Newsletter 113 - May 7, 2022
Welcome to the 113th edition of Trade War.
Xi Jinping doubles down on zero Covid declaring “persistence is victory.” Warning signs flash in economy. Outspoken market strategist is out. And Chinese look abroad.
Factory production starts to stall and American companies struggle. China’s foreign population drops. And arrest slams Alibaba shares.
Xi doubles down on zero Covid
In an address to the elite seven-member Politburo Standing Committee, Xi Jinping doubled down on his zero Covid policy while warning against doubters, reports the Guardian’s Helen Davidson.
“We will resolutely struggle against all words and deeds that distort, doubt and deny our epidemic prevention policies,” while “resolutely [overcoming] the ideas of contempt, indifference and self-righteousness,” Xi said in Beijing.
The speech appears to be a “direct criticism of unspecified local CCP leaders who have questioned the policies at the center, or who have been insufficiently successful in applying them,” the Hong Kong-based China Media Project wrote in an analysis.
“It is difficult not to hear in this phrase about ‘self-righteousness’ a condemnation of leaders in Shanghai in particular,” it added.
‘Persistence is victory!’
The Xi speech was a “powerful affirmation of current policies on Covid prevention,” writes China Media Project’s David Bandurski, citing a readout that ran on the front page of the People’s Daily.
“We have persisted in people first and life first, we have persisted in defense against import [of the virus] and against internal recurrence, we have persisted in dynamic zero, and therefore significant strategic results in prevention and control have been achieved,” reported the Communist Party’s mouthpiece.
The readout later refers to “unwaveringly persisting in the general policy of ‘dynamic zero,’” saying “persistence is victory,” (坚持就是胜利), writes Bandurski.
A separate People’s Daily commentary refers to Xi Jinping as the “core” leader of the Party, a designation given him since 2016, while stating “Persistence is victory! Only by persisting can there be victory! Persistence will definitely bring victory!”
China economic trouble threatens global growth
As China’s economy sags, some are starting to worry about recession, report the Wall Street Journal’s Jason Douglas, Stella Yifan Xie, and Selina Cheng.
“Throttled by Beijing’s zero-tolerance approach to Covid-19, China’s economy is facing a spell of slower growth. Economists are toying with the term ‘recession’ to describe it,” reports the Journal.
Even if an actual recession - two consecutive quarters of contraction - is unlikely (China has a history of using heavy government spending to pump life into its economy whenever things look bad), the economic indicators look increasingly dire.
Unemployment for youth is running at 16 percent, business confidence is down, imports have collapsed, and Chinese consumers are saving rather than spending.
“Cement production in mid-April was less than 40% of full capacity. Shipments of smartphones dropped 18% from a year earlier in the first quarter. Excavator sales within China were down 61% in April compared with the previous year,” the financial paper reports.
About a third of China’s 290 million migrant laborers still haven’t returned to the cities to work, following Lunar New Year in February and the number of people working at small and medium-sized businesses has dropped by some 30 percent, according to J Capital Research.
China’s pain is bad news for the global economy, including commodity exporters like Brazil and Mongolia, Asian countries including Japan, South Korea, and Taiwan which export components to China, and the U.S., where many of its largest companies are deeply reliant on the mainland market.
Ford Motor said its sales in China fell 19 percent in the first quarter, from a year earlier, and chip maker Texas Instruments cut its revenue forecast, citing Covid restrictions in China.
China was expected to make up a quarter of global growth in the half decade through 2026, the International Monetary Fund predicted last year.
Outspoken market strategist out, following censorship
One of China’s most outspoken market strategists has left the state-owned firm where he worked following censorship of his social media accounts, reports the Wall Street Journal’s Rebecca Feng.
Hong Kong-based analyst Hao Hong who had been head of research at Bank of Communications International has written in recent months about sensitive topics including U.S. delistings of Chinese companies, capital flight, and the economic costs of China’s Covid lockdowns.
“In mid-March, Mr. Hong outlined a worst-case scenario in which the Shanghai Composite Index would dip below the psychologically important 3000-point level—a call that struck some onshore bankers and investors as bold,” writes Feng.
“The stock benchmark later traded below that level for several days in late April. On March 31, his Twitter account posted a video with the caption ‘Shanghai: zero movement, zero GDP.’”
Access to Hong’s WeChat account recently was blocked and his Weibo account which had more than three million followers has disappeared.
Hong is not the only economic watcher to be censored in China this year. In January, a popular economist saw his social media suspended after he called for the Chinese government to spend more to reverse the slowing birth rate.
Meanwhile, two other prominent market watchers - Peng Fu, chief economist at China’s Northeast Securities and Yuefeng Wu, a portfolio manager at a private-equity firm - saw their social media accounts restricted.
A spokesman for the Bocom International, a subsidiary of Bank of Communications, said Hong resigned for personal reasons.
Bill Bishop @niubiOutspoken China strategist Hao Hong has left state-owned broker Bocom International days after his social-media accounts within China were censored https://t.co/Slh6PjiUYr via @WSJ
Online, Chinese consider immigration
A surge in online chatter and searches about immigration suggest Chinese are considering leaving China, reports the Economist.
“On WeChat, a popular messaging app, searches for “immigration” increased more than fourfold between early and mid-April. Users of Weibo, China’s version of Twitter, published more than 78,000 posts with the run character in March and April,” reports the magazine.
“‘Run philosophy’ [is] a coded way of talking about emigration. Instead of using a character that suggests running away from China, which would antagonize state censors, netizens have been using one that sounds like the English word “run”, but means something different: run (moist),” the Economist reports.
On GitHub, Chinese internet users are discussing “why to run, where to run and how to run,” the Economist reports. “To run is not to seek pleasure or profit, one essay states, but to escape a country that is speeding in the wrong direction. “Surely a sheep that has been hurt by beating can try to flee?” it asks. “Therein lies the truth of run.””
China factories’ shrinking business
“For the first time since the pandemic's start, China's factory activity is contracting while the rest of the world's manufacturing expands,” tweets Bloomberg New’s Tom Hancock.
Supply chain and flat demand woes for US companies
U.S. companies are being hit hard by China’s Covid controls, both from supply chain disruptions and lost sales as Chinese consumers stop spending, reports the Wall Street Journal’s Thomas Gryta.
Apple said the Shanghai lockdown could mean a drop in sales up to $8 billion this quarter, Honeywell International said Covid measures had effected production at half of its 20 Chinese plants, while General Electric Co. also said it was hit by shutdowns in the first quarter, affecting both production and delivery particularly in its healthcare business.
While China’s government can pump up GDP growth, it isn’t as easy to boost company confidence. “Supply-chain relocation out of China may accelerate, unless there is a timely relaxation of the zero-Covid policy,” Bank of America analysts wrote in a recent report.
Companies including Estée Lauder, P&G, and Coca-Cola all reported sales drops due to weak consumption in China.
Will foreign residents come back?
China is seeing a dramatic fall in its number of resident foreigners during the pandemic. Many are wondering whether they will ever come back, writes Sixth Tone’s Qian Junya.
“Will China’s pandemic-era exodus prove a reversible blip once — whenever that may be — the country reopens its borders? … Or will China’s foreigner population, already small compared to many other countries, remain smaller still?” writes Qian.
According to relocation company Asian Tigers, its inbound business - or helping people move to China - fell by 30% in 2020, while outbound business rose “sharply” that same year and continued to grow in 2021.
Overall, the number of foreign arrivals and departures fell to 4.53 million last year, only 4.6 percent of the 2019 level, according to China’s National Immigration Administration.
$26 billion drop later: No, not that Ma
A case of mistaken identity wiped billions of dollars off the value of e-commerce company Alibaba, reports Bloomberg News.
Shares of the Hangzhou-based giant fell as much as 9.4 percent in Hong Kong - losing about $26 billion of market value - after China’s national broadcaster CCTV reported that “compulsory measures” had been placed on an individual surnamed Ma, suspected of endangering national security.
“The stock erased most of those losses after police indicated the accused person’s name was spelled with three Chinese characters. [Alibaba founder] Jack Ma’s Chinese name is the two-character Ma Yun,” reports Bloomberg.
Chinese media later reported that the detained Ma works as a director of hardware R&D in an IT company.
“The fact that investors would sell first and ask questions later shows the jittery nature of China's stock markets despite Beijing's repeated promises to take a softer stance on tech firms after a yearlong clampdown on nearly every corner of the internet sphere.”
“While inspections initially focused on curbing corruption, in recent years the Xi administration has used them to advance a wide range of governance objectives,” write University of Pennsylvania’s Christopher Carothers and Fairfield University’s Zhu Zhang in the Journal of Contemporary China.
“Besides curbing corruption, inspections also promote organizational management reforms, improve policy implementation, support party-building measures, and monitor loyalty to the party leadership.”
“Over 40 percent of over-80s in China are unvaccinated,” tweets China tech analyst Rui Ma. “Even in the U.S. 87 percent of 75+ have received 2 shots.”
Here is an informative short video from Brookings’ scholar Ryan Hass laying out the challenges to China’s continued rise and what that means for the U.S.
Trade War gets shout-out
International business attorney Dan Harris has kindly given a shout-out to Trade War including it with two other must-read newsletters on China.
“What makes all three of these newsletters so valuable is their in-depth China analysis. The news behind the news, if you will,” writes Harris.
“Almost without fail, one or more of the articles from these newsletters will influence my views on China or become a topic of discussion with a client or with another of the international lawyers in my law firm.”
Talk on US Northwest exports to China
In the U.S. Northwest? The U.S.-China Business Council will join with the Mansfield Center and other regional associations, to discuss the latest numbers on jobs created and exports to China. Register for next Tuesday’s event in the link.
Nice light: I’m not often on the University of Montana campus at this hour.