A plea for foreign capital and China Daily goes full post truth

Access Archive

Dear Access member,

Our word of the day is “qualified foreign institutional investor” 合格境外机构投资者 hégé jìngwài jīgòu tóuzīzhě. 

—Lucas Niewenhuis, Associate Editor


Daniel Zhang (Zhāng Yǒng 张勇), the new executive chairman of Alibaba (see story #2). Photo credit: Alizila.

1. A plea for foreign capital 

Caixin reports:

The State Administration of Foreign Exchange (SAFE) said in a statement (link in Chinese) Tuesday that the State Council, China’s cabinet, has approved a policy to remove the quotas for both the Qualified Foreign Institutional Investor (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) programs.

What does that mean? Here’s what you need to know:

  • China is very picky with what foreign capital it allows into the country. Individuals have very few ways to invest in mainland China, but the government has set up schemes like the QFII, RQFII, and stock and bond connect to allow at least some institutional foreign capital to flow in. 

  • The limits have been very slowly eased. The investment quota for QFII was raised from $80 billion to $150 billion in 2011, and then doubled to $300 billion in January this year. 

  • Back in January, which was one of the most optimistic periods of U.S.-China trade talks, the QFII quota raise was seen as a goodwill gesture toward more overall financial opening. 

  • The lifting of quotas entirely could be interpreted as a goodwill gesture, and it does appear to be largely symbolic — at least for now. Bloomberg notes:

It’s unclear how much fresh investment the latest moves will attract into China’s $13 trillion bond and $6.9 trillion equity markets, given that foreign investors had only used $111 billion of the $300 billion quota available to them through Aug. 30.

  • Or, it is “an overt admission that the country needs money,” as Bloomberg opinion columnist Shuli Ren argues

China has been edging dangerously close to twin deficits in its fiscal and current accounts. It needs as much foreign capital as it can get — even in the form of hot portfolio flows — to keep control over the balance of payments and avoid a further buildup of debt.

  • Either way, it is “the latest in a series of measures designed to gradually open up the country’s financial sector,” the Financial Times writes (paywall):

In January, for example, S&P Global became the first non-Chinese rating agency to win a licence to operate in the country, while JPMorgan’s asset management arm become the first foreign business to take control of its local joint venture in August.

Last week, Deutsche Bank and BNP Paribas were granted approval to lead underwriting for all kinds of onshore debt in China, while earlier this week Euroclear announced plans to open a link for international investors seeking to access the Chinese bond market.

2. Jack Ma finally actually leaves Alibaba

Here is what we wrote a year ago (September 10, 2018) when Jack Ma (马云 Mǎ Yún) first announced that he was going to leave Alibaba, the company he cofounded:

Jack Ma retires, sort of

Like Donald Trump and Elon Musk, Alibaba founder Jack Ma seems to have an extraordinary talent for getting free media coverage. The latest example: Last Friday, the New York Times reported (porous paywall) that Ma said he was stepping down as chairman of the company. Much media coverage followed. Ma then walked it back slightly: His plan is actually to step down next year, and of course he is not actually going to leave the company.

Today, Ma’s retirement from Alibaba is actually happening, as the Financial Times reports (paywall):

Alibaba, China’s most valuable public tech company, will mark its 20th birthday on Tuesday with a rite of succession: its founder Jack Ma will retire as executive chairman and hand the reins to chief executive Daniel Zhang.

It is the first transition at the top of a big Chinese tech company — peers Tencent and Baidu are still run by their founders Pony Ma and Robin Li — and in many ways the toughest to pull off.

Bloomberg has a new profile of Daniel Zhang (Zhāng Yǒng 张勇), Ma’s successor, titled, Alibaba’s new chairman says he has to reinvent retail before someone else does. Here’s how the article describes him:

Zhang is slight and soft-spoken, often proceeding haltingly in English during calls with investors. Even in China, he’s largely unknown. At Alibaba headquarters, an employee’s parent mistook him for the janitor.

Yet in his understated way, Zhang is proving as radical as his predecessor. He says Alibaba is uniquely positioned to pull together the online and offline worlds in groceries and beyond, and dozens of his new initiatives are leading Alibaba deeper into fields including finance, health care, movies, and music. Especially in the U.S., where the company’s shares trade, these efforts have baffled some investors, who worry about overreach. In Zhang’s view, they’re a matter of survival. “Every business has a life cycle,” he says during an exclusive interview at Alibaba’s Hangzhou headquarters. “If we don’t kill our existing business, someone else will. So I’d rather see our own new businesses kill our existing business.”

We’ll have to wait and see if Zhang continues, kills, or eventually resurrects for Alibaba one of the defining characteristics of his predecessor: a knack for flashy attention- and investment-grabbing initiatives. 

Meanwhile, Alibaba is struggling in its expansion into Southeast Asia, reports the Wall Street Journal

Southeast Asia seemed like a logical step for Alibaba when it bought a controlling stake in Singapore-based Lazada, at the time the region’s largest e-commerce firm, for $1 billion in 2016…

Three and a half years later, Lazada has lost share in key markets, and its No. 1 spot regionwide is being challenged by Shopee, a unit of Singapore-based Sea Group, according to data from app tracker App Annie and people familiar with the companies’ sales. In Indonesia, the region’s biggest market, Lazada last year ranked fourth among e-commerce companies, behind global unknowns Shopee, Tokopedia and Bukalapak.

—Lucas Niewenhuis

3. Pork prices, pig farming, and factory-gate deflation

Earlier this week, the South China Morning Post reported that consumers are starting to become “scared” about the high price of pork, which reached record highs of 30 yuan ($4.20) to 33 yuan per kilogram, more than double the price in July 2018. 

The SCMP now says that the pork supply squeeze and related price inflation issues “top China’s agenda,” and the man tasked with resolving the issue is none other than Vice Premier Hú Chūnhuá 胡春华, formerly rumored to be a potential candidate for general secretary after Xi (before Xi abolished term limits). Quoted in one leaked document, it’s clear the vice premier realizes the political importance of keeping pork prices stable:

“If people can’t access or be able to afford pork [in 2020], when China will become a comprehensively well-off society, it will seriously affect the achievements of a well-off society and hurt the image of the party and the state,” said Hu, according to the document.

Meanwhile, Reuters via Channel NewsAsia reports that China’s State Council has released measures aimed at stabilizing pork supply. These include urging provincial authorities to offer temporary subsidies to farms, with the goal to have large-scale farms make up 56 percent of the total supply by 2022. 

Other voices among China’s leadership have spoken out about rising pork prices, even as they remain embroiled in a trade dispute that compounds the problem. From the New York Times:

China’s premier, [Lǐ Kèqiáng 李克强], and the country’s top governing body have called for “an attitude of urgency” to deal with the issue. Another top official labeled the problem a “national priority” last month.

China has publicly said the trade war with the United States will not affect its pork supply. But with the most recent tariffs, which took effect on Sept. 1, China now imposes extra taxes on American products including soybeans, pork, seafood and crude oil.

Besides rising pork prices, though, Reuters reports that some parts of the economy are seeing widespread deflation, with factory-gate prices shrinking at their “sharpest pace in three years in August.”

—Daniel Schoolenberg

4. China Daily goes full post-truth

Here is the latest from the City of Protest at the center of the Pearl River Delta, and the reporting — and disinformation — about it:

China Daily Hong Kong posted a shocking photo on Facebook of the World Trade Center in New York in flames on September 11, 2001, with the caption, “Anti-government fanatics are planning massive terror attacks in Hong Kong on September 11.” The South China Morning Post investigated further:

When asked if the claim was factually accurate and whether it was ethical to publish it, the state-run outlet sent a screenshot which it said came from a channel on the encrypted messaging app Telegram where a post said protesters should start killing people if their demands were not met.

The newspaper declined to answer further questions about the paper’s editorial process or why it had conflated the Hong Kong protests with the worst terrorist attack on American soil.

Meanwhile, in state media disinformation: The Global Times published a “case study” on “How Western media promotes color revolution” in Hong Kong, the China Daily released an editorial titled Demonstrators betray hidden US hand behind HK protests, and the Global Times published an opinion piece arguing that Washington has no right to define HK’s high degree of autonomy (also in Chinese here). These were much more par for the course. 

Germany was chastised, and the U.S. and U.K. were warned by officials in response to recent actions. 

  • German Foreign Minister Heiko Maas met in Berlin with activist Joshua Wong, whom the Chinese Foreign Ministry blasted as a “separatist.” 

  • More U.S. congresspeople signed on to a bill that “would require the US government to assess Hong Kong’s level of political autonomy annually to determine whether it should continue to have a special trade status,” the SCMP reports. Hong Kong leader Carrie Lam responded, “We will not let [the US Congress] become…a stakeholder in Hong Kong’s affairs.” 

  • In response to unspecified comments by U.K. politicians, the Chinese ambassador to the country “argued it was a problem if they made ‘irresponsible remarks to show support’ for what he described as ‘demonstrators and rioters’ in Hong Kong,” the Guardian says.

5. Bridges gets burned in New Zealand

Simon Bridges is the leader of the New Zealand National Party, which has been the country’s primary opposition party since late 2017. He visited China earlier this month, and on September 7 CGTN published an interview with him. It was a doozy. Click here to watch the whole thing on Youtube

Newshub summarizes in this headline: “Simon Bridges sings Communist Party’s praises in interview with Chinese news channel CGTN.”

New Zealand’s finance minister also “mocked the interview in parliament, saying Bridges’ ‘praise for the Chinese Communist Party went to a level that even the most loyal members of that party would struggle with,’” the South China Morning Post adds

Bridges also met with Guō Shēngkūn 郭声琨, a Politburo member who formerly was Minister of Public Security and whose current responsibilities cover law and order. New Zealand China scholar Anne-Marie Brady pointed out that Guo was essentially “the leader in charge of China’s secret police,” and Bridges responded, per Newshub, “I don’t think that’s a fair and accurate characterisation of the man.” 

—Lucas Niewenhuis


BUSINESS AND TECHNOLOGY:

A Chinese local government financing vehicle has for the first time opted to pay a higher interest rate on its local bond instead of fully repaying it, a surprise move that’s seen adding to investor concern over credit risks in the sector.

  • The move by Jilin Transportation Investment Group Co., which finances railway construction, “may deal a huge blow to bondholders,” said Mei Dongya, executive director at Shanghai Maodian Asset Management Co., who went on to say, “Investors may start demanding higher risk premiums for perpetual bonds sold by weaker firms,” according to Bloomberg.

SCIENCE, HEALTH, AND THE ENVIRONMENT: 

Increased industrial production aimed at offsetting stuttering growth is canceling out efforts to eradicate the famous smogs that hang above many of China’s cities, said Charles Yonts, head of power and ESG research at CLSA.

The rises in activity of the most dirty industries in northern China pointed to a “smokestack stimulus”, he said, as part of a “desperate effort to keep GDP humming along.”

POLITICS AND CURRENT AFFAIRS:

Malaysia’s National Registration Department (NRD) on Monday lodged a police report against several social media users for falsely accusing the department of indiscriminately granting citizenship to Chinese nationals.

Fake news that mainland Chinese were being granted Malaysian identification cards has been circulating on social media for the past month, the latest in a series of attempts to stoke racial tensions at a time when the relations between ethnic Chinese Malaysians and indigenous Malays “are at their lowest ebb”, according to an expert.

A plan to build a gas pipeline across the Caspian Sea would hardly be unusual. Western countries have been promoting a Trans-Caspian route for energy supplies from Central Asia for the past 25 years.

But the latest push for a Trans-Caspian Gas Pipeline (TCGP) may be unprecedented because one of the members of a consortium behind the new proposal is reported to be a subsidiary of a Chinese national oil company.

  • Drones in the South China Sea
    Beijing deploys drones for South China Sea surveillance / SCMP
    “A network of drones has been deployed by Beijing to watch over the islands and reefs of the disputed South China Sea. The network, run by the Ministry of Natural Resources, covers the uninhabited, hard-to-reach islands as well as the vast open waters of the area, according to the ministry’s South Sea Bureau.”

SOCIETY AND CULTURE:

  • Africa ⬅️➡️China migration
    Why Chinese are traveling to Africa, and why Africans are traveling to China / Quartz Africa
    “Direct airline flights between Africa and China have jumped over 600% in the past decade…. China’s ‘Go Out’ policy, implemented in 1999, sent employees of Chinese state-run companies to Africa, as well as investment money.” But it’s not just business: Quartz notes many African countries have developed tourism programs to attract Chinese visitors, and numbers have increased in recent years. Many Africans, meanwhile, go to China for education. 

  • Depression and online culture
    The silent cries of China’s depressed netizens / Sixth Tone
    “A student posted a digital suicide note. Thousands replied, shedding light on the lives of millions of Chinese living with depression.”

  • Gift-giving culture: Teacher’s Day
    Chinese parents struggle with Teacher’s Day gift etiquette / SCMP
    “Despite a decade of official discouragement, parents in China have been struggling with one of the biggest dilemmas of the school year — how to mark the country’s annual Teacher’s Day. Ellen Yuan agonized for a day and a night before sending her son off to kindergarten on Tuesday with a 1,000 yuan (US$140) gift card in his bag for the teacher.”


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