TWS: Feb. 1, 2021

Graph of the Week | Economics

The Chinese Economy Gets Locked and Loaded for Round ’21

All’s well that ends well. After facing its first economic contraction in Q1 2020 since Mao Zedong held office, China has not only made up for its losses but climbed back to pre-pandemic growth rates in the fourth quarter.

According to recent PBOC data, Q4 2020 GDP hit a cool 6.5% y/y growth. Finishing out the year, China’s aggregate GDP performance for 2020 ended with 2.3% growth, making it the only major economy with net gains in this rollercoaster of a year.

Behind these figures was a strong economy firing on all cylinders. Of particular noteworthiness, though, was foreign trade. Global demand for Chinese goods spanning PPE to consumer electronics has continued to surge, benefiting numerous domestic industrial and manufacturing producers. In November, Chinese exports hit record highs at US$268 billion in goods purchased.

Bottom line: The winds of fortune continue to point towards the East. Among the new data was a small gem, announcing 7.3% growth in industrial production in Q4. Still benefiting from early pandemic policy support and slowly rising consumption, China’s industrial producers are just warming up amid a strong outlook for early 2021.

Business | Policy

Turning Tomato-Faced Over Forced Labor

You say tomato; I say human rights violation. In light of reports of forced labor in China’s Xinjiang region, the US has banned imports of cotton and tomatoes from the province.

China’s detainment of predominantly Muslim minority groups in its far west Xinjiang region has led Washington to estimate that some 1+ million Uighurs, Kazakhs, and other ethnic minority groups are being forced into labor.

The region is a powerhouse for raw materials and was responsible for around 85% of China’s total cotton production in 2019. US regulators estimate that the US imported nearly US$9 billion of cotton products and US$10 million worth of tomato products from Xinjiang in 2020 via some of America’s most prominent companies like Apple, Nike, Kraft Heinz, and Campbell Soup.

Bottom line: China has historically been able to skirt calls for human rights and labor violations by flexing its economic might. But, as patience wears thin for Beijing and its opportunistic behavior over the past year, many governments around the globe are getting tougher on Chinese practices. As Biden begins breaking in the Oval Office, be on the lookout for traditional alliances to be restored with China at the forefront of discussion.

Industry | Policy

Beijing’s Heavy-Duty Solution for a Deep Financial Cleansing

China’s top banking regulator is looking to clean up financial risk across the country. The China Banking and Insurance Regulatory Commission (CBIRC) is calling for more liquidity and fewer non-performing loans as it purges rural banks with less than tidy balance sheets.

With CNY right around the corner, it’s time to begin scrubbing the house – and the CBIRC is no exception. The banking watchdog is poised for some serious spring cleaning and has begun evaluating risk levels across China’s 1,641 rural banks.

The CBIRC plans to sweep those stubborn high-risk rural banks under the rug with bailouts, though they may also encourage mergers with larger competitors to dilute the impact of default. In some cases, local regulators may even consider turning dicey lenders into divisions of state-owned banks themselves.

Bottom line: Overseeing the world’s largest banking sector, Chinese regulators have their work cut out for them to keep a clean house. A history of loose rural lending practices and a recent push to further consolidate SOE giants have regulators rolling up their sleeves as they start from the ground up to ensure rural banks’ finances are spick and span.

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Industry | Technology

Stepping on the Gas for Autonomous Autos

The future is nigh. Earlier this month, the Ministry of Industry and Information Technology (MIIT) gave the green light for China’s smart car industry to test on highways.

With the world’s largest auto market, China’s autonomous vehicles market is slated to pull into first by 2030. Nonetheless, the country has historically been cautious to embrace self-driving vehicles, placing blanket bans on freeway pilot tests and only rolling out on-road testing in 2018 for limited areas.

But the times they are a-changin.’ MIIT is now pushing full steam ahead with the technology, nudging local officials to explore pilots in self-driving technology for taxis, logistic transports, and buses, while also giving the go-ahead on highway testing.

Bottom line: As they begin to receive strong central support, Chinese universities, research centers, and private companies are whizzing by mile marker after mile marker in the emerging technology’s development. Following a late start, China is now driving firmly in the fast lane for self-driving cars and closing in on global standards.

Business | Policy

No More ‘Dodge, Duck, Dip, Dive, and Dodge’ for Chinese Companies, Says MOC

China is brandishing a new shield to defend against its global foes. The Ministry of Commerce released a law protecting domestic companies from all foreign regulators, specifically in response to the buildup of US legislation targeting Chinese firms.

Washington has its sights locked on Chinese companies, having already taken aim at US-listed Chinese companies, organizations tied to the People’s Liberation Army, and throngs of others. Beijing has responded in turn by bringing “phone a friend” to the battlefield, as Chinese businesses that “suffer significant losses” from foreign legislation can now call in the big guns at the MOC to back them. The MOC would then use a combination of international law, “necessary support” from government departments, and “necessary counter-measures” to protect domestic companies from reproach.

Bottom line: Over the past few years, US regulators have landed jabs on several high-profile Chinese companies. While the MOC’s new law is more symbolic than anything, it reflects Beijing’s weariness towards an increasingly hawkish Washington. In true “the best defense is a strong offense” fashion, expect the law to be used as precedent for tit-for-tat blows against countries that attempt to land a knock-out punch on Chinese companies.

Business | Policy

What the Proposed Changes to China’s Anti-Monopoly Law Mean for Businesses in China

After only a dozen years since promulgating its initial Anti-Monopoly Law, currently proposed revisions promise to strengthen anti-monopoly enforcement in China and reshape the regulatory landscape in the world’s second largest economy. Actions by regulators over recent years have shown a commitment to more vigorous monopoly busting, and supplementary draft regulations indicate that China intends for its enforcement to be as robust as that found in the West.

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