GOOD MORNING FROM LONDON
MEDIA EXTRACTS ON CHINA
#1 MOODYS MARK DOWN CHINA
#2 IS EU UNITED OR DIVIDED RE CHINA
#3 CHINA POLITBURO ON THE ECONOMY
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#1 MOODYS MARK DOWN CHINA’S CREDIT RATING
THE UK GUARDIAN
“China’s ability to repay its government borrowing has been downgraded by the credit rating agency Moody’s, which said the ripple effects from a crisis in the property sector would undermine efforts to revive its flagging economy. It warned that Beijing would need to bail out local and regional governments and state-owned enterprises struggling with rising debts, hampering efforts to boost investment and growth.
It maintained China’s credit rating at A1, its fifth highest rating, meaning China held on to its “investment grade” score. But it lowered the outlook for sovereign bonds from stable to negative rating in future in a sign it could cut its in future sending a signal to lenders that the risk of a default had increased over the past year.
China’s finance ministry said it was “disappointed” with Moody’s decision when the economy was on the mend. It said the agency’s were “unnecessary” given the recovery “has been advancing steadily”.
The world’s second biggest economy had been slowing before a 2020 crackdown excessive borrowing that followed a series of debt defaults by dozens of property developers. Without the revenues from rising real estate values and property transactions, local government finances have come under pressure.
It expected China’s economy to grow at a 4% annual pace in 2024 and 2025, well below the 6% to 7% pre-pandemic average. In the longer term factors such as an aging population would probably drive a decline in potential growth to about 3.5% by 2030.”
GRAHAM PERRY COMMENTS;
It is quite apparent things have gone very wrong in China’s property sector. Big questions remain as to the future of its two largest property companies and the efforts of the two companies – Evergrande and County Garden – which are both burdened with substantial debt and the media regularly provides updates on court proceedings taken by creditors to put both companies into liquidation. But there is another category of losers whose circumstances receive less attention from the Western media – Chinese citizens who have paid in full or in part for properties which have remained uncompleted.
The Chinese government will know that they have a crisis on their hands and will be well aware of the steps they need to take to retain the support of the people. They will also be working hard to put in place new structures and rules to ensure there is no repetition.
Critics of China – who have heard much about China’s success in moving approximately one billion of its people out of poverty and making USD1 trillion available in loans to 150 countries to build ports, railways, highways and infrastructure development – are hoping that China’s problems will force a fundamental rethink of its policies and the jettisoning of its commitment to build a socialist state. Different observers and commentators will have their own views but this Column does not expect any such fundamental changes to occur.
China came though the anarchy of the Cultural Revolution which was brought to an end in 1976 with the arrest of the Gang of Four and the return to power of Deng Hsiaoping. China was at a low ebb due to ten years of civil war. The people were not happy and yet within three years, Deng had put China on to a path of development which was well beyond the expectations of the US, the UK and even foreign enthusiasts and did so much to raise living standards in China and offer the world an alternative to the development model advanced by the US.
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#2 EU UNITED OR DIVIDED OVER CHINA
SOUTH CHINA MORNING POST
“Former US secretary of state Henry Kissinger is widely credited with saying: “Who do I call if I want to speak to Europe?” This famous question has been repeated often over the years to highlight the lack of a unified foreign policy across the continent. The allegation against China, says Andrew Hammond an associate at LSE IDEAS at the London School of Economics, is that it favours a splintered EU so that it can “divide and rule” across the continent There is an undeniable chill in relations that could see the two sides failing to even issue a joint statement after their summit on December 7.
Commission president Ursula von der Leyen and other top EU officials including foreign policy chief Josep Borrell support a unified, bloc-wide stance towards China says Yet, despite its efforts, Brussels is struggling to find common ground on Beijing across all 27 member states.
Following the pandemic and Russia’s invasion of Ukraine, EU policy on China is clearly moving in a more hawkish direction. Yet, a central challenge for von der Leyen and Borrell is that the 27 member states do not agree on China. There are clear differences between hawkish Eastern European nations such as Poland, the Czech Republic and Lithuania and their Western European counterparts such as France, Spain and Germany, which do much more business with China.
Perceptions of a divided Europe have also been publicly highlighted by Chinese officials including Fu Cong, the ambassador to the EU. Fu recently said a speech by the European Commission president (von der Leyen) gave him the impression that “Europe has not formulated a coherent policy toward China”.
The positions of Germany and France are particularly problematic for Brussels given that both want to continue engaging extensively, economically, with China. The long-standing and deep business ties that Berlin has with Beijing are widely documented so it is no surprise that German Chancellor Olaf Scholz has been more equivocal than von der Leyen and Borrell.
However, what has surprised many is the relatively soft stance that French President Emmanuel Macron has taken, including during a visit this year to China with von der Leyen. Remarkably, Macron took along a 50-strong business delegation, a far larger group than the 12 CEOs who accompanied Scholz to China last year.
Perhaps most surprising of all was Macron’s shift on Taiwan. Whereas von der Leyen asserted during the trip that “stability in the Taiwan Strait is of paramount importance” and that “threat of use of force to change the status quo is unacceptable”, Macron marked his departure from China by describing Taiwan as a crisis that is “not ours” and as a topic on which Europe should not become “America’s followers”.
It is not just that EU-China relations are frozen, but that they could yet go from bad to worse in 2024. Most recently, both von der Leyen and Borrell have made hard hitting speeches about China.
Taken together, this forms a challenging backdrop to this week’s summit. It is not just that EU-China relations are frozen, but that they could yet go from bad to worse in 2024.”
GRAHAM PERRY COMMENTS;-
THE EU IS ONE ENTITY. THE INDIVIDUAL COUNTRIES ARE ANOTHER QUITE DIFFERENT ENTITY. VON DER LEYEN/BURRELL REPRESENT WHAT THEY BELIEVE ARE THE BEST INTERESTS OF THE EU. MACRON/STOLTZ REPRESENT THE INTERESTS OF THEIR OWN COUNTRY PARTICULARLY THE BUSINESS INTERESTS OF THEIR OWN INDIVIDUAL COUNTRY. WHAT IS GOOD FOR THE EU AS A WHOLE IS NOT NECESSARILY GOOD FOR THE INDIVIUAL COUNTRIES. THERE LIES THE TENSIONS WITHIN THE EU AND THEY WILL BE ON SHOW AT THIS WEEKS SUMMIT BETWEEN CHINA AND THE EU.
TALK OF DE-RISKING COMES MORE FROM THE MOUTHS OF THE EU LEADERS AND LESS FROM THE FRENCH AND GERMAN LEADERS. THE LATTER WANT MORE OF CHINA – NOT LESS, HENCE DE-RISKING IS NOT A PRIORITY AND LARGE BUSINESS DELEGATIONS ACCOMPANY THEIR LEADERS WHEN VISITING CHINA.
NO QUESTION THERE ARE TENSIONS BETWEEN THE INDIVIDUAL LEADERS AND CHINA BUT THOSE TENSIONS RISE AND FALL DEPENDING ON THE STATE OF TRADE, QUOTAS AND DUTIES. ONE KEY TOPIC THAT UNITES THE EU COUNTRIES EU IS THE SURGE OF SALES INTO EUROPE OF CHINESE ELECTRIC VEHICLES – EV’S. THE EUROPEAN COUNTRIES ARE WORRIED AND FRANCE AND GERMANY AND OTHER CAR PRODUCING COUNTRIES ARE ALSO WORRIED. THERE WILL BE COMMON GROUND ON EVs BETWEEN VON DER LEYEN AND MACRON/SHULTZ. BUT ON TAIWAN, WHERE THE EU FOLLOWS AN ANTI-CHINA POLICY, THE INDIVIDUAL LEADERS WILL BE QUITE MUTED IN THEIR EXPRESSIONS OF SUPPORT FOR THE EU’S POSITION.
CHINA IS PRAGMATIC AND PHILOSOPHICAL. THEY KNOW THE SCORE. THEY KNOW THERE ARE FUNDAMENTALLY DIFFERENT INTERESTS BETWEEN THE EU AND THE INDIVIDUAL COUNTRIES, BUT CHINA ALSO KNOWS THERE ARE TOPICS – EG CHINA’S SUBSIDIES TO THEIR EV INDUSTRY – WHERE THE EU AND THE INDIVIDUAL LEADERS WILL PRESENT A UNITED FRONT. CHINA WILL NOT WANT A FUNDAMENTAL FALL OUT AND NEITHER WILL MACRON AND STOLTZ. IT MAYBE BUMPY BUT LIFE WILL GO ON AND CHINA TRADE AND INVESTMENT WILL CONTINUE TO BE A KEY LONG TERM FACTOR IN CHINA/EUROPE RELATIONS.
#3 CHINA’S POLITBURO ON THE ECONOMY
THE FINANCIAL TIMES 9 DECEMBER 2023
China’s state news agency Xinhua report that on 8 December President Xi Jinping said [at a meeting of the Politburo] “At present, our country’s economic recovery is still at a critical stage. The development situation facing our country is complex.”
China’s economy, says the FT not President Xi, has struggled to rebound from the impact of strict Covid controls imposed last year and a deep liquidity crisis in the property sector that have undermined growth and investor and consumer confidence. The government has gradually stepped up monetary and fiscal stimulus, cutting interest rates and announcing the issuance of Rmb1tn ($140bn) in central government bonds, but the pick-up in activity has been slow and uneven.
The Communist party’s Politburo dec”ared’at a meeting held on Friday 8 December to discuss economic work for the coming year that the government should “continue to implement proactive fiscal policies and prudent monetary policies”. It said Beijing should improve “the quality and efficiency” of fiscal policies while monetary policy should be “flexible, appropriate, precise and effective”, Xinhua reported. The meeting also said it was “necessary to . . . strengthen economic propaganda and public opinion guidance”.
Economists have complained of growing pressure from Beijing not to talk down the economy this year. Following a sharp rise in youth unemployment, the National Bureau of Statistics this year also discontinued a data series on joblessness among the young.
Xinhua [China’s Official News Agency] did not reveal whether the Politburo discussed next year’s official gross domestic product growth target. This is usually announced in March at the annual meeting of China’s rubber-stamp parliament and is one of the most keenly anticipated policy decisions in the country’s economic calendar. Beijing this year set the target for GDP growth at 5 per cent, its lowest in decades. Economists speculate it might set the same level for 2024, though they warn substantial stimulus would be needed to achieve this growth given the lacklustre momentum in the economy.
Citi [analysts] predicted Beijing would set a target of 5 per cent growth for next year, but warned there would be no “mega stimulus”. HSBC Greater China economist Erin Xin said in a research note that in addition to policies to boost the housing market, “we expect Beijing to continue to increase fiscal support while monetary policy is likely to remain accommodative”. “China’s domestic demand recovery still needs more support,” Xin wrote. The Politburo meeting also called on cadres to step up an anti-corruption drive in the new year, particularly to “seriously investigate and deal with . . . ‘flies and ants’” — a term for corrupt local government and state enterprise officials.
GRAHAM PERRY COMMENTS;- THIS IS AN ACKNOWLEDGEMENT FROM THE VERY TOP THAT CHINA’S ECONOMIC RECOVERY IS AT A CRITICAL STAGE. AS PRESIDENT XI STATED; THE DEVELOPMENT SITUATION FACING OUR COUNTRY IS VERY COMPLEX”.
THE PARTY KNOWS IT FACES PROBLEMS AND SAYING SO PUBLICLY SHOWS THAT CHINA IS NOT AFRAID OF SETBACKS. THEY HAPPEN. IT IS GOOD TO READ THE WORDS USED BY PRESIDENT XI AND NOT THE WORDS OF COMMENTATORS. THERE ARE MANY OUTSIDE CHINA WHO HOPE HE WILL FAIL. THERE ARE ALSO MANY IN CHINA WHO HOPE HE WILL SUCCEED. IF, AS EXPECTED, CHINA COMES THROUGH THIS DIFFICULT PERIOD THEY WILL DO SO WITH RENEWED CONFIDENCE THAT ITS GOAL OF PRODUCING A PROSPEROUS COUNTRY FOR 1.4 BN PEOPLE WILL BE ACHIEVED. COUNTRIES, LIKE INDIVIDUALS, GROW STRONGER WHEN SUCCESSFULLY CONFRONTING PROBLEMS AND SETBACKS.
