Welcome to newsletter 33, the latest edition of Trade War. This week it became only more clear that China’s leaders have decided that rebalancing to a more domestic consumption-driven economy is imperative, as tensions with trading partners grow and the global economy shows little signs of recovery.
And when top leaders have decided a policy shift is necessary, of course they need a tortured slogan to affix to it. Please meet the ‘Dual Circulation’ economy.
‘Dual Circulation’ might not sound like the niftiest moniker
“‘Dual circulation’ might not sound like the niftiest moniker for an equity strategy, but it’s a phrase that’s captured the attention of investors in China’s $9.4 trillion stock market,” reports Bloomberg News.
Xi said at a meeting with business leaders that ““we must give full play to the advantages of the domestic super-large market” amid rising protectionism and the global economic downturn. The strategy is to effectively reduce reliance on the West,” writes Bloomberg.
To quash American bullying
And of course, Chinese media have their take. “‘Dual circulation’ policy to quash America’s bullying,” is the unsurprising headline of a Global Times story, while “'Dual circulation' a new mode for development,” was the China Daily’s choice for their headline.
Supply side story, not a demand side story
Trouble is, there are few signs that China’s economy is making progress in boosting the role of domestic consumption, still stuck at about 39 percent of GDP, low compared to most of the world, including in the U.S., where the proportion exceeds two-thirds. And China’s post-Covid recovery is further demonstrating this weakness.
“I think everyone is starting to recognize that China’s “recovery” from Covid-19 is a supply side story, not a demand side story,” tweets Peking University finance professor Michael Pettis.
While retail sales fell for the seventh consecutive month in July, (down 1.1 percent, year on year) “industrial output in China rose 4.8 per cent in July compared with the same period last year,” reports the Financial Times. “Local governments have supported a wave of new infrastructure projects, increasing demand for commodities and boosting steel production.”
Job market still under pressure
“The July data show that China’s recovery is still uneven, with consumption unable to keep up with the rebound in industrial output. For a sustainable return to trend growth, China will need a strong rebound in private consumption,” reports Bloomberg News.
“Clearly the hope for a fast recovery has faded -- the consumption still lags behind and the job market is still under pressure,” Zhou Hao, an economist at Commerzbank AG in Singapore told Bloomberg (there were some 5 million fewer migrant workers at the end of June compared to the same period in 2019, the article notes).
Record amount of crude steel in July
Some more evidence of how the economy is now relying on industry: “China produced a record amount of crude steel in July as the government boosted infrastructure spending, while the manufacturing sector rebounded as the world’s second-largest economy reopened after lockdown restrictions,” reports Reuters.
Ludicrous performative patriotism
James Griffith, author of “The Great Firewall of China” has nailed the new dilemma facing Chinese companies in one tweet.
He describes the “impossible situation companies like Bytedance are in: prove your loyalty through ludicrous performative patriotism back home, while trying to insist to regulators overseas that you're not too close to Beijing.”
“Images, and screenshots have been circulating in China evincing TikTok parent company ByteDance’s coziness with the Chinese Communist Party,” writes China Digital Times. “ByteDance has been notably zealous in its efforts to appease the authorities after repeated run-ins.”
Pretend to the world you are independent of the Party; curry favor at home
Here I am last Thursday speaking at the Overseas Press Club on that same dilemma facing all successful Chinese companies - on the one hand pretending to the world you are independent of the Party; on the other, doing everything you can to win favor with the CCP at home:
1st Chinese homegrown iPhone assembler
After buying an Apple handset production plant from Taiwan’s Wistron, Luxshare Precision becomes the first Chinese homegrown iPhone assembler, reports Bloomberg.
“While Hon Hai [Foxconn} will keep assembly orders for premium iPhones, Luxshare will eat into the business for mid-to-entry-level Apple handsets, Fubon Securities analyst Arthur Liao wrote in a July 23 note,” Bloomberg writes.
Joe Biden’s China strategy closer to Trump’s than Obama’s?
“When it comes to what may be the nation’s biggest foreign policy challenge — China — a Biden administration may well end up closer to Trump’s hard-line approach than to the less confrontational strategy of President Obama,” reports the Los Angeles Times.
“It will still be conflict-ridden, maybe at times confrontational, but certainly ridden with conflicts in ways that either weren’t there or were downplayed a decade ago,” fellow at Johns Hopkins University School of Advanced International Studies and author James Mann told the Times.
Tencent’s $22 billion in U.S. assets at risk?
U.S. Secretary of State Mike Pompeo has upped the ante suggesting that Tencent’s assets in the U.S., some $22 billion mainly in video games, could be affected by Trump’s latest salvos against China tech, not just its WeChat app.
“When President Trump made his announcement about not only TikTok, but about WeChat – and if you read it, it’s broader even still than that,” Pompeo said in a speech while visiting Prague, Czech Republic. “We’re going to make sure that American data does not end up in the hands of an adversary like the Chinese Communist Party.”
U.S. corporates exposed to China
Ever wonder just how exposed big American companies are to China. Here’s a nifty chart of some of them.
Notable/In Depth
One reason it’s a mistake to judge China’s WTO entry as either a success or a failure: the fact that China’s different levels of government responded in different ways to entry, writes University of Oregon political scientist Yeling Tan.
The National Security Law was not the beginning of the end of Hong Kong’s freedoms, as many have argued, in reality it was “the culmination of a deliberate, decades-long effort by the Communist Party of China (CPC) to build a parallel political order for Hong Kong despite the content of the Sino-British agreement,” writes China researcher Didi Kirsten Tatlow.
Betsy DeVos Department of Education has decided to investigate Stanford University for its China connections (Read on: there’s some irony here).
Upcoming talk
Voices from the Frontline: China's War on Poverty will be held on September 16 from 7:00 - 8:00 pm EST, and hosted by the China Institute.