

The Chinese real estate market, particularly the second-hand housing market, is experiencing a downward trend. The city of Shanghai is leading the decline in prices.

Out of 70 major cities surveyed, 63 saw a decrease in second-hand housing prices in June. New home prices in 31 cities increased slightly compared to the previous month, but the overall downward trend is evident when considering both new and second-hand homes in key cities like Beijing, Shanghai, Guangzhou, and Shenzhen.

A report by Chinese media outlet “The Paper” reveals that less than 30% of Cina’s top 100 real estate companies achieved year-on-year growth in monthly performance this June. Nearly 60% of the top 100 companies experienced a monthly performance decline exceeding 30%, indicating a challenging market situation. The construction industry is also affected, with a significant decrease in new housing construction area and real estate development investment.

The market experienced a rebound in March and April due to pent-up housing demand from the pandemic, but it cooled off quickly afterwards. Real estate companies usually increase supply in June to boost sales, but this year the supply was at a five-year low. The concept of “early repayment” has been gaining traction in the market, with individuals choosing to repay their housing loans early due to higher mortgage rates on existing loans from previous years as well as declining investment returns from financial products. Both the early loan repayment trend and falling housing prices indicate clear downward pressure on the Chinese real estate market.

Source: Deutsche Welle, July 15, 2023
https://p.dw.com/p/4Twun

Briefings | | |   Economy/Resources