Skip to content

China’s Reaction to Trump’s Election Win

Read More ...

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

Read More ...

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

Read More ...

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

Read More ...

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

Briefings | | |   Geo-Strategic Trend

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

Briefings | | |   Geo-Strategic Trend

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

Briefings | | |   Economy/Resources

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

Briefings | | |   Economy/Resources Geo-Strategic Trend

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

Briefings | | |   Information/Technology

Xinhua Commentaries on U.S. “Security Concerns” over Chinese Products

Amidst recent concerns within the U.S. and other Western countries over security threats posed by Chinese electric cars, cranes, 5G equipment, and apps (e.g. TikTok), the official Chinese state news agency Xinhua has published commentaries saying that such concerns are “nothing but baseless excuses to suppress China.”

Xinhua published an article titled “The American Political Spectacle: No More Pretending! Spilling the Beans! American Politicians Have Been Speaking Blunt Truths Recently.” The article said: “Not long ago, Raimondo (U.S. Commerce Secretary) inadvertently revealed a ‘shocking secret’ during a televised interview. She attacked Chinese-made smart cars (EV), claiming they can ‘constantly collect data’ and send it back to China, ‘like iPhones on wheels.’ Something about this statement doesn’t seem right. Netizens exclaimed, ‘It is confirmed that Apple phones monitor the world!’”

Another article titled “Abusing ‘National Security’ Is a Poison to Global Development and Security” hinted that China may retaliate by restricting U.S. products within China over “security concerns”: “When some countries label Chinese products and equipment as ‘unsafe,’ they seem to forget that Chinese people may also worry about whether such countries’ own equipment poses a threat to Chinese national security. Tesla, an American company, is all over the streets of China; is it also collecting sensitive data in China? With over a hundred million users in China, can Apple’s iPhones unknowingly transmit Chinese users’ data back to the U.S.? U.S. Commerce Secretary Raimondo claimed that ‘Beijing can shut down three million Chinese cars driving on American roads simultaneously.’ Shouldn’t China also worry that Washington could simultaneously shut down millions of Apple phones owned by Chinese users? If these devices are deemed unsafe, does it imply that China also needs to take equivalent precautionary measures, ultimately leading to mutual decoupling, with each [party] seeking self-preservation?”

Sources:
1. Xinhua, March 18, 2024
https://app.xinhuanet.com/news/article.html?articleId=aa7f401b5cd60612370be7ecb7aff923
2. Xinhua, March 16, 2024
https://app.xinhuanet.com/news/article.html?articleId=86aa9d6962ef2cb9fac651da50511c1d

Briefings | | |   US-China Relations

China’s Shifting Strategy: Overseas Investment in the Electric Vehicle Industry

A report from the American think tank Rhodium Group suggests that China likely set a new record in outward direct investment in the EV industry last year. This year, China’s overseas investment in EV will remain strong, but will shift from primarily investing in the battery sector to manufacturing electric cars in Europe, Latin America, and Asia. This shift will aim to appeal to host countries’ demand for high value-added investment and job creation in exchange for market access.

So far, Chinese EV manufacturers have focused mainly on auto exports rather than on overseas production. The volume of Chinese car exports surged in 2022-2023, triggering an EU anti-subsidy investigation into Chinese EV imports. As a result, BYD announced plans to build a car factory in Hungary. This move would bypass potential anti-subsidy tariffs that the EU might impose.

Chinese EV manufacturers realize that the EU welcomes direct investment even though it might block direct auto exports from China. Unlike the U.S., which would strictly scrutinize Chinese EV production on U.S. soil, EU member states compete with each other to provide incentives for Chinese companies. The Rhodium Group anticipates that the EU’s investigation into Chinese EVs will encourage direct investment by the Chinese electric car industry in the EU.

China is also attempting to circumvent U.S. restrictions by investing in US trade agreement partners such as Morocco and Mexico.

Source: Deutsche Well, March 14, 2024
https://p.dw.com/p/4dVjM

Briefings | | |   Economy/Resources Geo-Strategic Trend

RFI: Chinese EVs Flooding Europe, Will Challenge Core German Industries

Radio France Internationale (RFI) reported that “Chinese goods are pouring into European markets, and the first wave of repercussions for German industry has begun to take shape.” Below are some key points from the report:

Within China, sales of electric vehicles (EVs), consumer goods, and industrial products have stalled. State-owned enterprises are facing overcapacity. China’s plan [to alleviate the overcapacity] is to flood the European market with these products.

Products from China no longer just involve steel batteries and solar panels, which dominated the market for years with unparalleled prices. The mechanical engineering industry is another area where China has over-invested, and Chinese goods are now putting greater pressure on European manufacturers. It is said that Chinese manufacturers can produce around 50 million cars annually, but domestic demand may only be as much as 23 million vehicles. China plans to export the surplus to the rest of the world.

In terms of technical specifications, Chinese cars are at least comparable to most German cars, but they are often much cheaper in terms of price. “In the near future, a wave of industrial products may spread from China to Germany.” This is a harbinger for serious issues potentially facing Germany’s core automotive industry. Businesses and policymakers must find new answers to address these challenges.

Source: Radio France Internationale, March 15, 2024
https://rfi.my/AQv7

Briefings | | |   Economy/Resources Geo-Strategic Trend