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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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Xinhua Commentaries: “Exposing the Three Major Political Deficits of the U.S.”

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LTN: The Illusion of China’s GDP

Major Taiwanese news network Liberty Times Network (LTN) recently published a commentary on China’s Gross Domestic Product (GDP) authored by Yen Qingzhang (顏慶章), who served as Taiwan’s Minister of Finance and was the first ambassador of Taiwan to the World Trade Organization (WTO). Below are some key points made in the article.

GDP has become the main data point for measuring national output and economic activity across the world. China’s official records state that, in 1985, the country’s State Council gave approval for the National Bureau of Statistics to calculate China’s GDP using the System of National Accounts (SNA) methodology recommended by the United Nations. However, on March 18, 2022, China’s National Supervision Commission for Central Discipline Inspection (中央紀委國家監委) officially stated that “in recent years, the National Bureau of Statistics has resolutely investigated and dealt with statistical violations of disciplines and laws, but the problem of persistent statistical fraud is still relatively prominent.”

In 2019, a joint publication by University of Chicago Economist Xie Changtai and three scholars from the Chinese University of Hong Kong concluded that China’s economic data, including industrial exports and investment amounts, have been skewed for a long time. The paper indicated that China’s annual GDP growth from 2008 to 2016 was exaggerated by an average of two percentage points per year. Cumulatively, the official figures for 2016 are exaggerated by 16 percent, equivalent to more than US$1.5 trillion.

The tragic truth of China’s economic development, putting aside controversy around GDP exaggeration, is that the “achievements” of China’s economic growth have not resulted in accumulation of national wealth. To the contrary, the country’s wealth has been hollowed out. First, as far as residential construction and real estate are concerned, there are as many as 60 million empty housing units. What a waste of GDP! Second, investment by local governments in public facilities, originally an important factor driving local GDP, has been corrupted to the point of being unusable with the passage of time. Although future demolition of unnecessary construction projects will contribute to GDP, such demolition will not create any real wealth. Third, public investment by the central government in major projects such as China’s highspeed railway system have suffered from major losses. The highspeed railway’s income can only compensate for its electricity consumption, and by the end of 2022 the railway system’s liabilities totaled RMB 6 trillion (around US$0.834 trillion).

Source: LTN, July 23, 2023
https://ec.ltn.com.tw/article/breakingnews/4365526

Briefings | | |   Economy/Resources

CNA: Taiwanese Businesses Withdrawal from China

Taiwan’s Central News Agency (CNA) recently reported that Taiwanese capital is leaving mainland China at an accelerated rate. This is due to geopolitical concerns linked to post-pandemic changes in international supply chains.

In the past, the primary reasons Taiwanese companies might leave China were economic — businesses wished to optimize production costs or avoid high tariffs under the Sino-US trade war after 2018. Now, the primary reason for Taiwanese businesses flight from China is due to international political factors.

New Taiwanese investment in China during the period between January and May of 2023 decreased by 4.05 percent year-over-year. Taiwan-funded consulting companies have been holding lectures on how to close companies and sell factories in China, and Taiwanese companies have been withdrawing large sums of money from the country. Taiwanese listed companies repatriate a total of NT$114.4 billion (around US$3.7 billion) in investment profits from China in 2022, the highest figure since 2013.

In the meantime, Taiwan’s total overseas investment in countries excluding China surged by 197 percent during the period from January to May, totaling US$8.3 billion. Taiwanese investment in Southeast Asia has almost doubled.

In addition to imposing export controls on high-tech products to China, the United States has been promoting the concept of “friend-shoring,” advocating that production should be outsourced to allies with similar values rather than to strategic competitiors like China and Russia.

Source: CNA, July 21, 2023
https://www.cna.com.tw/news/acn/202307210113.aspx

Briefings | | |   Economy/Resources Geo-Strategic Trend

Vatican Finally Recognizes Beijing-Picked Bishop

Deutsche Welle Chinese Edition recently reported that Pope Francis has backed down on his earlier position, agreeing to formally recognize Beijing’s pick of Shen Bin as the new bishop of Shanghai. Beijing placed She Bin in this position three months ago.

Although the Vatican agreed to recognize Shen Bin, it criticized China’s unilateral decision on personnel as “disregarding the spirit of dialogue and cooperation.” The Bishop position of the Shanghai Diocese had been vacant for ten years since the previous bishop Jin Luxian passed away in 2013. Father Ma Daqin, once seen as a successor to Jin Luxian, was placed under house arrest after he resigned from his positions in the official Chinese Patriotic Association. The Vatican said in April that they only learned about China’s appointment of Shen Bin from media reports.

Vatican Secretary of State Cardinal Pietro Parolin said that the Pope’s decision to accept Shen Bin as the Shanghai bishop is for the benefit of the Shanghai Diocese and to promote dialogue with the Chinese authorities. Parolin also said China’s move runs counter to the “spirit of cooperation” outlined in the 2018 agreement between the Holy See and the Chinese government on the appointment of bishops.

China and the Vatican have had no formal diplomatic relations since the Communist Party took power and expelled foreign priests in 1951. However, the two sides do have a provisional agreement on the appointment of bishops, originally signed in 2018 and extended for two-year periods in 2020 and 2022. The wording of the agreement has been kept secret.

Source: DW Chinese, July 16, 2023
https://tinyurl.com/mrj3nwv5

Briefings | | |   Geo-Strategic Trend

China’s Rare Earth Manufacturers Struggle to Profit

(Editor’s Note: Ever since the US began negotiating with China over fair trade and tariffs under the Trump administration, some Chinese scholars have talked about restricting rare earth exports from China as an powerful weapon against the US. However, recent news showed that Chinese manufacturers of rare earth cannot generate large profits, making people wonder if Beijing really has the power to control the rare earth market.)

China’s online news media Sina reported that, in the first half of this year, Chinese rare earth companies experienced a significant drop in revenue and profits due to falling demands and prices. This contrasts sharply with the high prosperity of the same period last year. Companies like China Rare Earth (中国稀土), Northern Rare Earth (北方稀土), Rising Nonferrous Metals Share (广晟有色), and Xiamen Tungsten (厦门钨业) all reported a slump in net profits. Additionally, industry leader Jiangsu Huahong Technology (华宏科技) went from being profitable to reporting a loss. Experts attribute the continuous decline in rare earth prices to insufficient demand and increased supply. The second half of the year remains uncertain, as the future trend depends on whether demand will increase substantially.

Source: Sina, July 19, 2023
https://finance.sina.com.cn/jjxw/2023-07-19/doc-imzcfekt6975040.shtml

Briefings | | |   @CS Economy/Resources

Zhejiang Province Starts Residence System Reform

(Editor’s Note: China has long implemented a Hukou system (户籍制度, meaning residence system) where a person is tied to a specific place and his social welfare benefits, including his children’s education, are all tied to that place. People who move to another city cannot enjoy certain public services in that city. Migrant workers are the worst off. They are tied to villages so, even if they live and work in a city, they are not eligible for the city’s benefits and even their children are not allowed to attend the public schools in the city.)

China National Radio reported that the Zhejiang provincial government recently began to reform the province’s Residence system. The administration issued an implementation plan to promote the integration of migrant workers into urban life. It calls for removal of the hukou restrictions throughout the entire province except for in the province’s capital city of Hangzhou. The move aims to attract more qualified labor to the province. This could be seen as Zhejiang’s efforts to mitigate the shortage of young labor in China as the country’s population ages.

The article said that the initiative is expected to have a positive impact on Zhejiang’s economic growth, population structure, urbanization level, and equality of public services, providing valuable experience that can be replicated across the country.

Source: China National Radio, July 19, 2023
https://zj.cnr.cn/zjyw/20230719/t20230719_526334886.shtml

Briefings | | |   Economy/Resources Government/Politics

Solomon Islands Sign Cooperation Agreements with Beijing

Prime Minister Manasseh Sogavare of the Solomon Islands recently visited Beijing. On July 10 he met with Chinese Premier Li Keqiang and signed nine agreements, including a law enforcement cooperation agreement, upgrading the relationship between the two countries to one of “comprehensive strategic partnership.” This was Sogavare’s first visit since the two countries reached a security agreement last year. In 2019, the island country established diplomatic ties with China and severed relations with Taiwan.

Last month, Sogavare called for a review of the Solomon Islands’ security treaty with Australia, which used to provide the country with policing assistance.

A joint statement between China and the Solomon Islands urged for caution in handling issues related to nuclear-contaminated water discharge and nuclear submarine cooperation, seemingly criticizing the AUKUS alliance involving Japan, Australia, the UK, and the US.

Sogavare also met with Chinese President Xi Jinping on July 10. Xi said that China would support more investments in the Solomon Islands. Last year, the Solomon Islands received US $66 million in funcing from the Export-Import Bank of China, and telecommunications giant Huawei was contracted to build 161 telecommunication towers on the islands.

The two countries reached agreements in various fields, including civil aviation, trade, economy, technology, and sports. China will construct the stadium used for the 2023 Pacific Games scheduled to be held in Solomon Islands’ capital city Honiara this November.

Source: Epoch Times, July 11, 2023
http://cn.epochtimes.com/gb/23/7/11/n14031967.htm

Briefings | | |   Geo-Strategic Trend

Guangming Daily: Stimulus Policies Should Switch to Consumer Spending

Guangming Daily website, a major Chinese Communist Party mouthpiece, recently published a theoretical article suggesting that Beijing re-orient its economy stimulus policies around consumer spending rather than investment. The article stated that, to stimulate consumer spending, the focus should be on delivering money to residents through reasonable, legal, compliant, and economically-sound channels. Macro-economic policies need new measures and targets, shifting the focus from investment to consumption, addressing current economic bottlenecks and weaknesses more directly.

The article suggested that reforming the residence identification system (户籍制度) can have an immediate and substantial impact on consumption. (Editor’s notes: The reform here refers to giving people more freedom to move between cities and also letting migrant workers (peasants) enjoy the same benefits given to city dwellers.) According to the article, studies show that migrant workers’ consumption is suppressed by 23 percent due to limited access to public services and social security given the migrants’ lack of urban household registration. Reforms that alleviate this suppression could raise consumption by almost 30 percent even without considering income growth.

The article also suggested improvement of the social security system, as China has a rapidly aging population. Between 2022 and 2035, the ratio in China of elderly to working-age population will grow significantly, increasing the pressure on pension funds and eldercare services. The author argued that a substantial expenditure in the area of social security would serve as a short-term economic stimulus.

Source: Guangming Daily, July 17, 2023
https://theory.gmw.cn/2023-07/17/content_36700264.htm

Briefings | | |   Economy/Resources Government/Politics

Siemens Terminates Partnership with Chinese Military Company Amidst International Concerns

Siemens has terminated its partnership with Beijing Transemic Technology (北京天圣华信息技术有限公司), a Chinese company accused of using Siemens technology to upgrade Chinese military equipment. The US placed Transemic on its sanction list on June 12 for its involvement in developing supersonic weapons as well as design and manufacturing of air-to-air missiles. It was also reported that Transemic resold Siemens software to China’s defense research universities linked to the Chinese military. Siemens was initially reluctant to terminate the partnership despite negative media coverage, but the company eventually decided to end all dealings with Transemic.

The European political sphere has become more sensitive to China’s military expansion, with the President of the EU Commission warning future relations with China in sensitive high-tech areas. Germany’s Foreign Minister has also advocated for stricter controls over exports to China,
particularly for “dual-use” products with both civilian and military applications.

Source: Deutsche Welle, July 17, 2023

https://www.dw.com/zh不卖了压力山大-西门子终止与中企合作/a-66253259

Briefings | | |   @CS Defense/Military Economy/Resources