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China Unveils First Government Debt Report Revealing $9.8 Trillion Obligation

In a landmark move, China’s State Council presented its inaugural report on government debt management to the National People’s Congress (NPC) on January 10, 2024. Finance Minister Lan Fo’an, speaking on behalf of the State Council, disclosed that China’s statutory government debt surpassed 70 trillion yuan ($9.8 trillion) by the end of 2023.

The report, a significant step towards fiscal transparency, revealed a total government statutory debt balance of 70.77 trillion yuan ($9.91 trillion). This figure comprises 30.03 trillion yuan ($4.20 trillion) in national debt and a staggering 40.74 trillion yuan ($5.70 trillion) in local government debt, indicating that local obligations outweigh central government debt.

Based on China’s 2023 GDP of 126.06 trillion yuan ($17.65 trillion), the government debt-to-GDP ratio stands at 56.1%. The national debt is primarily domestic, with 29.70 trillion yuan ($4.16 trillion) in internal debt and 334.6 billion yuan ($46.84 billion) in foreign debt. Local government debt is split between 15.87 trillion yuan ($2.22 trillion) in general debt and 24.87 trillion yuan ($3.48 trillion) in special purpose debt.

The State Council outlined five key areas for strengthening debt management, including scientific determination of debt size and structure, reforms in national debt management, improved local government bond oversight, enhanced supervision processes, and increased cooperation with NPC oversight mechanisms.

Source: Central News Agency (Taiwan), September 15, 2024
https://www.cna.com.tw/news/acn/202409150091.aspx

RFI Chinese: China Steel Production Plummeted in August

Radio France Internationale (RFI) Chinese Edition recently reported that China’s steel output fell more than 10 percent in August from a year earlier. The fall was due to low steel prices and a slump in demand. China’s steel industry, which is the largest in the world, has not seen such low levels of output since 2017.

Major supplier China’s Baowu Steel Group warned that the situation may become increasingly dire. As Chinese steel mills’ losses continue to grow for every ton of steel they produce, more and more mills are choosing to shut down their furnaces. According to China’s National Bureau of Statistics, Crude steel production fell to 77.9 million tons in August, down 10.4 percent year-over-year.

The country’s decline in demand for steel comes after more than two decades of rapid industrialization and urbanization. Demand has been affected by a continuing slump in construction activity in China this year, especially during the summer. China’s economic woes, from a battered real estate market to weakening consumer confidence, are also weighing on the demand.

Source: RFI Chinese, September 14, 2024
https://tinyurl.com/yum6hw66

Wave of Executive Resignations at Chinese Listed Companies

Since the beginning of August there have been more than 1,100 official resignations tendered by executives at companies with listed A-shares on the Chinese stock markets.

The financial industry accounts for a particularly large proportion of the resignations seen in the current wave, with many bank executives stepping down. This includes Liu Jin, Vice Chairman, who was the Bank of China’s Executive Director, President, and a Member of the Strategic Development Committee of the Board of Directors. Since the beginning of 2024, almost all senior executives positions at the top six state-owned national banks have undergone personnel changes. Moreover, the current trend has seen not only turnover in senior management positions but also among regular employees in the banking industry. According to Wind Statistics, in the first half of 2024, the country’s 42 mainstream banks saw a decrease in headcount of about 60,000 compared with the same period last year.

Like banks, asset management companies in China have performed relatively poorly in recent years. Compared with the wave of resignations in the banking sector, resignations in the securities industry has been relatively more correlated with age. The largest shareholders of China’s leading securities companies are mostly state-owned assets, and these companies have adopted a model of leadership associated with state ownership.

Although most executives who resigned in the recent wave cited personal reasons for stepping down, it cannot be ruled out that many stepped down out of concern that they might take the blame if their companies’ current poor economic performance were to continue. That being said, for an executive to resign would not necessarily provide him or her with full reputational protection.

Source: JRJ, September 11, 2024
https://stock.jrj.com.cn/2024/09/11100143171400.shtml

China Halts Adoption of Chinese Children by Foreigners

The Chinese government has adjusted its policy on international adoption. In the future, no more children will be sent abroad for adoption except for adoption of relatives and stepchildren.

Since 1979, China has implemented a strict “one-child policy” nationwide. This family planning policy led to a large number of baby girls and children with disabilities being abandoned, who were taken in by orphanages. The CCP first allowed adoption of children by families abroad starting in the 1980s. In 2005 Beijing enacted a “Convention on the Protection of Children and Cooperation in Respect of Intercountry Adoption.” That year, the number of international adoptions of Chinese children by foreign families peaked, with over 13,000 children adopted. In the past few years, China has moved to a “domestic adoption first” policy.

A post from the U.S. State Department’s ShareAmerica social media account on July 18 stated that American families have been the primary adopters of Chinese orphans since China opened up international adoptions in the 1980s. According to statistics from the U.S. State Department’s Bureau of Consular Affairs, 82,658 Chinese children have been adopted by American families since the year 2000, accounting for 29.2 percent of all adoptions of foreign-born children by Americans. Adoptions of Chinese-born children by Americans have dropped to near zero since the COVID pandemic due to the CCP’s suspension of international adoptions.

Source: VOA, September 5, 2024
https://www.voachinese.com/a/china-halts-foreign-adoptions-for-its-children-20240905/7772418.html

Foreign Car Manufacturers Face Cold Winter in China Due to Cutthroat Price War

China’s economy is currently slowing down. Despite supply for electric vehicles (EVs) outpacing demand, the Chinese Communist Party (CCP) has continued to incentivize increased scale of EV production. Some sources have reported China’s economy is currently producing cars at a rate of 40 million units per year, but its domestic consumption is only 22 million units annually, leading to fierce competition among car makers. According to Stephen Dyer of Alix Partners, there were 123 automotive brands that sold at least one electric vehicle in China in 2023. The oversupply of EVs in China has led to accusations that Chinese manufacturers are dumping EVs overseas.

Over the past few decades, foreign automotive manufacturers have enjoyed rapid growth and high profits in the Chinese market. However, they now face serious challenges due to severe competition fueled by the CCP’s subsidies to domestic Chinese auto brands.

Volkswagen had been the top-selling car brand in China since 2000; it lost its top position to Chinese brand BYD last year. Recently, the Volkswagen Group announced that it may have to close its factory in Germany. This would be the first time that the VW group closes a factory in its home country in the brand’s 87-year history. Volkswagen’s car sales in Europe have decreased by 500,000 units annually, equivalent to the output of two car factories. Volkswagen’s sales in China during the first half of 2024 dropped to 1.34 million units, a year-over-year decrease of 7 percent and a drop of more than a quarter compared to three years ago. VW’s joint ventures in mainland China have reported a quarterly loss for the first time in 15 years. China is Volkswagen’s largest market.

As of Q2 2024, Toyota, the world’s largest automaker, saw its revenue from joint ventures in China decrease by 73 percent year-over-year.

The sales of General Motors’ joint ventures in China (which include 10 partnerships) dropped from a peak of 4 million units in 2017 to 2.1 million units last year.

In October 2023, Japan’s Mitsubishi Motors announced it would end production in mainland China due to years of declining sales. Honda (HMC), Hyundai, and Ford have also implemented various cost-cutting measures, including layoffs and factory closures.

In July, the market share of foreign car manufacturers in the Chinese automotive market fell from 53 percent two years ago to 33 percent.

General Motors CEO Mary Barra said of the price competition in China that “frankly, it’s unsustainable, because the amount of companies losing money there cannot continue indefinitely. And really, when you get into the type of pricing war that’s going on now, it’s really a race to the bottom and [it destroys] residuals.”

Source: Epoch Times, September 7, 2024
https://www.epochtimes.com/gb/24/9/7/n14326042.htm

Chinese Real Estate Developers Face Widespread Losses in First Half of 2024

According to Nikkei Chinese, mid-year financial reports for Chinese real estate developers in the first half of 2024 revealed that 56% of large real estate companies in China and Hong Kong reported losses, comprising 88 of the 158 companies covered by the analysis. The real estate downturn has led to a persistent slump in new home sales, with sales declining by 15%. Fifteen of companies, including the Evergrande Group and Country Garden Holdings, did not disclose their mid-year reports by the August 31 deadline and were excluded from Nikkei’s statistics.

The total losses for the 158 companies covered amounted to 64.3 billion yuan ($8.9 billion), significantly higher than the 13.1 billion yuan ($1.8 billion) loss during the same period last year. Private enterprises with poor financing capabilities accounted for the majority of top losses.

Shimao Group Holdings reported the largest loss at 22.7 billion yuan ($3.1 billion), an increase from the previous year’s 12.1 billion yuan ($1.7 billion) loss. The company defaulted on its debt in July 2022, releasing a statement to the effect that the real estate market continues to adjust with no turning point in sight for the current sales slump.

Sunac China Holdings reported the second-largest loss at 15 billion yuan ($2.1 billion).

China Aoyuan Group reported the highest profit at 22.3 billion yuan ($3.1 billion), a turnaround from the company’s 2.9 billion yuan ($400 million) loss last year. This company’s profits, which came despite a 57% decrease in sales, were largely due to gains from foreign currency debt restructuring.

Source: Nikkei Chinese, September 3, 2024
https://zh.cn.nikkei.com/china/ccompany/56585-2024-09-03-09-14-39.html

Nikkei Chinese: Around 60 Percent of Japanese Companies in China Lowered Expectations

Nikkei Chinese Edition recently reported that the Japanese Chamber of Commerce in China has released the results of a business climate questionnaire survey given to member companies. Regarding China’s economic outlook for 2024, around 60 percent of the member companies responded that they expected it to be “worse” or “slightly worse” compared with the previous year, an increase of ten percent compared to the last survey (50 percent) conducted in May. The number of companies that answered “about the same” accounted for 29 percent, a decrease of five percentage points from the previous survey. The number of companies that answered “improved’” was one percent, the same as last time. The number of companies that answered “slightly improved” was ten percent, a decrease of four percentage points. Respondents in the automotive, steel, non-ferrous metals, and materials were more likely to give pessimistic forecasts regarding China’s 2024 outlook. Regarding the level of investment in 2024, about 45 percent of the respondents said that they would “reduce investment” or “make no investment this year.” Some companies saw very fierce price reductions in sales, saying it is difficult to make a profit. Some also expressed concern over uncertainty in exports, as the United States is tightening trade controls against China.

Source: Nikkei Chinese, September 2, 2024
https://cn.nikkei.com/industry/management-strategy/56574-2024-09-02-09-39-47.html

Chinese Electric Vehicle Sales in Europe Decline After EU Imposes New Tariffs

According to statistics from the data platform Dataforce, Chinese Electric Vehicle (EV) brands such as BYD and SAIC Motor’s “MG” registered sales of fewer than 14,000 vehicles in Europe in July, a 64 percent drop from the over 23,000 vehicles sold during June. The July figures represent a 9.7 percent year-on-year decrease (compared with July of the previous year). The share of Chinese EV registrations in the European market dropped from 10.2 percent in July last year to 9.9 percent this year.

Global automotive industry data analytics provider Jato Dynamics showed a similar trend of decline. SAIC’s EV registrations in Europe fell by 38 percent year-on-year in July, with a significant month-on-month decline of 60 percent. BYD’s EV sales in Europe in July doubled year-on-year and were down 5.5 percent compared with the previous month.

The European Union has introduced additional provisional tariffs of up to 38 percent on Chinese EVs starting July 5. It is still negotiating with Beijing, with permanent tariffs set to take effect in November.

Source: Lianhe Zaobao, August 30, 2024
https://www.zaobao.com.sg/finance/china/story20240830-4582064