Will tax cuts dispel the gloom and doom in China?

Access Archive

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We hope that you find it to be the ideal resource to place all of this momentous year of China news into context, and feel fully informed as we head into 2019 together.

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Thank you, as always, for being a member of SupChina Access.

—Jeremy Goldkorn, Editor-in-Chief

1. Will tax cuts dispel the gloom and doom in China?

Here is a sample of recent news items that seem to indicate times are tough, and they are going to get worse:

  • “China’s economy is not on a cliff edge” says the Global Times, which makes one suspect that China’s economy must be on a cliff edge.

  • Earlier this week, the New York Times reported (porous paywall):

Xiàng Sōngzuò 向松祚, a senior economist at Renmin University in Beijing… cited an estimate from researchers at an unidentified official institute who concluded that China’s real rate of economic growth this year could be just 1.67 percent, or even lower. That projection is at the very low end of economists’ estimates, but Chinese growth is widely believed to be lower than official estimates, which forecast an expansion of 6.5 percent this year. [You can see Xiang discussing his pessimistic views of the Chinese economy on Youtube – in Chinese.]

  • “Meituan Dianping, the Chinese online services platform, joins other tech companies in making job cuts, while denying reports of large-scale terminations,” tweeted Caixin. Meituan Dianping is one of the success stories of 2018: The Tencent-backed company raised $4.2 billion when it listed in the Hong Kong in September this year.

  • “China’s economy is far far worse than people realize. Consumer confidence is plummeting. This is the first time I’ve become outright bearish on China’s economy.” That was a tweet in response to the news of Meituan Dianping layoffs. The unusual thing about it is that it was written by Shaun Rein, an American who runs a market research firm in Shanghai and has been consistently bullish on China and supportive of government policies for more than a decade.

  • The CEO of bike-sharing company Ofo, until recently a darling of the venture capital scene, “has been blacklisted by a Beijing district court… The news comes days after hundreds of Ofo customers showed up at the company’s headquarters in Beijing hoping to get their deposits refunded,” reports Sixth Tone. The company is apparently in real trouble.

  • “Mounting trade risks are dragging down the the confidence of senior finance officers at companies operating in China, according to the results of a survey by Deloitte released Wednesday,” reports CNBC.

  • “I think the data is going to come in very ugly,” said the head of research for the Bank of Communications’ Hong Kong subsidiary to Bloomberg TV. “For the coming six months, we’re going to see a visible, noticeable, broad slowdown in the Chinese economy.

I have chosen the gloomiest news here. Not everyone is this gloomy: we found surprising optimism in a spot survey of economists and investors we talked to for our latest Red Paper (downloadable free for you as an Access member). And yesterday, a Morgan Stanley executive said the firm “outright bullish” on Asian markets, especially China’s.

Deeper tax cuts and more infrastructure?

Nonetheless, the general consensus is that China’s growth will slow. This is the backdrop for  the Central Economic Work Conference (CEWC) chaired by Xí Jìnpíng 习近平 which began on Wednesday in Beijing, and concluded today with a speech by Xi. The meeting was the top story on all central state media today (English, Chinese). This is what seems to have emerged from it:

  • “China’s top leadership has decided to rely on deeper tax cuts and larger fiscal spending to manage economic headwinds in 2019,” is the South China Morning Post’s takeaway from the meeting.

  • The statement from this year’s CEWC was “much longer” than those in previous years, says an analyst cited by the SCMP, “showing the Chinese leadership’s intention to improve its communications and disclose more details of its policy intentions for next year to shore up market confidence.”

  • “China must eventually rely on its home market alone for future prosperity,” was the consensus at CEWC, says the SCMP. This goal led the group reiterate “an older goal that China must ‘urbanise’ 100 million citizens by 2020.”

  • 5G telecommunication networks, artificial intelligence, and rural infrastructure are sectors the government will continue to invest in.

  • The Xi Jinping paradox appears again: China will both boost the state sector and the allow the private sector to flourish. The SCMP notes:

“China will stick to its goal of ‘making the state capital more powerful, better and bigger,” but at the same time, “Beijing has also promised that it will seek to ensure the property rights and personal security of private entrepreneurs.”


—Jeremy Goldkorn

2. Trade war, day 169: China denies U.S. hacking charges

Britain, Australia and New Zealand joined the United States in calling for an end to what the U.S. Justice department says is a global campaign of hacking and intellectual property theft orchestrated by Beijing. China has denied the charges:

  • “China’s Foreign Ministry said on Friday it resolutely opposed ‘slanderous’ accusations from the United States and other allies criticising China for economic espionage,” reports Reuters. Beijing also demanded that the U.S. also withdraw charges against two Chinese citizens accused of hacking.

  • The response is Beijing boilerplate when accused of hacking: total denial, and a reminder about Edward Snowden. From the Foreign Ministry website:

China is a staunch defender of cyber-security and has been firmly opposing and cracking down on all forms of cyber espionage. The Chinese government has never participated in or supported others in stealing commercial secrets in any form.

It has long been an open secret that relevant departments in the US have been engaging in large-scale and organized cyber stealing, spying and surveillance activities on foreign governments, enterprises and individuals.

  • The U.S. and China are both “trying to contain the damage” from the U.S. hacking accusations while trade talks are ongoing says the Wall Street Journal. (paywall)

  • Japan also accused China of cyberattacks, reports the South China Morning Post, naming the same group indicted by the U.S.

  • Reuters has details of the alleged hacks: “Hackers working on behalf of China’s Ministry of State Security breached the networks of Hewlett Packard and IBM, then used their access to hack into their clients’ computers,” according to five Reuters sources.  

  • APT10 is the name of the hacking group named in the latest indictment. The South China Morning Post has an explainer on the group.  

Further reading:

Other news from the trade war and the Great Recalculation

—Jeremy Goldkorn


Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@supchina.com.

—Jeremy Goldkorn, Editor-in-Chief

Here are the stories that caught our eye this week:

  • Xinjiang’s internment camps have reportedly begun forcing their detainees to do manual labor making textiles and other products. Some news publications suggest that this development is a resurrection of the reeducation through labor (劳教 láojiào) system, which was formally abolished in 2013.

  • A third Canadian in China has been detained, amid a rapidly escalating tit-for-tat hostage situation following the arrest of Huawei CFO Mèng Wǎnzhōu 孟晚舟 in Vancouver at the beginning of the month. As the Canadian government decides on its strategy to get the hostages released, the Canadian Embassy in Beijing took to Weibo to register its displeasure via trolling.

  • U.S. National Security Adviser John Bolton announced a “new Africa Strategy,” called “Prosper Africa,” in a speech on December 13. China is mentioned 14 times in the speech, and Russia six times. According to Bolton, one of the goals of the strategy is to dissuade African governments from dealing with or borrowing from China and Russia. He cites runaway debt to China and a military threat. However, Africans are not impressed.

  • Ofo, one of two companies that came out on top of the bike-sharing gold rush of 2017, is now on the verge of bankruptcy. Meanwhile, about 11.7 million customers are still waiting to get their deposits back.

  • China’s gender gap is getting worse. In the 2018 World Economic Forum (WEF) Global Gender Gap report released this week, China fell to 103rd place out of 149 countries, ranking behind places such as Myanmar and Russia. This is the first time China has dropped out of the top 100, and three places down from where it was last year.

  • General Secretary Xí Jìnpíng 习近平 gave a speech this week in celebration of the 40th anniversary of the Third Plenary Session of the Eleventh Central Committee of the Communist Party. In the speech, Xi says, per the translation of the Associated Press and other media, “that no one can ‘dictate’ China’s economic development path.” Although the U.S. is not explicitly mentioned even once, the word 教师爷 jiàoshīyé (“master teacher”) used in the speech sends a very clear message to a domestic audience: Xi is going to stand up for China against America.





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