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All Levels of Government Must Maintain a Tight Budget, Top Chinese Officials at National People’s Conference Repeatedly Emphasize

During China’s National People’s Conference, Premier Li Qiang delivered the annual “Government Work Report” on March 5th. His report stated that “governments at all levels should get used to living with a tight budget, truly tighten their belts, and effectively use fiscal funds where they are most needed and can produce real results.”

At a press conference on March 6th, Chinese Finance Minister Lan Fo’an answered a question about tight budgets, saying that “the Party Central Committee has set the clear requirement that party and government organs must live under a tight budget. Governments at all levels should take the lead in implementing [such financial constraint] and be thrifty in all undertakings. This year’s government work report emphasizes [such restraint] again, further highlighting that this is not just a temporary need but rather a long-term strategy.”

At the Guizhou provincial delegation’s discussion on March 6, Li Bingjun, Governor of Guizhou Province, said, “At the end of last year, [Party] General Secretary Xi Jinping emphasized at the Central Economic Work Conference that Party and government organs should get used to ‘living within a tight budget.’” He added, “In my understanding, ‘living with a tight budget’ is not a temporary measure, but rather the new norm.”

Sources:
1. Chinese Government Website, March 5, 2024
https://www.gov.cn/yaowen/liebiao/202403/content_6936325.htm
2. Guancha, March 6, 2024
https://www.guancha.cn/politics/2024_03_06_727443.shtml
3. Phoenix, March 6, 2024
https://news.ifeng.com/c/8XjUlPgYsXM

Taiwanese Scholar: Wang Huning’s “Spider Strategy” to Slowly Swallow Taiwan

On March 4th, chairman Wang Huning of the Chinese People’s Political Consultative Conference delivered a statement on the topic of China-Taiwan relations. The statement, titled “Work Report of the Standing Committee,” proposed a strategy of “strengthening cross-strait industrial cooperation, building a common market across the straits, holding the sixth Cross-Strait Grassroots Governance Forum, and promoting the integrated development of both sides of the strait.”

Song Guocheng, a Senior Researcher at the International Relations Research Center of Taiwan’s Chengchi University, called Wang Huning’s plan a “spider strategy” to gradually swallow Taiwan. Song published an article on the implications of Wang’s strategy, analyzing four key phrases used in Wang’s statement. Below are translations of the major points from Song’s analysis.

The first key phrase from Wang Huning’s statement was “cooperation” (合作). Cooperation sounds great. By just saying “cooperation,” the Chinese Communist Party (CCP) can sidestep sanctions and allegations over foreign interference, as it is not “changing the status quo across the Taiwan Strait.” Cross-strait cooperation is, however, a “big brother leading the little brother” style. It could lead to the so called “peaceful evolution” of Taiwan – using economic ties to drive political change, using profit to lure Taiwanese people into acting against their country’s best interest, merging with Taiwan [economically], and making its people willing to submit to subjugation [by China].

The second key phrase is “shared marketplace” (共同市場). This term implies “mutual benefit and shared interests.” But the strategy behind this term is to use the “big economy” of mainland China to “melt/dissolve” the “small economy” of Taiwan; this is the “spider strategy,” with the big enveloping the small, trapping Taiwan in a huge “economic spider web,” using honey as poison to slowly consume Taiwan.

The third key phrase is “grassroots cross-strait governance” (兩岸基層治理). Governance sounds neutral, but it is a sovereignty issue when one discusses “cross-strait governance.” Neither side of the [Taiwan] strait is subordinate to the other, and the governance on each side is unrelated to that on the other side. Of course, the CCP will be able to achieve [such governance] if it can rope in Taiwan’s municipal leaders, public figures, community organizations, agricultural associations, guilds, chambers of commerce, student unions, hometown associations… etc. It uses various pretexts such as “exchange, learn, observe, and inspect” to break through the wall of sovereignty between the two sides. This is its softest, most gentle, and most intimate “slow swallowing” policy.

The fourth key phrase is “integrated development” (融合發展). Development sounds so pleasant, and integration sounds wonderful: you are part of me, and I am part of you! But the true meaning behind this phrase is as follows. “Integration” means slow erosion of Taiwan’s anti-communist consciousness, and “development” means gradual subsumption of Taiwan’s sovereignty. This is a “patchwork policy” to unify Taiwan, also known as the “stacking blocks” policy or the “great dissolution” strategy. Once the puzzle is completed and the blocks are stacked, the time will be ripe for natural unification of China.

Source: Up Media, March 7, 2024
https://www.upmedia.mg/news_info.php?Type=2&SerialNo=196367

German Investment in China Declines Amid Concerns Over Economic Environment

According to a report in German newspaper Handelsblatt, German investors are avoiding China, and German direct investment in China has declined sharply. Some large companies, however, are going against the tide, expanding their businesses in China.

A study commissioned by Handelsblatt and conducted by the Cologne Institute for Economic Research shows that German investment flows to China plunged in the third quarter of 2023, reaching a six-year low of negative €2.2 billion. German equity investment in China fell particularly sharply, with a flow of negative €3.9 billion.

Funds flowing to China from other countries also decreased. During the third quarter of 2023, total foreign investment was negative for the first time in a quarter century, meaning more capital flowed out of China than flowed in. Some large companies like BASF, however, are going against the flow and continuing to expand their business in China.

On the other hand, there were positive signs regarding reinvested profits. Although German reinvestment in China was lower than during prior periods, German companies still reinvested some €1.7 billion of profits earned in China back into their Chinese operations in Q3 of 2023. The study found that many foreign companies operating in China are transferring profits out of the country.

Observers cite several reasons for the investment downturn in China, including a significantly worsened investment environment in recent years as the Communist Party exerts greater control over the economy. China’s economic growth and consumption have also slowed. Many Western countries are also pursuing de-risking strategies to reduce dependence on China.

Source: Radio France International, December 14, 2023
https://rfi.my/AB83

Germany at Risk Over Dependence on China for Imported Raw Materials

A report by IW Consult and Fraunhofer ISI, commissioned by KfW Research, highlights Germany’s reliance on imports for critical raw materials such as copper, lithium and rare earth elements (REEs). Nearly a third of Germany’s manufacturing gross value added comes from copper products, 10% from lithium products, and 22% from REE-containing products. Automakers, electronics and optics manufacturers are particularly reliant on imports.

The German markets for such products are dominated by a few major suppliers. The report says that a third of Germany’s lithium as well as 19% of its copper and REE imports are subject to supply chain risk. The largest known REE deposits are in China, while reserves in Greenland, Canada and Sweden remain underexplored. Germany’s top three lithium and REE suppliers control over 80% of German market share for those commodities. Furthermore, Russia’s copper and Chile’s lithium carbonate (which comprises 72% of German lithium carbonate imports) are crucial in Germany’s supply chain. Altogether, China accounts for 84% of German REE imports.

Matthias Wachter from the Federation of German Industries (BDI) compared Germany’s dependence on China for raw materials to the dependence on Russian natural gas [before the 2022 Russian invasion of Ukraine]. He said that imports have reached “the highest level of risk” and that the danger lies “not in availability of such materials but in the [geographic] concentration within China of their production.” He added, “this high degree of dependence makes people vulnerable to threats and blackmail. China has shown that it can regulate these key areas by imposing export controls on some rare earths.”

Fritzi Köhler-Geib, Chief Economist at KfW, said that there may be initial costs to pay in securing resilience throughout Germany’s supply chain, but the resulting stability and flexibility are necessary prerequisites for enabling the green transition and digital transformation. Cornelius Bähr, Senior Advisor at the German Economic Institute, stressed the importance of German supply chain diversification, exploration of substitutes for key raw materials, expansion of domestic resources, and recycling [of key supply chain inputs]. He cautioned that there could be economic consequences, e.g. forgone EV production, if imports such as lithium are disrupted.

Source: Deutsche Welle, March 17, 2024
https://p.dw.com/p/4dWaS

South Korea Accelerates Efforts to Reduce Dependence on China for Critical Minerals

South Korea appears to be accelerating its efforts to reduce dependence on China for critical mineral imports. This comes as the Korean government has unveiled a strategy to secure supplies of key minerals, while major companies are actively pursuing diversification of import channels for mineral resources.

In 2023, 79.6% of South Korea’s lithium hydroxide imports, a key material for EV batteries, came from China – down 8.3 percentage points from 87.9% in 2022. Imports from Chile rose to 17.5%. For neodymium iron boron, used in EV permanent magnet motors, 84.7% came from China in 2023, a slight dip from 87.5% in 2022, while imports from the Philippines increased to 14.3%.

Analysts attribute the trend of reduced dependence on China for lithium and rare earth minerals to the  South Korean government’s policies supporting supply chain diversification, as well as to intense “de-Chinaization” efforts by companies adapting to factors affecting the trade environment (e.g. the U.S. Inflation Reduction Act).

Major moves in the sector include the completion by Korean steel giant POSCO of a new lithium hydroxide plant, the first of its kind in South Korea. The plant will use Australian lithium. POSCO is also planning a lithium carbonate plant in Argentina. Other moves include a deal signed by LG Energy Solution with an Australian firm for 85,000 tons of lithium concentrate.

Source: Yonhap News Agency, March 13, 2024
https://cn.yna.co.kr/view/ACK20240313000900881

Lianhe Zaobao: Moody’s Downgrades Vanke’s Rating to Junk Status

Singapore’s primary Chinese language newspaper Lianhe Zaobao recently reported that international rating agency Moody’s has downgraded Chinese real estate giant Vanke’s credit rating to junk status. Moody’s warned of further downgrades in the future.

The downgrade reflects Moody’s expectation that Vanke’s credit metrics, financial flexibility and liquidity buffers will weaken over the next 12 to 18 months. The company’s contracted sales are declining amid a prolonged downturn in China’s housing market, and uncertainty over financing channels is increasing day by day.

The move by Moody’s may further weaken the world’s confidence in China’s real estate market. Vanke is usually recognized as the third largest real estate company in China, and it was one of the few developers in China with an investment-grade credit rating. Vanke is known to have strong government backing.

Currently, S&P Global Ratings and Fitch Ratings still maintain a non-junk rating for Vanke. Chinese regulators reportedly met with financial institutions to ask major banks to step up financing support for Vanke and called on bondholders to discuss debt repayment extensions with Vanke. However, not long ago, Vanke was rejected after seeking permission from insurance companies to defer debt repayments.

Source: Lianhe Zaobao, March 12, 2024
https://www.zaobao.com.sg/realtime/china/story20240312-3143019

CNA: China Cancels or Delays Purchase of One Million Tons of Australian Wheat

Taiwanese news agency Central News Agency (CNA) recently reported that China has cancelled or postponed about one million tons of Australian wheat imports and about 500,000 tons of U.S. wheat imports.

Farmers are currently in a cycle of overproduction, and global wheat prices are falling, reaching their lowest point in three and a half years. China, the world’s largest wheat importer, canceled or postponed wheat purchase plans for the end of last year and early this year, anticipating the falling prices.

A Singapore-based commodities trader who sells wheat to Asian countries said that Chinese buyers have canceled some Australian wheat transactions and have delayed shipments from the first quarter to the second and third quarters. Another trader said that trading companies have canceled previously-scheduled shipments at Australian ports that were originally scheduled for transport to China. Since the beginning of this year, the volume for wheat futures on the Chicago Mercantile Exchange has fallen by more than 14 percent, reaching the lowest trading volume since August of 2020.

Australia accounts for 10-15 percent of the global wheat trade of 100 million tons per year. The Australian wheat industry is mainly export-oriented, with 65-75 percent of the country’s total output sold to more than 50 countries around the world. Australia is China’s third largest wheat supplier, following the United States and Canada.

Source: CNA, March 14, 2024
https://www.cna.com.tw/news/acn/202403140293.aspx

China Times: Beijing Pushes Chinese Car Companies to Favor Domestically-Produced Chips

Taiwanese newspaper China Times recently reported that the Chinese government has quietly asked Chinese electric vehicle manufacturers, including BYD and Geely, to significantly increase the use of domestically produced chips. Beijing may be quietly pushing for a chip decoupling “that tends to exclude U.S., Japanese and European parts from the Chinese market. … These changes could be Beijing’s answer to the U.S.-led sanctions and export controls.” Below are some passages from the China Times article:

“China’s Ministry of Industry and Information Technology issued an official notice this year, requiring Chinese electric vehicle companies to expand their procurement of domestic electronic components. The Ministry originally had an informal goal of asking car companies to expand their domestic chip procurement to one-fifth by 2025, but it now feels this progress is not quick enough.”

“In recent bidding for contracts with a well-known Chinese car company, a foreign supplier offered a price that was 30 percent lower than the winning bid, but it still did not get the contract.”

“Share prices of European companies that supply electric vehicle chips to China fell on March 15th.”

“Bloomberg believes that the Ministry’s new instructions are consistent with Beijing’s strategy of ‘mobilizing all forces to compete with the U.S. and other countries over who has the top position in terms of science and technology.’ … The move could lead the United States to tighten its import restrictions on Chinese-made cars.”

Source: China Times, March 16, 2024
https://www.chinatimes.com/cn/realtimenews/20240316000935-260409