A World Restored? Xi-Biden Call, January CPI & Loans, Trade in Services, Green Finance, Birth Rates, Computing Power, FAST, a special New Year edition

Intelligence and Insights on China's government actions, foreign policy, economy, and the capital markets.

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A Letter from the Editor

Chinese New Year’s celebration is intended to be celebratory, peaceful, and prosperous. 

Leaders, from the US to the UK, sent well-wishes to the global Chinese, complimenting the symbolic quality of the Ox. However, the zodiac rarely tells true Chineseness. 

Chinese lunar calendar goes on a 60-year full cycle. This year turns “Xin Chou” (辛丑). In another Xin Chou Year, 120 years ago, the Chinese government (Qing Court) signed the most humiliating treaty in Chinese history, the Boxer Protocol. Chinese land was carved out by foreign powers. From that Xin Chou year in 1901, China effectively lost its sovereignty and became semi-colonized. Boxer Rebellion, the heroic Chinese civilian anti-imperial movement, was quashed.

Xin Chou’s memory is embedded in modern Chinese DNA and serves as the moral foundation for today’s Chinese national rejuvenation. Foreign state leaders today either do not know or do not wish to remember. 

History is dense. Often civilizations are morphed by their tragedies. 

This turn of the Xin Chou year has been a good one for China. 

Xi and Biden spoke for 2 hours on the Chinese New Year’s eve. Much must have been talked about. Not much was expected to have been agreed. 

Additionally, the WeChat ban in the US was lifted. TikTok’s forced sale was ‘suspended”. Confucius Institutes in the US, ordered to be closed down by the Trump administration, is now back to the drawing board. China promised $170 billion of trade in over 5 years with Central and Eastern European countries. To add to the New Year’s festivity, news came that Chinese stock investors earned an average of $21,000 in the previous year of the Rat. Chinese equity market shone brightly last year. 

Peace, goodwill, luck, and prosperity, China seems to have had it all this week. 

Following the Biden-Xi call, little was released, and much remains subtle.

Both sides expressed commitment to diplomacy. However, there is an interesting difference. In the Chinese lexicon, “cooperation” is used as the antonym for “confrontation,” much aligned with the Chinese cultural aversion toward public hostility. In contrast, in the White House read-out, the word “cooperation” is nowhere to be found. Instead, “exchanged views,” “practical, results-oriented engagements” are featured. Compared to Blinken’s previous call with Yang, the White House’s choice of words appears less fiery.

On the subject matters, Biden “underscored” specific “concerns” over Xinjiang and Taiwan. Two areas where any foreign pressure is perceived by China as a threat to sovereignty. If the intention of the White House is to drive behavioral change, the message certainly risks the perception as a regime threat by China. This follows the recent escalation of tensions over Taiwan and the US delisting of the separatist East Turkestan Islamic Movement (ETIM), a UN Security Council-designated terrorist organization, from its terrorist list in November 2020.

What common ground remains then? It is clear that the US needs China to weigh in on non-proliferation on the Korean Peninsula and Iran, on climate change, and on the planetary pandemic. And not specified, the US also needs to evaluate if the two sides have enough goodwill to mend the paralyzed and wounded multilateral institutions from the WTO to the WHO. 

Finally, despite all the contestation over the China Model, Biden’s US is tacitly giving credit to China’s infrastructure-led development and a whole-of-government approach, by charging head-on with an ambitious vision to modernize the much-needed US infrastructure. 

They’re going to, you know, if we don’t get moving, they’re going to eat our lunch,” said Biden on Thursday to a group of senators. As economic reality sets in, Biden understands the historic destiny he has now stepped upon. As the Chinese adage goes, “only development is the hard truth.” 

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Economy

China’s Services Trade in 2020: Narrower Trade Deficit and Increased Knowledge-Intensive Services

China's trade in services dropped 15.7% YoY to $707 billion (RMB4.56 trillion) in 2020. However, the services trade deficit continues to narrow, and the share of trade in knowledge-intensive services increased, said Gao Feng, a spokesperson from the Ministry of Commerce (MOFCOM).

Services export posted the highest growth in December by 6.9%

Among the exports, charges for the use of intellectual property (知识产权使用费出口) rose by 76.6% YoY.

Exports of personal cultural and entertainment services (个人文化娱乐出口) went up by 46.5% YoY. Logistics exports (运输出口) went up by 56.9% YoY.

Exports of knowledge-intensive services grew by 7.9% and accounted for 55.3% of the total services export, up 4.6%. Fast-growing export sectors include charges for the use of intellectual property (30.5%), telecommunications, computer and information services (12.8%), and insurance services (12.5%).

The share of trade in knowledge-intensive services grew by 8.3% YoY.

Knowledge-intensive services trade now accounts for 44.5% of China’s total services trade.

Imports of knowledge-intensive services grew by 8.7% YoY and accounted for 36.6% of the total services import.

Fast-growing imports include financial services (28.5%) and telecommunications, computers, and information services (22.5%).

Tourism trade dropped by 48.3%.

China is to Expand Services Trade During 14th Five-Year Plan Period.

China's services trade is estimated to reach about $1 trillion by 2025, and its share in total trade will rise from 14.6% in 2019 to about 20% in 2025. Over the next five years, China will continue to focus on the growth of trade in services. China strives to raise the share of knowledge-intensive services to over 40% by 2025.

China will target a trade surplus in intellectual property and digital technology. China will also increase the proportion of digital-related services exports to about 30% by 2025. (read more in Chinese)


Macro

China’s January CPI Turned Negative YoY, Again

China’s consumer price index (CPI) deflated by 0.3% YoY (but rose by 1.0% from last month) in January. 

Rising Food Prices But Falling Pork Price

Food prices went up 1.6% in January YoY and 4.1% MoM due to cold weather and travel restrictions affecting meat and vegetables' transportation. The prices of fresh vegetables rose by 10.9%.

The pork price was down by 3.9% in January compared to a rise of 6.5% in December 2020. By January 9, China has released 240,000 tons of frozen pork from its state reserves to ensure supply and price stability during China’s peak period for pork consumption.

Deflation As Demand for Dropped

Core CPI decreased by 0.3% in January, mainly attributable to the falling price of services. 

The price of transportation and communications fell by a significant 4.6%. Of which, airline ticket prices and charges from travel agencies decreased by 33.2% and 9.9%, respectively  (read more in Chinese)

A slowdown in consumption and travel restrictions ahead of the New Year could curb further core inflation.

Factory Prices Increase for the First Time in a Year

In January, the producer price index (PPI) rose 0.3% YoY and at the fastest rate since May 2019, outperforming the earlier prediction that PPI is expected to enter positive growth territory in March or April. (read more in Chinese)

Factory gate prices rose steadily over the past year, partially due to rising commodities and raw material costs.

Demand for electricity and heating increased. Upward utility price pressure caused the coal mining and processing industry production cost to rise by 6.4% and natural gas processing cost by 3.9%.

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January Loans Issued at Unprecedented Historic Levels

Banks extended $555.31 billion (RMB3.58 trillion) in new loans in January, hitting the highest ever on record, according to data released by the People's Bank of China (PBOC).

Total social financing (TSF, 社会融资总量) measures the aggregate financing to the real economy. TSF, in the Chinese context, refers to the aggregate funds provided by China’s domestic financial system to the private sector of the real economy over a set period of time.

Total social financing (TSF) jumped to $803.06 billion (RMB5.17 trillion) from $267.17 billion (RMB1.72 trillion) in December, again an unprecedented record volume.

M2 expanded 9.4% in January, in line with the central bank’s guidance that the growth of M2 will keep pace with GDP growth in 2021.

Household loans surged $197 billion (RMB1.27 trillion), in which medium- to long-term loans increased by $146 billion (near RMB 1Trillion), up 100% YoY, reflecting that the real estate investment is red hot.

Credit growth in January mainly came from loans to households. Medium and long-term loans to households, now far exceeding a reasonable level, continue to raise concerns about China’s high household leverage and real estate speculations. (read more in Chinese)

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Birth Rate Dropped 30% by Statistical Reading in 2020

According to 2020 reports issued by China’s Ministry of Public Security, a total of 10.035 million newborns were born and registered. This represents a 30% drop from the 14.65 million new births the previous year. However, it is important to note that as many as 3 million newborns could still be unregistered through December 2020.  

Taking unregistered newborn statistics into consideration, the decline in birth rates in 2020 could be just about 11%, nonetheless a double-digit decline. How much of the drop in birth rate is attributable to COVID-19 is hard to quantify.

The choice to have fewer children by Chinese millennials can be largely attributed to socioeconomic pressures, and a smaller extent, lifestyle choices.

China has officially adopted a two-child policy. However, a lift of the one-child policy has not stimulated more births. Some economists plead for China to lift all birth control policies as soon as possible, if not too late already.

On the flip side, China is speeding into an aging society. Here are some of China’s aging prospects. ( read more in the SCMP op-ed)

If China is to address its population dilemma, it needs a re-evaluate its development model:

·      Accelerate economic development by increasing income and expand public services in education and aged care to reduce the plunder effect of economic development on the people. This is the fundamental solution to China’s population problem. 

·      Strengthen the reproductive support ecosystem and broaden the scope of compulsory education. 

Currently, the Chinese government’s 14th Five -Year Plan clearly proposes to: “Implement the national strategy of actively responding to population aging. Formulate a long-term population development strategy, optimize the family planning policy and make the family planning policy more inclusive.” 

It is hoped such population gaps are still reversible but would require China to change its development model into a “people-oriented” center model. (read more in Chinese).


Government in Action

China’s Central Bank Steps up Efforts in Green Finance

The PBOC has said it will step up efforts to promote the development of green loans, bonds, insurance, and derivatives as part of China’s efforts to meet the country’s 2060 carbon neutrality target.

Integrate with International Green Finance standards

At a press briefing on Tuesday (9 February), Wang Xin, Director of the PBOC’s Research Bureau, said the central bank would accelerate the development of a system of green financial standards. (read more) Not only is the PBOC aiming to align with international standards, but also to increase transparency through information disclosure. 

Currently, only the EU and China have set clear standards for green finance. Thus this can be a step closer to a China-EU Shared Classification Catalogue for Green Finance, expected to be completed later this year according to Zhu Jun, head of PBOC’s International department during the China Finance 40 seminar held last month.  

If all goes according to plan, the EU and China will be the first in the world to set tangible international standards for green finance, which may result in other economies following suit.

Green Finance Execution

At the briefing, PBOC Deputy Director Peng Lifeng said the central bank will direct banks to increase the resources that go towards green credit lines, and explore the use of policy measures such as re-lending, financial discounts, guarantee mechanisms, and risk compensation to incentivise financial institutions to develop their green credit programmes.

Peng pointed to Guangzhou, where a subsidy of 1 percent of the loan amount is granted to companies that obtain green loans. The city also provides banks compensation for green loan losses, up to 20 percent of the loss amount.

Financial institutions will be encouraged to develop innovative green credit products and services, including green rights and pledge loan business and financing services for carbon emission trading participants.

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Technology

China’s FAST-World’s Only Giant, Single-dish Radio Telescope after Arecibo collapse

The gigantic Five-hundred-meter Aperture Spherical radio Telescope, FAST for short and “Sky Eye” for nickname —in China’s Guizhou province—is now the only top-notch observational tool after the American telescope Arecibo was permanently damaged by Hurricane Maria in 2017.

Nan Rendong—the FAST program's founding scientist—took 26 years to complete pre-research and started this ambitious project. With the FAST radio telescope's assistance, scientists have made a series of breakthroughs, such as discovering 300 pulsars and publishing 40 papers based on the data gathered by the telescope. Among them, a discovery of a new fast radio burst (FRB) has been picked as one of the top 10 scientific discoveries by Nature in 2020.

FAST, which became fully operational in January this year, is expected to open to foreign scientists in 2021, according to a November article by state-backed media People’s Daily.

Although the "Sky Eye'' has brought more advanced cosmological observation technology to the international astronomy community, active search for extraterrestrial life has greatly worried the late British theoretical physicist Hawking. He warned the international community in 2010: "If aliens visit us, it will be the same as when Columbus discovered the Americas. It will be of no benefit to the native Americans." 

Regardless of the different international stances on exploring extraterrestrial life, the current understanding of the universe is limited. The FAST program will be instrumental in getting to know more about our galaxy.

At the same time, China hopes to be a space power by 2030 to exploit its rapid rise in the field of sciences, and the FAST radio telescope represents the first step towards this objective.

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China is Ranked Second in Computing Power after the US

China has been ranked second in computing power among 10 countries that have been recently examined. This came following an assessment report (2020 global computing power) co-released by Inspur and IDC.

The assessment considered four dimensions: computing power, computing efficiency, application level, and infrastructure support.

The countries under scrutiny are China, the US, Japan, Germany, the UK, France, Australia, Brazil, Russia, and South Africa.

With a score of 66, China has reduced its gap with the US (75) in computing power. Japan is third (55), followed by Germany (52) and the UK (47).

China has experienced the Fastest Growth in Computing Power.

Compared with the results of the 2015 assessment, China experienced the fastest growth. The country has seen significant improvements in all four dimensions of the computing power index, with an average annual increase of nearly 30%.

Lags in computing efficiency

The demand for tech implementation in China is huge. Nevertheless, the computing efficiency gap and its application at different levels still keep China behind other countries. 

China's Strategic Focus on AI

Nearly 50% of the investments in the AI computing market between 2015 and 2019 came from China. Likewise, AI computing accounts for 14% of China's overall computing power.

The importance of Computing Power

The report has found a close correlation between computing power and economic growth. With a 1% improvement in computing power, the digital economy and the GDP will increase by 3.3‰ and by 1.8‰, respectively.

As computing power is becoming the core driver for the digital economy, China's investment in data center infrastructure is expected to reach $23 billion (RMB 150 billion) in 2020.


Qualcomm, ZTE, and China Mobile 5G Standard Collaboration Underway

Qualcomm – a US-based semiconductor and wireless tech giant – is teaming up with China Mobile and ZTE to carry out 5G positioning tests. These tests are aimed at widening the industrial adoption of 5G in China (source). High-precision positioning in 5G is a key enabler for several vertical applications, from public safety to indoor navigation. It ensures flexibility in the development and maintenance of 5G networks (source).

Bai Yanmin – general manager of ZTE’s 5G products group – has stated that “the development and use of 5G network positioning capabilities will enable industrial applications and empower thousands of industries” (source).

This joint effort among the US and Chinese tech giants follows the completion of 16 sets of standards for 5G by the 3GPP, a collaboration of groups of telecoms associations in Asia, Europe, and North America that defines international cellular communications industry standards (source). These specifications will guide Internet of Things use cases, and build new information technology platforms for other critical infrastructures, including ports, factories, warehouses, and smart cities. Moreover, the three companies have already conducted end-to-end 5G interoperability data tests in 2017 (source).

Tech Cooperation

Qualcomm, China Mobile, and ZTE’s 5g positioning tests signal a continuous willingness by US and Chinese telecom companies to cooperate despite tensions in the US-China bilateral relationship. After the “tech war” escalated under the Trump administration, current US President Biden has remarked that China should expect “extreme competition” from the US rather than conflict (source).

China’s Internet of Things

China has already widely adopted Internet of Things development strategies. In 2020, a Chinese private 5G mobile network for mining began operations at a coal mine in Shandong.

Advanced mobile system delivers faster data transmission, enabling workers to better control the operation of mining equipment hundreds of metres underground.

State-owned Shandong Energy Group Co. independently built the infrastructure at its subsidiary Baodian Coal Mine’s operations (source). Endowing existing manufacturing systems with 5G features is more costly than building new factories from scratch gives an advantage to China, where demand for such projects is higher than in the US (source).

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International Relations

China-CEEC Summit

“17+1 could make more than 18,” President Xi Jinping said on February 9, at the China-CEEC summit, which was held via video link. The summit between China and 17 Central and Eastern European countries got postponed from last year due to the coronavirus pandemic.

The China-CEEC partnership was born in 2012 against the backdrop of the European debt crisis. (source) This year's China and CEEC summit highlighted future cooperation in multiple areas like vaccines, trade, and a green economy.

China-CEEC trade

According to Chinese Custom’s data, total Chinese imports from 17 CEE countries(+Greece) reached $23.3 Billion (RMB 151.4B) from January through October 2020. Import scale grew by 65% Year over Year in October.

At the 17+1 Summit, China plans to import more than $170 billion of CEEC products over the next five years. China will double the agricultural imports from CEE countries and boost two-way agricultural trade by 50 percent over the next five years, Xi said. (source)

On a country level, Poland and the Czech Republic account for the highest percentage of China’s regional trade, weighting 30.88% and 17.99%, respectively. Hungary, Slovakia, and Romania rank third, fourth and fifth in two-way trade volume with China. China’s trade with Poland grew by 14.5%, Hungary by 14.56%, and Romania by 11.22%, respectively, in the first 10 months of 2020.

Importance of BRI in the region

The Chinese president also emphasized the coordination of cross-regional Belt and Road cooperation and enhancing Chinese-European freight trains' role in economic growth. In 2020, there were 12,400 freight train journeys between China and Europe, with main routes and destinations within Poland, Hungary, and the Czech Republic. (source)

Vaccine Diplomacy

China will actively consider supplying CEE countries with its Sinopharm and Sinovac vaccines, according to their needs. Serbia has already received 1 million doses of vaccines from the Chinese company. Hungary is currently working with the Chinese counterpart. (source)

Chinese State Councilor and Foreign Minister Wang Yi pointed out that China-CEEC collaboration is part of China-Europe cooperation and a helpful complement to China's cooperation with the European Union (EU). (source)

6 Countries that gave chilling responses

Of the 17 CEE countries, 6 countries -- Bulgaria, Estonia, Latvia, Lithuania, Romania, and Slovenia -- elected to send ministers instead of their heads of state or government.

The sober response signals the intensified geopolitical split in wider Europe, as China ventures to seek stronger economic and digital alliances with European countries. Some CEE countries expressed that they prefer to be more integrated with the EU. However, the economic relationship is not clear-cut.

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Sovereign wealth investor on the Digital War and China's Tech Drive 

#Heychina

Winston Ma, former managing director of China's sovereign wealth fund CIC, and author of the Digital War and China's Mobile Economy, spoke about the fate of #TikTok​ in the US, #Huawei​'s 5G Cars, data governance, and China's drive for leadership in #AI​, #blockchain​, #Cloud​ computing, and big data. Support #heychina​ for more on innovation and business in #China​. ​