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HKET: China Bans Mainland Chinese Investors from Opening Foreign Trading Accounts

The Hong Kong Economic Times (HKET) reported that the Shanghai Supervision Bureau of the China Securities Regulatory Commission issued a notice on September 28 requiring Chinese securities firms to stop providing new investors from Mainland China with securities trading services via Hong Kong accounts and other offshore accounts. Existing accounts held by Mainland Chinese are to be strictly monitored so as to prevent investors from bypassing China’s foreign exchange regulatory rules. This is the first time that China has explicitly limited Mainland Chinese investors ability to use foreign trading accounts.

The move serves to limit capital outflows and to support the RMB, which is facing downward pressure. The targeted offshore accounts are relatively more difficult for the authorities to control. This contrasts with cross-border trading through formally-sanctioned channels such as Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, where the authorities are better able to ensure that Mainland investors’ funds will be managed in a “closed loop,” that is, when securities are sold, the funds will immediately flow back into the RMB instead of into another currency. When Chinese investors use offshore investment accounts to invest abroad, it is more difficult for the Chinese authorities to manage the use currencies other than the RMB.

Although the new instruction does not clearly specify the implementation date, sources said that the regulatory agency’s intention is for the regulation to take effect immediately. Brokerages will need to remove apps or websites that attract Mainland customers by the end of October.

The article by HKET, which is Hong Kong’s leading financial daily paper, cited Reuters, which in turn cited four anonymous sources.

Sources:
HKET, October 12, 2023
https://tinyurl.com/55k8dwyr

Yahoo Finance Hong Kong, October 12, 2023
https://tinyurl.com/muy2tsvz

Briefings | | |   Economy/Resources Geo-Strategic Trend

Chinese Warplanes Aggressive Maneuver Near Canadian and U.S. Planes

On October 17 a Chinese military aircraft provocatively intercepted a Canadian Armed Forces Aurora aircraft in international airspace near China’s territorial waters. At the time, the Canadian aircraft was in an operation to enforce United Nations sanctions that prevent illegal transportation of oil to North Korea. The Canadian crew had identified a “suspicious vessel” that was on a watchlist.

During its eight hours of flight, the Canadian aircraft was intercepted by at least two Chinese fighter jets who flew with the Canadian plane for several hours. Chinese jet aircraft at one point came as close as 15 feet from the Canadian aircraft. The Chinese aircraft also launched multiple illumination flares in the vicinity of the Canadian aircraft.

The Washington Post reported that in the past few years Beijing has intensified these kinds of dangerous maneuvers targeting planes of the U.S. and its allies and partners. The total number of such encounters is now near 300. On October 17, Pentagon released videos and photos of some incidents, including an incident in January 2023 where a Chinese J-11 fighter jet flew about 30 feet from an American RC-135 plane and lingered for 15 minutes, and an incident in May 2022 where a Chinese fighter jet flew 15 feet laterally below a US Navy EP-3 plane.

Sources:
1. Radio France International, October 17, 2023
https://www.rfi.fr/cn/国际/20231017-加媒-中国战机以-挑衅方式-拦截加拿大军机
2. Washington Post, October 17, 2023
https://www.washingtonpost.com/national-security/2023/10/17/china-fighter-jet-dangerous-maneuvers/

Briefings | | |   @CS Defense/Military Geo-Strategic Trend US-China Relations

China’s “Panda Diplomacy”

The Epoch Times reported that the Chinese Communist Party (CCP) has been using giant pandas for its diplomacy agenda. As Sino-U.S. relations have soured, China plans to take back three pandas on loan to the U.S. National Zoo at Washington, DC. by end of this year. If the Atlanta Zoo cannot renew its panda contract with Beijing by next year, then the U.S. will have no panda for the first time in 50 years.

The CCP started its “Panda Diplomacy” with the West in 1972 when it gifted two giant pandas to the U.S. following Nixon’s visit to China.

Scholar Kathleen Buckingham published a research paper in 2013 outlining three phases of the CCP’s “Panda Diplomacy.”

  • The first phase, during Mao Zedong’s era, involved gifting giant pandas purely for political purposes.
  • In the second phase, under Deng Xiaoping, panda diplomacy aligned with economic reforms, with China adopting a capitalistic model to generate revenue by leasing the pandas.
  • In The third phase, starting in 2008, the leasing model has leaned towards countries with free trade agreements and technology transfer agreements with the CCP. For instance, Australia, France, and Canada have received pandas after agreeing to sell nuclear technology and uranium to China. Scotland received a pair of pandas in 2011 as part of an agreement to share offshore drilling technology and supply salmon to China. In 2013, the Netherlands received pandas as they agreed to provide advanced medical services.

To attract attention and as a means of leverage, the CCP now requires foreign heads of state to personally request pandas before deciding whether to lease them.

The CCP has also been recalling pandas as a punitive tool. In 2010, two days after Beijing warned President Obama not to meet the Dalai Lama, China called back the first batch of panda cubs born in the Atlanta Zoo and the Washington National Zoo. Amid the tensions over the U.S.-China trade war in 2019, Beijing retrieved pandas “Bai Yun” and her cub and “Little Gift” from the San Diego Zoo. This year, due to the Netherlands’ adherence to U.S. restrictions on the sale of advanced semiconductor processing equipment to China, Beijing recalled the three-year-old panda “Fan Xing” from a Dutch zoo.

Source: Epoch Times, October 10, 2023
https://www.epochtimes.com/gb/23/10/10/n14091930.htm

Briefings | | |   @CS Geo-Strategic Trend US-China Relations

Taliban Official Visits Beijing for “Belt Road Initiative” Conference

The Afghan embassy announced that Taliban Deputy Commerce Minister Haji Nooruddin Azizi had arrived in Beijing on October 17, to attend China’s “Belt Road Initiative” forum. Azizi’s visit will include discussions about inviting “major investors” to Afghanistan, road construction plans through the Wakhan Corridor, and negotiations for a large copper mine in eastern Afghanistan. This marks one of the highest-profile international invitations extended to the Taliban since the organization’s takeover of Afghanistan in 2021.

Despite the international community’s lack of formal recognition of the Taliban since its takeover of Afghanistan, Beijing has sought official relations with the group. Beijing is motivated in part by Afghanistan’s significant mineral resources. Last month, China’s Ambassador to Afghanistan presented credentials to the Taliban’s acting Prime Minister. Meanwhile, many other countries have avoided formal recognition of the Taliban, retaining their previous ambassadors or chargé d’affaires in Afghanistan so as to avoid the need to submit official credentials to the organization.

Source: Epoch Times, October 18, 2023
https://www.epochtimes.com/gb/23/10/18/n14097697.htm

Briefings | | |   Geo-Strategic Trend

Xi Jinping Announces Eight-Point Action Plan for Belt for Road

Beijing held the Third Belt and Road Forum for International Cooperation on October 18. Xi Jinping gave a keynote address, announcing an eight-point action plan for China’s development of the “Belt and Road” Initiative:

  1. Construct a three-dimensional interconnected network for the “Belt and Road.” China will accelerate the high-quality development of the China-Europe Railway Express, participate in the construction of the Trans-Caspian International Transport Route, organize the China-Europe Railway Express International Cooperation Forum, and work with all parties to establish a new Eurasian logistics corridor supported by direct rail and road. China will actively promote the integrated development of “Silk Road Ocean Shipping,” expedite the construction of new land-sea transportation channels and the Air Silk Road.
  2. Support the development of an open world economy. China will establish “Silk Road e-commerce” cooperation pilot zones, sign free trade treaties and investment protection treaties with more countries, comprehensively remove foreign investment access restrictions in the manufacturing sector, and actively align with international high-standard economic and trade rules. China will deepen cross-border trade in services and high-level openness for investment, expand market access for digital products, and reform in areas such as state-owned enterprises, the digital economy, intellectual property, and government procurement. China will also host a “Global Digital Trade Expo” annually. In the next five years (2024-2028), China’s total imports and exports of goods and services are expected to surpass $32 trillion and $5 trillion US dollars, respectively.
  3. Promote practical cooperation. China will coordinate the promotion of landmark projects and “small but beautiful” livelihood projects. The China Development Bank and the Export-Import Bank of China will each establish 350 billion RMB financing windows, while the Silk Road Fund will inject an additional 80 billion RMB. These initiatives will support co-building the “Belt and Road” projects in a market-oriented and commercial way. During this summit, the Entrepreneur Conference reached 97.2 billion US dollars in project cooperation agreements. China will also implement 1,000 small livelihood assistance projects, promote vocational education cooperation with foreign countries through the “Luban Workshops” (master-craftsman workshops), and enhance security guarantees for co-building “Belt and Road” projects and personnel.
  4. Promote green development. China will continue to deepen cooperation with other countries in areas such as green infrastructure, green energy, and green transportation. They will support the “Belt and Road” Green Development International Alliance, continue to host the “Belt and Road” Green Innovation Conference, establish a photovoltaic industry dialogue and exchange mechanism, and a green low-carbon expert network. They will implement the “Belt and Road” Green Investment Principles and provide training for 100,000 people from partner countries by 2030.
  5. Advance technological innovation. China will continue to implement the “Belt and Road” Science and Technology Innovation Action Plan, hold the first “Belt and Road” Science and Technology Exchange Conference, expand the joint laboratories established with various parties to 100 in the next five years, support short-term work by young scientists from various countries in China, and propose a global initiative on the governance of artificial intelligence (AI) during this summit. China is willing to strengthen exchanges and dialogue with all countries to promote the healthy, orderly, and secure development of global AI.
  6. Support people-to-people exchange. China will host the “Liangzhu Forum” to deepen cultural dialogues with the “Belt and Road” participating countries. In addition to the Silk Road International Theater, Art Festival, museums, art galleries, and library alliances already established, China will create a Silk Road Tourist City Alliance. China will continue the “Silk Road” Chinese Government Scholarship Program.
  7. Build a clean (non-corruptive) “Belt and Road.” China, together with its partners, will release the “Effectiveness and Prospects of Clean Construction of the ‘Belt and Road'” and introduce “High-Level Principles for Clean Construction of the ‘Belt and Road'” during this summit. China will establish an assessment system on “Belt and Road” enterprises’ “clean” (non-corruptive) compliance and cooperate with international organizations in research and training on clean training.
  8. Improve the international cooperation mechanism for the “Belt and Road.” China will strengthen the construction of multilateral cooperation platforms in various fields such as energy, taxation, finance, green development, disaster reduction, anti-corruption, think tanks, media, culture, and more with countries co-building the “Belt and Road.” They will continue to hold the “Belt and Road” International Cooperation Summit Forum and establish a summit forum secretariat.

Source: Website of China’s Ministry of Foreign Affairs, October 18, 2023
https://www.fmprc.gov.cn/zyxw/202310/t20231018_11162839.shtml

Briefings | | |   Economy/Resources Geo-Strategic Trend

Huawei May Have Breached U.S. Chip Ban with Purchases From ASML

Huawei launched its new Mate 60 Pro smartphone in September, using what appears to a 7nm processor in the phone. The processor, called the Kirin 9000S, was apparently manufactured by China’s SMIC foundry (although SMIC denies producing the chip). The launch came after the U.S. enacted high-tech sanctions on China, attempting to restrict trade that would give China access to high-end computer chips.

Huawei likely acquired key equipment from Dutch firm ASML enabling production of the 7nm chips. According to one estimate, China’s purchases from ASML over the past two years may have exceeded 120 DUV lithography machines, exceeding the capacity of Taiwanese rival chip foundry TSMC. With 120 DUV systems but no extreme ultraviolet lithography (EUV) system, SMIC would be able to approximate a 7nm process via multiple exposures, albeit with 50% lower yields than would be possible with the use of EUV. Still, this could enable production of between 50,000 and 60,000 7nm wafers monthly, critical for Huawei’s smartphone business and China’s drive to achieve “chip independence.”

Before the U.S.’s broader chip sanctions were in place, Huawei acquired significant DUV capacity from ASML, accounting for 18-25% of ASML’s sales. ASML’s recent sales to Huawei may be in violation of the current U.S. trade sanctions. Although Huawei has made progress in the direction of self-sufficiency, it still has a long way to go before achieving fully self-reliance in semiconductor manufacturing.

Huawei’s large DUV stockpile, combined with the nationalist buzz in Chinese media regarding the Mate 60 Pro, could drive sales to 70 million units despite high costs. This would represent a major win for China. Even if ASML’s DUV sales are blocked, Huawei has gained breathing room to advance domestic production within China. Acquiring EUV systems would be an even bigger win for Huawei.

Source: United Daily News (Taiwan), October 16, 2023
https://udn.com/news/story/7333/7508081

Briefings | | |   Geo-Strategic Trend

Nikkei Chinese: Japanese Companies in China Plan to Reduce Investment

Nikkei Chinese Edition recently reported that Japan’s Chamber of Commerce in China announced the results of a survey targeting its member companies, which are Japanese companies stationed in China. Due to China’s slow economic recovery and the intensified confrontation between China and the United States, nearly half of the Japanese companies planned to reduce their investment in China in 2023.

Around 25 percent of the companies surveyed said they planned “no investment,” and 22 percent of them said they would “reduce” investment. Reasons for reduced investment included:

  • “the Tokyo headquarters is worried about investment risks in China,”
  • “demand in China and overseas markets is expected to be sluggish, and it will be difficult to expand sales,” and
  • “cross-border data supervision leads to increased market uncertainty.”

Meanwhile, 14 percent of the surveyed companies said they would increase investment, and two percent said they would increase investment significantly. About 37 percent of the companies stated that this year’s investment amount is “the same as last year.”

Some 66 percent of Japanese manufacturing companies surveyed said that “rising labor costs” were the most significant factor impacting their investment in China. Outside of the manufacturing industry, some 72 percent of surveyed companies said that the most crucial factor is “the impact of the international situation.”

China’s post-COVID economic recovery has been slow. Especially in southern Chinese regions such as Guangdong Province and central Chinese regions such as Hubei Province, where the manufacturing industry is concentrated, none of the surveyed companies felt that the economic situation had “improved.”

Source: Nikkei Chinese, October 13, 2023
https://cn.nikkei.com/politicsaeconomy/investtrade/53737-2023-10-13-08-40-40.html

Briefings | | |   Geo-Strategic Trend