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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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Public Questions China’s New Housing Pension System, Suspects Disguised Property Tax Program

China’s Vice Minister of Housing and Urban-Rural Development, Dong Jianguo, stated at a press conference on August 23 that the government is studying the establishment of a system for building inspections, housing pensions, and housing insurance. Currently, 22 cities, including Shanghai, are conducting trials. He stated that, when purchasing a property, homeowners will have already set up a personal account for payment into a public “residential special maintenance fund.” The focus of the trial is for the government to establish such a fund.

Netizens have widely discussed this “Housing Pension System” topic, speculating that the system could be a disguised form of property tax. The official “Construction Magazine” WeChat account of the Ministry of Housing and Urban-Rural Development published an editorial on August 26 stating that Vice Minister Dong’s original statement regarding the new pilot program mentioned that “the focus of the trial is for the government to establish a public account,” and that this public account does not require contributions from the public.

Mainland Chinese netizens are not convinced, however. Some have questioned why there is a rush to raise additional funds as there is already a “residential special maintenance fund” in place.

Source: Epoch Times, August 24, 2024
https://www.epochtimes.com/gb/24/8/26/n14317935.htm

Briefings | | |   Economy/Resources Government/Politics

Chinese Restaurant Industry Faces Crisis: From “Golden Era” to Struggle for Survival

The Chinese restaurant industry is facing significant challenges. For example, Taiwanese dumpling chain restaurant Din Tai Fung will close 14 branches across several cities in China by October 31st. This decision has sparked widespread concern about the industry’s struggles since the pandemic.

China’s restaurant sector is experiencing a collective downturn, despite that fact that COVID-19 restrictions have now been lifted in China. In the first half of 2024, over a million Chinese restaurants closed, nearly doubling the figure seen in 2022. Many business owners have lost their investments and have been forced to exit the market.

Even large restaurant chains are struggling. Nayuki expects losses of 420-490 million yuan (US$59 – 69 million), Haidilao projects losses of at least 260 million yuan (US$36 million), and Luckin Coffee’s profits have dropped by 50% compared to last year.

The industry faces rising costs for taxes, social security, and wages, while prices and profits are declining. Most large restaurant companies are experiencing profit declines, with Xiabu Xiabu seeing the most significant drop – a 133-fold increase in net loss.

Luckin Coffee, despite opening thousands of new stores and increasing revenue by 38%, saw its net profit fall by 50%, illustrating the phenomenon of “increasing revenue but not increasing profit.”

As price wars continue, the Chinese restaurant industry has entered a low-profit era. The once “golden” market is no longer, and experts predict that the situation may become even more challenging in the future.

Source: Central News Agency (Taiwan), August 26, 2024
https://www.cna.com.tw/news/acn/202408260296.aspx

Briefings | | |   Economy/Resources

RFI Chinese: PwC Expects Six-Month Business Ban from Chinese Authorities

Radio France Internationale (RFI) Chinese Edition recently reported that PwC China told clients it that expects Chinese authorities to impose a six-month business ban starting as early as September. This will be part of punitive measures imposed on PwC following a PwC audit of collapsed Chinese real estate developer Evergrande. China’s securities regulator said in March that Evergrande had reported an inflated revenue of nearly US$80 billion in Mainland China in the two years prior to defaulting on its debt in 2021. The regulators charged that PwC China’s audit of Evergrande’s accounting records had been improper.

PwC’s business ban and a potential hefty fine are probably the toughest action ever taken by Chinese regulators against a Big Four accounting firm. The Chinese government has stepped up scrutiny of the role of auditors in financial scandals, this time in the crisis-ridden real estate sector, which once contributed about a quarter of China’s GDP. PwC China was China’s highest-revenue accounting firm in 2022, with revenue reaching 7.9 billion yuan (around US$1.11 billion). PwC China’s rival Deloitte China was given a US$31 million fine last year for “serious audit deficiencies” related to Deloitte’s audit of China Huarong Asset Management. As part of the penalty imposed by Beijing, Deloitte China suspended operations for three months last year.

Many of PwC’s publicly listed Chinese clients have been banned for three years from cooperating with audit firms sanctioned by the authorities. This year, PwC China lost at least two-thirds of its accounting revenue from its Chinese-listed clients. That being said, Chinese-listed companies and state-owned enterprise clients account for only a minority of PwC China’s revenue; PwC is actively reassuring its largest internationally-listed clients, including internet giants Alibaba and Tencent, that it can complete their 2024 audits work.

Source: RFI Chinese, August 22, 2024
https://tinyurl.com/zdtten7b

Briefings | | |   Government/Politics US-China Relations

RFA: Shanghai and Shenzhen Stock Exchanges Adjust Information Disclosure Mechanism

Radio Free Asia (RFA) recently reported that the Shanghai and Shenzhen Stock Exchanges have adjusted their information disclosure mechanisms, ceasing publication of daily net trading volume data and other data starting from August 19. This has cut off information on the flow of foreign funds into China’s A-shares market through the Hong Kong markets. Thus, it is now impossible to calculate the flow of foreign capital in and out of Mainland China.

Under the new reporting mechanism, the Shanghai and Shenzhen exchanges will not let investors know the net buying and selling data of the overall northbound (direction of mainland) funds or the flows for the top ten active stocks on a given day. The Hong Kong Stock Connect program has been adjusted accordingly.

The RFA quoted a scholar saying that data on foreign investment in China are critical long-term indicators that play an important role in observing the Chinese economy. The Chinese government understands that making the data regarding the country’s stock market more opaque will only lead to faster withdrawal of foreign capital from China, yet it has still taken this step, showing that there must not be much foreign investment left in the Chinese stock market. It seems that China is preparing measures to prevent the further withdrawal of foreign capital. This is just like how China stopped disclosing unemployment data when the unemployment rate was rising sharply.

The new disclosure mechanism makes it easier for the government to fabricate market data in accordance with its political and economic needs, influencing retail investors who do not have a full picture of the market.

Source: RFA, August 19, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/ec-stockmarket-foreigncapitalwithdraws-08192024053127.html

Briefings | | |   Economy/Resources Government/Politics

CNA: TSMC Breaks Ground on German Factory

Primary Taiwanese news agency Central News Agency (CNA) recently reported that Taiwan’s TSMC recently held a groundbreaking ceremony in Germany to commence construction of its first ever wafer fab on the European continent. German Prime Minister Olaf Scholz attended the ceremony and delivered a speech. EU Executive Committee Chairman Ursula von der Leyen also attended, saying that the development represented a true win-win situation.

Earlier, the EU approved Germany’s subsidy plan for TSMC’s factory construction. Last year, TSMC announced that it would set up a joint venture with Bosch, Infineon and NXP in Dresden, Germany to jointly invest in the European Semiconductor Manufacturing Company (ESMC), with a total investment of approximately 10 billion euros. Scholz said semiconductors were key to Germany’s industrial survival and climate goals, and stressed the importance of increasing production in Germany to make Europe less dependent on other regions in global supply chains.

Germany provided a five-billion-euro subsidy plan to TSMC’s wafer fab joint venture. This is the largest amount of state subsidy currently granted under the European Chips Act, and it is also Germany’s first subsidy program. TSMC funded 70 percent of the ESMC private investment. Nearly 2,000 ESMC employees will be recruited locally.

In order to assist factory construction, hundreds of TSMC engineers will be dispatched to Dresden in the next three to five years. TSMC has launched talent training projects with universities and local governments in Germany. German students will be invited to Taiwan for training at universities and TSMC training facilities.

Source: CNA, August 20, 2024
https://www.cna.com.tw/news/afe/202408200361.aspx

Briefings | | |   Geo-Strategic Trend Information/Technology

The Impact of China’s Consumption Tax Reform

According to a Decision reached during the Third Plenary Session of the 20th Central Committee of the Chinese Communist Party, China will “move the collection stage of the country’s consumption tax to later stages,” and will also “gradually  allocate revenue from consumption tax to local governments.” Chinese media outlet The Paper reported that this decision to “delay the collection stage of the consumption tax” is meant to shift the tax source and collection point from the place of production to the place of consumption, meaning that a great part of tax revenue will be collected in the jurisdiction of the end consumer.

This policy change will have two main impacts. First, the base price for the consumption tax will increase from the factory price to the wholesale or retail price, which means that the Chinese government will collect more revenue from consumption tax. Second, the tax source will shift from the place of production to the place of consumption, resulting in a decrease in tax revenue for major production provinces (e.g. Shanghai, Guizhou, Yunnan, Hubei, Hunan) and an increase in tax revenue for provinces with large populations and large amounts of consumption (e.g. Guangdong, Shandong, Henan, Zhejiang, Sichuan).

“Allocating to local governments” means that the central government of China will no longer be the sole beneficiary of such consumption taxes; consumption tax revenue will now be shared with local governments. The northeastern, central, and western regions of China are likely to receive greater consumption tax than the eastern regions.

Sources:
1. The Paper, July 19, 2024
https://www.thepaper.cn/newsDetail_forward_28110425
2. Radio Free Asia, July 22, 2024
https://www.rfa.org/mandarin/yataibaodao/jingmao/lu-china-third-plenum-tax-policy-07222024155434.html

Briefings | | |   Economy/Resources Government/Politics

Zhou Xiao’s Harrowing Ordeal: Torture at the Mental Hospital

Zhou Xiao is from Wuxi City, Jiangsu Province. In early May 2012, he used a VPN to bypass the Chinese Communist Party’s (CCP’s) Internet blockade and came across a documentary about the Tiananmen Square massacre, which included footage of the military opening fire on the people. His neighbors heard the loud voice of the video, and one of them reported him.

The police intimidated his family, insisting that Zhou be committed to a mental hospital. The police threatened to punish his family members if they didn’t cooperate. The police chose to have Zhou committed to a mental hospital because, if Zhou were instead reported through official channels as an anti-Communist, the local police would face repercussions for having not worked effectively to prevent anti-Communist sentiment in their locality. Meanwhile, the police would not suffer any consequences from someone merely being classified as mentally ill.

Zhou’s mother arranged to get a second-degree mental disability certificate for Zhou. He was taken twice to the Wuxi Mental Health Center, also known as Wuxi No. 7 People’s Hospital. The mental hospital was terrifying. Every day he felt like he was one of the walking dead — he would just take medication, eat, and sleep. He felt drowsy after his doses of medication and always wanted to sleep. He was confined tohis floor for four months. “Patients” at the hospital were never allowed to go outside. The first-level ward held four or five people in a small room, while the large ward held 20 to 30 people per room.

Zhou was tied up multiple times. He said “as soon as you show any resistance in your words, the doctor would say: ‘He’s having an episode, tie him up!’ The restraint would last for 12 hours, with all four limbs fixed to the bed.” He was also electroshocked five times. “That is called ECT electroconvulsive therapy, which is like rebooting the brain. A headband, like a tight crown, was placed on my head, and when the switch was flipped, I lost consciousness.”

During his time in the hospital, three people died in the ward – an old man died of illness, another person was beaten to death, and one disappeared.

“The orderlies were the lowest people from society, and their job was to beat people. The nurses were young but extremely cruel; they didn’t treat us like humans at all.”

The hospital repeatedly drew blood from young people, but not from the elderly. Zhou thought that they were doing organ matching, preparing for potential live organ harvesting.

Zhou managed to escape to Japan on April 17, 2019.

Source: Epoch Times, August 16, 2024
https://www.epochtimes.com/gb/24/8/16/n14312609.htm

Briefings | |

Half of China’s Local Government Bond Issuance in the First Seven Months of the Year Was to Pay Off Old Debt

On August 5th, Yicai (China Business Network) cited public data saying that, in the first seven months of this year, China’s local governments issued approximately 4.2 trillion yuan (US$ 590 billion) worth of bonds, a year-on-year decrease of about 16 percent. Among them, refinancing bonds totaled around 2 trillion yuan, primarily used to repay the principal of maturing government bonds or existing debt. This means local governments were essentially “borrowing new debt to repay old debt.” Additionally, 2.2 trillion yuan of new bonds were issued (i.e. bonds not used to pay off old debts), comprising 1.8 trillion yuan in new special bonds and 400 billion yuan in new general bonds.

Source: Lianhe Zaobao, August 8, 2024
https://www.zaobao.com.sg/realtime/china/story20240808-4443056

Briefings | | |   Economy/Resources