TWS: Aug. 30, 2021

Graph of the Week | Economics

Xi Talks of Taxes Over Tea

Chairman Xi put on a grand show over his next challenge to achieve “common prosperity” at a recent meeting of the Central Committee for Financial Risk and Economic Affairs. After fulfilling his vision of alleviating rural poverty by 2020, Xi is looking to further his work by bringing moderate wealth for all.

There’s more behind this than just heartwarming sentiment. If China wants to realize its goal to grow the middle class by 400 million people by 2035, Beijing will need to step up its efforts to reel in income inequality.

While China’s Gini coefficient – a common measure of inequality – has dropped since the early 2000s, it’s still far greater now than it was before China’s economic miracle began. In particular, housing market inflation in 2015 saw soaring home values, pushing property owners’ wealth far beyond their peers. China’s Gini ticked upwards during this period for the first time since 2008.

Bottom line: During the meeting, policymakers discussed income redistribution and a major tidying-up of exorbitant wealth. Plans for higher wealth taxes are likely on the horizon, and we also see a possible inheritance and property tax in the tea leaves. Oh, and be on the lookout for an exodus of Chinese cash in offshore banking hubs as well.

Economics | Trade

No Love for Ningbo

Ports at the southern Chinese city of Ningbo finally reopened a full two weeks after a dock worker tested positive for COVID-19. The third busiest container port in the world may take up to 60 days for operations to return to normal as major international shipping lines scramble to adjust schedules.

Despite an uptick in vaccine distribution across the globe, the road to trade recovery is all but guaranteed. At the top of the list is container shipping – an industry that has seen the cost of shipping increase by nearly 450% over the past year as alternative methods of shipping have been slow to come back online.

Of the world’s top ten busiest ports, 7 are located in China. And, although Ningbo is not very well known to laymen outside China, 1.17 billion tons of cargo, or 25% of the world’s container cargo, passed through it in 2020. Meanwhile, the recent closures of a series of Chinese ports – including Ningbo – have sent producers reeling while global retailers warn of inventory supply crunches over the latter half of the year.

Bottom line: While China’s approach of 0 case containment may be a short-term boon, it will make the country slower to open to the world over the long-term. China has administered around 1.95 billion doses of the COVID vaccine, or around 55% of its population. However, the jabs du jour have been Sinovac and Sinopharm, which use traditional inactivated viral loads and have significantly lower efficacy rates. These are prone to quicker diminishing effectiveness and are less resistant to virus mutations than their mRNA counterparts, which ultimate leaves China more susceptible to the virus over the long-term – casting yet another doubt over supply chain dependence on the country.

Business | Policy

PIPL: A Bull in the China Shop Bringing Bearish Bids

A day after regulators released a list of 43 companies that have been unlawfully fiddling with user data, Beijing pulled the trigger on the Personal Information Protection Law (PIPL). Beginning this November, PIPL will strengthen user data protection requirements for companies with heavy user data-driven services.

Big data tech giants like Didi, Alibaba, and Tencent have been in the ringer with Beijing’s regulatory bodies for a while now, and PIPL’s heavily anticipated arrival marks a one-hit KO for team Beijing. Chinese companies are notorious for their shady user data practices, and regulators had enough. PIPL, coupled with the national security-focused Data Security Law coming in September, foreshadows harrowing days ahead for companies holding swaths of user data; a wave of compliance requirements and increased scrutiny is bound for the mainland.

Bottom line: As whispers begin to circulate of an across-the-board ban on data-rich Chinese companies with plans to list in the US, investors’ hope has begun to dwindle that PIPL will mark the end of China’s cutthroat regulatory crackdowns. Companies reliant on user data that fail to cross their t’s and dot their i’s will invariably face consequences – a development that will strain investor confidence. After the law launches, be on the lookout for Beijing to use its go-to one-two punch on a few unlucky tech giants that sends a shot across the bow to warn the smaller fish in the sea. For better or worse, it looks like there’s a bull in the China shop.

Business | Economics

Going Wrong with Human Rights

As businesses from China continue to expand abroad, many have left a trail of bad publicity behind them. Poignantly, a recent report has brought to light significant human rights violations.

A report by the NGO “Business & Human Rights” identified 679 cases of human rights violations in total related to China’s overseas businesses between 2013 to 2020. These cases were mainly concentrated in secondary industries like mining, where about a third of complaints came from, as well as construction. Abuse was largely pointed out in developing Asian, Latin American, and African countries with relatively weaker workplace protection laws and lower levels of business transparency.

While unsettling, there’s little in the way of overseas human rights enforcement coming from Beijing. Laws and guidance to overseas Chinese firms were first published in the 1990s and have been continuously strengthened since, but these regulations are largely voluntary, and violations bear no legal consequences.

Bottom line: While economic loss is unclear, protests, lawsuits, and the halting of building projects abroad would considerably increase the cost of operations for many Chinese investments. Nations in the past have cancelled Belt and Road Initiative loans for the sake of them being uneconomical; a disregard for local human rights could serve to turn more away.

Policy | Technology

What To Know About China’s Smart Cities and How They Use AI, 5G, and IoT

China is massively invested in the digital transformation of its cities. With the nation’s top-down approach towards urban development, it has been able to efficiently rally its industries and resources to support its national goal of developing smart cities. By use of public-private partnerships and the promotion of targeted technological innovation, China has developed smart city infrastructure that has already been applied to many of its major metropolises and their industries.

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