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Kishore Mahbubani: The United States Made Three Strategic Mistakes

New Shanghai-based Chinese online news site Guancha recently published an article written by Kishore Mahbubani who was, formerly, Singapore’s Permanent Representative to the United Nations. In that role, he served as President of the United Nations Security Council in January 2001 and May 2002. Mahbubani analyzed the reasons behind America’s sense of insecurity. He thought that the U.S. made its first strategic mistake in 1990, when the Cold War finally ended. The West was distracted by its huge success and did not pay attention to the awakening of China and India. The second strategic mistake came in 2001. Any American will tell you today that 911 was the biggest event that year. It completely changed the global political landscape. However, what the Americans missed that year was the event of China joining the World Trade Organization (then known as GATT), when China suddenly injected 800 million new workers into the global economy. The third mistake occurred in 2014. Based on the calculation model of Purchasing Power Parity (PPP), the U.S. economic output was around 16 percent of the global economy, while China’s share surpassed 16 percent. However, no U.S. leader even publicly mentioned this enormous historic milestone. The U.S. used to have great thinkers and strategists, but now what’s left is its sense of insecurity.

Source: Guancha, February 16, 2019
https://www.guancha.cn/MaKaiShuo/2019_02_16_490336.shtml?s=zwyxgtjbt

Huawei Is Having a Hard Time Retaining High-End Talent Despite High Pay

Well-known Chinese news site Sohu recently reported that Huawei’s 2018 average staff salary reached RMB 1,100,000 (around US$162,404). This annual income level is four times the average of Alibaba, five times the average of ZTE, and six times that of Xiaomi. However, Huawei’s Ph.D. employees have been leaving the company at a high rate. Huawei President Ren Zhengfei admitted that the company is not able to retain high-end talent. According to Huawei’s own internal research, since 2014, nearly half of its Ph.D. employees have left the company. The research also showed that most of the people left due to extremely high work pressure. As for Ph.D. employees, another reason was misalignment between their assignments and their skills. As an example, Huawei’s high-pressure work environment can be reflected in its rule of a full cut-off of any connection between its internal network and the public Internet. Another example is its policy that total daily personal phone call time cannot be longer than five minutes. Huawei’s average daily staff overtime is 3.96 hours.

Source: Sohu, February 17, 2019
http://www.sohu.com/a/295282687_482734?scm=1002.0.0.0

African Swine Fever Found in China’s Top Brand of Pork Dumplings

Mainland Chinese media reported that the frozen pork dumplings that Sanquan Food Co., Ltd. produced were found to contain the African swine fever virus. After the news was published, the stock price of the leading Chinese frozen food company fell by 3.58 percent. Sanquan Foods has now removed all the related series of dumplings from its official website.

Chinese netizens are also circulating a government document that shows that Gansu Province has also detected the same virus in 83 pork products from 11 manufacturers, including Sanquan Foods. Among them, Henan Kedi Frozen Foods had 67 products with positive reactions. The Gansu provincial government clarified that this was only a preliminary test.

Despite a litany of incidents of African swine fever virus being found in mainland China’s food products, the authorities have been persistently telling the public that African swine fever will not infect human beings and will not affect food safety.

Source: Central News Agency, February 16, 2019
https://www.cna.com.tw/news/acn/201902160101.aspx

Chinese Economist: Easy Monetary Policy Has Little Effect on Economic Growth

At a China Entrepreneurs Forum held at Yabuli, Heilongjiang Province from February 16 to 18, Wang Xiaolu, an economist at the National Economic Research Institute under the China Reform Foundation, commented on the effectiveness of China’s monetary policy.

Wang recalled the history from 2000 to 2018, with an observation that China’s real GDP increased by 3.8 times, but M2, a key measure of money supply, grew by 12.6 times. “China’s easy monetary policy didn’t start from 2008, but has been there for a long time. The growth of money is much higher than the growth of GDP.”

“The long-term monetary easing has brought about the series of structural problems that the Chinese economy now faces.” Wang said that one of the serious problems is the ever-rising debts. In addition, due to excessive investment, including the government’s investment in urban expansion and infrastructure construction, many projects are economically inefficient. Wang is concerned that a considerable part of the investment is ineffective. “It is a waste.”

Although the officially published GDP growth rate is 6.6 percent, Wang believes “the real situation is much worse.” “The easy monetary policy has become less and less effective in stimulating economic growth. It is almost nonexistent now, but the negative effect is very obvious. The money oversupply will rush into real estate, causing a housing bubble and introducing other problems”.

Source: Sina.com, February 17, 2019
https://finance.sina.com.cn/hy/hyjz/2019-02-17/doc-ihrfqzka6600697.shtml

RFI: The China-U.S. Trade War Caused Widespread Slide of the Chinese Economy

Radio France Internationale (RFI) recently reported, based on statistics quoted in Hong Kong media, that the Chinese economy is seeing a nation-wide decline due to the China-U.S. trade war. According to research data that Renmin University of China (which was the first University founded by the Chinese Communist Party) released, new job positions declined by 36 percent year-over-year in large cities in the eastern coastal areas. This is where companies make a significant contribution to China’s exports. The western inland regions suffered more – new job positions declined by 77 percent. In the meantime, the National Bureau of Statistics redefined the “mid-income” class as a monthly income between RMB 2,000 to 5,000 (around US$295 to US$738). The new definition received widespread criticism. A Beijing resident commented that a recipient of RMB 2,000 could not even afford a low-end apartment rental. He asked, “What kind of middle-class is that?”

Source: RFI, February 16, 2019
https://bit.ly/2IsX5Q6

China’s High Speed Rail System Faces Heavy Debt Risk

China tops the world with its advanced high speed rail system. As of the end of 2018, China’s high-speed railway operating mileage reached 29,000 kilometers (18,019 miles). The statistics, however, suggest that China has also paid a huge price which may take a number of generations to pay back. Radio Free Asia published an article that Caixin initially reported. It describes the financial risk that China’s high speed rail system faces. The data shows that China’s high speed rail is facing a huge debt and financial losses. The risks can be summarized in the following five areas:

First, China’s high speed rail relies mainly on debt financing. The debt that China Railway General (formerly the Ministry of Railways) had has since soared from 476.8 billion yuan (US$70.39 billion) in 2005 to 4.72 trillion yuan (US$700 billion) in 2016. China Railway has always kept the financial data of the high speed rail strictly confidential, but from its published debt and revenue data, it can be concluded that, even if the operating cost of the high speed rail is not considered, the total transportation revenue of the high-speed rail is not enough to pay the interest on the loan for the construction of the high speed rail.

Second, most of the high speed rail is losing money. Other than the rail between Beijing Shanghai and Beijing Guangzhou, most of the other rails are way below capacity. There are only four rails running between Lanzhou to Xinjiang compared to a daily capacity of 160. The ticket revenue can’t even cover the cost of electricity. Even for the busy route from Beijing to Shanghai, the capacity utilization rate of number of passengers per kilometer is only half of that in Japan.

Third, since the high speed rail has a weight limit, the transportation of goods had to be shifted from railway to ground. The market share of China’s railway freight volume (excluding ocean shipping) has dropped rapidly from 50 percent in 2005 at 3 percentage points per year to only 17.1 percent in 2016.

Fourth, the high speed rail drove up the cost of freight. China Railway has relied on a continuous increase in the price of railway freight to make up for the serious losses of the high speed rail, thus driving the cargo owners to use ground transportation. Hence the increase in the ground transportation cost.

Fifth, freight transportation is heavily dependent on roads which aggravate air pollution. The rapid decline in the market share of railway freight transport has led to a large amount of basic raw materials that rely on ground transport, which has increased air pollution. This problem is more prominent in densely populated areas such as the Beijing-Tianjin-Hebei region and the Yangtze River Delta.

Source: Radio Free Asia, January 29, 2019
https://www.rfa.org/mandarin/Xinwen/wul0129-01292019030949.html