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China’s Reaction to Trump’s Election Win

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Xinhua Commentary Series: Spotlight on the U.S. Presidential Election

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Wu Guoguang: Xi Jinping’s Reversal of the Course, Will China’s Transition be Peaceful or Marked with Bloodshed?

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Cheng Xiaonong: U.S.-China Strategic Relations Have Crystallized

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China’s Mortgage Crisis Paralyzes Construction as Majority of Unfinished Buildings Remain Unfinished

It has been a year since the wave of unfinished construction projects hit China. Most affected developments have remained unable to resume work or meet delivery dates. Both citizens and banks have lost confidence in developers’ ability to address the issue. The Chinese government has not disclosed the nationwide count of unfinished projects. A survey revealed completion rates of about 56 percent in South China and 40 percent in North China, while Southwest and Central China had rates of only 15 percent and 16 percent, respectively. Henan Province had the lowest rate at 11 percent.

Xu Shirong, a professor at Taiwan’s National Chengchi University sees the unfinished building crisis as a political problem. Local influential figures engage in real estate transactions and development, attracting funds from banks under the influence of local governments. Xu believes relief measures have been aimed at reducing losses for upper-class developers who have influence on public policy.

The crisis emerged in 2019 due to increased government regulations leading to liquidity problems for real estate companies. Homeowners stopped making mortgage payments, triggering a financial crisis. Relief funds were introduced, but developers faced challenges in obtaining them, particularly when some were asked to repay loans. Only a few developers secured financing support from the “16 Financial Measures” policies.

The allocated relief funds of 400 billion RMB ($62 billion) are considered inadequate to address the crisis. Real estate prices have dropped significantly, and banks face risks when holding collateral. The motivation to buy houses has decreased due to factors such as the U.S.-China tech war and the pandemic’s impact on the economy. Commercial properties are difficult to rent out, affecting the sale of residential properties.

Developers’ promotions have not yielded expected results and people lack confidence in unfinished buildings due to their poor quality and a lack of confidence in real estate market policies. Local governments rely on real estate for their economies, and unresolved unfinished projects could burden their finances and create imbalances in urban development.

Source: Voice of America, June 20, 2023
https://www.voachinese.com/a/majority-of-china-s-stalled-residential-projects-yet-to-resume-20230620/7144861.html

Briefings | | |   @CS Economy/Resources

Japanese Air Conditioning Manufacturers Shift Supply Chain Away from China

Japanese home appliance companies like Hitachi, Mitsubishi Electric, and Fujitsu General are taking steps to improve their supply systems for residential air conditioners following the challenges faced during the summer of 2022. The COVID-19 pandemic led to production stoppages and semiconductor shortages, impacting the sale of air conditioners. To avoid missed profit opportunities and meet the high demand for air conditioners in 2023, these companies are enhancing their production capabilities and supply chains.

Hitachi Johnson Controls Air Conditioning has established a new production line for indoor air conditioning units in Tochigi Prefecture, Japan. By increasing production capacity and adding around 200 workers, the company aims to meet the summer demand for air conditioners. Previously, most of their air conditioners were manufactured in China, but the temporary shutdown of the Shanghai factory in 2022 disrupted production and semiconductor procurement. Learning from this experience, Hitachi decided to shift production to Japan, increasing the proportion of air conditioners manufactured in Japan by 20 percentage points.

Mitsubishi Electric’s Shizuoka factory is operating at full capacity to produce lightweight outdoor units for high-demand models. The company incorporated feedback from construction workers and adopted a design that is easier to install. Fujitsu General, on the other hand, is intensifying production at its Shanghai factory targeting the Japanese market. The company implemented measures to overcome pandemic-related restrictions, such as using alternative components.

Japanese companies are collaborating closely in component procurement and production to improve the supply system. They are also implementing long-term measures to ensure a stable supply chain, such as adjusting product designs to reduce the number of components and localizing component procurement in various factories worldwide.

To address rising electricity prices and changing consumer preferences, companies are introducing energy-saving and eco-friendly air conditioner models with higher efficiency. Second-hand air conditioners have also become popular, leading to increased sales in this market segment.

Overall, Japanese home appliance companies are focused on building resilient supply chains and balancing stable supply with profitability. They have learned from the challenges of the past and are taking proactive measures to meet the demand for air conditioners and offer innovative, energy-efficient products to consumers.

Source: Nikkei, June 14, 2023
https://zh.cn.nikkei.com/industry/manufacturing/52674-2023-06-14-10-15-32.html

Briefings | | |   Geo-Strategic Trend

CNA: New Development Bank Aims to Challenge Dollar Now Needs Dollar to Rescue

Primary Taiwanese news agency Central News Agency (CNA) recently reported that the New Development Bank jointly established by China and the BRICS is supposed to reshape international finance and reduce developing countries’ dependence on the U.S. dollar. However, after Russia invaded Ukraine, the bank may now become a “zombie bank.” Chinese President Xi Jinping and the leaders of Brazil, Russia, India and South Africa established the New Development Bank (NDB) eight years ago, headquartered in Shanghai. According to interviews with bankers and others familiar with the matter, NDB has now all but stopped making new loans and is having trouble raising dollar funds to pay its debts. Shortly after Russia’s foray into Ukraine last February, the New Development Bank froze all new loans to Russia to reassure investors. However, Russia owns nearly 20 percent of NDB, and Wall Street was quick to turn wary of it. Since then, NDB has had to take on increasingly high debts to service old debts and meet its own liquidity needs. After the establishment of NDB, members found it difficult to rely solely on China’s banks and capital markets. The bank began borrowing billions of dollars from Wall Street as well as Chinese state-owned banks. About two-thirds of its borrowing is in dollars. Given its own slowing economic growth, China has so far been reluctant to commit more money to boost the NDB’s coffers. To complicate matters further, according to the bank’s charter, the next country likely to be the NDB’s rotating president is Russia.

Source: CNA, June 17, 2023
https://www.cna.com.tw/news/aopl/202306170070.aspx

Briefings | | |   Geo-Strategic Trend

After 27 Years, Carrefour Closed Its First Store in Shenzhen

Well-known Chinese news site Sina (NASDAQ: SINA) recently reported that the first Carrefour store in Shenzhen and the second in China ceased operations on June 10. This old store located in the Nantou area of Nanshan has been with the Shenzhen people for 27 years. Just last month (May), Carrefour’s first member store in China, the Shanghai Chengshan Road Store, also suddenly announced it was closing its business. China’s hypermarket crisis has intensified, and Carrefour has been closing its stores nationwide on a large scale. In the first quarter, 33 stores were closed, including the first member store in China. This is just one of the many stores that Carrefour has closed recently. At its peak, Carrefour had a total of 321 stores in China, with sales of RMB 49.8 billion (around US$6.99 billion). Its number of stores, each single store’s performance, its revenue, and other factors., once surpassed its top rival Wal-Mart. As of the end of March, Carrefour China had 114 stores left. Carrefour opened its first foreign-funded supermarket chain in China and became the originator of hypermarkets. In September 2019, the Chinese company Suning spent RMB 4.8 billion (around US$674 million) equivalent to Euros to acquire 80 percent of Carrefour China’s equity, and Suning should have completed the acquisition of all remaining equity by the end of 2022. The transformation and upgrading of Carrefour China may not be worth looking forward to.

Japanese Supermarket AEON also closed its Beijing store, the first one it opened in China back in 2008. US Economist David Huang told the Epoch Times that, based on his visits, retail business in Shanghai, Guangzhou, Shenzhen, and Wuhan cities is running poorly and sales at many supermarket stores are just at the same level as those in the COVID period.

Sources:
1. Sina, June 11, 2023
http://news.sina.com.cn/s/2023-06-11/doc-imywxhhi3381882.shtml
2. Epoch Times, June 19, 2023
http://cn.epochtimes.com/b5/23/6/19/n14019252.htm

Briefings | | |   Economy/Resources

UDN: Alfred University Closed Its Confucius Institute

United Daily News (UDN), one of the primary Taiwanese news groups, recently reported that Alfred University, which is in New York, recently announced that it will close its Confucius Institute before the end of June. The university received a grant from the Pentagon to carry out a research project on sensitive hypersonic weapons, which drew concerns from Congress starting on October. The National Defense Authorization Act (NDAA) of the United States for the fiscal year 2021 prohibits the Department of Defense from providing funds to higher education institutions that have Confucius Institutes. Mike Gallagher, chairman of the House Select Committee on China, pointed out that, due to this ban, as of June last year, more than 100 American colleges and universities had closed their Confucius Institutes. Gallagher pointed out that unless Alfred University closes its Confucius Institute or applies for a government exemption, the subsidized research program will become illegal. The Confucius Institute is just one of many tools in the Chinese Communist Party’s toolbox, and Beijing may also use research partnerships, talent programs, and other initiatives to acquire sensitive technology that will advance the People’s Liberation Army. According to the statistics of the National Association of Scholars, under the joint control of the executive and legislative branches of the United States. In recent years, as of March 22 this year, a total of 108 Confucius Institutes in the United States had been closed or wee being closed, and currently only 13 remain.

Source: UDN, June 17, 2023
https://udn.com/news/story/6813/7241414

Briefings | | |   US-China Relations

Reduction of China’s Buying Is Likely to Cause Price Drop in the World’s Grain Market

Nikkei Chinese reported that, according to the U.S. Department of Agriculture (USDA), China’s effort to increase its domestic soybean and corn production will drive down the global market price of grain.  China has cancelled orders of a cumulative 1.1 million tons of U.S. corn that were scheduled to be imported from late April to mid-May, or 7.4 percent of the U.S. annual exports to China.

China’s reduction of purchases and the expected U.S. harvest took the futures price of corn  on the Chicago Mercantile Exchange down to around $5 per bushel in mid-May. This was the lowest point since October 2021 and 30 percent down from the peak price in the spring of 2022.

Soybean’s price also fell similarly as China also canceled deals.

Among agricultural products, China can roughly stay self-reliant on rice and wheat, but it has to import other products. Bejing is the world’s largest importer of soybeans and corn. It imports 59 percent of the global import volume and 14 percent of corn.

Source: Nikkei Chinese, June 12, 2023
https://zh.cn.nikkei.com/politicsaeconomy/commodity/52591-2023-06-12-05-01-11.html

Briefings | | |   Economy/Resources

Cross-Region Fiscal Transfer Puts Poor Regions In More Debt

An article by a Chinese author was circulating on the Internet. The article pointed out that. although China implemented a cross-region fiscal transfer mechanism, the better developed regions provide a large amount of financial aid to the underdeveloped regions to help them develop their economy. This system does not make the poor region prosperous but rather, it puts them in more debt.

The article used Qinghai Province as an example. Qinghai received a “fiscal transfer” (aid) of 147 billion yuan (US$ 21 billion) in 2022, 7.6 times what it received in 2010. However, its disposable income per capita was 27,000 yuan in 2022, only 3.1 times the amount in 2010. This indicates that the “transferred” money didn’t directly get into people’s wallets. The reason was because the receiving regions spent the money on large projects instead, which may not directly lead to improving people’s livelihoods or may cause unnecessary waste. In the meantime, the receiving regions also borrowed additional money to finance those projects (the transferred money was not enough). As a result, the more the “transfer” money comes, the more the receiving region is in debt.

Source: China Digital Times, May 16, 2023
https://chinadigitaltimes.net/chinese/696035.html?utm_source=dlvr.it&utm_medium=twitter

Briefings | | |   Economy/Resources Government/Politics