#1 CHINA’S TROUBLED REAL ESTATE SECTOR
#2 “TAIWAN IS THE MAIN ISSUE”
#3 HUAWEI DEFIES US SANCTIONS
#4 SUMMIT IN SAN FRANCISCO
GOOD MORNING FROM LONDON
#1 NIKKEI ASIA 14 NOVEMBER 2023
CHINA’S TROUBLED PROPERTY SECTOR
“Shares in Chinese banks are languishing at near-record-low valuations as investors cast a wary eye on lenders’ exposure to the troubled real estate sector. The banking sector accounts for roughly 10% of the value of China’s stock market. Its slump also reflects the risk of an economic downturn in China. In mid-October, throngs of customers descended upon branches of Bank of Cangzhou, a regional lender serving the city of the same name in Hebei province, demanding to withdraw their deposits. Triggering the uproar was a social media post claiming to list the banks that have extended loans to debt-laden property developer China Evergrande Group. Bank of Cangzhou was listed as lending 3.4 billion yuan ($466 million) to Evergrande.
The bank tried to calm depositors with a statement saying its loans to Evergrande totaled only 346 million yuan as of Oct. 6. The rumors circulating on social media were inaccurate, according to the bank, and the loans have caused no material impact on business
The real estate sector accounts for 23% of bank lending, People’s Bank of China Gov. Pan Gongsheng said Wednesday. Personal home loans account for about 80% of this amount, Pan said.The impact of real estate market adjustments on the financial system is “manageable,” he said.
Property sales have declined since peaking in 2021 at roughly 1.79 billion square meters. Goldman Sachs estimates Chinese banks will incur about 1.2 trillion yuan in real estate-related losses due to the property slump.
But China’s government shows little sign of drastic action on nonperforming debt. New bank capital regulations taking effect in January will loosen some conditions on loans for real estate development”
GRAHAM PERRY COMMENTS; China’s property sector remains in a bad way. The Government seems not to be panicked by the continued negative news and “shows little sign of drastic action on nonperforming debt”. China’s critics, predictably, rub their hands with glee and see in the stream of bad news that emanates from the damaged sector a vindication of their long held view that Xi Jinping’s Communist leadership will be crippled by debt, non-performing loans, and a property sector that is holed below the water line. Only time will tell whether the troubled property sector heralds the beginning of the end for the Party’s experiment with State Capitalism and the Billionaires. We have to wait and see. However, if China emerges stable from this period of turbulence, the leadership will have been tested and will be seen to have faced its most serious economic challenge and come out on top. The absence of evidence of panic shows calmness under pressure which is reassuring but it is the long terms that matters the most. Many will be watching this space.
#2 NO COMPROMISE ON TAIWAN – SAYS CHINA
SOUTH CHINA MORNING POST 14 NOVEMBER 2023
Beijing is willing to negotiate with Washington on “everything else” as long as the one-China principle is respected, a veteran Chinese diplomat said on the sidelines of the inaugural Family Business Summit in Hong Kong on Monday.
Cui Tiankai, the longest-serving Chinese Ambassador to the United States, was among a dozen heavyweight speakers at the closed-door event attended by over a hundred family office owners and managers from around the world.
The participants discussed the impact of fast-changing technological advancements and geopolitical risks – such as the tensions between China and the US – on business and wealth management.
Cui, who held the post in Washington from 2013 to 2021, said top Chinese leaders were sincere about stabilising ties and willing to engage the US on important issues – provided Washington respected and observed the principle that Taiwan is part of China.
“The key is the one-China principle. As long as this principle is still there, as long as nobody is trying to challenge this one-China principle, there’s no need for the use of force. And under that basis within the framework of the one-China principle, everything else can be negotiated,” Cui said.
“But if this one-China principle is undermined and challenged, then the risk of war will increase very much. “I just hope that on the United States’ side, US politicians would also have sufficient wisdom or even common sense not to advocate for war so easily.”
Cui was speaking at the first-of-its-kind event co-organised by the South China Morning Post and Blue Pool Capital with the support of UBS.
GRAHAM PERRY COMMENTS;- IN 1949 CHIANG KAISHEK HAD BECOME A LOSER. HE FLED FROM CHINA TO THE ISLAND OF TAIWAN AND FROM HIS ARRIVAL ON THE ISLAND IN 1949 UNTIL NIXON’S VISIT TO CHINA IN FEBRUARY 1972 THE WESTERN WORLD ENGAGED IN THE FICTION THAT THE DEFEATED CHIANG KAISHEK WAS THE LEADER OF CHINA. IN THE 1972 SHANGHAI COMMUNIQUE – SIGNED DURING NIXON’S VISIT BY THE US AND CHINA – TAIWAN WAS RECOGNISED AS BEING, NOT A SEPARATE INDEPENDENT STATE, BUT A PART OF THE PEOPLES’ REPUBLIC OF CHINA. THE FACT THAT TAIWAN HAS FLOURISHED – WITH THE ASSISTANCE OF MASSIVE US AID – DOES NOT ALTER ITS STATUS. IT REMAINS A PART OF CHINA.
CHINA HAS ALWAYS BEEN INFLEXIBLE WHEN IT COMES TO THE ISSUE OF SOVEREIGNITY. IT HAS A BORDER WITH FOURTEEN OTHER COUNTRIES AND HAS NEVER SURRENDERED ANY PART OF ITS TERRITORY TO ANY NEIGHBOURING COUNTRY. IT IS NOT ABOUT TO CHANGE THAT POLICY. ON OTHER POLITICAL ISSUES CHINA IS PREPARED TO DISCUSS BUT NOT WITH TAIWAN. HENCE THE FIRM MILITARY REACTION TO NANCY PELOSI’S VISIT TO TAIWAN. BUT WE NEED TO BEAR IN MIND THAT TAIWAN’S MONOPOLY OF PRODUCTION OF SEMICONDUCTORS MEANS THAT ANY MILITARY CLASH WITH THE US WOULD BRING THE IMMEDIATE CESSATION OF EXPORTS TO THE US OF SEMICONDUCTORS AND THAT IS THE US’S BIGGEST WORRY.
#3 NIKKEI ASIA
HUAWEI DEFIES US SANCTIONS
Chinese imports of semiconductor manufacturing equipment rose more than 90% on the year last quarter, as the country has proven able to produce advanced chips despite trade controls imposed by the U.S. and its allies. Imports of machinery and equipment for producing semiconductors or integrated circuits jumped 93% in the three months through September to 63.4 billion yuan ($8.7 billion), a Nikkei analysis of Chinese customs data shows.
Imports of equipment for lithography, a critical part of the process that involves forming nanometer-scale circuit patterns, grew nearly fourfold. China’s imports of this gear from the Netherlands swelled more than sixfold, with the bulk of this likely coming from ASML, which supplies some of the world’s most advanced chipmaking equipment
The crackdown became apparent in late August, when Huawei released the 5G-capable Mate 60 Pro made with its own chips. The news came as an unpleasant surprise to Washington, with Commerce Department Secretary Gina Raimondo describing the Huawei’s progress as “disturbing.” Washington alleges the company is a national security risk and has ties to the Chinese military, something Huawei has repeatedly denied.
Nikkei Asia noted that “A teardown of the flagship phone by Nikkei’s own staff together with a Tokyo-based research firm, revealed that 47% of its components by cost come from China. This marks a great leap from the 29% of China-made parts in its predecessor, the Mate 40 Pro, released three years ago.”
GRAHAM PERRY COMMENTS;- Much has been written in recent months about China’s ability to bounce back from the US attempts to stifle China’s activity in semiconductors. In this sense the admission by US Commerce Secretary that Huawei’s production of Mate 60 Pro was “disturbing” will give encouragement to China that the country can continue to develop its activity in the key semiconductor sector. Additionally there is compelling evidence that there has been a significant increase in the quantity of Chinese made parts in the final semiconductor product.
#4 SUMMIT IN SAN FRANCISCO
SOUTH CHINA MORNING POST 16 NOVEMBER 2023
“Speaking to reporters in California after the meeting, [Foreign Minister] Wang Yi said the two sides reached a consensus in multiple areas, including widely anticipated deals on resuming top-level military-to-military communications and setting up a working group to tackle the fentanyl crisis in the United States.
The two leaders talked for four hours at the Filoli Estate outside San Francisco, a meeting Wang described as “historic”, “comprehensive” and “in-depth”. He also said that it would lay down guidelines for driving “stable and healthy” relations in future.
.“The San Francisco meeting is an important meeting to enhance trust,” saif Foreign Minister Wang Yi resolve doubts, manage differences, and expand cooperation between China and the United States,” Wang said.
He also emphasised that the Chinese President had been invited by his US counterpart for a separate summit while he was visiting California for the Asia-Pacific Economic Cooperation summit.
Wang said both sides will also increase consultations on business, economy, finance, export controls, Asia-Pacific affairs, oceans, arms control and non-proliferation, as well as foreign affairs.
GRAHAM PERRY COMMENTS;- The key relationship is between China and the US. Sometimes it is good and sometimes it is bad. Co-operation sometimes – confrontation sometimes. Where do we begin? With the historical analysis promoted by Professor Graham Allison – the Thucydides Principal and the inevitable possibility of war between an established power and a rising power. The US has been the dominant world power since 1945. It brushed off the challenge from the USSR but now is challenged by the rising power of China. The US does not want war. No country wants war but the US concludes that the rise of China makes conflict between the two supergiants more likely. Following Allison’s parallel with the rise of Sparta and its challenge to the established power of Athens, the rise of China challenges the established power of the US.
The US did believe – as with the USSR – that China would buckle under the weight of constant pressure from the US. But China today is not the USSR of yesterday and shows no evidence of weakening in the face of growing US military might in the Far East. Whether war occurs depends on the response of the two superpowers in moments of heightened confrontation. Within the last month, a US B-52 bomber flew from San Francisco and came close to China’s air space. The two planes came within 10 feet of each other. Would a collision between the two planes have led to an outbreak of hostilities? Possibly. As Professor Jeffrey Sachs has said in a recent lecture, there is room enough for the US and China in the world as a whole but if one wants to dominate the other then the chances of war increase. The US with its 500+ international military bases challenges China with its 1 only international military base. China hopes for peace but recognises the close proximity of war.
Graham Perry MA FCIArb