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A Sharp Decline in the Number of Foreigners in China Demands Serious Attention.

A Sharp Decline in the Number of Foreigners in China Demands Serious Attention.

Wang Wen, Executive Dean of the Chongyang Institute for Financial Studies at Renmin University of China delivered a speech at “习近平外交思想与‘身边的国际社会’理论研讨会 a seminar on Xi Jinping Thought on Diplomacy and its relevance to the "international community around us" on May 9. Below is a condensed version of his speech:



While the term "international community" may sound sophisticated, it exists right within our own society. Through social media platforms like WeChat, Chinese individuals can engage with a diverse range of foreigners, including diplomats, foreign journalists, businesspeople, international students, and overseas Chinese. These daily interactions, such as likes, comments, and conversations, contribute to the formation of an "international community around us." This community has significant influence over the number of long-term foreign elites residing in China and their integration into Chinese society. Moreover, it plays a vital role in shaping China's relationship with the rest of the world, particularly developed nations, and can contribute to resolving existing tensions.


One crucial challenge that China faces is the insufficient infrastructure to fully leverage the potential of the "international community around us." To establish and strengthen this community and propel China's global influence, breakthroughs and expansion in infrastructure are necessary. This includes developing and enlarging various institutional frameworks related to finance, business, and management. Looking ahead, attracting more global talents and foreign elites is vital for China to become a socialist modernized strong nation.


Furthermore, there is a significant disparity between China's global power status and the current quantity and quality of foreign residents and talents in the country. This disparity raises concerns. On one hand, statistics indicate an overall increase in the number of foreigners in China, but there has been a notable decrease in individuals from developed countries.


According to the seventh national census, the number of long-term residents from developed countries in China showed varying degrees of decline from 2010 to 2020. For example, the number of French citizens residing in mainland China decreased by about 40%, from 15,087 to 9,196. The number of Americans decreased by 23%, from 71,000 to 55,000. The number of German, Italian, and Japanese citizens residing in China has also declined.


As China's most internationalized city, Shanghai experienced a decrease in the number of foreigners from 208,000 in 2011 to 163,000 in 2021. I reside in Beijing's Wangjing Street, a relatively internationalized neighborhood. Ten years ago, nearly 100,000 Koreans were living in Wangjing, but now the number may be only 20,000. The proportion of foreign residents in China is approximately 0.05%, which is significantly low for the world's second-largest economy. It lags behind the percentages in Japan and South Korea, both of which have over 2% of foreign residents. It is even lower than countries like Laos (approximately 0.8%) and Cambodia (approximately 0.5%).


In general, top-tier talents tend to come from developed countries, but the fastest-growing segment of foreign residents in China consists of individuals from developing nations. However, the challenge of effectively accommodating and retaining high-caliber global talents in the long term remains unresolved in China.


The decline in the number of residents from developed countries in China over the past few years can be attributed to various factors, such as the impact of the COVID-19 pandemic and the intensification of the Sino-US competition. However, another significant factor often goes unmentioned: the actual implementation of China's policies and the social-cultural environment still have room for improvement to effectively accommodate foreigners. In light of this, four suggestions are in order to attract a greater number of high-caliber foreign talents.


Firstly, efforts should continue to attract foreign investment and enhance the business environment, ensuring a rapid influx of foreign capital. The rapid increase in foreign investment is crucial for domestic development prospects and countering Western containment. Central and local governments need to address foreign investment access in areas such as tariff barriers, banking and finance, postal services, securities and insurance, construction and tourism, education, and telecommunications.


Secondly, fostering social acceptance and cultural inclusiveness towards foreigners is essential. Regrettably, derogatory comments about foreigners can be found in Chinese public discourse, contradicting China's traditional values of inclusivity and failing to showcase the confidence of a great nation. Particularly in the context of escalating competition between China and the West, approaching foreign individuals, especially those from Western countries, with a fair and balanced mindset is crucial. Treating foreigners equitably based on law rather than cultural biases or social prejudices is a fundamental value for citizens of a modern great nation.


Thirdly, guaranteeing quick and convenient procedures for foreigners in various areas, such as finance and taxation, residence, tourism, and daily life, is crucial. Foreign students, workers, and long-term residents coming to China should receive equal treatment as Chinese citizens, including simplified processes for registering WeChat and Alipay accounts, obtaining credit cards, and accessing social security, medical insurance, and pension. These procedures should be streamlined to ensure convenience and efficiency for foreigners settling in China.


The key to "coordinating security and development" is to promote development while ensuring overall security. It is crucial to maintain overall security while continuously advancing rapid development. An important criterion for testing local governance is if it does NOT prioritize security and in the process stifle development or international exchanges.


Lastly, reforms and innovations can be promoted in China's approval process for intellectual exchanges with foreign countries. Exploring interactions between China's intellectual community and foreign scholars, businesses, embassies, media, and related individuals for greater flexibility can transition from a pre-approval system to a post-reporting system. Requiring pre-approval for every interaction can impede academic and exchange activities, potentially tarnishing China's international image.


Against the backdrop of General Secretary Xi Jinping's continuous call for "comprehensive opening up to the outside world" and the central government's emphasis on openness, it is necessary to reflect on and remind the Chinese government at all levels to pay attention to the specifics of their policies regarding international exchanges. The devil is in the details, as they determine the success or failure and the actual outcome of China's interactions with foreign countries and the construction of the "international community around us."


Amidst ongoing reports in overseas public opinion suggesting a decrease in the number of long-term residents from developed countries in China and claims of China's lack of accommodation towards foreigners or inconvenience in traveling within the country, it is essential to reflect on these issues and ensure that the implementation of policies aligns with the goals of openness and fosters positive international interactions.



Source: Pekingology


China’s state banks cut deposit rates...

China’s state banks cut deposit rates in bid to lift economy.

China’s much-anticipated economic recovery isn’t turning out to be as ebullient as some bullish investors hoped. And yet investors looking to policy makers to power stocks higher with aggressive stimulus might be disappointed. China’s growth is indeed recovering—a contrast to slowing economies in the U.S. and elsewhere—but not at the robust pace expected. That leaves the world’s second-largest economy in a difficult in-between.


Just on Wednesday, data showed that China’s exports fell 7.5% in May from a year earlier, a much steeper drop than economists had projected and the first contraction in three months. That, along with other weaker data points lately, has sparked hopes for more stimulus to rev up growth. But policy makers so far appear more intent on stabilizing the economy rather than supercharging it.



Chinese stocks, in turn, have lost  7% over the past three months. It’s a stark comedown from the fall, when Chinese stocks surged for three months after Beijing lifted its harsh Covid-19 restrictions in late October.


Of course, policy makers have rolled out some efforts to help the recovery—like lowering deposit rates to nudge Chinese savers to spend more. Lenders including Industrial and Commercial Bank of China, China Construction Bank and Bank of China are now offering 2.45% and 2.50%, respectively, on three- and five-year time deposits, down by 15 basis points from September.


But so far, these efforts don’t seem to have persuaded households—or companies—to do so. For that to happen, TS Lombard Chief China Economist Rory Green says employment and income prospects need to improve to help repair confidence.


BCA Research Chief Strategist Arthur Budaghyan in a recent note said consumer spending will likely keep growing since Covid-19 restrictions have lifted, but at a slower pace than in the past.


As for companies, those on China’s mainland are among the most debt-laden in the world, Budaghyan adds. Combine that with a lack of government stimulus and lackluster demand, and these businesses likely won’t rush into investing, expanding, or hiring. That could be yet another obstacle for continued economic momentum.


For now, Chinese policy planners are in a “wait-and-see mode” about whether the economy will regain momentum on its own, says Shehzad Qazi, managing director at research firm China Beige Book.  If growth disappoints in the second quarter, Qazi expects Beijing will roll out more stimulus. TS Lombard’s Green also expects more measures, along the lines of accelerated use of local government bond quotas, cuts to the required reserve requirements at banks to spur lending, and support for the real estate market with reduced down payment requirements.


But it isn’t clear if such measures would jump-start growth. And Beijing remains wary of exacerbating the longer term challenges it has tried to tackle in recent years, such as high levels of debt throughout its economy, including at the local level, financial speculation, and the excesses in the property market.


Another reason China might not be able to rely on its old playbook of leaning on infrastructure and construction to juice its economy: It might not have enough blue-collar workers to take on these projects. By 2025, the manufacturing sector is expected to see a shortfall of 30 million workers, according to Budaghyan. The silver lining: China is likely to keep rolling out efforts to put a floor under its economic growth.


Source: Baron's




Explaining China’s Central Asia pivot...

Explaining China’s Central Asia pivot.

A surge in apprehension followed the establishment last week of a China-Central Asia Summit. “The war in Ukraine has weakened some of Russia’s influence in Central Asia,” warned the New York Times, “and China sees an opening”. Contrasted with the G7 meeting occurring at the same time in Japan, this was said to amount to “duelling summits” for influence.



The Belt and Road Initiative, or BRI, and China’s burgeoning economic partnerships with Central Asian nations, has certainly laid the groundwork for cooperation in areas such as trade, infrastructure and energy. Promises made at the China-Central Asia Summit of extensive financial support to the tune of 26 billion yuan (roughly US$3.8 billion) are indicative of strong economic collaboration, adding to the sense of unease.


This apprehension is exacerbated by Russia’s evident loss of power and influence following its invasion of Ukraine. Yet, despite all signs pointing towards China’s increased cooperation with the Central Asian nations of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, there has not really been any abrupt change in China’s policy towards this region.


China is not aiming to be the dominant player in Central Asia or fill a power vacuum. Instead, by shoring up ties with its neighbours, China appears to be primarily focused on maintaining stability in its western periphery. This, in turn, would help construct a buffer zone to effectively manage its persistent security challenges to the east, in the Asia-Pacific region.


China’s diplomatic priorities offer a valuable insight into its ambitions towards Central Asia. These countries became China’s immediate neighbours following the collapse of the Soviet Union. China’s diplomatic blueprint highlights the significance it places on “major powers, its periphery, developing countries, and multilateral platforms”, and Central Asia plays a critical role in this schema.


But China’s relations with Central Asian countries got off to a slow start. This was largely due to China’s focus on major powers and Southeast Asian neighbours. The lack of dynamic diplomatic mechanisms also hampered the development of closer ties with Central Asian countries, despite security cooperation at the borders. Hence, the inauguration of the China-Central Asian Summit, held in Xi’an, which China’s President Xi Jinping emphasised was a crucial waypoint on the ancient Silk Road.


The bigger focus for China is the relationship dynamics it has with the United States. Washington has declared Beijing a “strategic competitor” and is involved in regional flashpoints centred around the East and South China Seas, including Taiwan. Moreover, US efforts such as its Indo-Pacific Strategy, the Quad grouping involving Australia, Japan and India, and the AUKUS partnership with Australia and the United Kingdom, are seen in Beijing as moves to encircle China, blocking its influence on the first island chain and impeding access to the Indian and Pacific Oceans.


From Beijing’s vantage point, Central Asia and Russia are the gaps in this perceived US encirclement strategy. Despite the withdrawal of US troops from Afghanistan in 2021, China remains wary of US involvement in Central Asia, with the prospect of other powers encouraging “colour revolutions” which it sees as a threat to Chinese interests (the term was explicitly invoked by Xi during his remarks at the China-Central Asia Summit). Anxiety persists about the US Central Asia strategy unveiled by the Trump administration in 2020, which set out as a “primary strategic interest” the aim to “build a more stable and prosperous Central Asia that is free to pursue political, economic, and security interests with a variety of partners on its own terms”.


The stability of the east is paramount for China, yet simultaneously, stronger relations with Central Asian states are integral to China’s national security. Russia’s war with Ukraine has added another layer of complexity, with China concerned about potential US moves in the region. Yet even before Russia’s invasion of Ukraine, Xi chose to visit Central Asian countries for his first overseas trip following the Covid-19 outbreak.


China’s diplomacy in Central Asia should therefore be seen in the context of evolving regional dynamics.



Source: The Lowly Institute


China’s first domestically produced...

China’s first domestically produced passenger jet makes maiden commercial flight.

China’s first domestically produced passenger jet took off on its maiden commercial flight on Sunday, a milestone event in the nation’s decades-long effort to compete with western rivals in the air. Beijing hopes the C919 commercial jetliner will challenge foreign models like the Boeing 737 MAX and the Airbus A320, though many of its parts are sourced from abroad.


Its first homegrown jetliner with mass commercial potential would also cut the country’s reliance on foreign technology as ties with the West deteriorate.“In the future, most passengers will be able to choose to travel by large, domestically produced aircraft,” state broadcaster CCTV said.


China Eastern Airlines flight MU9191 rose into the skies above Shanghai Hongqiao Airport on Sunday morning, footage from CCTV showed. The plane is carried over 130 passengers, the broadcaster said. Passengers received red boarding passes and enjoyed a sumptuous “themed meal” to commemorate the flight, CCTV reported.


China has invested heavily in the production of the homegrown jet as it seeks to become self-sufficient in key technologies. The aircraft is manufactured by the state-owned Commercial Aircraft Corporation of China (COMAC), but many of its parts – including its engines – are sourced from overseas.


From Monday, the C919 will operate on China Eastern’s regular route between Shanghai and the south-western city of Chengdu, CCTV reported.


The first model of the narrow-body jet, which seats 164 passengers, was formally handed over to China Eastern last year during a ceremony at an airport in Shanghai, hailed by state media as “an important milestone” for the country’s aircraft industry. Zhang Yujin, COMAC’s deputy general manager, told state-backed Shanghai outlet The Paper in January that the company had taken about 1,200 orders for the C919. COMAC planned to increase annual production capacity to 150 models within five years, Zhang said at the time.


Asia – and China in particular – are key targets for both Airbus and its American rival Boeing, which are looking to capitalise on growing demand for air travel from the country’s vast middle class. Last month, Airbus said it would double its production capacity in China, signing a deal to build a second final assembly line for the A320 in Tianjin.


The first assembly site in the northern city opened in 2008 and produces four A320s a month, with Airbus hoping to increase that to six a month before the end of the year.



Source: The Guardian



Fitness training for youngsters gains...

Fitness training for youngsters gains steam in China.

Specialised kids’ fitness training centres are set to be in high demand in Chinese cities following the raft of new education policies that were introduced from 2020 onwards.


The kids’ fitness industry started in 2017 but only gained momentum recently. A 50% year-on-year increase was noticed by one owner of a kids’ fitness centre in Hohhot in Inner Mongolia during the most recent winter vacation and he also noticed several new centres popping up in the neighbouring area in the span of two weeks. The kids’ fitness training market in China is expected to exceed 130 billion RMB (18.7 billion USD) in 2023, according to Duojing Educational Research Institute.



Fitness training for young people has become a top government priority in recent years due to concerns about the “feminisation” of boys in China, which many blame on the importing of Korean pop culture, called the “Korean Wave”.


In 2020, China’s Ministry of Education issued a notice calling for the “prevention of the feminisation of male youth”, largely through the strengthening of physical education provision in schools. Whilst the move initially stirred some controversy, it was later explained by the government that “masculinity” was not about gender stereotyping, claiming that the term encapsulates a range of admirable qualities all youth should strive for.


During the pandemic the concept of kids’ fitness took root in the minds of parents, many of whom witnessed the detrimental impact of at-home schooling on the mental health of their children. As of 2021 private tutoring companies, a dominant feature of education in urban China, were also banned to curb the excessive pressure the industry placed on parents and children. Fitness classes are the perfect option for middle class parents with cash to spare, helping to assuage health concerns at the same time as filling the gap left by the shutting of tutoring businesses.


Practitioners within this burgeoning field are now striving for standardisation so that kids’ fitness training can earn greater recognition and trust among parents across the country. Looking to the future, the head of a kids fitness centre in Inner Mongolia said “We will create exclusive profiles for each child, regularly monitor the child’s fitness, and share data on the effectiveness of the program so that the child’s progress can be seen at a glance.”





EV industry braced for shakeout as price...

EV industry braced for shakeout as prices plunge.
Amy Liu is unsure whether she should trade in her five-year-old electric sport utility vehicle for a newer model with a longer range or wait a bit longer. “If I place an order now, I’m afraid the price might drop next month,” said the property agent in Shenzhen. Automakers in China’s highly competitive market for new energy vehicles (NEVs), which include all-electric and hybrid models, have been aggressively cutting prices since late last year as demand softened and the government cut back on subsidies.
Local players in the world’s largest EV market have sounded the alarm, projecting that the number of electric-car makers in China will shrink from about 200 to between five and 10 in the coming years. The shake-up is compounded by competition from foreign automakers. Volkswagen, BMW and Nissan all plan to introduce new electric models for China, where local EV makers account for nine out of the top 10 by sales. Encouraged by government policies aimed at bolstering the emerging industry, about two-thirds of China’s existing EV makers were registered between 2018 and 2020.
Nio, Xpeng and Li Auto are among the poster boys competing against Tesla of the US in the medium and premium segments. Others include domestic leader BYD, as well as subsidiaries of state-controlled automakers and independent brands.
Drivers in China have embraced electrics — more than a quarter of all cars sold last year were NEVs — but experts say only EV makers with economies of scale and enough financial firepower will remain standing in the years ahead. “Those without a deep-pocketed parent company will be under the largest pressure, especially those that haven’t got access to the equity market,” Jing Yang, a Shanghai-based director at Fitch Ratings, told Nikkei Asia. “For independent EV makers, we still think their brand positioning and cost structure will make the key difference.” Some are already feeling the heat. Zhejiang Leapmotor Technology is one of the EV start-ups to go public recently. In the past four years, Leapmotor logged consecutive net losses that widened to Rmb5.1bn ($734mn) in 2022, largely due to higher selling expenses. “We will try to achieve a balance between sales volume and gross profit,” chief executive Zhu Jiangming told local media in March. “We will prioritise winning market share.” Hong Kong-listed Leapmotor sold 111,168 vehicles in 2022, a 154.1 per cent yearly growth.
By comparison, Tesla delivered 711,000 vehicles in the same period. Leapmotor last month reduced the price of its flagship sedan C01 by a fifth to match rivals. The price war extends to the lower segment. Ballet Cat, an electric hatchback that resembles the Volkswagen Beetle, now sells for as little as Rmb149,800 after a discount of about Rmb50,000 to meet the “market reality”, a promoter said. The model is made under the Ora brand, one of several EV marques under state-owned Great Wall Motor, itself better known for making pick-up trucks. Ora sold 103,996 vehicles in 2022, a 23 per cent dip. China’s total new-car sales grew just 2 per cent last year, while NEV sales rose 93 per cent to 6.88mn units, or 27 per cent of all cars sold, as buyers rushed to capitalise on a deadline for EV subsidies that year. Partly driven by a drop in the cost of raw materials for batteries, Tesla began slashing prices in October. Other EV players soon followed suit, and makers of traditional petrol-powered vehicles joined the fray as they tried to clear inventory ahead of new emission standards in China that will come into effect on July 1.
“These moves have led to a wait-and-see sentiment and have not helped in increasing vehicle sales,” said Phate Zhang, founder of the China auto news outlet CnEVPost. Total vehicle sales contracted 6.7 per cent in the first three months this year, while NEV sales grew 26 per cent, compared with 138 per cent in the same period last year. Even established EV start-ups are alarmed by the intensifying competition. “The elimination of players in the auto industry has just begun,” He Xiaopeng, chief executive of Xpeng, said on April 16. “Players with an annual sales of 3mn units will qualify . . . and only eight mainstream players will remain in the next 10 years.”
Xpeng, which is listed in New York and Hong Kong, delivered 120,757 vehicles in 2022. A more consolidated EV industry would apparently suit Beijing just fine. The government warned in 2021 of the danger of having “too many players and [being] too scattered” and stressed the need to create “big and strong” EV players. But there have been few mergers and acquisitions in the industry, though some start-ups have thrown in the towel, such as Byton, which suspended operations in China in 2020. Nio was kept afloat after securing a $1.4bn lifeline from the Anhui provincial government in 2020. “It is the Chinese culture where entrepreneurs try to maintain the independence of their business rather than merging with other companies when they are in trouble,” said CnEVPost’s Zhang.
The price war is not going away anytime soon, analysts say, even as the Chinese economy rebounded from three years of zero-Covid policy with a 4.5 per cent yearly expansion in the first quarter. That growth was driven by consumption, markedly in the services sector, and infrastructure spending. “We are still concerned because under such a fierce competitive environment, some leading players and emerging brands backed by large auto groups may opt to price their products more aggressively to gain market share,” said Fitch’s Yang.
Demand was strong for plug-in hybrid vehicles based on first-quarter data, Yang added, and that would benefit players with such line-ups, including state-owned auto groups. For potential buyers such as Liu, however, the challenges facing the market could spell bigger savings. “I will wait it out for the best deal,” said Liu, whose existing car has lost two-thirds of its value.
Source:  This article was first published by Nikkei Asia on May 5 2023.


Chinese mining industry interests &...

Chinese mining industry interests & strategy in Africa.
Africa accounted for 12.3% of Chinese companies’ exploration and strategic investment budgets in 2021, up from 8.1% in 2011. Partially, this is due to the CCP wanting to reduce dependence on Australia should they choose to invade Taiwan. But it’s also worth noting that Australia is far more expensive to invest in, with the former trade-off being increased confidence in Australia’s regulatory and judicial systems.

For example, mine costs at Chinese titan CITIC’s iron ore mine in Australia have been high since operations began, with all-in sustaining costs over $100/dmt in 2013 and 2014 alone. These costs have only risen with time, as the ore requires a four stage milling process compared to the usual standard of two, while labour costs are also high by international standards.


Importantly, high operating costs came from a lack of preliminary study of the project — and this rush to achieve dominance in the project came under harsh criticism from domestic Chinese investors and the Communist Party itself, who were less than impressed with the message of incompetence sent to the global markets. Since this mistake, Chinese companies have been encouraged to take a different strategy.


Take copper. Of the 88 Chinese-owned copper assets abroad, 17 are owned by China Nonferrous Mining Corp — and all 17 are in the Central African Copper Belt.



One of the earliest mines it acquired was the Chambishi Project in Zambia — bought in 1998 — and the project was also subject to limited due diligence. Now it’s one of the highest-cost copper mines in the world. The Chinese learnt from their mistakes, instead preferring to become strategic investors in smaller mines such as Zambia’s Muliashi North in 2009, which is now one of the lowest-cost copper mines.


This approach — sometimes involving selling off higher-producing-cost stakes — leaves S&P Global data showing that African-sourced copper destined for China is now the lowest cost of all copper-producing regions. And the strategy that has worked is clear — making a strategic investment in return for security of supply and with the understanding that divestment could occur if feasibility studies come back with high-cost results.


But Africa is also becoming more attractive because to a large extent it’s cleared up its act with regards to regulation.


For example, when Blue Orca launched its short attack on Atlantic Lithium’s Ghanian operations, the accusations of bribery didn’t hold the same water as they may have in the past. And Vast Resources has been awarded those contested diamonds by the Zimbabwe High Court — partially as the country wants to project an image of investibility and judicial fairness.


Of course, Africa is a massive continent comprising 54 recognised countries, so this is something of a generalisation. But the trajectory of increased judicial confidence means that it is far more investible than in the past.


Now to specifics.

Chinese investment into African mining has been predominantly funded by state-owned enterprise, but private companies have also been hugely encouraged by Beijing’s 2014 simplified approval procedure for foreign investments in mining exploration — regulated by the China National Development and Reform Commission — for projects valued below $1 billion.


This little-known law — part of the Belt and Road Initiative — effectively highly encourages private companies to make small investments in dozens of African-based explorers — whether in iron, copper, lithium, or others — to reduce risk of failures and also prioritise security of supply. In the case of PREM, it’s worth noting that our offtake partner has rights to 50% of the lithium but only owns less than 13.38% of the company.


Now let’s look at a key case study.

Zijin Mining Group has the most foreign mining assets of any Chinese company — 47 at present (though I cannot verify this figure independently). It has completed eight deals in the past two years, and 21 acquisitions or strategic investments since 2010. The majority of these acquisitions has been in the gold sector, and overseas gold production is expected to constitute 52.7% of the company’s gold production by 2028.



But the key information is that Zijin initially prioritises security of supply by providing funding for pilot plants in exchange for some shares, and then seeks outright control once production is proven to be low-cost and economically feasible.


One advantage that Chinese companies — and state-owned enterprises — have is that they are less beholden to shareholders, and therefore can ignore the boom-and-bust mining supercycle when making investment decisions. Indeed, western-listed miners are actually decreasing investment in maiden resources as the world goes into recession, as investors fret over the short-term depressive effect on commodity prices, even though the longer-term supply gap means prices are only heading one way over the longer term.


But Chinese companies play the long game. They know that supply is what matters most, as the lithium price will rise when the gap widens over the next decade. Arguably, CATL’s battery pricing strategy is designed to bring the lithium price down artificially — leaving a certain major shareholder able to buy shares in lithium companies cheaper than would otherwise be possible.

The Kodal Minerals deal has shown, unequivocally, that China is desperate to secure supply. The conditions of the deal are extremely favourable to the company — and PREM could be next to dictate terms.


China and Zimbabwean Lithium

Lithium reserves have been found all over Zimbabwe, Namibia, Ghana, the Democratic Republic of the Congo, and Mali. But while I could write a few dozen pages on how Chinese strategy works elsewhere in Africa, Premier African Minerals (PREM) is located in Zimbabwe, so I will focus here.


The country has been mining lithium since the 1960s, and the government thinks that thee Chinese-owned Bikita mine 300km south of the capital has circa 11 million metric tons of lithium resource. The World Trade Organisation considers that Zimbabwe will one day meet 20% of peak global lithium demand, and it is already the world’s sixth -largest producer of the silvery-alkali metal.



Of course, much has been made of December’s Base Mineral Export Control Act, which bans the export of raw lithium. Aimed at so-called ‘artisanal’ miners (which supports the livelihood of 1 million Zimbabweans), the government estimates it has already lost $2 billion in minerals smuggled across the border by artisanal mining leakage. But the law is also aimed at getting companies to invest in Zimbabwean plant building and processing capacity, and therefore is no bad law by any means. The country should benefit from its natural resources. Further, many artisanal miners are horrendously exploited, and while some may lose their means of work, others will be freed from what is effectively slave labour.


One key part of the law is that companies already in the process of developing mines — including giants like Zhejiang Huayou Cobalt, Sinomine Resource Group and Chengxin Lithium Group (which have collectively invested $678 million into lithium projects in the country) are exempt. Last year alone, Chinese titans including Tsingshan, China Nonferrous, and Huayou Cobalt invested nearly $1.5 billion in Zimbabwe. Meanwhile, Sinomine Resource Group has announced its plans to expand production at Bikita mine by investing $200 million into building a new lithium plant.


But who else is excluded from this new law? Premier African Minerals. This makes the company one of the last potential full acquisitions that China can make into Zimbabwean lithium without being constrained by the law — both Zimbabwean law limiting the export of unrefined lithium, and Chinese law making it incredibly difficult to invest more than $1 billion in any one acquisition.


Consider this: Sinomine acquired Bikita for $180 million in 2022 and has created a JV with Chengxin Lithium Group’s Zimbabwe unit to increase lithium projects in the country. And Chengxin itself paid $76.5 million for 51% of the Star Lithium mine blocks in 2021. Zhejiang Huayou Cobalt, meanwhile, bought the Arcadia lithium project for $422 million deal in 2021 — and plans to invest a further $300 million into a processing plant at the site.


These huge investments into new lithium processing plants are leaving massive extra processing capacity. And the EPO of Zulu is huge.


This is why, in my view, a buyout is coming and coming fast. Production is starting, so Chinese historical nervousness of investing too heavily in exploratory companies is no longer as relevant. China is already building huge amounts of infrastructure, which will significantly reduce capex costs. PREM is also not covered by restrictive new laws, so any buyer can ship out unrefined lithium — a privilege that will not be afforded to any future explorers.


And with a current £208 million market cap, a buyout price of 3p — or circa £600 million — leaves PREM comfortably below the $1 billion maximum investment allowed under Chinese law.



Source: By Charles Archer for Investing Strategy





Expanding your business to China, dont...

Expanding your business to China, dont make these mistakes.

Not researching business registration laws

Building a subsidiary in a new country, especially one as legally complex as China, is a massive undertaking both in terms of time and money. You can either choose to hire individual consultants and law firms to guide you in different steps or complete the entire process on your own.


While the government incorporation costs to register a Wholly Foreign-Owned Enterprise or WFOE isn't much, and you'd be tempted to do it yourself, a single mistake can set you back thousands of dollars in legal fees.



For instance, when registering a WFOE, you need to ensure that the scope of your business is broadly defined in the application to accommodate future changes but specific enough to be approved by the authorities. Getting this crucial element wrong can create legal issues for your company down the road.


On the other hand, Professional Employer Organization (PEO) services allow you to have a legally approved presence in the country without getting bogged down by protracted registration cycles. This is because a global PEO such as INS Global deals with legal compliance, payroll administration and other legal benefits globally on your behalf.


Missing essential certificates and licenses

China has strict laws regarding the products and services that can be sold within its borders. Multiple government departments require your products to be certified and licensed before distribution.


Your business and products should also be compliant with the Foreign Investment Negative List, Market Access Negative List, and the Unreliable Entity List. Correctly completing these additional requirements is time-consuming. Thus, many companies partner with a local entity well-versed with all the necessary certificates and licenses to reduce these legal hassles.


Not studying local tax regulations

Tax laws for businesses in China can differ from those in many western countries. Enterprise income tax, business tax, import duties, value-added tax and more need to be closely studied before commencing operations in the country.


Legal and tax advisors can help you assess the impact of all relevant taxes on your China operation. Hence, it's essential to know them in-depth during the initial phase of your expansion.


Ignoring local labor laws

Chinese labor laws can differ significantly from what you might be used to in your home country. Strict employment contracts are required by law, and they're limited to only fixed-term, open-ended and project-based contracts.


When hiring in China, additional clauses like a non-compete can also differ from, say, American contracts. For instance, compensation is required to be paid to an employee during the non-competition period.


Severance pay calculation in China is also something you should be aware of. In short, companies owe employees one month's salary for every completed year of service.


Employment contracts can be tricky if you're unfamiliar with China's labor landscape. Leveraging the services of a local PEO can ease the process for you.


Not having airtight dispute resolution contracts

Dispute resolution clauses are heavily negotiated when doing business with Chinese entities. Companies need to get into airtight arbitration clauses when partnering with local vendors. The U.S. and China are both parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York" Convention).


But the arbitration clause needs to be properly drafted: deciding which arbitration institution and rules to choose, the location of the arbitration, the language to be used and the governing law that'll govern any disputes.


Arbitration clauses have the potential to drag your company into years-long court cases and huge financial losses. Hence, it's always better to consult with a trusted partner that knows the ins and outs of dispute resolution in the Chinese context.


Not protecting your intellectual property

China's IP protection laws have improved drastically over the years, offering foreign companies much more legal protection to safeguard their IP. But the onus still lies on the company to obtain copyright protection before launching operations in the country. Global trademarks are not automatically protected in China, so you'll need to register them again. And with the first-to-file trademark system, it needs to be done as soon as possible.


China's National Intelligence Law also affects how you manage your core IP. Moreover, China's Cybersecurity Law determines how your organization can collect, store and transfer customer data.


Flexibility and partnerships to unlock success in China

Companies mulling expansion to China stand to unlock increased and sustainable growth in one of the largest economies on the globe. But diving headfirst without the necessary homework can quickly kill your expansion dreams and tarnish your brand for years to come.


Besides legal compliance, it's also incredibly important to take your time to study China's cultural and socio-political landscape to be able to adapt your products effectively to the market. Chinese businesses also differ from their western counterparts in terms of corporate hierarchies, compensation structures, distribution channels, advertising laws and more. Being flexible and open to partnerships is the way to go if you want to tame the Chinese dragon.


Source: Entrepreneur Global


Food Security: China’s foray into...

Food Security: China’s foray into GM crops.
China, the world’s largest importer of corn and soybean, seems finally to accept the potential of using genetically modified (GM) feed crops. Will this be enough to reduce China’s dependency on such imports and will it meet the demands of other countries that are also experiencing an increase in demand for feed to increase production of animal meat?



Asia’s enormous appetite for meat has fuelled an equally large demand for animal feed, notably corn and soybean. Three countries which are regularly large exporters of feed corn and feed soybean – the United States (US), Argentina, and Brazil – have invested in GM technology and grown GM feed crops competitively, despite increasing evidence of safety risks to humans, animals and the environment, and despite concerns from groups opposing GM technology. China is among the last of the major agricultural countries not to plant genetically modified crops.


Most scientific studies point to increased meat demand in Asia as this region has not seen “peak consumption” of meat yet. As such, competition for feed crops will intensify in the coming years, with supply likely threatened by geopolitical and environmental factors as the world’s food security enters an era of what we would refer to as “volatile deficits”, in which the stability of food security is not assured, and countries will have to be better prepared to deal with uncertainty.


In China, one of the world’s most populous countries, increased meat demands from a rapidly growing middle-class mean that China will remain an important influence on the purchase of surplus corn and soybean grains on the world market.


In response to food insecurity concerns, particularly for animal feed, Beijing is considering the adoption of GM technology, starting with GM corn, which could decrease China’s demand on global supplies. As this could free up quantities for other corn-hungry countries, China’s adoption of GM technology may influence trade dynamics as well as the livelihoods of corn growers in exporting countries and smallholder corn farmers in developing countries.


Appetite for Meat

China’s demand for feed grains reflects its growing appetite for animal protein and changing diets, brought on by higher living standards and increasing household incomes. Meat consumption in China has steadily increased in recent decades, with the country having become the world’s largest meat producer, consumer, and importer.


In 2021, the country consumed almost 100 million metric tonnes of meat – 27 per cent of the world’s total – including 57 million tonnes of pork, 25 million metric tonnes of poultry, and 9 million metric tonnes of beef. And demand is expected to continue to rise. The country has recently established targets to produce 95 per cent of the protein domestically by 2025, including 85 per cent self-sufficiency for beef and mutton, and 70 per cent self-sufficiency for dairy.


Demand for Animal Feed

In 2021, China imported 100 million metric tonnes of soybean and 27 million metric tonnes of corn, mainly to grow hogs, chicken, and fish. China’s domestic feed production, which uses conventional non-GM varieties, cannot keep up with domestic demand. To supplement local output, China currently imports GM corn and soybean but disallows the planting of GM food and feed crops in its territory.


Despite being the world’s largest grower of corn by acreage, China’s total grain production falls short of its needs. China reportedly grew corn on about 43 million hectares in the last growing season, producing an estimated 270 million tonnes. Yet, it had to import 27 million tonnes of corn during 2021 from the US, Argentina, and Brazil. China is also the world’s largest importer of soybean, importing more than six times the tonnage imported by the second largest importer, the European Union.


One reason why some countries have surpluses to export is their relatively high yields per hectare. In the US, the average on-farm yield of corn is 11-12 tonnes per hectare compared to China’s average corn yield of 6.2 tonnes per hectare. Likewise, the average yield for soybean in the US is about 3.5 tonnes per hectare while it is 1.6 tonnes per hectare in China. US farmers rely more on agricultural technologies (agritech) and biotechnologies for production of these crops.


Growing GM Animal Feed Crops for the First Time

Despite having studied GM food crops for decades, Beijing has never permitted them to be planted due to domestic opposition to the technology, although it allows imported GM soybean and corn for use in animal feed and the planting of GMO cotton.


Beijing recently approved the planting of GM corn for the 2023 planting season, although GM land area will likely account for less than 1 per cent of the total corn acreage. The agriculture ministry has designated around 4 million mu (267,000 hectares) to be planted with GM corn this year, with several varieties being planted in certain counties of Inner Mongolia, Jilin, Hebei, and Yunnan provinces.


This is one of a number of moves in recent years which suggest that Beijing is closer to recognising the value of biotechnology crops. Earlier, in January 2022, China published new guidelines for the approval of gene-edited plants. This came amid a raft of measures to overhaul China’s seed industry, which is now seen as a weak link in biotechnology crop production. China’s Minister of Agriculture and Rural Affairs, Tang Renjian, has likened seeds to the “computer chips” of agriculture.


Long-Term Prospects

A Chinese idiom holds that “people regard food as their heaven” (民以食为天). This saying reflects the importance of food security in China. For thousands of years, food security has been a key priority for the Chinese authorities and remains so today.


China’s foray into GM crops must be viewed in the context of assuring national food security and avoiding reliance on foreign sources of means for food production, including seeds, fertilisers, and technologies. President Xi Jinping has repeatedly spoken in public of the importance of agricultural technologies and the seed sector in China, emphasising that, “To ensure that China’s seed resources are self-supporting and under better control, self-reliance must be achieved in seed technology”.


However, the many problems faced by China, including especially poor soil health, polluted fresh water, and limited arable land, will mean that many years could pass before the desired results are achieved. China will need to continue relying on grain imports if domestic production fails to meet demand, or if production costs become too high, or if overseas supply becomes cheaper again.


Ultimately, China’s foray into GM crops is likely to have a positive impact on its own domestic needs for more corn (and soybean when it comes to this), while also making more corn (and soybean) available for other importing countries. This will be a boon to both consumers and producers.


Source: By Paul Teng for RSiS


China to resume outbound group tours...

China to resume outbound group tours to 40 more countries from March 15th.

China will resume outbound group tours for Chinese citizens to another 40 countries including Nepal, Vietnam, Iran, France, Spain, Italy, Greece and Brazil starting from March 15, China's Ministry of Culture and Tourism announced on Friday. It is the second batch of destinations in China's pilot program for out-bound group tours, after the country resumed cross-border group tours to the first batch of 20 countries and regions on February 6.

The move to expand the number of destinations comes as China's overseas tourism industry has been on a firm trajectory of quick recovery during the past month, and as more countries are pinning their hopes on the return of Chinese tourists to shore up a post-virus economic rebound. The return of more Chinese travelers is also expected to provide a much-needed boost to the global tourism industry and channel optimism into the global economy, observers pointed out. 


Travel agencies and online tourism companies could release and launch prod-ucts, promotions and other preparation work starting on Friday, the notice said. 

The 40 countries in the second batch span Asia, Europe, Africa, Oceania and Latin America, and will bring the total number of countries and regions in the pilot program to 60 from March 15.

South Korea, Japan, Australia, and the US, which were ranked among the top 15 overseas destinations by Chinese visitors in 2019 before the pandemic out-break, are not in the second batch. Some of the four countries have not lifted COVID-19 control restrictions for travelers from China.

Searches for international flight tickets jumped 185 percent in an hour on Fri-day after the notice was published, data from Alibaba-owned travel platform Fliggy showed. 

"It is another policy boost for the tourism industry [after the first phase of the pilot program], which has been embarking on a quick recovery. It also shows the resumption is being carried out in a phased, stable and orderly manner, which is beneficial to guaranteeing the safety and experience of outbound Chinese tourists," Xu Xiaolei, marketing manager at China's CYTS Tours Holding Co, told the Global Times on Friday. 

Among the 40 countries, flights to Vietnam are fairly regular and affordable, while ticket prices to European countries remain relatively high, data sent by to the Global Times showed.

Vietnam's aviation sector stocks saw gains on Thursday, after Vietnam media reported the same day that China would add it to the list of countries approved for outbound tours. China has traditionally been Vietnam's largest tourism partner. 

To date, Asian countries and regions are among the most popular tourist destinations, making up more than 80 percent of the growth in outbound flights from February 27 to March 5, according to data from VariFlight, a data infor-mation provider. 

The resumption of group tour services to more countries also comes a bit ear-lier than the industry had expected, as some predicted that more countries would be added at the end of first quarter or the beginning of the second quarter, to take advantage of the traditional "travel golden period" starting from May. 

Xu expects China's outbound travel to return to between 50 and 60 percent of the 2019 level this year. China's resumption of outbound group tours could bring more than $200 billion back to international tourism, the Financial Times reported in January.

In the past month, visa enquires rose 87 percent on online travel agency TravelGo, and in another platform, bookings for international flights doubled in February compared with January, with the volume of visa searches growing sixfold.


Source: Global Times

China has built the foundations to posit...

China has built the foundations to position itself as the world’s leading science and technology superpower.

Critical technologies already underpin the global economy and our society. From the energy-efficient microprocessors in smartphones to the security that enables online banking and shopping, these technologies are ubiquitous and essential. They’re unlocking green energy production and supporting medical breakthroughs. They’re also the basis for military capability on the battlefield, are underpinning new hybrid warfare techniques and can give intelligence agencies a major edge over adversaries.


Just a few years ago, a nation could focus its research, resource extraction and manufacturing energies toward its strengths with the assurance that international supply chains would provide the balance of required goods. That world has gone, swept away by Covid-19, geopolitics and changes in global supply chains. Countries have also shown a willingness to withhold supplies of critical materials as a weapon of economic coercion, and an energy crisis is gripping much of the world as a result of the Russian invasion of Ukraine.


This report, and the Critical Technology Tracker website, fill a global gap by identifying which countries, universities and businesses are leading the effort to progress scientific and research innovation, including breakthroughs, in critical technologies. Database queries identified the relevant set of papers for each technology (2.2 million in total). The top 10% most highly cited research publications from the past five years on each of the 44 technologies were analysed. In addition, our work collecting and analysing data on the flow of researchers between countries at various career stages—undergraduate, postgraduate and employment—identifies brain drains and brain gains in each technology area.

China is further ahead in more areas than has been realised. It’s the leading country in 37 of the 44 technologies evaluated, often producing more than five times as much high-impact research as its closest competitor. This means that only seven of the 44 analysed technologies are currently led by a democratic country, and that country in all instances is the US.


The US maintains its strengths in the design and development of advanced semiconductor devices and leads in the research fields of high performance computing and advanced integrated circuit design and fabrication. It’s also in front in the crucial areas of quantum computing and vaccines (and medical countermeasures). This is consistent with analysis showing that the US holds the most Covid-19 vaccine patents and sits at the centre of this global collaboration network. Medical countermeasures provide protection (and post-exposure management) for military and civilian people against chemical, biological, radiological and nuclear material by providing rapid field-based diagnostics and therapeutics (such as antiviral medications) in addition to vaccines.


The race to be the next most important technological powerhouse is a close one between the UK and India, both of which claim a place in the top five countries in 29 of the 44 technologies. South Korea and Germany follow closely behind, appearing in the top five countries in 20 and 17 technologies, respectively. Australia is in the top five for nine technologies, followed closely by Italy (seven technologies), Iran (six), Japan (four) and Canada (four). Russia, Singapore, Saudi Arabia, France, Malaysia and the Netherlands are in the top five for one or two technologies. A number of other countries, including Spain and Turkey, regularly make the top 10 countries but aren’t in the top five.


As well as tracking which countries are in front, the Critical Technology Tracker highlights which organisations—universities, companies and labs—are leading in which technologies. For example, the Netherlands’ Delft University of Technology has supremacy in a number of quantum technologies.


A range of organisations shine through, including the University of California system, the Chinese Academy of Sciences, the Indian Institute of Technology, Nanyang Technological University (NTU Singapore), the University of Science and Technology China and a variety of national labs in the US (such as the Lawrence Livermore National Laboratory). The Chinese Academy of Sciences is a particularly high performer, ranking in the top 5 in 27 of the 44 technologies tracked by the Critical Technology Tracker. Comprising of 116 institutes (which gives it a unique advantage over other organisations) it excels in energy and environment technologies, advanced materials (including critical minerals extraction and processing) and in a range of quantum, defence and AI technologies including advanced data analytics, machine learning, quantum sensors, advanced robotics and small satellites. In addition, US technology companies are well represented in some areas, including in the AI category: Google (1st in natural language processing), Microsoft (6th by H-index and 10th by ‘highly cited’ in natural language processing), Facebook (14th by H-index in natural language processing), Hewlett Packard Enterprise (14th by H-index in high performance computing) and IBM (Switzerland and US arms both tying at the 11th place with other institutions by H-index in AI algorithms and hardware accelerators).


There’s a human dimension to technology development that should also be factored into assessments of technological capability. Innovations are ultimately the result of researchers, scientists and designers with a lifetime of training and experience that led to their breakthroughs. Understanding where those researchers started their professional journeys, where they received the training that equipped them to be leaders in their fields, and finally where they are now as they make their discoveries, paints a picture of how well countries are competing in their ability to attract and retain skilled researchers from the global pool of talent.


Who are the individuals publishing the high-impact research that’s propelled China to an impressive lead? Where did they study and train? In advanced aircraft engines (including hypersonics), in which China is publishing more than four times as much high-impact research as the US (2nd place), there are two key insights. First, the majority (68.6%) of high-impact authors trained at Chinese universities and now work in Chinese research institutions. Second, China is also attracting talent to the workplace from democratic countries: 21.6% of high-impact authors completed their postgraduate training in a Five-Eyes country (US = 9.8%, UK = 7.8%, Canada = 3.9%, Australia = none, New Zealand = none), 2% trained in the EU, and 2% trained in Japan. Although not quantified in this work, this is very likely to be a combination of Chinese nationals who went abroad for training and brought their newly acquired expertise back to China, and foreign nationals moving to China to work at a research institution or company.


World-leading research institutes typically also provide training for the next generation of innovators through high-quality undergraduates, masters and PhDs, and employment opportunities in which junior researchers are mentored by experts. As China claims seven of the world’s top 10 research institutions for advanced aircraft engines (including hypersonics), its training system is largely decoupled, as there’s a sufficient critical mass of domestic expertise to train the next generation of top scientists. However, a steady supply of new ideas and techniques is also provided by individuals trained overseas who are attracted to work in Chinese institutions.


A crucial question to ask is whether expertise in high-impact research translates into (sticking with the same example) the manufacture of world-leading jet engines. What of reports of reliability problems experienced with Chinese-manufactured jet engines? The skill set required for leading-edge engine research differs from the expertise, tacit knowledge and human capital needed to manufacture jet engines to extreme reliability requirements. This is an important caveat that readers should keep in mind, and it’s one we point out in multiple places throughout the report. As one external reviewer put it, ‘If you’re good at origami but don’t yet excel at making decent paper, are you really good at origami?’ Naturally, manufacturing capability lags research breakthroughs. However, in the example of jet-engine manufacturing, China appears to be making strides and has recognised the ‘choke-point’ of being entirely reliant on US and Swedish companies for the precision-grade stainless steel required for bearings in high performance aircraft engines. China’s excellent research performance in this area most likely reflects the prioritisation and investment by the CCP to overcome the reliability, and choke-point, hurdles of previous years.


But whether the focus is jet engines or advanced robotics, actualising research performance, no matter how impressive, into major technological gains can be a difficult and complicated step that requires other inputs (in addition to high quality research). However, what ASPI’s new Critical Technology Tracker gives us - beyond datasets showing research performance - are unique insights into strategy, intent and potential future capabilities. It also provides valuable insights into the spread, and concentrations of, global expertise across a range of critical areas.


There are many ways in which countries (governments, businesses and civil society) can use the new datasets available in the Critical Technology Tracker. It can be used to support strategic planning, enable more targeted investment, or facilitate the establishment of new global partnerships (to name just a few possibilities). For example, Australia has one of the world’s biggest lithium reserves and has all the critical minerals for making lithium batteries. As an established leader in photovoltaics technology, Australia has the potential to guarantee its energy security by focusing on electric batteries, critical minerals extraction and processing and photovoltaics technologies while locally capitalising on its onshore critical-minerals resources. As the world’s second largest producer of aluminium, Australia can reduce its greenhouse emissions by using both hydrogen and electricity generated from renewable sources in its aluminium production. Strategic funding in these interconnected critical technology could reduce the current tech monopoly risks revealed by the Critical Technology Tracker and support new tech industries with job creation.


These findings should be a wake-up call for democratic nations. It has become imperative, now more than ever, that political leaders, policymakers, businesses and civil society use empirical open-source data to inform decision-making across different technological areas so that, in the years and decades to come, they can reap the benefits of new policies and investments they must make now. Urgent policy changes, increased investment and global collaboration are required from many countries to close the enormous and widening gap. The costs of catching up will be significant, but the costs of inaction could be far greater.


Source: Australian Strategic Policy Institute


Will China Create a New State-Owned...

Will China Create a New State-Owned Enterprise to Monopolize Artificial Intelligence?
Since AI has become essential to national interest, China may not be willing to leave its development in the hands of private companies.

With the recent releases of large-language models, such as ChatGPT, artificial intelligence (AI) capability has leapfrogged, attracting intense attention around the globe. Inspired by the success of ChatGPT, many Chinese technology companies, such as Baidu, rushed to announce their own plans for developing a Chinese version of ChatGPT. However, to everyone’s surprise, the Chinese government recently banned tech companies from offering ChatGPT-like services and will potentially impose more regulations on the development of AI.



Since AI has gradually evolved into a foundational part of societal infrastructure essential to national interests, China may create a new state-owned enterprise (SOE) to monopolize AI foundation in China, similar to how SOEs monopolize the energy and telecommunication sectors.


Traditionally, China’s SOEs have controlled industries that are deemed essential to national interest and China’s economy. It has been estimated that the share of SOEs in China’s GDP is at least 23 percent. Particularly, as China is transitioning from an investment-driven export economy to an innovation-driven economy reliant on domestic consumption, the role of SOEs has become increasingly more important, as these state-owned firms are driving China’s economic transition. Furthermore, one study indicated that Chinese SOEs form an integrated system to not only economically benefit the state but also to guarantee that the whole country stays within the state’s control.


Returning to AI, the field is estimated to completely revolutionize the world’s economy with an estimated $15.7 trillion contribution to the global economy by 2030. Along the way, AI will become pervasive in people’s daily lives. Hence, AI will not only impose a significant economic impact but also become essential to the state’s control, satisfying both key factors for the creation of an SOE.

AI has gradually become an essential part of societal infrastructure in recent years. For instance, the Estonian government launched a new AI-based virtual assistant to provide Estonians with a voice-based way to navigate key services provided by the state, such as renewing a passport or applying for benefits. In Finland, a similar AI platform can offer medical services to help citizens renew prescriptions and notify them of potential health risks. With AI being able to access, aggregate, and analyze sensitive personal information of the whole Chinese population, I have a hard time believing that the Chinese government will leave this capability to companies in the private sector.


Besides the fact that AI is essential to the national interest, large AI models such as ChatGPT are also extremely expensive to develop and maintain. It has been estimated that each training of a large language model could cost millions of U.S. dollars. Racing to become the leading suppliers of AI technologies in China, venture capitalists and technology companies could easily pour tens of billions of dollars into developing large language models that are very similar to each other, leading to overprovisioning of similar AI technologies.


In the view of the Chinese national government, overprovisioning, which has happened in the intelligent electric vehicle industry, is not an efficient utilization of China’s financial resources, and thus should not be encouraged. Instead, China may centralize financial and computing resources to one or a selected few institutions to develop AI foundation models.


Going forward, the AI ecosystem will be divided into development of foundation models and specialty fine-tuning.  For national security and cost efficiency reasons, I foresee that China’s foundation models would be trained by only one or a few SOEs with substantial financial and computing resources, and most applications will be achieved via lightweight fine-tuning of these foundation models toward specialized uses, such as education, healthcare consulting, legal assistance, customer services, and many more.


Hence, technology companies in China should focus on leveraging their vertical expertise and know-how, as well as user data, to fine-tune the foundation models for commercialization in different business verticals, instead of investing an enormous amount of resources in developing foundation models.


The creation of a new AI-focused SOE may incentive the rapid growth and development of the Chinese semiconductor industry, particularly Chinese Graphic Processing Units (GPUs). GPUs are essential in large-language model training, but the United States has imposed a ban on exports to China of Nvidia and AMD’s flagship artificial intelligence chips. If AI foundation models were to be developed by one or more Chinese SOEs, I foresee further tightening up of export control of AI processors, and SOEs would have no other alternatives but to rely solely on domestic semiconductor suppliers. This could bring short-term pains but long-term benefits to the whole Chinese AI ecosystem.


Lastly, just to illustrate the intelligence delivered by models like ChatGPT, I asked ChatGPT the same question addressed in this piece. Below is the insightful and thorough analysis it provided. Reading this answer, I become even more convinced that China will create a new SOE to provide basic AI capabilities fueling the development of various sectors in China.






China GDP growth well below official...

China GDP growth well below official target for 2022.

China’s GDP expanded at its slowest pace since the mid-1970s bar the Covid-hit 2020 year, as the world’s second-largest economy struggled under tight pandemic restrictions that were abruptly ditched late in 2022.


The economy grew 3% last year, well shy of the 5.5% pace the government had targeted at the start of the year and the 8.1% recorded for 2021. The actual rate though, was better than the 2.7% predicted by the World Bank earlier this month.


Analysts will focus on the December quarter growth tally of 2.9%, which exceeded market forecasts of 1.8%, according to Reuters. The economy was roughly static compared with the previous three month, dodging the 0.8% retreat pundits had tipped.


The figures meant China’s GDP rose at the slowest pace in about half a century if the 2.2% expansion in the first Covid year of 2020 is excluded.


For most of the last three years, the Chinese government persisted with rolling lockdowns and mass testing under its Zero-Covid strategy to stop the virus spreading. It abandoned the policy early last month with little warning and without preparations for vaccination campaigns or other medical measures.


Still, the policy shift has been widely interpreted as likely to help spur economic growth in China in 2023 and beyond. The World Bank forecasts GDP growth will quicken to 4.3% this year and 5% the next, expectations that are now being exceeded by many private economists.


Uncertainties include how the soaring death toll – officially 60,000 in the last month or so, will affect wider confidence among consumers. Disruptions to supply chains as workers call in sick may dent the recovery and affect economies reliant on Chinese imports.


The health of the giant property market will be another threat to an economic revival with real estate prices continuing to fall in the final months of 2022. New government support packages to encourage buyers are likely in coming months.

China’s growth has a big influence on its neighbours – and nations such as Australia – with its voracious demand for iron ore, gas and other commodities. In the wake of the GDP release, shares in BHP, Rio Tinto and Fortescue – Australia’s three largest iron ore miners – were down 1.1%-1.7% compared with a 0.1% decline for the overall market.


David Bassanese, chief economist for Betashares, said that while official statistics always needed “to be taken with a grain of salt”, the GDP figures were “much better than feared in the final months of 2022”.


Retail spending and industrial production were also stronger than market expectations in the month of December alone, he said.


“This suggests the economy may have already begun to benefit from the partial reduction in Covid restrictions last month and is well placed to rebound even more strongly in the first few months of this year,” Bassanese said.


Shares of commodity producers should benefit from any acceleration of growth, he said, adding: “it also suggests this could be a banner year for the Chinese stock market”.


Some critics, though, raised doubts about the veracity of annual data that are released early in the new year – despite the size and complexity of the economy – and typically don’t get revised until years later, if at all.


Bloomberg cited Kang Yi, director of the national bureau of Statistics, as saying consumption contributed one-third, or one percentage point of China’s annual growth rate. Higher consumption appeared at odds, though, with the scale of the country’s lockdowns during 2022.


In December alone, retail sales were down 1.8%, a much better result than the 9% slump economists surveyed by Bloomberg had predicted.


After the dismantling of the zero-Covid policy, the virus spread rapidly through the economy, with millions of people catching it, leaving many sick off work.


The retail figure for December “jars with the turmoil and fear reported across major cities as Covid-zero was abandoned, but the survey detail makes sense of the situation,” said Elliot Clarke, Westpac’s senior economist.


Services such as catering came under substantial pressure as fears over the virus spread, with annual growth in the sector sinking from a minus 8.4% annual rate in November to minus 14.1% in December, he said.


This decline in activity was offset by precautionary purchases of medicine – which quickened 39.8% year on year in December, from an 8.3% rate in November – and food spending jumped to an annual pace of 10.5% in December, almost tripling the 3.9% rate in November.


Capital investment contributed 1.5 percentage points of growth last year as authorities continued to pour funds into new rail lines, bridges and other infrastructure. Resource exporters will be banking on further expansion in 2023 particularly as net export growth will be harder to achieve as rich economies in Europe and North America slow with some headed for recession.


“Overall, the December data round supports our long-held view that China’s economy is well positioned to not only rebound from Covid-zero, but also to grow strongly into the medium-term, averaging growth of 5% or more through 2022-2024,” Clarke said.


Source: The Guardian




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