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CNA: China’s Foreign Investment Fell to A Five-year Low Last Year

Primary Taiwanese news agency Central News Agency (CNA) recently reported that, as China strengthens its pressure on foreign capital, foreign direct investment in China only reached US$180 billion in 2022, an annual decrease of 48 percent, a new low since 2017. Economists say new investment into China has slowed and will be hard to recover. The outlook for foreign investment in China has become murkier as China revises its anti-espionage law, broadening its scope to potentially cover day-to-day business activities of foreign investors, as well as targeting foreign consulting firms that provide services to multinational corporations. At the same time, growing tensions between China and the United States may also limit investment, and the U.S. government is also preparing to impose new restrictions on U.S. companies investing in China. This may put foreign capital, which can bring innovative ideas and cutting-edge technology to China, at particular risk. The entry of these companies into China is an important channel for China to learn to improve production efficiency and people’s living standards. China’s appeal as a destination for foreign direct investment had waned ahead of recent Chinese pressure on foreign capital, due to China’s clashes with the West over trade, technology, and national security. In the meantime, low-cost manufacturing destinations such as India and Vietnam are growing. Economists say the fragile political environment means foreign capital in China is likely to remain concentrated in only a few big companies willing to maintain or expand existing businesses, especially those eager to tap China’s consumer market, such as McDonald’s and Starbucks.

Source: CNA, May 5, 2023
https://www.cna.com.tw/news/acn/202305050174.aspx

Briefings | | |   Economy/Resources Geo-Strategic Trend

South Korea’s Q1 Exports to China Drop by 28 Percent as Trade Cools Down Between the Two Countries

South Korea’s trade with China has shifted from a surplus to a deficit, drawing attention from various parties. According to the Chinese General Administration of Customs, in the first quarter of this year, South Korea’s exports to China were $38.2 billion, down 28.2% from the same period last year, the largest decline among its major trading partners. The report cites a Bank of Korea (BOK) report, which states that the positive effects of reopening of China’s economy are limited, and the pace of domestic demand recovery has not accelerated, particularly for durable goods such as mobile phones and cars, which have impacted South Korea’s exports.

South Korea remained the second-largest trading partner in China’s import trade for the entire year of 2022. However, in the first quarter of this year, South Korea dropped to fifth place in terms of import trade, following the United States, Taiwan, Australia, and Japan. At the same time, South Korea’s imports from China in the first quarter of this year also fell by 7.1 percent compared to the same period last year.

The BOK report suggests that South Korea’s significant decline in exports to China is largely due to the slump in semiconductor exports. Due to the global decline in semiconductor demand and a sharp drop in memory chips prices, South Korea’s overall semiconductor exports in the first quarter of this year fell by 40 percent compared to the same period last year. In particular to China, South Korea’s semiconductor exports saw a decline of 31.7 percent in the fourth quarter of 2022 and 44.5 percent in the first quarter of this year.

Source: Central News Agency (Taiwan), April 30, 2023
https://www.cna.com.tw/news/acn/202304300200.aspx

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Australia Announced Large-scale Military Reform

Well-known Chinese news site Sina (NASDAQ: SINA) recently reported that Australian Prime Minister Albanese released the final assessment of the Defense Report in the House of Parliament . In November last year, the Australian government decided to conduct a comprehensive evaluation of the  defense capabilities of the Australian military. The final results will be summarized into a new strategy that will help strengthen the national military-industrial complex and ensure that the military has the necessary defensive resources. The national defense strategy that once focused on territorial defense can no longer satisfy Australia’s ambitions. Looking at China from a distance, “Australia must deter potential enemies before they reach the coastline, whether it is at sea, in the air or on the Internet.” According to Australian Defense Minister Richard Marles, this is the first time in 35 years that Australia has redefined the mission of its military. The Defense Report identified the US-UK-Australia Trilateral Security Partnership (AUKUS) as a key priority which aims to help Australia acquire nuclear-powered submarines to strengthen its security and military deterrence in the Indo-Pacific region. The Report also laid out a large-scale reform of the Ministry of Defense and related agencies. It will be carried out in order to  plan the development of the military-industrial complex more accurately and systematically. Another priority is to increase long-range precision strike capabilities. The Australian Army will be the first to have missiles with a maximum range of 300 kilometers. Later it will reach the range of more than 500 kilometers through acquiring precision-guided missiles. The current Army missile range is only 40 kilometers. Australia will also strengthen cooperation with Japan, India and other Pacific and Southeast Asian countries. The Report mentioned China nine times, although the final public version did not list China as a direct military threat to Australia. The Report repeatedly cited China’s military spending and military actions as one of the reasons for Australia’s defense reform.

Source: Sina, April 25, 2023
https://news.sina.com.cn/c/2023-04-25/doc-imyrpwqv4527208.shtml

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Lianhe Zaobao: Italy Tends to Withdraw from China’s Belt and Road Initiative

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that, according to people familiar with the matter, Italian officials have hinted in private meetings with Taiwanese officials that they may be willing to withdraw from China’s Belt and Road program in order to strengthen semiconductor cooperation with Taiwan. Officials from the Italian Ministry of Industry recently discussed plans on semiconductor production and exports with Taiwanese officials in Taipei. Relevant decisions will have to be made by Prime Minister Giorgia Meloni, but she has not made her final position public yet. Italy is the only member of the G7 countries participating in China’s Belt and Road Initiative. Although the participation agreement has had little practical impact ever since it was signed by then-Prime Minister Giuseppe Conte in early 2019, it is highly symbolic for Beijing amid tensions between China and the United States and its Western allies. The deal will automatically renew in 2024 unless Italy chooses to abandon it. A spokesperson for the Italian Ministry of Industry declined to comment on the above news. According to Taiwan media reports, Taiwan will open its second representative office in Italy in Milan this coming summer.

Source: Lianhe Zaobao, April 20, 2023
https://www.zaobao.com.sg/realtime/china/story20230420-1385160

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Fact Check: Beijing Gave Money to Attract Countries to Switch Diplomatic Ties from Taiwan to Itself

On March 27, China’s Foreign Ministry spokesperson Mao Ning claimed that China didn’t use money to influence or, in fact, to buy diplomatic relations with Honduras. Honduras cut its ties with Taiwan (the Republic of China) and established relations with Beijing (the People’s Republic of China) on March 26. Mao further claimed that there were no preconditions for Panama or any other country when they established relations with China in the past few years.

Radio Free Asia, however, did a fact check and found that Beijng’s claim was false. RFA concluded, “The People’s Republic of China has indeed set preconditions for establishing diplomatic relations with China and has provided a large amount of economic and non-economic assistance and incentives to attract countries if they would break off diplomatic relations with Taiwan.”

For example, Costa Rica established relations with Beijing in 2007. China committed to provide US$30 million in cash within two years of the establishment of diplomatic relations and an additional US$100 million to be delivered through China’s regular “turn-key” program.

Panama established relations with Beijing in 2017. Since then, China has provided US$1.86 billion in infrastructure and other investments to Panama. Beijing also donated US$143 million to Panama after establishing their relationship. It didn’t disclose the donation because it didn’t want to give the impression that “they pay a price (for countries) to break off from Taiwan.”

The Dominic Republic established relations with Beijing in 2018. From 2019 to now, China has provided US$490 million in infrastructure and other investments to the Dominic Republic. The research estimated that Beijing provided US$3 billion in financial aid to the country. China also donated US$30 million in 2021.

During the year when El Salvador established diplomatic relations with Beijing in 2018, Beijing provided El Salvador more than 3,000 tons of rice and pledged US$150 million in aid.

Immediately after the establishment of diplomatic relations in 2021, China pledged to donate one million doses of COVID vaccine to Nicaragua. In addition, Beijing reportedly provided an unspecified amount of supplies to the Nicaraguan police riot squad, where the Nicaraguan police force is led by the father-in-law of Daniel Ortega, the dictatorial President of the country.

It is not clear how much Beijing provided to Honduras to get it to switch sides. Reuters reported that before switching to Beijing, Honduras asked Taiwan for US$2.5 billion in aid which its Foreign Minister Eduardo Enrique Reina called “not financial aid” but a “negotiated refinancing mechanism.”

Source: Radio Free Asia, April 21, 2023
https://www.rfa.org/cantonese/news/factcheck/internationalrelations-04212023141728.html

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Why Do Countries Choose Renminbi in Bilateral Trade?

Recently some countries such as Russia, North Korea, and Brazil agreed to the use of Renminbi (RMB) jn settlements in bilateral trade with China. Economist Yin Hetian gave three reasons for their decision:

The first is a political reason: Countries such as Pakistan, Laos, Cambodia, North Korea, and Iran receive financial support from Beijing. For this reason, they feel they are compelled to accept the RMB when exporting to China. However, there is not much for China to gain in this, since these countries “suck China’s blood.”

 

The second is the discounted goods from China. Russia and Brazil provide energy resources to China and have a trade surplus over China. China sells them goods of daily necessities, which they can also buy from other countries using the U.S. dollar. Therefore, China must sell its goods at a discount.

The third is China’s US dollar reserve. Those countries feel comfortable about the RMB because of China’s foreign reserve of 3 trillion US dollars. They put their dollar reserve in a different format: holding the RMB which links to China’s dollar reserve. If China’s dollar reserve is gone, then no one will want to take RMB.

Source: China News Center, April 24, 2023

失去庞大美元外汇储备支持 人民币在国际上就是废纸；说人民币能够取代美元的大外宣实际上是在害中国只有习近平不懂罢了

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HKET: Germany is Checking All Chinese Components in Its 5G Network

Hong Kong Economic Times (HKET), the leading financial daily in Hong Kong, recently reported that, German Interior Minister Nancy Farser said the ministry is checking all Chinese components already installed in Germany’s 5G network. The practice is to protect the country’s communications network. The three priorities of the inspection are to identify risks, avoid crises and avoid dependencies. She emphasized that relevant inspection is particularly important for key 5G network infrastructure. This could be an important move by German authorities to deal with security concerns. Domestic German media earlier quoted sources as saying that Berlin is considering banning certain components from Chinese companies such as Huawei and ZTE in the telecommunications network. The Ministry of the Interior later denied it, emphasizing that it only comprehensively reviewed all suppliers to avoid over-reliance on individual suppliers. The Chinese embassy in Germany responded that China firmly opposes Germany’s generalization of the national security concept, abusing state power to interfere in the free market, and undermining the principle of fair competition.

Source: HKET, April 16, 2023
https://bit.ly/41AvDUC

Briefings | | |   Geo-Strategic Trend Information/Technology

UDN: Even Chinese Manufacturers are Forced to Diversify Supply Chains

United Daily News (UDN), one of the primary Taiwanese news groups, recently reported that, not only foreign companies, but also Mainland China manufacturers are affected by geopolitical tensions, and are forced to move part of their production overseas due to customer demands. Wanhe Electric, the leading water heater manufacturers in Mainland China, is a good example. Its board of director Lu Yucong said, his American customers “made a condition that they are willing to cooperate with us only if we build factories in countries other than China, such as Vietnam and Thailand.” Multinational companies are reassessing their global operations amid Russia’s invasion of Ukraine, the pandemic and growing tensions between the U.S. and China. It has become more and more obvious in the past two or three years that, not only the United States, but European countries are also deglobalizing. Due to rising tariffs, Chinese manufacturers’ costs are being pushed down to the extreme. They may lose their competitive pricing advantage, and buyers cannot accept this situation. Wanhe Electric finally decided to move several factories in South China to Egypt and Thailand, where the supply chains are not as good as China, but more suitable to avoid risks associated with US-China trade friction. Many industrial players are planning to set up new production bases in Southeast Asia, such as textile manufacturer Luthai Textile and tire manufacturer Jiangsu General Technology Co. More and more American companies with deep presence in China are also considering similar adjustments.

Source: UDN, April 17, 2023
https://money.udn.com/money/story/5599/7103191

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