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Wang Qishan Warned against Risk of Financial Bubbles

According to Hong Kong Economic Times, China’s Vice president Wang Qishan gave a video speech at the Bund Summit 2020 held in Shanghai on October 24. Wang said, “The Financial sector, when separated from the real economy, is ‘water without a source and a tree without roots.’ The financial sector cannot take the crooked path of speculation and gambling, the wrong path of the self-circulation of financial bubbles, and the evil path of Ponzi schemes.”

Wang also emphasized that, among the three principles of safety, liquidity, and efficiency that the financial industry must follow, “safety always comes first.” He also maintained that the bottom line is that no systemic risks should be taken.

He added that, as new financial technologies have been widely used and new business models have emerged, financial risks are on the upsurge. It is necessary to strike a balance between encouraging financial innovation, expanding financial openness, and strengthening supervision over the industry.

Source: Hong Kong Economic Times, October 25, 2020

Package Delivery Companies in China on Strike

Recently, people in many parts of China have complained about the delay in package delivery. The media reported that a number of package delivery companies are on strike due to wage cuts. The strike highlights the unhealthy price competition among the booming package delivery companies in China.

Metropolitan newspapers reported that due to rising logistics costs, some delivery companies chose to cut the delivery fee paid to couriers to save money. One company cut the delivery fee from the original 1.2 yuan (18 cents) per item to 0.5 yuan (7.5 cents).

The couriers who went on strike came from companies including ZTO Express, Yunda Express, Best Express, and the YTO Express Group. The affected areas included Changsha in Hunan province, Sanming in Fujian province, Hebei province, Suzhou in Jiangsu province, and Changchun in Jilin province.

The booming e-commerce in China has sent the package delivery industry on a high growth path. Although companies such as SF Express, Yunda Express, and STO Express have gone public, the industry has been stuck in a price war for a long time.

For example, in 2015, in Yiwu city of Zhejiang province, the delivery fee was 7.44 yuan (US$ 1.11) per item, and in the first half of 2019, it dropped to only 3.45 yuan (52 cents). Parcels under one kilogram had a fee as low as 1 yuan (15 cents).

In addition, most couriers, except SF Express employees, are paid using a piece rate only and have no minimal pay.

Source: Central News Agency, October 18, 2020

Global Times: The Pentagon Invoked Defense Production Act for Rare Earths

Global Times recently reported that, in order to make its rare earths supply “self-sufficient,” the U.S. Department of Defense (DoD) invoked “without hesitation” the Defense Production Act of 1950. This new decision was to improve and speed up the U.S. domestic rare earths development effort. The U.S. military depends heavily on rare earths for manufacturing weaponry. For example, to build an F-35 fighter jet, the manufacturer needs 417 kilograms (around 919 pounds) of rare earths. To make a Virginia Grade nuclear submarine, the rare earth consumption level is four tons. Presently, direct imports from China fulfill eighty percent of the U.S. rare earths demand. In the meantime, the remaining twenty percent of the U.S. consumption depends on indirect imports from China via other countries. The Defense Production Act allows the U.S. President to require businesses to accept government contracts, to expand production scale, and to prioritize production material pricing and allocation for national defense purposes.

Source: Global Times, October 7, 2020

Sichuan Province Proposed New Law to Safeguard Food Supply

Well-known Chinese news site Sohu (NASDAQ: SOHU) recently reported that the Sichuan provincial people’s congress proposed a new law to regulate all aspects of the food supply, including agricultural production, storage, distribution, quality assurance, emergency safeguards, and legal responsibilities for key players. A major addition to the traditional cycle is to encourage restaurants and catering businesses as well as individual families to maintain a certain level of food inventory based on their regular consumption level. Sichuan Province is one of China’s primary food (mainly rice) producing provinces that supply the whole nation. The local congress also issued a report which indicates there has been a sustained “gap” between supply and demand in the province, especially after the COVID pandemic outbreak. The proposed new law also establishes new regulations on protecting agricultural land, in terms of both quantity and quality. (Editor’s note: Traditionally the Chinese socialist system depends on the government instead of private entities for its food inventory.)

Source: Sohu, September 27, 2020

RFA Chinese: Around 1,700 Japanese Applied for Government Aid to Leave China

Radio Free Asia (RFA) Chinese Edition recently reported that the Japanese government’s aid program to assist Japanese companies to leave China is gaining in popularity. The first batch of approved applicants consisted of nearly 90 companies. However, by the end of July, the program received almost 1,700 applications in the second batch. It appears Japan is moving its industrial supply chain out of China. The Japanese government added a supplemental budget of US$2.07 billion to its 2020 budget in order to sponsor Japanese manufacturers moving their supply chain out of China and back to Japan or somewhere else. The second batch of applications totaled US$16.57 billion. Experts expressed the belief that, right now, the CCP virus is serving as a wake-up call for many governments around the globe that restructuring their industrial supply chain is an urgent task. On the other hand, the steady increase in the cost of investing in China is also emerging as an important factor motivating companies to consider leaving China. According to a study that the Japan External Trade Organization conducted, China’s cost index was 80 in 2019, Vietnam was 74, and baseline Japan was 100.

Source: RFA Chinese, September 14, 2020

87 Chinese Cities Showed “Urban Expansion and Population Shrinkage” Between 2014 and 2018

According to the statistics from the Urban and Rural Statistics Yearbook that the Ministry of Housing and Urban-Rural Development issued, between 2014 and 2018, 451 cities had “urban expansion and population growth,” 87 cities had “urban expansion and population shrinkage,” 18 cities had “urban contraction and population growth,” and 13 cities had “urban contraction and population shrinkage.”

In 2018, the total newly constructed urban area was 58,456 square kilometers, an increase of 53.4 percent over 2009, while the permanent urban population was 510 million, only 35.8 percent higher than ten years ago. This indicated a phenomenon in which “land urbanization was faster than population urbanization.”

In comparing the data between 2018 and 2014, one can find that the number of cities with urban population reduction is twice the number of cities with urban area reduction. 122 cities experienced a decrease in urban permanent population during those five years; five cities showed little change; and 507 cities maintained a positive population growth. Among them, Longjing City in Jilin province, Jieyang City in Guangdong province and Honghu City in Hubei province are the only three cities whose population has decreased by more than 50 percent.

Most of those with a declining population are the third and fourth tier cities. Two main types of cities exhibited more urban population losses: cities in northeast China where young people are leaving en masse; and the smaller cities in the Pearl River Delta, whose population is beimg absorbed by the two top-tier cities of Guangzhou and Shenzhen.

Source: 21st Century Business Herald, September 12, 2020

China Economy: Volvo’s Safety Reputation is Challenged Due to Massive Recalls

China Economy recently reported that China-owned Swedish automobile manufacturer Volvo issued multiple recalls for a total of 380,000 cars in the Chinese domestic market in the last month alone. Volvo ranked number one on the recall list in August in China. Volvo made its name in the Chinese market for its quality and safety. However, numerous design mistakes and manufacturing issues caused multiple large-scale recalls and have been eating into the brand’s reputation. Volvo has recalled over half a million cars this year in China. The latest batch of recalls in September impacted 135,316 cars, which is greater than all the recalls issued in the past four years (2016-2019) combined. As the inventor of the safety belt, Volvo’s recent global safety belt recall of 2.2 million cars added to the crisis, as it was the largest recall in the company’s history since its founding in 1927. Chinese multinational automotive company Geely Holding Group acquired Volvo from Ford in 2010.

Source: China Economy, September 8, 2020

China Moves to Discipline Local Financing Platforms

China’s financial regulatory authority recently issued a document imposing strict restrictions on the products and services that can be provided by the locally established financing platform – the financial asset exchanges (FAE). The move may deal a blow to real estate companies and urban investment companies that have resorted to these exchanges as a financing channel in recent years.

The financial asset exchange is a financial asset trading service platform set up with the approval from local governments (provincial and municipal governments).

According to a Reuters report, this document forbids local FAE’s from cooperating with e-financing and real estate companies that are subject to state regulatory restrictions. It also obliges FAE’s to stop providing passages for financial or non-financial institutions to circumvent regulatory requirements such as the scope of investment and leverage constraints.

The document also pointed out that the local FAE’s are not allowed to sell products, in any fashion, to individuals, and that they are not allowed to issue, sell or trade financial products and private equity products under the supervision of the central financial authorities.

Since 2010, China’s local governments have been setting up FAE’s, originally to solve the financing problems of local small and medium sized enterprise. However, many FAE’s were involved in a number of illegal fund-raising activities and were subsequently subject to strict regulation. In recent years, FAE’s are becoming an important financing channel for real estate companies and local government owned infrastructure investment entities. The new document is believed to put a brake on the new waves of housing and infrastructure development.

Source: Central News Agency, September 13, 2020