Lockdown-weary consumers pull back under Covid-zero, Pelosi leaves for Asia tour with no word on Taiwan & $52 billion China competition bill waiting on Biden's signature -- China Boss News 8.01.22
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The Big Story in China Business
China’s consumers pull back spending as Xi’s Covid-zero curtails business, jobs
The world watched in awe as China heaved itself forward over the past two decades to boost living standards and achieve a purchasing power for the ordinary citizen that “was expected to help the economy transition away from an export and construction-driven growth model,” according to the Financial Times. Now, China watchers can only marvel at how quickly the economic situation has changed under President Xi’s Covid and geopolitical policies.
News that China has become a "lockdown-weary country" very cautious with spending amid rising unemployment rates is a recurring theme in the headlines these days. Recent graduates and small businesses have been "hit especially hard," VOA reported. In an interview, Rajiv Biswas, executive director and Asia-Pacific chief economist at S&P Global Market Intelligence, told VOA that “China’s economy has seen signs of disruption since February due to the impact of COVID-19 outbreaks in a number of Chinese cities,” and that “industrial production, retail sales and port operations” were “particular trouble spots.”
“Chinese smartphone sales in April-June fell 14.2% on year and volumes hit a decade low,” Reuters last week said, citing new data released by researchers.
Reuters:
Quarterly sales volumes were 12.6% lower than those seen in the first quarter of 2020, when the pandemic hit China and sales were the worst since the fourth quarter of 2012, when the iPhone 5 was introduced, according to Counterpoint.
And Bloomberg unpacked the “perfect storm of factors [that] has propelled unemployment among 16- to 24-year-old urbanites to a record 19.3%, more than twice the comparable rate in the US.” “The government’s hardline coronavirus strategy” which “has led to layoffs” and “regulatory crackdown on real estate and education companies” - two industries likely to offer higher salaries to younger recruits - hit “[a]t the same time… a record number of college and vocational school graduates—some 12 million—are entering the job market this summer,” news staff said.
Bloomberg:
The result is an increasingly disillusioned young population losing faith in private companies and willing to accept lower pay in the state sector. If the trend continues, growth in the world’s second-largest economy stands to suffer. The sheer number of jobless under-25s amounts to a 2% to 3% reduction in China’s workforce, and fewer workers means lower gross domestic product. Unemployment and underemployment also continue to impact salaries for years—a 2020 review of studies reported a 3.5% reduction in wages among those who had experienced unemployment five years earlier.
Back in April, Financial Times’ Thomas Hale and Andy Lin fretted that Beijing’s policy pedals might not kick-start sorely-needed consumer spending under President Xi Jinping’s “zero-Covid strategy.”
FT:
China has already embarked on a loosening of monetary policy to counter a property sector crisis, and economists widely expect further stimulus this year. For policymakers, the deeper question is whether conventional monetary or fiscal stimulus can have its desired effect in an environment with such severe restrictions, especially given uncertainty over how long the curbs will last during this outbreak and any others in the future.
“If we look at the monetary data so far in April, despite all the stimulus that has already been put in place . . . the loan growth was still relatively weak because of the slow demand,” said Tommy Wu, lead economist at consultancy Oxford Economics. “Obviously, businesses are not willing to take on more loans.”
For the rest of Reuters’ report, China Q2 smartphone sales fall 14.2% y/y as consumers pull back, click here. For VOA’s news, What's Next for China's Economy?, click here. For Bloomberg’s analysis on the job crisis recent grads in China face, China’s Gen Z Is Dejected, Underemployed and Slowing the Economy, click here, and for Financial Times’ April report, China's lockdowns hammer consumer spending, click here.
*Additional reading: They Flocked to China for Boom Times. Now They’re Thinking Twice. (New York Times)
Law and International Xi
Speaker Pelosi heads to Asia but keeps everyone guessing about Taiwan
“U.S. House of Representatives Speaker Nancy Pelosi start[ed] a tour of four Asian countries on Sunday, Reuters reported. Her office did not mention whether or not she will make a stop in Taiwan, the news agency said.
Reuters:
"Speaker Nancy Pelosi is leading a Congressional delegation to the Indo-Pacific region, including visits to Singapore, Malaysia, South Korea and Japan," her office said in a statement.
It said the visit would include those countries, but did not specify whether Pelosi, who is number 3 in the line of presidential succession, might make other stops.
Speculation that the congresswoman will visit Taiwan has worsened already-strained relations between Washington and Beijing. “A visit by Pelosi would be a dramatic, though not unprecedented, show of U.S. support for Taiwan,” Reuters staff said, referring to Republican Newt Gingrich’s 1997 trip as “the last House speaker to visit.”
Gingrich landed in Taipei at a time when China’s military capabilities were weaker, and Beijing could ill-afford a crisis that might affect its WTO accession. Today things are much different, though, and while China Boss thinks President Xi and his cronies probably have overblown confidence in the strengths of the PLA and the economy, seems that opinion would never garner the same attention as public cries of war.
Reuters:
Chinese air force spokesman Shen Jinke was quoted by state media as saying on Sunday that Beijing would "resolutely safeguard national sovereignty and territorial integrity".
Shen said at a military airshow that the air force has many types of fighter jets capable of circling "the precious island of our motherland", referring to Taiwan.
He said China's "air force has the firm will, full confidence and sufficient capability to defend national sovereignty and territorial integrity."
A comment by a People's Liberation Army unit on Weibo, China's Twitter-like social media, posted on Friday - "Prepare for war!" - received 1.87 million thumbs-ups.
For the rest of Reuters’ report, U.S. House Speaker Pelosi begins Asia tour, no mention of Taiwan, click here.
*For additional reading check out this survey of expert Taiwan Strait watchers U.S. analysts split on Pelosi's rumored Taiwan trip - Focus Taiwan from Focus Taiwan, a local English newspaper.
$52 billion China competition bill waiting on Biden's signature
“The House on Thursday passed bipartisan legislation to boost U.S. competitiveness with China by allocating billions of dollars toward domestic semiconductor manufacturing and science research,” CNBC reported. “The bill, which passed the Senate on Wednesday, now heads to the White House for President Joe Biden to sign into law,” news staff said.
CNBC:
The ultimate version, known as the Chips and Science Act, includes more than $52 billion for U.S. companies producing computer chips, as well as billions more in tax credits to encourage investment in chip manufacturing. It also provides tens of billions of dollars to fund scientific research, and to spur the innovation and development of other U.S. technologies.
Semiconductors are crucial for "modern warfare" and "the nation’s reliance on foreign producers for its chip supply" have concerned Pentagon officials for years.
President Biden "has also blamed the chip shortage for the sky-high inflation that has dogged his presidency,” during which “[a] lack of chips available for new-car manufacturing has been linked to soaring prices for used cars,” CNBC said.
For the rest of CNBC’s report, House passes bill to boost U.S. chip production and China competition, sending it to Biden, click here.
Geopolitics
Head of UK industry says British companies “cutting ties” with China
The head of the Confederation of British Industry (CBI) said in an interview last week that “British businesses are cutting ties with China due to concerns about political tensions,” Reuters reported.
Reuters:
"Every company that I speak to at the moment is engaged in rethinking their supply chains ... because they anticipate that our politicians will inevitably accelerate towards a decoupled world from China," CBI Director-General Tony Danker was quoted as telling the Financial Times newspaper.
Relations between the UK and China have deteriorated sharply over the past few years due to Britain’s "security concerns" and anger over Beijing's clampdown on rule-of-law and democracy in Hong Kong. Tensions don’t seem set to ease anytime soon since Prime Minister Boris Johnson announced his resignation. “Both the remaining candidates in the Conservative Party leadership contest - Foreign Secretary Liz Truss and former finance minister Rishi Sunak - have said they intend to take a tougher line on China," Reuters said.
In his Financial Times interview, “Danker said companies were restructuring their supply chains in anticipation of hardening anti-China political sentiment.”
FT:
“We need new strategic alliances in the world,” he said, adding that companies needed to build “resilience . . . In Washington this is all they are talking about.” Prices would inevitably rise, he warned, albeit not immediately. “It doesn’t take a genius to think cheap goods and cheaper goods may be a thing of the past.”
For the rest of Reuters’ report, British businesses turning away from China, industry group says, click here. For Tony Danker’s interview with Financial Times, UK plc is cutting ties to China, says CBI boss, click here.
The Week’s Best China Reads
Leaked Data Show China’s Population Is Shrinking Fast | by Yi Fuxian - Project Syndicate (Yi Fuxian, Project Syndicate)
Read for Yi Fuxian’s report on how “a recent, large-scale data breach offers some sorely needed clarity” on China’s famously “massaged” demographic figures. Excellent.
China’s economic inequality is worse than America’s. And the pandemic hasn’t helped. (Lili Pike, Grid)
Read for discussion of the “key metrics” that show income inequality in China is heading away from Xi’s common prosperity goals.
Can China's economy avoid a Japan-style stagnation? Here's what economists think (Evelyn Cheng, CNBC)
Read to understand why some economists question whether “China can effectively boost new growth drivers like consumption, while controlling problems such as a potential fallout from the real estate industry.”
Middle Kingdom Surreal
NASA: China “taking on significant risk” with rocket’s uncontrolled fall to earth
“China said its most powerful rocket fell back to Earth, as NASA criticized Beijing for failing to share crucial data about its trajectory,” the Washington Post reported.
WaPo:
The “vast majority” of the rocket’s debris burned up during reentry into the atmosphere at about 12:55 a.m., the China Manned Space Agency said Sunday in a statement on its official Weibo social media account.
The rest “landed in the sea” at 119.0 degrees East and 9.1 degrees North, it said. These coordinates are in the waters off the Philippine island of Palawan, southeast of the city of Puerto Princesa. China’s statement did not say whether any debris fell on land.
NASA scientists worried that "the risky design of [the] launch process" for China's enormous 176-foot rocket might result in chunks of debris surviving reentry into the Earth's atmosphere which would increase the risk of damage to life and property upon landing.
WaPo:
“The People’s Republic of China did not share specific trajectory information as their Long March 5B rocket fell back to Earth,” NASA Administrator Bill Nelson tweeted Saturday.
“All spacefaring nations should follow established best practices, and do their part to share this type of information in advance to allow reliable predictions of potential debris impact risk, especially for heavy-lift vehicles, like the Long March 5B, which carry a significant risk of loss of life and property,” he continued. “Doing so is critical to the responsible use of space and to ensure the safety of people here on Earth.”
For the rest of WaPo’s update, China’s most powerful rocket falls back to Earth, lands in criticism, click here.
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China Boss is really enjoying the ubiquitous Portuguese egg custard tart (Pastel de nata) here in Porto. Best served warm with cinnamon. ;) See you Friday.