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The End of Zero-COVID and the Start of China’s Economic Recovery in 2023.

The End of Zero-COVID and the Start of China’s Economic Recovery in 2023.

China is back on a pragmatic path, with the lifting of zero-COVID and property market policies that throttled domestic demand in 2022. COVID cases are likely to continue to rise in the coming months, but that is unlikely to disrupt progress towards living with the virus, and an economic recovery in the second half of 2023.

 

Why I’m Bullish

I’d like to explain why I’ve gone from being cautiously optimistic about Xi Jinping returning to a pragmatic path, to now being bullish on China: Xi Jinping has, in recent weeks, given clear signals that he is returning to a pragmatic approach to COVID, to the economy, and to relations with the United States.

 

COVID Pragmatism

The return to pragmatism began soon after the end of the Party Congress, when Xi’s third term as leader was formally confirmed. In a November 11 speech, he announced 20 measures on COVID mitigation designed to reduce obstacles to normal life.

 

Since that time, four important things have happened. First, most zero-COVID restrictions have been abandoned in most places in China. Routine testing is no longer required, and the government has ended the forced quarantine of people who have COVID but are not seriously ill.

 

Second, the end of zero-COVID has resulted in a large wave of COVID cases across the country. Because frequent, mandatory tests have largely ended, the official case count is no longer a useful metric. (This is similar to most countries, where people who test positive at home rarely report those results to the government.) Anecdotally, however, it is clear that COVID is sweeping across the country, including Beijing, where the Party leadership lives.

 

Third, this wave of cases does not appear to have resulted in a spike in serious illness. For the whole country, there were only 147 cases classified as “severe” on December 12. Since Xi’s November 11 speech, only nine deaths have been attributed to COVID. This may reflect that the current variant of the virus circulating in China is less dangerous than earlier iterations, and that the domestic vaccine is providing significant protection. There is, of course, a risk that the impact of the virus changes and the health care system is overwhelmed, but that is not happening at this time.

 

Fourth, the government has begun to ramp up its campaign to raise vaccination rates, especially for the elderly. This is important because although by late November, 90% of Chinese had received two shots (compared to 69% in the U.S. and 88% in the UK), only 58% of Chinese had received a third jab (compared to 53% in the U.S. and 70% in the UK). Moreover, about 25 million Chinese over the age of 60 had not received any jabs, and 58 million older Chinese needed a booster.

 

Over seven days through December 12, a total of 5.7 million doses of vaccine were administered, compared to only 760,000 doses during the seven days prior to November 11. Much more needs to be done, and it is unfortunate that this second vaccination campaign did not begin much earlier, but the process appears to be finally back on track.

 

All of this adds up to a significant change in direction of policy, towards living with the virus, and away from zero tolerance for cases. It is very unlikely that this change in direction could be reversed next year.

 

Property Pragmatism

Xi also announced in November his intention to reverse several policies that had effectively shut down the residential property market. He endorsed new measures which encourage banks and trust companies to extend maturity for construction financing, as well as support for bond issuance by privately owned developers, both of which should improve cash flow and project completion. Government-directed banks have also cut average mortgage rates by 129 basis points (1.29%) since the start of 2022, and mortgage processing time has been reduced.

 

This pragmatic course correction should lead to a gradual, steady recovery in new home sales in the second half of 2023.

 

Focused On Growth

The return to pragmatism on COVID and property appear to be part of a coordinated effort to restore consumer confidence and jumpstart the economy.

 

This is consistent with what Xi said at the Party Congress in October. Xi said he is “focused on promoting high-quality development,” and that he wants to “bring per capita disposable income to new heights.” At the Congress, Xi said “development is our Party’s top priority,” and that “we will provide an enabling environment for private enterprise.”

 

It's also worth noting that in a December 9 speech, Premier Li Keqiang said his government will take measures to promote consumption, which he called “the main driving force of economic growth.” Li reiterated support for the property market, and he signaled a lighter regulatory approach towards on-line platform companies. “The platform economy has promoted consumption and employment,” Li said, adding that the government “supports the healthy and sustainable development of the platform economy.”

 

This more pragmatic path will be bumpy, and implementation may stray off course during the winter as cases rise and local officials struggle with the new direction. Consumers may be free from lockdowns, but at least for the coming few months, a wave of COVID cases, although mild, may dampen sentiment and activity. The need to vaccinate many millions of older people is also a challenge.

 

But, short of a public health catastrophe, it is hard to imagine that the Party will return to its zero-tolerance approach, especially since the change in policy direction was personally announced by Xi, and because the virus is now so widespread in China that lockdowns would clearly be pointless.

 

Washington Pragmatism

Another reason I’m bullish is that when Xi and Biden met in Bali in November, both made serious efforts to put a floor under the rapidly sinking bilateral relationship.

 

I do not expect U.S.-China relations to improve significantly, in large part because of domestic politics in the U.S., but the odds of further deterioration were reduced as a result of their first in-person meeting since Biden was elected president.

 

After the meeting, Biden said, “I do not think there’s any imminent attempt on the part of China to invade Taiwan.” That is an important change from what his Secretary of State told an audience at Stanford a few weeks earlier.

 

In Bali, Biden also said, “I absolutely believe there’s need not be a new Cold War,” and he said about Xi, “I think that we understand one another.”

 

In response to a reporter’s question, Biden said, “And do I think he’s willing to compromise on various issues? Yes.”

 

According to the official Chinese media, Xi’s message to Biden was also constructive. Xi said he “takes very seriously” Biden’s pledge to continue with a One-China policy, and Xi said “China and the U.S. need to have a sense of responsibility for history [and] put the relationship on the right course. . . The successes of China and the U.S. are opportunities, not challenges, for each other.”

 

The two leaders agreed to increase the level of dialogue between their advisors, and Xi added that he will “unswervingly pursue reform and opening-up, and promote the building of an open global economy.”

 

It is also positive that it appears that inspectors from the U.S. Public Company Accounting Oversight Board, or PCAOB, completed their initial audits in Hong Kong without incident— I’ve heard no rumors that they didn’t get all the access they needed—which means Chinese ADRs are likely to continue trading in New York. This represents another signal from Xi that he wants to stabilize relations with Biden, and does not want financial decoupling from the U.S.

 

I believe U.S.-China relations will remain tense, but conflict, including over Taiwan, will be avoided.

 

China’s economy is driven by domestic demand, and active investment in Chinese companies selling goods and services to Chinese consumers mitigates the impact of political tensions.

 

Optimistic for a second half recovery

These developments over the last few weeks—on COVID, property and relations with the U.S.—leave me feeling very optimistic about prospects for the Chinese economy, especially after the end of the winter flu season, when COVID cases are likely to subside. I expect the macro data to remain weak in the first half of 2023, before a gradual recovery begins in the spring.

 

I understand that some may be skeptical about whether Xi will follow through on these three issues, but in my view, these pragmatic paths are all in Xi’s own self-interest.

 

With these recent decisions, Xi has acknowledged that, in the past, pragmatic policies have made China rich and kept the Communist Party in power, and that pragmatism is the best course for his country’s future, and for his own legacy.

 

Three Things to Keep in Mind

 

 

As we continue to track milestones on this path to pragmatism, there are three things investors should keep in mind:

 

First, China is likely to remain the only major economy engaged in serious easing of fiscal and monetary policy, while much of the world is tightening.

 

Second, Chinese households have been in savings mode since the start of the pandemic with family bank balances up 42% from the beginning of 2020. The net increase in household bank accounts during this period is equal to US$ 4.8 trillion, which is larger than the GDP of the UK.

 

Third, those funds should fuel a consumer rebound in China and a recovery in mainland equities, where domestic investors hold about 95% of the market.

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Source: By Andy Rothman for Matthews Asia

 

China and Saudi Arabia Sign Strategic...

China and Saudi Arabia Sign Strategic Partnership.

Saudi Arabia and China signed a strategic partnership agreement on Thursday during a visit by the Chinese leader Xi Jinping to the kingdom, underlining the growing ties between Beijing and a longstanding American ally that is seeking greater self-reliance.

 

Mr. Xi held talks with Crown Prince Mohammed bin Salman, 37, the de facto ruler of Saudi Arabia, in the first of a series of summits planned for the Chinese president’s three-day visit. After his bilateral meetings with Saudi officials, Mr. Xi is expected to attend twin summits with leaders from other Gulf, Arab and African countries, including Egypt, Djibouti and Iraq. The Palestinian Authority president, Mahmoud Abbas, is also expected to join.

 

 

“This will be the largest and highest-level diplomatic event between China and the Arab world since the founding of the People’s Republic of China,” a Chinese Foreign Ministry spokeswoman, Mao Ning, told reporters on Wednesday. “It will be an epoch-making milestone in the history of China-Arab relations.”

 

Saudi Arabia has long been a close ally of the United States, but its ties to China have been strengthening rapidly, turning what was once a mostly oil-based relationship into a more complex one involving arms sales, technology transfers and infrastructure projects. That shift predates the leadership of Prince Mohammed, who became heir to the throne in 2017: China eclipsed the United States as Saudi Arabia’s main trading partner years ago.

 

But Prince Mohammed has accelerated efforts to diversify Saudi Arabia’s alliances, trying to move beyond its reliance on the United States as its main security guarantor and weapons supplier to forge a more independent path.

 

Some of that is because of growing perceptions among officials, scholars and businesspeople in Saudi Arabia and the broader Middle East that the United States has lost interest in their region and is a superpower in long-term decline.

 

“I still think that the world is living within an American international security order,” though it is “stumbling quite frequently,” said Mohammed Alyahya, a Saudi fellow at the Belfer Center for Science and International Affairs at Harvard. “The worry is what will come in five years or 10 years.”

 

Saudi Arabia’s ties with the United States have been especially strained in the past few years, with President Biden pledging on the campaign trail to treat the kingdom like a “pariah” and pressing Prince Mohammed about the murder of Jamal Khashoggi, a Washington Post columnist and Saudi citizen killed by Saudi agents in Istanbul in 2018.

 

Early in his administration, Mr. Biden released a U.S. intelligence report that said Prince Mohammed had most likely ordered the killing — a charge the crown prince denies. More recently, the two countries have clashed over a decision to cut oil production by the OPEC Plus cartel, which Saudi Arabia effectively leads.

 

The official Saudi Press Agency reported that King Salman of Saudi Arabia and Mr. Xi had met and signed a “comprehensive strategic partnership” agreement, without providing further details.

 

Under the agreement, the two sides agreed to hold meetings between their heads of state every two years, according to the Chinese news agency Xinhua. Beijing also agreed to list Saudi Arabia as a destination for group travel and to expand cultural and people-to-people exchanges, Mr. Xi said on Thursday during his talks with Prince Mohammed.

 

Other pacts signed by officials during the state visit included a memorandum of understanding on hydrogen energy and an “alignment plan” between China’s Belt and Road Initiative and Saudi Arabia’s economic diversification program, the Saudi Press Agency report said.

 

Upon arrival on Wednesday, Mr. Xi was met by a grander reception than Mr. Biden received in July, when the American president visited the coastal city of Jeddah, partly in a bid to repair ties with the Saudi government.

 

Footage of Mr. Xi’s reception on Wednesday showed jets flying overhead with smoke trails in the red and yellow colors of the Chinese flag.

 

On Thursday, he was taken to the palatial royal court, where his car, a luxury Chinese sedan, was escorted by horse riders carrying Saudi and Chinese flags. Prince Mohammed greeted him with a warm handshake, contrasting with Mr. Biden’s greeting of a fist bump.

 

The crown prince’s moves to deepen relationships with countries like China, Russia and South Korea are partly driven by his desire to establish Saudi Arabia a power in its own right, rather than an expectation that any of them could replace the United States. In that context, the pomp and circumstance around Mr. Xi’s visit is as much a signal to his domestic and regional audiences as it is to the United States. Many officials in the Gulf are preparing for what they believe is an emerging multipolar world, in which the United States no longer plays as central a role as it has since World War II.

 

 

“The American hegemony today over the international order won’t continue, in my estimation,” Anwar Gargash, a diplomatic adviser to the president of the neighboring United Arab Emirates, said at a public lecture earlier this year. “China has become a central economic player, a central technological player, a very important political actor.”

 

Prince Mohammed wants to diversify the oil-dependent kingdom’s economy, develop a civilian nuclear program and build a robust local defense industry. Securing technology and know-how from China is key to those goals, and Saudi pundits often compare the kingdom’s economic transformation to China’s decades ago.

 

ٍSaudi and Chinese companies signed 34 agreements on Wednesday in fields including information technology, genetics, mining, hydrogen energy and manufacturing. One Saudi firm partnered with a Chinese company to set up an electric vehicle plant in the kingdom.

 

Huawei, the telecommunications conglomerate targeted by American sanctions, signed a memorandum of understanding with a Saudi government ministry, partly to enable Huawei to build a data center in the kingdom.

 

At a conference in neighboring Bahrain last month, Brett McGurk, the top U.S. National Security Council official for Middle East policy, cautioned that “certain partnerships” with China will “create a ceiling” for what the U.S. is able to provide its allies.

 

“But thus far, we are not seeing that type of relationship that is getting in the way of what we are working here to build,” he said.

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Source: By Vivian Nereim for the New York Times

 

 

 


 

NIO Expands Global Footprint

NIO Expands Global Footprint

NIO Inc. designs, develops, manufactures, and sells smart electric vehicles in China. NIO Inc. is a pioneer and a leading company in the premium smart electric vehicle market. Founded in November 2014, the company was formerly known as NextEV Inc. and changed its name to NIO Inc. in July 2017.

 

 

NIO has established R&D centers, manufacturing, sales and service facilities in Shanghai, Hefei, Beijing, Nanjing, San Jose, Munich, Oxford, Oslo and other places. Further, the company provides repair, maintenance, and bodywork services through its NIO service centers and authorized third-party service centers. It began its global market entry in 2021in Norway. In 2022 it introduced its lineup to four new countries in Europe — Denmark, Germany, the Netherlands and Sweden — along with an innovative subscription-based ownership model. The countries join NIO’s customer base in China and Norway.

 

The models launching in the European market are all built on the NIO Adam supercomputer, which uses four NVIDIA DRIVE Orin systems-on-a-chip to deliver software-defined AI features.These intelligent capabilities, which will gradually enable automated driving on expressways and urban areas, as well as autonomous parking and battery swap, are just the start of NIO’s fresh take on the vehicle ownership experience. As the automaker expands its footprint, it is emphasizing membership rather than pure ownership. NIO vehicles are available via flexible subscription models.

 

 

Nio currently offers five, six, and seven-seater electric vehicles consisting of the ES8, a six- or seven-seater flagship premium smart electric SUV, the ES7 (or the EL7), a mid-large five-seater premium smart electric SUV, the ES6, a five-seater high-performance premium smart electric SUV, the EC6, a five-seater premium smart electric coupe SUV, the ET7, a flagship premium smart electric sedan, and the ET5, a mid-size premium smart electric sedan.

 

 

The company is also involved in the provision of energy and service packages to its users; design and technology development activities; manufacture of e-powertrains, battery packs, and components; and sales and after sales management activities. In addition, it offers power solutions, including Power Home, a home charging solution; Power Swap, a battery swapping service; Power Charger, a fast-charging solution; Power Mobile, a mobile charging service through charging vans; Power Map, an application that provides access to a network of public chargers and their real-time information; and One Click for Power valet service, where it offers vehicle pick up, charging, and swapping services.

 

Securing Lithium

In September 2022 Nio announced it may invest an estimated 600 million yuan ($83.74 million) in Australia-based miner Greenwing Resources Ltd. Which will help it to expand its global footprint, and thereby secure raw material supply for EV batteries. Nio's move came after the price of lithium, surged over 700 percent since the start of 2021, which has led to a surge in battery pack prices.

 

New Car Deliveries

  • NIO delivered 14,178 vehicles in November 2022, increasing by 30.3% year-over-year
  • NIO delivered 106,671 vehicles year-to-date 2022, increasing by 31.8% year-over-year
  • Cumulative deliveries of NIO vehicles reached 273,741 as of November 30, 2022

 

2022 Management

Bin Li, Founder, Chairman and Chief Executive Officer

Lihong Qin, Co-founder, Director and President

Feng Shen, Executive Vice President and Chairman of Quality Management Committee

Xin Zhou, Executive Vice President and Chairman of Product Committee

Wei Feng, Chief Financial Officer

Ganesh V. Iyer, Chief Executive Officer of NIO U.S.

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Understanding China’s social credit...

Understanding China’s social credit system.

It’s easier to talk about what China’s social credit system isn’t than what it is. Ever since 2014, when China announced a six-year plan to build a system to reward actions that build trust in society and penalize the opposite, it has been one of the most misunderstood things about China in Western discourse. Now, with new documents released in mid-November, there’s an opportunity to correct the record.

 

For most people outside China, the words “social credit system” conjure up an instant image: a Black Mirror–esque web of technologies that automatically score all Chinese citizens according to what they did right and wrong. But the reality is, that terrifying system doesn’t exist, and the central government doesn’t seem to have much appetite to build it, either. 

 

Instead, the system that the central government has been slowly working on is a mix of attempts to regulate the financial credit industry, enable government agencies to share data with each other, and promote state-sanctioned moral values—however vague that last goal in particular sounds. There’s no evidence yet that this system has been abused for widespread social control

 

While local governments have been much more ambitious with their innovative regulations, causing more controversies and public pushback, the countrywide social credit system will still take a long time to materialize. And China is now closer than ever to defining what that system will look like. On November 14, several top government agencies collectively released a draft law on the Establishment of the Social Credit System, the first attempt to systematically codify past experiments on social credit and, theoretically, guide future implementation. 

 
 

Yet the draft law still left observers with more questions than answers. 

“This draft doesn’t reflect a major sea change at all,” says Jeremy Daum, a senior fellow of the Yale Law School Paul Tsai China Center who has been tracking China’s social credit experiment for years. It’s not a meaningful shift in strategy or objective, he says. 

 

Rather, the law stays close to local rules that Chinese cities like Shanghai have released and enforced in recent years on things like data collection and punishment methods—just giving them a stamp of central approval. It also doesn’t answer lingering questions that scholars have about the limitations of local rules. “This is largely incorporating what has been out there, to the point where it doesn’t really add a whole lot of value,” Daum adds. 

 

So what is China’s current system actually like? Do people really have social credit scores? Is there any truth to the image of artificial-intelligence-powered social control that dominates Western imagination? 

 

First of all, what is “social credit”?

When the Chinese government talks about social credit, the term covers two different things: traditional financial creditworthiness and “social creditworthiness,” which draws data from a larger variety of sectors.

 

The former is a familiar concept in the West: it documents individuals’ or businesses’ financial history and predicts their ability to pay back future loans. Because the market economy in modern China is much younger, the country lacks a reliable system to look up other people’s and companies’ financial records. Building such a system, aimed to help banks and other market players make business decisions, is an essential and not very controversial mission. Most Chinese policy documents refer to this type of credit with a specific word: “征信” (zhengxin, which some scholars have translated to “credit reporting”).

 

The latter—“social creditworthiness”—is what raises more eyebrows. Basically, the Chinese government is saying there needs to be a higher level of trust in society, and to nurture that trust, the government is fighting corruption, telecom scams, tax evasion, false advertising, academic plagiarism, product counterfeiting, pollution …almost everything. And not only will individuals and companies be held accountable, but legal institutions and government agencies will as well.

 

This is where things start to get confusing. The government seems to believe that all these problems are loosely tied to a lack of trust, and that building trust requires a one-size-fits-all solution. So just as financial credit scoring helps assess a person’s creditworthiness, it thinks, some form of “social credit” can help people assess others’ trustworthiness in other respects. 

 

As a result, so-called “social” credit scoring is often lumped together with financial credit scoring in policy discussions, even though it’s a much younger field with little precedent in other societies. 

 

What makes it extra confusing is that in practice, local governments have sometimes mixed up these two. So you may see a regulation talking about how non-financial activities will hurt your financial credit, or vice versa. (In just one example, the province of Liaoning said in August that it’s exploring how to reward blood donation in the financial credit system.) 

 

But on a national level, the country seems to want to keep the two mostly separate, and in fact, the new draft law addresses them with two different sets of rules.

 

 

Has the government built a system that is actively regulating these two types of credit?

The short answer is no. Initially, back in 2014, the plan was to have a national system tracking all “social credit” ready by 2020. Now it’s almost 2023, and the long-anticipated legal framework for the system was just released in the November 2022 draft law.

 

That said, the government has mostly figured out the financial part. The zhengxin system—first released to the public in 2006 and significantly updated in 2020—is essentially the Chinese equivalent of American credit bureaus’ scoring and is maintained by the country’s central bank. It records the financial history of 1.14 billion Chinese individuals (and gives them credit scores), as well as almost 100 million companies (though it doesn’t give them scores). 

 

On the social side, however, regulations have been patchy and vague. To date, the national government has built only a system focused on companies, not individuals, which aggregates data on corporate regulation compliance from different government agencies. Kendra Schaefer, head of tech policy research at the Beijing-based consultancy Trivium China, has described it in a report for the US government’s US-China Economic and Security Review Commission as “roughly equivalent to the IRS, FBI, EPA, USDA, FDA, HHS, HUD, Department of Energy, Department of Education, and every courthouse, police station, and major utility company in the US sharing regulatory records across a single platform.” The result is openly searchable by any Chinese citizen on a recently built website called Credit China.

 

But there is some data on people and other types of organizations there, too. The same website also serves as a central portal for over three dozen (sometimes very specific) databases, including lists of individuals who have defaulted on a court judgment, Chinese universities that are legitimate, companies that are approved to build robots, and hospitals found to have conducted insurance fraud. Nevertheless, the curation seems so random that it’s hard to see how people could use the portal as a consistent or comprehensive source of data.

 

How will a social credit system affect Chinese people’s everyday lives?

The idea is to be both a carrot and a stick. So an individual or company with a good credit record in all regulatory areas should receive preferential treatment when dealing with the government—like being put on a priority list for subsidies. At the same time, individuals or companies with bad credit records will be punished by having their information publicly displayed, and they will be banned from participating in government procurement bids, consuming luxury goods, and leaving the country.

 

The government published a comprehensive list detailing the permissible punishment measures last year. Some measures are more controversial; for example, individuals who have failed to pay compensation decided by the court are restricted from traveling by plane or sending their children to costly private schools, on the grounds that these constitute luxury consumption. The new draft law upholds a commitment that this list will be updated regularly. 

 

So is there a centralized social credit score computed for every Chinese citizen?

No. Contrary to popular belief, there’s no central social credit score for individuals. And frankly, the Chinese central government has never talked about wanting one. 

 

So why do people, particularly in the West, think there is? 

Well, since the central government has given little guidance on how to build a social credit system that works in non-financial areas, even in the latest draft law, it has opened the door for cities and even small towns to experiment with their own solutions. 

 

As a result, many local governments are introducing pilot programs that seek to define what social credit regulation looks like, and some have become very contentious.

 

The best example is Rongcheng, a small city with only half a million in population that has implemented probably the most famous social credit scoring system in the world. In 2013, the city started giving every resident a base personal credit score of 1,000 that can be influenced by their good and bad deeds. For example, in a 2016 rule that has since been overhauled, the city decided that “spreading harmful information on WeChat, forums, and blogs” meant subtracting 50 points, while “winning a national-level sports or cultural competition” meant adding 40 points. In one extreme case, one resident lost 950 points in the span of three weeks for repeatedly distributing letters online about a medical dispute.

 

Such scoring systems have had very limited impact in China, since they have never been elevated to provincial or national levels. But when news of pilot programs like Rongcheng’s spread to the West, it understandably rang an alarm for activist groups and media outlets—some of which mistook it as applicable to the whole population. Prominent figures like George Soros and Mike Pence further amplified that false idea. 

 

How do we know those pilot programs won’t become official rules for the whole country?

No one can be 100% sure of that, but it’s worth remembering that the Chinese central government has actually been pushing back on local governments’ rogue actions when it comes to social credit regulations. 

 

In December 2020, China’s state council published a policy guidance responding to reports that local governments were using the social credit system as justification for punishing even trivial actions like jaywalking, recycling incorrectly, and not wearing masks. The guidance asks local governments to punish only behaviors that are already illegal under China’s current legislative system and not expand beyond that. 

 

“When [many local governments] encountered issues that are hard to regulate through business regulations, they hoped to draw support from solutions involving credits,” said Lian Weiliang, an official at China’s top economic planning authority, at a press conference on December 25, 2020. “These measures are not only incompatible with the rule of law, but also incompatible with the need of building creditworthiness in the long run.” 

 

And the central government’s pushback seems to have worked. In Rongcheng’s case, the city updated its local regulation on social credit scores and allowed residents to opt out of the scoring program; it also removed some controversial criteria for score changes. 

 

Is there any advanced technology, like artificial intelligence, involved in the system?

For the most part, no. This is another common myth about China’s social credit system: people imagine that to keep track of over a billion people’s social behaviors, there must be a mighty central algorithm that can collect and process the data.

 

But that’s not true. Since there is no central system scoring everyone, there’s not even a need for that kind of powerful algorithm. Experts on China’s social credit system say that the entire infrastructure is surprisingly low-tech. While Chinese officials sometimes name-drop technologies like blockchain and artificial intelligence when talking about the system, they never talk in detail about how these technologies might be utilized. If you check out the Credit China website, it’s no more than a digitized library of separate databases. 

 

“There is no known instance in which automated data collection leads to the automated application of sanctions without the intervention of human regulators,” wrote Schaefer in the report. Sometimes the human intervention can be particularly primitive, like the “information gatherers” in Rongcheng, who walk around the village and write down fellow villagers’ good deeds by pen.

 

However, as the national system is being built, it does appear there’s the need for some technological element, mostly to pool data among government agencies. If Beijing wants to enable every government agency to make enforcement decisions based on records collected by other government agencies, that requires building a massive infrastructure for storing, exchanging, and processing the data. 

 

To this end, the latest draft law talks about the need to use “diverse methods such as statistical methods, modeling, and field certification” to conduct credit assessments and combine data from different government agencies. “It gives only the vaguest hint that it’s a little more tech-y,” says Daum.

 

How are Chinese tech companies involved in this system?

Because the system is so low-tech, the involvement of Chinese tech companies has been peripheral. “Big tech companies and small tech companies … play very different roles, and they take very different strategies,” says Shazeda Ahmed, a postdoctoral researcher at Princeton University, who spent several years in China studying how tech companies are involved in the social credit system.

 

Smaller companies, contracted by city or provincial governments, largely built the system’s tech infrastructure, like databases and data centers. On the other hand, large tech companies, particularly social platforms, have helped the system spread its message. Alibaba, for instance, helps the courts deliver judgment decisions through the delivery addresses it collects via its massive e-commerce platform. And Douyin, the Chinese version of TikTok, partnered with a local court in China to publicly shame individuals who defaulted on court judgments. But these tech behemoths aren’t really involved in core functions, like contributing data or compiling credit appraisals.

 

“They saw it as almost like a civic responsibility or corporate social responsibility: if you broke the law in this way, we will take this data from the Supreme People’s Court, and we will punish you on our platform," says Ahmed.

 

There are also Chinese companies, like Alibaba’s fintech arm Ant Group, that have built private financial credit scoring products. But the result, like Alibaba’s Sesame Credit, is more like a loyalty rewards program, according to several scholars. Since the Sesame Credit score is mostly calculated on the basis of users’ purchase history and lending activities on Alibaba’s own platforms, the score is not reliable enough to be used by external financial institutions and has very limited effect on individuals.

 

Given all this, should we still be concerned about the implications of building a social credit system in China?

Yes. Even if there isn’t a scary algorithm that scores every citizen, the social credit system can still be problematic.

 

The Chinese government did emphasize that all social-credit-related punishment has to adhere to existing laws, but laws themselves can be unjust in the first place. “Saying that the system is an extension of the law only means that it is no better or worse than the laws it enforces. As China turns its focus increasingly to people’s social and cultural lives, further regulating the content of entertainment, education, and speech, those rules will also become subject to credit enforcement,” Daum wrote in a 2021 article.

 

Moreover, “this was always about making people honest to the government, and not necessarily to each other,” says Ahmed. When moral issues like honesty are turned into legal issues, the state ends up having the sole authority in deciding who’s trustworthy. One tactic Chinese courts have used in holding “discredited individuals” accountable is encouraging their friends and family to report their assets in exchange for rewards. “Are you making society more trustworthy by ratting out your neighbor? Or are you building distrust in your very local community?” she asks.

 

But at the end of the day, the social credit system does not (yet) exemplify abuse of advanced technologies like artificial intelligence, and it’s important to evaluate it on the facts. The government is currently seeking public feedback on the November draft document for one month, though there’s no expected date on when it will pass and become law. It could still take years to see the final product of a nationwide social credit system.

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Source: By Zeyi Yang for the MIT Technology Review

 

Jinko Solar(晶科能源)

 Jinko Solar(晶科能源)

Jinko Solar, headquartered in Shanghai, is one of the world’s largest solar module manufacturers. It started out as a wafer manufacturer in 2006, and went public on the New York Stock Exchange in 2010. Since its inception, Jinko has been working on developing a vertically integrated supply chain, which has helped it establish its dominant position in the solar industry. The company now produces mono wafers, solar cells, and solar modules. It was named as one of the top 50 Forbes China Most Innovative Companies in 2022, reaffirming its continuous innovation and achievements.

 

 

Its business covers the core links of the photovoltaic industry chain, focusing on the R&D of integrated photovoltaic products and integrated clean energy solutions. At present, Jinko Solar's products serve more than 3,000 customers in more than 80 countries around the world, and the company has ranked No.1 in global module shipments from 2016 to 2019. By the end of March 2022, the cumulative module shipments of Jinko Solar have exceeded 100GW. Jinko Solar is an industry opinion leader under various international frameworks such as B20, and it is also the first solar energy company to join the RE100 green initiative.

 

 

JinkoSolar has over 15,000 employees across its 7 productions facilities globally, 14 overseas subsidiaries in Japan, South Korea, Vietnam, India, Turkey, Germany, Italy, Switzerland, United States, Mexico, Brazil, Chile and Australia, and global sales teams in China, United Kingdom, France, Spain, Bulgaria, Greece, Ukraine, Jordan, Saudi Arabia, Tunisia, Morocco, Kenya, South Africa, Costa Rica, Colombia, Panama, Kazakhstan, Malaysia, Myanmar, Sri Lanka, Thailand, Vietnam, Poland and Argentina. As of Q2 2022 , the company's effective production capacity of monocrystalline silicon wafers, cells and modules reach 40GW, 40GW and 50GW respectively.  Jinko Solar has more than 1,000 R&D and technical employees.

 

Primary PV Products.

Tiger Neo: Power 620w, Efficiency 22.3%

Tiger Pro: Power 585w, Efficiency 21.4%

Tiger:  Power 475w, Efficiency 21.16%

Cheetah: Power 410w, Efficiency 20.38%

ESS Lithium Ion Battery: Battery Type: Lithium Iron Phosphate (LFP), Battery Life Cycle: 8000 Cycles, 0.5C @25°C, Nominal Capacity: 50-1000kWh (Customized), Voltage Range: 500-1500V, IP Rating: IP54

 

 

Current Leadership 2022

Li Xiande (李仙德), Chairman and CEO

Chen Kangping (陈康平), Director

Li Xianhua (李仙华), Director

Siew Wing Keong (苏文刚), Independent Director

Steven Markscheid, Independent Director

Liu Yingqiu (刘迎秋), Independent Director

Cao Haiyun (Charlie) (曹海云), Director and CFO

 

Comapny Website: Jinko Solar

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Snapshot of China’s Pet Food Industr...

Snapshot of China’s Pet Food Industry.

China's pet food industry is developing rapidly. Staple food account for 75% of the pet food market. With the continuous expansion of the market size of the pet-related industry and the upgrading of consumers' scientific pet-keeping ideas, both the brands and categories of the staple food industry are upgrading. Based on product forms and functions, the staple food for pets has four development stages and it's now in stage 2.0 in China.

 

Penetration rates of families with pets and pet food affect the market size of the pet food industry. The pet food market in China has reached 133.7 billion yuan, of which cat food market and dog food market reached 52.7 billion yuan and 66.7 billion yuan, respectively . It is expected that by 2025 the pet food market size will reach around 241.7 billion yuan.

 

Due to the adjustment of dog management regulations, the pandemic prevention and control methods as well as other objective factors, the number of dogs is expected to experience negative growth in 2021. Since cats can be kept at home, they have a growth rate than dogs . The monthly spending on cats is also than that on dogs, and the gap is expected to be larger and larger.

 

Thanks to their constantly improving product power,  brand power, and supply channels, Chinese domestic companies are increasingly competitive. iResearch has found the key elements for Chinese brands' fast growth and analyzed the outstanding companies.

 

Due to their production area, channel strategy, R&D investment and leading categories, overseas brands have their unique product advantages. Thanks to their historical accumulation and long-term deep cultivation of the Chinese market, foreign brands have formed brand power to carry out international operations.

 

Pet Food Investment Views
 
 

Foreign brands have developed for a long time in the Chinese market and Chinese domestic brands are catching up.

 

Market Size and Forecast of the Pet Food Industry in China 

 

 

The Chinese pet food industry is developing quickly.

Chinese people are increasingly willing to keep pets. More and more Chinese are regarding pets as their family members, friends, and partners.

 

In 2021 39.1% of families in the first and second-tier cities have pets. The number of pets has increased.

 

As the staple food for pets is developing from stage 2.0, pet food, to stage 3.0, natural food, pet owners are increasingly willing to buy pet food. With rising awareness and changing market stages, more money is spent on pet food. The rising number of pets, together with the increasing pet food consumption amount, contributes to the growth of the pet food market.

 

Market Size and Forecast of the Pet Food Industry in China 

 

 

The popularization of scientific pet keeping drives the development of the nourishment market

As more pet owners learn to keep pets in a scientific way, they have a deeper understanding of the nutrition needed by their pets. They gradually learn about and accept nourishment, which is a daily consumer good. The nourishment can satisfy pets' daily nutritional needs while preventing diseases. The CAGR of the nourishment market is expected to be 22% from 2021 to 2025, while the CAGR of the pet food market will be only 16% during the same period of time. The penetration of nourishment is expected to keep growing and its market size will hit 34.8 billion yuan in 2025.

 

The CAGR of the pet snack market is expected to be lower than that of the nourishment market. Without clear product classification standards and diverse product forms, pet snack, which is consumer discretionary, is easy to be replaced by staple food and nourishment. It is expected that the CAGR of the pet snack market from 2021 to 2025 will be 6% and the pet snack market size will hit 21.8 billion yuan in 2025.

 

Brands in the Pet Food Industry

 

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Source: IResearch Global

 


 

 

Chinese Smart Cities: an ecosystem of...

Chinese Smart Cities: an ecosystem of software and data platforms to store and process information in real-time.

Last week, the 15th China Smart City Conference took place over two days in Beijing. The theme of the event was “Promoting data sharing and integration, serving the people full-time.” The conference included an award ceremony for pioneering smart city apps and software.

 

Freedo 北京飞渡科技 was one of the companies that received an award. The company’s founder, Sòng Bīn 宋彬, gave an acceptance speech in which he discussed Freedo’s self-developed platform as a service (Paas) application and database, a 3D computational engine that uses artificial intelligence (AI) to integrate real and virtual data for developing digital twin models of cities.

 

Such digital twins can be used to model and plan different types of urban spaces, and manage resource usage, for example water supply and conservation.

 

 

Smart and super smart cities

Freedo is one of a range of new start-ups in China that are developing apps and software for managing smart cities. Technically, a smart city — or a digital, intelligent or wired city — is an urban area in which technology and sensors are used to collect data, which is then applied in real-time to manage the city’s utilities and resources, such as by improving the quality of infrastructure and services, and reducing waste, energy consumption, and pollution. Smart cities are based on key technology like 5G and the Internet of Things — for machines, vehicles, systems and devices to communicate with each other — and an ecosystem of software and data platforms to store and process information in real-time.

 

The use and management of renewable energy is a key component of smart cities. This includes the application of smart grids, green construction technology, lithium-ion batteries for energy storage, and smart waste management and water conservation systems. Other key focus areas are smart and autonomous transportation and traffic management, and data-driven public health management.

 

In China, the scale of digital infrastructure has developed rapidly. Per an interview with a director of the Cyberspace Administration of China published last week, China already has:

  • 29 “dual-gigabit” cities with wired and wireless gigabit broadband (this number is expected to rise to 100 cities by the end of 2023);
  • 1.85 million 5G base stations with 450 million 5G mobile users;
  • 5.2 million standard data center racks, 19 million data center servers, and storage capacity of 800 exabytes.

 

The concept of smart city development has been incorporated in the 14th Five Year Plan (2021 to 2025) development goals of nearly all Chinese provinces and regions. These include delivering smart governance and services: China’s national e-government service platform has more than a billion users and more than 10,000 standardized services.

 

Unsurprisingly, China’s smartest cities are its first tier cities, especially Beijing, Shanghai, and Shenzhen. The latter city in particular has taken the lead in releasing specific plans for constructing a smart city and developing digital governance.

 

In an interview published in July 2002, the vice chairperson of Deloitte China, Shī Néngzì 施能自, stated that China’s smart city development is now transitioning to the “super smart city” stage in which cities will have “ AI city brains” that can analyze vast amounts of data instantly and implement decisions on services and city management in real-time. Super smart cities will also be able to intelligently connect suppliers with consumers, and provide citizens with more diverse consumption scenarios.

 

 

Smart city projects around China

“Smart pipes” in Chongqing

As of the end of June, 36 districts in Chongqing have been connected to a comprehensive urban pipeline management network that makes use of a digital twin command center. The system allows for real-time management of the pipe network with the ability to identify leaks. The system has also been installed in the cities of Wuxi (Jiangsu Province) and Shijiazhuang (Hebei Province), and is being rolled out to other cities across China.

 

Beijing Smart City 2.0

An official from the Beijing Municipal government stated at a press conference on September 20 that the city has now transitioned to the Smart City 2.0 stage, which includes:

 

  • The Beijing International Data Exchange platform that incorporates 333 data trading entities controlling 773 million transactions.
  • The Beijing High-level Autonomous Driving Demonstration Zone, which is being expanded to cover 500 square kilometers (193 square miles) of the city.
  • An urban spaces pilot computing and design system to manage a million square meters (10.76 million square feet) in the Haidian District.
  • And currently in development: Digital community governance models, industry-research integrated blockchain systems, and a metaverse experience center.

 

Beijing smart city start-up program in Fengtai

The Fengtai District of Beijing has implemented a smart city incentive program to attract high-tech companies with subsidies, and the district now claims to have 1,900 high-tech enterprises. On September 22, the district government held a special press conference that highlighted several smart city start-ups operating in the district:

 

  • Jiu-Yi Technology 久译科技 has installed an early warning system in the city’s rail and subway lines that monitors passenger flows, equipment, and facilities, and which can detect safety issues such as waterlogged platforms and dead bodies on the tracks.

  • Yunlu Technology 北京云庐科技 has installed a heating pipe network intelligent monitoring platform that can automatically detect leaks and conduct smart temperature adjustments.

  • HES Group 北京豪尔赛智慧城域科技 is developing an immerse tourism experience in Beijing with installations of 3D LED screens, interactive displays, and colored buildings.

  • All in Tech 傲林科技 has developed an industrial metaverse application that the company claims can transform any industrial problem into manageable datasets.

 

Smart city decarbonization

On September 21, Terminus 特斯联, which describes itself as an Artificial Intelligence of Things (AIoT) company, launched the latest version of its urban decarbonization operating system for smart cities to comprehensively monitor key indicators like temperature and humidity, manage energy supply and consumption, and optimize energy usage via a digital twin system.

 

The takeaway

There is a great deal of jargon connected to smart cities, and a lot of speculative investment. It’s also unclear to what extent the new technologies will actually make life more convenient for residents as opposed to providing the government with ever more invasive techniques to surveil and control citizens.

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Source: By Barry Van Wyk for the China Project


 

 

Chinas New Space Station Has a Big Role...

Chinas New Space Station Has a Big Role to Play, Scientifically and Diplomatically.

Tiangong space station, or "Heavenly Palace", is China's new permanent space station. The country has previously launched two temporary trial space stations, named as Tiangong-1 and Tiangong-2. The new lab Wentian is the second of three key modules to Tiangong. The first key module Tianhe - which contains living quarters for crew members - was sent into orbit in April 2021. The other key module, Mengtian science lab, is due to be launched by the end of 2022.

 

China has big ambitions for Tiangong. The station will have its own power, propulsion, life support systems and living quarters. It is also designed to provide refuelling power to China's new space telescope, called Xuntian, which will fly close to the space station next year.

 

 

China is only the third country in history to have put both astronauts into space and to build a space station, after the Soviet Union (now Russia) and the US. China hopes Tiangong will replace the International Space Station (ISS), which is due to be decommissioned in 2031. Chinese astronauts are currently excluded from the ISS because US law bans its space agency, Nasa, from sharing its data with China.

 

China's plans to reach the Moon and Mars

China's ambitions do not end there. A few years from now it wants to take samples from asteroids near the Earth. By 2030, it aims to have put its first astronauts on the Moon, and to have sent probes to collect samples from Mars and Jupiter.

 

 

What are other countries doing?

As China expands its role in space, several other countries are also aiming to get to the Moon.

Nasa plans to return to the Moon with astronauts from the US and other countries from 2025 onwards and has already rolled its new giant SLS rocket at the Kennedy Space Center,

Japan, South Korea, Russia, India, the United Arab Emirates are also working on their own lunar missions.

India has launched its second major Moon mission already and wants to have its own space station by 2030.

Meanwhile, the European Space Agency, which is working with Nasa on Moon missions, is also planning a network of lunar satellites to make it easier for astronauts to communicate with Earth.

 

What is China's history in space?

China put its first satellite into orbit in 1970 - as it went through massive disruptions caused by the Cultural Revolution. The only other powers to have gone into space by that stage were the US, the Soviet Union, France and Japan. In the past 10 years, China has launched more than 200 rockets.

 

It has already sent an unmanned mission to the Moon, called Chang'e 5, to collect and return rock samples. It planted a Chinese flag on the lunar surface - which was deliberately bigger than previous US flags.

 

With the launch of Shenzhou 14, China has now put 14 astronauts into space, compared with 340 by the US and more than 130 by the Soviet Union (and now Russia).

 

But there have been setbacks. In 2021, part of a Chinese rocket tumbled out of orbit and crashed into the Atlantic Ocean and two launches failed in 2020.

 

Who is paying for China's space programme?

Chinese state media Xinhua said at least 300,000 people have worked on China's space projects - almost 18 times as many as currently work for Nasa. The Chinese National Space Administration was set up in 2003 with an initial annual budget of two billion yuan ($300m, £240m).

 

However, in 2016 China opened its space industry to private companies, and these are now investing more than 10 billion yuan ($1.5bn, £1.2bn) a year, according to Chinese media.

Why is China going into space?

China is keen to develop its satellite technology, for telecommunications, air traffic management, weather forecasting and navigation and more. But many of its satellites also have military purposes. They can help it spy on rival powers, and guide long-range missiles.

 

Lucinda King, space project manager at Portsmouth University, says China is not just focussing on high-profile space missions: "They are prolific in all aspects of space. They have the political motivation and the resources to fund their planned programmes. China's Moon missions are partly motivated by the opportunities to extract rare earth metals from its surface.

 

However, Prof Sa'id Mosteshar, director of the London Institute of Space Policy and Law at the University of London, says it probably would not pay for China to send repeated mining missions to the Moon. Instead, he says China's space programme is driven more by a desire to impress the rest of the world. "It's a projection of power and a demonstration of technological advancement."

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Source: BBC

 

 

 


 

 

 

 

China’s debt forgiveness in Africa...

China’s debt forgiveness in Africa.
China has agreed to forgive interest-free loans to 17 African countries as it seeks to dispel debt-trap allegations, but sceptics say that the days of Beijing writing off interest-bearing loans are over.
 

With African economies under severe strain from surging commodity prices and the tailwinds of Covid-19, hopes were high when Wang Yi, China’s top diplomat, took the stage for a major African debt announcement in August.

 

 

With a pomp not seen before in debt talks, Wang said Beijing had forgiven 23 interest-free loans to 17 African countries. He noted that the loans had matured, but remained tight-lipped about the total value and their recipients.

 

For cash-strapped African economies, many of whom count China as their largest bilateral creditor, the news that outstanding balances on Chinese government loans would be cancelled was well received. Around half of the continent is either in debt distress or at risk of it, with debt as a percentage of GDP worryingly high. All told, the world’s poorest countries – many of them in Africa – are facing $35bn in debt-service payments in 2022. Around 40% of that total is owed to China, according to the World Bank.

 

Interest-free loans vs interest bearing loans

However, while interest-free loan forgiveness could make a difference to Africa’s very poorest nations, it does not come as much of a surprise. In fact, no-interest loans make up a sliver of China’s lending to the continent. Some African governments even treat them as grants.

 

While the pageantry around the announcement could indicate an attempt by Beijing to tackle allegations of “debt-trap diplomacy”, analysts say it is unlikely to have an impact on China’s interest-bearing loans. And the current negotiations over Zambia’s debt obligations do not suggest Chinese banks are in a particularly forgiving mood.

 

Chinese lending to Africa peaked in 2016 at $29.5bn. By then it had already fuelled an infrastructure boom across the continent. As the leading external financier of infrastructure in Africa, Beijing built or upgraded 10,000km of railway, 100,000km of highway, 1,000 bridges and 100 ports, according to Chatham House, not to mention power plants, hospitals and schools. Kenya has Africa’s first urban expressway and a standard-gauge railway linking Nairobi and Mombasa thanks to Chinese credit.

 

 

Lauren Johnston, a professor at the University of Sydney’s China Studies Centre, says Chinese lending on the continent was initially underpinned by tumbling interest rates following the global financial crisis and a search for new markets, as well as a desire by Beijing to foster global development.

 

Today, she says, there’s a more immediate challenge in having to “manage a loan portfolio in the presence of global tensions and post-pandemic economic challenges.”

 

According to AidData, a research lab, interest-free loans account for less than 5% of the $843bn in Chinese loan commitments to 165 governments globally between 2000 and 2017. In the past two decades, China has written off at least $3.4bn of debt, almost all interest free loans to African countries, according to researchers from Johns Hopkins University.

 

They are considered part of China’s largesse in Africa, comparable to Beijing’s recent construction of Zimbabwe’s new parliament or a Lusaka’s state of the art conference centre, which came at no cost to either southern African country.

 

“Beijing has been doing debt write-offs of interest-free loans for 22 years,” says Deborah Brautigam, director of the China Africa Research Initiative at Johns Hopkins. “These interest-free loans come from China’s central government budget and have already been completely accounted for, like grants and unlike bank loans.”

 

While the write-offs are not new, experts say the pomp around the announcement is, reflecting Beijing’s frustration with allegations of debt-trap diplomacy, particularly from the US.

 

Both the Trump and Biden administrations have accused Beijing of deliberately lending to countries it knows cannot meet their obligations for political leverage, for instance to prompt a vote in China’s favour at the United Nations General Assembly or smooth the way for a well-placed Chinese port. A 2020 State Department document warned directly of China’s “predatory development programme and debt-trap diplomacy.”

 

Beijing ‘irked’ by debt-trap allegations

Harry Verhoeven, senior researcher at Columbia University in New York, says the accusation does not hold water. In Djibouti, Uganda and South Sudan, which are often touted as possible debt trap victims, there is no evidence of Beijing making any such requests, he argues.

 

That has not stopped China from pushing to change the narrative. “It’s very clear that now, being on the receiving end of this kind of language for four or five years, Beijing is really quite irked by all of this,” Verhoeven says. “There is a felt need to push back and to actually show parts of African public opinion – perhaps even globally – that China is not the bogeyman the US and some of its Western allies are trying to make it out to be.”

 

During Kenya’s tense presidential election in August, winner William Ruto made Chinese debt a political football, vowing to publish secretive government contracts with Beijing and put an end to his predecessor’s excessive borrowing. Beyond the continent, Sri Lanka’s mounting public debt, some of it owed to China, led tens of thousands of Sri Lankans to storm the presidential palace in Colombo in July, perhaps worrying indebted African governments. Sri Lanka defaulted on its $47bn external debts last year.

 

Beijing dismisses the debt-trap claims as a hollow attempt by the US to reduce Chinese influence in Africa and boost its own. In August Wang condemned America’s “zero-sum Cold War mentality”.

 

While Hannah Ryder, chief executive of Development Reimagined, an African development consultancy in Beijing, has described interest-free loans as “the lowest-hanging fruit”, interest-bearing loans, which account for the vast majority of China’s lending, are quite another story.

 

Commercial loans can be restructured or reprofiled, but are almost never considered for cancellation, analysts say. Rather than coming through the government’s foreign aid programme, they go through China’s banks, which insist on being repaid. And with the Chinese economy stagnating somewhat compared to a decade ago, due in part to Beijing’s “zero-Covid” strategy, which shut down whole cities, that is unlikely to change.

 

“Chinese banks are reluctant to cancel or reduce the principal on bank loans inside China; doing this abroad would be unpopular among Chinese citizens,” says Brautigam. “Chinese banks want to be repaid in full.” In recent years China has reorientated its economy and is paying more attention to domestic and regional affairs. The boom times for African governments seeking Chinese loans appear to be over.

 

“Given the global economic winds that we see at the moment it’s important for Chinese lending institutions to be able to recoup much of the money they have made available to others,” says Verhoeven.“There was a time when China could just write off these things and say keep the change. Those days are over.” In fact, in the last couple of years Chinese lending to Africa has decreased significantly.

 

Johnston is open-minded about long-run prospects for debt relief. “Perhaps, far down the track [China] may offer debt relief,” she says, “[but] my sense is that China will first endure a long period of re-scheduling until ideally the loans are repaid.”

 

 

Zambia debt talks: a sign of things to come?

While expectations of write-downs or haircuts on interest-carrying loans are low, many see Zambia, which became the first African country to default on its debt during the coronavirus pandemic, as a vital test of how much debt relief China will be willing to stomach.

 

Most of Africa’s debts to China are owed by five countries – Angola, Ethiopia, Kenya, Nigeria and Zambia – some of whom are seeking to reduce their reliance on Chinese loans in the future.

 

Zambia owes roughly $17bn to a combination of multilateral lenders, commercial bondholders and sovereign creditors, and a third of it to China. The country is requesting $4.8bn in debt relief over the next three years. Debt restructuring is being handled through the Common Framework for Debt Treatments, set up in 2020 by the G20 cohort of wealthy countries.

 

Restructuring got off to a slow start, with some blaming China for the delay, which Beijing denies. Yet the second meeting resulted in a breakthrough commitment, allowing the International Monetary Fund to sign off on a $1.3bn lending programme. In July, Zambia’s finance ministry announced it was cancelling $2bn of undisbursed loans from external creditors, $1.6bn of them from Chinese banks.

 

China initially wanted to eschew the Common Framework altogether, Beijing’s ambassador to Zambia said in August, before a call between President Xi Jinping of China and President Hakainde Hichilema of Zambia convinced China to join the talks. Many have been surprised by China’s willingness to negotiate in the face of its first debt crisis.

 

Still, negotiations remain tense. Analysts say China favours extending maturities over write-downs, even though Zambia’s finance minister, Situmbeko Musokotwane, told journalists in September that “the choice between haircuts and stretching the repayment period… is a matter of negotiations.” He added that some creditors “will choose to have their money faster” while others would opt for repayment over a longer period.

 

While Zambia is a useful test case, Verhoeven is wary of extrapolating it to the rest of the continent. “Zambia is pretty exceptional in terms of the composition of its debt, its important role as a copper producer, its history of defaults,” he says. “Zambia is not representative of the average African country and its debt profile, which is part of the reason I think why China has been willing to be, by Chinese standards, quite generous.”

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Source:  By Charlie Mitchell for African Business

 

 

 


 

 

Why Beijing Wants Bolsonaro to Win:...

Why Beijing Wants Bolsonaro to Win: the Brazilian president is an ally against the West.

When Jair Bolsonaro won Brazil’s last presidential election in October 2018, an editorial in the China Daily, a newspaper owned by the Chinese Communist Party, reflected Beijing’s cautious optimism about the new leader. Though Bolsonaro had sounded “less than friendly to China on the campaign trail,” the China Daily expressed “sincere hope” that he would “take an objective and rational look at the state of China-Brazil relations,” opining that the two countries were “hardly competitors.”

 

At the time, the far-right Bolsonaro had a track record of systematically attacking Beijing. Ahead of the election, he had warned that “China is not buying in Brazil; it is buying Brazil” and visited Taiwan, tweeting that he planned to break with previous Brazilian left-wing governments that had been “friendly with communist regimes.”

 

 

Bolsonaro’s decision to make anti-China rhetoric such a key element of his campaign was a first for a politician who successfully sought national office in Latin America. Prior to the Chinese-fueled commodity boom in the 2000s, the region’s ties to China had been of limited economic and political relevance. Brazil is a case in point: At the turn of the century, Beijing did not figure among its five leading trading partners. Merely nine years later, however, China overtook the United States as Brazil’s top trading partner, a position it now holds in several of the region’s countries, including Chile, Uruguay, and Peru.

 

Since then, regional actors have generally viewed China as an indispensable economic partner—as well as a useful ally to balance U.S. influence. Former Brazilian President Luiz Inácio Lula da Silva, who governed from 2003 to 2010, institutionalized the China-Brazil bilateral relationship, most critically by helping to found the BRICS grouping of Brazil, Russia, India, China, and South Africa in 2009. Lula’s successors from both left and right continued along a similar path until Bolsonaro promised to take a sledgehammer to Brazil-China relations in 2018.

 

Four years later, however, China has proved to be the biggest beneficiary of the Bolsonaro presidency. While Bolsonaro demonized China during the first two years of his administration, he also become persona non grata in the West—and began to see his fellow BRICS members in a different light. Ahead of Brazil’s presidential elections on Oct. 2, policymakers in Beijing are far less concerned about the possibility of Bolsonaro’s reelection than their counterparts in Europe, the United States, and Latin America. And, in a remarkable turn of events, China stands to benefit far more from another four years of Bolsonaro than of erstwhile ally Lula, who has launched a new bid for the Brazilian presidency and currently leads Bolsonaro in the polls.

After Bolsonaro’s inauguration in January 2019, Beijing’s hopes that he would soften his anti-China rhetoric were initially frustrated. Bolsonaro was a proud acolyte of then-U.S. President Donald Trump, and several of his key advisors regularly condemned Beijing to strengthen their proclaimed anti-communist credentials. The new president also chose as foreign minister Ernesto Araújo, a Trumpist conspiracy theorist who described the science behind climate change as a Marxist plot to benefit Beijing and warned that “Maoist China” was facilitating the emergence of socialist rule across Latin America. Though the two sides saw some rapprochement when China publicly lauded Bolsonaro’s environmental record during large fires in the Amazon in 2019, it proved only temporary.

 

When Bolsonaro, his legislator sons, and several ministers mimicked Trump’s strategy of blaming China for the COVID-19 pandemic—for example by using the term “China virus” and suggesting the virus was the result of China’s “chemical warfare”—the countries’ bilateral relationship entered a profound crisis. China’s consul general in Rio de Janeiro lashed out against the president’s son Eduardo Bolsonaro and suggested he had been “brainwashed” by the United States. In the end, however, things did not escalate beyond a war of words. Beijing was able to significantly improve its standing in Brazil by providing the country with vaccines at a time when the United States and Europe still prioritized their own populations.

 

It was Trump’s tumultuous departure from the White House in January 2021, however, that forced Bolsonaro to take a permanent pragmatic turn toward Beijing. Aware that geopolitical realities had changed—and that Brazil would now face near-complete diplomatic isolation in the West—his government largely stopped attacking China. At the same time, Brazil’s politically influential agribusiness—highly dependent on China—signaled that it was losing patience with the government’s anti-China rhetoric. As a result, the Brazilian Senate announced that it would not approve Bolsonaro’s ambassadorial appointments if Araújo remained foreign minister. The president obliged and replaced Araújo with a middle-of-the-road technocrat. (Minister of Education Abraham Weintraub, another leading anti-China voice in Bolsonaro’s cabinet, had already been sacked after tweeting that COVID-19 was part of China’s “plan for world domination.”)

 

Since then, BRICS summits have become something of a diplomatic life raft for Bolsonaro. Largely shunned in Western capitals for his villainous environmental record, COVID-19 denialism, “anti-globalist” rhetoric, and increasingly explicit authoritarian ambitions, the yearly photo-ops with leaders from China, Russia, India, and South Africa have become the main pillar of the Brazilian president’s diplomatic calendar. The importance of the BRICS grouping to Bolsonaro’s global standing has become even more pronounced with the election of left-wing leaders in such countries as Chile and Colombia—which previously had conservative presidents—over the past year.

 

A reelected Bolsonaro would face unprecedented isolation in South America, where virtually all countries except Uruguay, Ecuador, and Paraguay are governed by leftists. Since Russia’s invasion of Ukraine in February, Bolsonaro has also proved a committed BRICS ally to Moscow, criticizing Western sanctions on Russia and abstaining—together with China—on highly symbolic United Nations votes.
 

As October’s presidential election approaches, decision-makers everywhere from Washington and Madrid to Paris and Berlin are doing little to hide their antipathy for Bolsonaro, and it is no exaggeration to say that Bolsonaro’s reputation in the West is largely beyond repair. This fact complicates U.S. and European efforts to defend their waning economic and political influence in Latin America as China’s role in the region grows.

 

Reelection would most likely embolden Bolsonaro to become more authoritarian and further weaken Brazil’s ties to the West; for example, both Brazil’s accession to the OECD and the ratification of a pending trade deal between the European Union and South American bloc Mercosur—stalled by Brussels to protest Brazil’s destruction of the Amazon rainforest—seem unlikely as long as Bolsonaro is president. Should Lula win, by contrast, European countries plan to relaunch environmental cooperation efforts with Brazil—such as via the Amazon Fund, financed by Norway and Germany—and otherwise resume broad multilateral cooperation that was common prior to Bolsonaro’s rise, such as the EU-Brazil Strategic Partnership.

Beijing, on the other hand, seems far better positioned to deal with another Bolsonaro term. Granted, Bolsonaro is not China’s dream candidate—and Lula is remembered fondly in Beijing for transforming bilateral ties between the two countries. Yet despite Bolsonaro’s frequent anti-Beijing rants during the Trump years, trade between Brazil and China has grown considerably throughout Bolsonaro’s first presidential term, from about $100 billion in 2019 to $135 billion in 2021—a remarkable achievement, especially during the pandemic. 2021 also saw the second-largest Chinese investments in Brazil to date, at $5.9 billion. And Bolsonaro has resisted U.S. pressure to ban Chinese telecommunications firm Huawei from providing components for Brazil’s 5G network. In short: Brazil’s economic dependence on Beijing has never been greater than under Bolsonaro.

 

 

Beyond economics, Bolsonaro’s growing isolation in the West offers a strategic opportunity for Beijing to develop a stronger foothold in Brazil and beyond, in some cases due to Bolsonaro’s neglect of his own neighbors. While Brasília and Beijing competed for influence in Latin America in decades past, Bolsonaro’s decision to turn its back on the region has facilitated China’s strategic engagement: In 2019, for example, China temporarily overtook Brazil as Argentina’s most important trading partner. Rather than seeking to find ways to retain lost influence in Argentina or contain China’s growing role, Bolsonaro was busy attacking the newly elected government in Buenos Aires as “leftist bandits.

 

This does not mean that China has soured on Lula. But if Lula were to win the Brazilian presidency, the country’s isolation in the West would end—and Beijing would face far more intense competition to consolidate its influence across Latin America. (Lula, however, is still expected to be friendly to China, as he was during his first two terms.)

 

After starting out as a presidential candidate running on an anti-China platform, Bolsonaro has now become—above all—anti-Western. That tendency will only intensify if he wins reelection. And Beijing is taking notice.

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Source: Foreign Policy

 

Gorbachev’s Other Legacy: Normali...

Gorbachev’s Other Legacy: Normalizing Sino-Soviet Ties.
Mikhail Gorbachev’s death last month unleashed numerous commentaries and evaluations of his legacy. Predictably, many of these focused on Beijing’s perception of the last Soviet leader and what his political life meant for the future of the People’s Republic of China (PRC). However, this discussion overlooks a key part of Gorbachev’s legacy within China that shapes Sino-Russian relations to this day: the normalization of relations between Moscow and Beijing that took place on his watch.
 
 

Normalization represented a major breakthrough in Sino-Soviet relations and culminated in Gorbachev’s visit to Beijing in May 1989, during which he met with Deng Xiaoping and the Chinese Communist Party (CCP) leadership. While overshadowed by the Tiananmen protests and short on immediate deliverables, the visit was a major success that represented the result of years of effort and negotiations by both sides. Gorbachev played a key role in ushering in this difficult normalization, as evidenced by the history of the period.

 

By the mid-1980s, when Gorbachev came to power in Moscow, Sino-Soviet relations had thawed slightly but were still far from normalized. Leonid Brezhnev had tentatively proposed an improvement in relations during his 1982 Tashkent speech, a proposal that was met with some interest by Chinese leaders, particularly among party elders nostalgic for the Sino-Soviet alliance of the 1950s. The larger picture seemed to favor rapprochement. Moscow’s increasingly difficult position in the context of Washington’s escalation of the Cold War under the Reagan administration, its failing economy, its costly quagmire in Afghanistan, and its need to focus on desperately needed domestic reforms favored improving relations with Beijing. So did China’s growing frustration with the United States, particularly with Washington’s policy on Taiwan, and its need for a stable international environment facilitating Deng Xiaoping’s Reform and Opening program. Nevertheless, this background did not necessarily mean full normalization. Beijing still feared Soviet encirclement and saw Moscow more as a threat than as a partner. Thus, China insisted that Moscow remove “three obstacles” to improving relations: the presence of Soviet troops on China’s northern border; Soviet support for Vietnam, particularly in Cambodia; and the Soviet occupation of Afghanistan.

 

Gorbachev played a key role in removing these three obstacles, something that his predecessors had refused, and actively pursued a rapprochement with the PRC. To this end, Gorbachev sought to resolve a fourth issue by making concessions about the alignment of the disputed Sino-Soviet border and agreeing to the resumption of negotiations on the issue. Substantial progress in resolving the Sino-Soviet territorial dispute soon followed, producing an agreement in 1991. Gorbachev also made great efforts to cultivate Beijing by promoting better economic relations (which were mostly unsuccessfully), avoiding any criticism of the Chinese government, such as by refusing to comment on the growing demonstrations in Tiananmen Square at the time of his visit, and adopting a firm stance on the Taiwan issue. Particularly amidst the Tiananmen crisis, this approach solidified the improvement in relations and built mutual trust, despite many Chinese leaders’ personal disregard for Gorbachev whose ideas and policies they partly blamed for the student protests. 

 

Against this background, Gorbachev’s legacy of normalizing relations with China has three long-term implications which continue to shape relations between Moscow and Beijing. First, Gorbachev not only put an end to more than three decades of conflict between China and the Soviet Union but also initiated a process of establishing closer ties with Beijing. A complete break with previous Soviet confrontational policies allowed the two sides to actively pursue better relations. The normalization of Sino-Soviet ties marked the beginning of a different political partnership between Moscow and Beijing. The new dynamics of this relationship were best captured in the warm but businesslike handshake between Gorbachev and Deng Xiaoping which differed from the embraces and kisses that communist leaders often used to greet one another.

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Source: National Interest

 

 

 

China’s Water Crisis Could Scramble...

China’s Water Crisis Could Scramble the Global Economic Outlook.

China’s alarming lack of freshwater resources is perhaps the single most mispriced macroeconomic risk in the world today. Hard times for China investors are set to get even harder. 

 

China is in the throes of an acute water scarcity crisis, exacerbated by a heat wave of unprecedented severity. The drought has been catastrophic for industries in China. Water is critical to power generation, industry, agriculture, and manufacturing, meaning water scarcity is not only limiting agricultural production in China but also exacerbating an acute domestic energy crisis that mirrors Europe’s, affecting virtually every economic sector, particularly manufacturing. As the rest of the world still imports roughly $3.36 trillion of Chinese economic output a year, few sectors are unexposed to supply-chain shocks emanating from China. 

 

 

As this dual water and energy crisis has unfolded over the last few months, the Chinese Communist Party has been prioritizing water and electricity for households over industry, virtually ensuring further—and substantial—curtailment of industrial production. These supply shocks will reverberate through global supply chains and financial markets, with frightening and unpredictable consequences for the global economy.

 

Despite the water crisis, as well as Beijing and Washington’s mutual desire to reduce their economic interdependence, China’s hold on key energy supply chains will likely increase. China’s share of the global polysilicon market—the crucial input to photovoltaic solar panels—recently hit 80%, and may grow even higher. China dominates the supply chain for lithium-ion batteries, graphite, nickel, and most rare-earth minerals used in clean energy, electronics, and defense manufacturing. Polysilicon market prices have nearly quadrupled since January 2021 while lithium metal prices have quintupled, indicating how little slack there is in the market, even prior to the recent heightening of the Chinese water crisis. As Covid-related and other market bottlenecks eased in spring 2022, lithium battery pack prices moderated—but market deliveries have more than doubled year on year—keeping supply quite tight and subject to disruption.  

 

Climate change has almost certainly exacerbated both the drought and heat wave. Ironically, this threatens some of the highly capitalized firms that are darlings of environmental, social, and governance investors and the sustainability crowd. In 2019 Apple had 380 suppliers in mainland China, representing a stunning 46% of its total supply chain. The company has gone to great lengths recently to reduce its supply dependence on China. But Covid-related supply-chain issues in China have caused significant production disruptions because “the vast majority of Apple devices” are still assembled there, highlighting lingering exposure. Tesla, a poster child for the clean-energy economy, in July signed long-term supply deals with two Chinese companies. The effect is to further concentrate its China supply chain for its Shanghai “gigafactory,” as Tesla calls its plant, further increasing its vulnerability to China’s drought. Tesla’s facilities have substantial water demands. Inadequate water availability delayed the opening of Tesla’s Berlin gigafactory. 

 

Indeed, China’s widespread water shortages are already affecting its supply-chain resilience, with industrial users facing severe power cuts in both 2021 and 2022. This leaves China’s economy in a perilous position, forcing the CCP to choose between continued economic growth and depleting water resources. As a result, the implicit assumption that drove much of the global economy for decades—that China can continue to manufacture low-cost goods—is more in doubt than ever. Capital markets face a painful adjustment period as the new reality gets priced in.

 

Beijing does have options to decrease water consumption or boost supplies, but all carry heavy political costs for the CCP. These include forcing consumption changes, like reduced meat eating, onto Chinese consumers; significantly raising the price of water for farmers and industry; or securing water resources from rivers that cross into neighboring countries. All would be controversial. Beijing is deploying atmospheric interventions. Techniques like cloud seeding boost rainfall, but also likely exacerbate extreme weather patterns. Beijing has long relied on transfers of water from wetter to drier regions. But signs of severe water stress in regions previously considered water abundant, like the Pearl River Delta, suggest that these transfers may soon be infeasible. Large-scale desalination is also not viable, given the massive power consumption required, and the lack of distribution networks to bring water from the coast to China’s interior.

 

That leaves Chinese policymakers in a difficult place.

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Source: Barrons.com

 


 

 

The Evolution of PRC Engagement in Mexic...

The Evolution of PRC Engagement in Mexico.

Mexico, despite its integration with the economy of the United States, as well as its historic distrust for and structural competition with the People’s Republic of China (PRC), is pursuing policies that are expanding options for that country, causing serious strategic implications for the United States and the region.

 

Mexico has always shown strategic ambiguity with respect to the PRC. It was part of the first wave of Latin American countries to establish relations with the PRC, doing so in February 1972. Mexico was also one of the first countries in the region recognized by the PRC as a strategic partner. The Chinese government recognized Mexico as a strategic partner in 2003, and the two governments established a high-level working group the following year. Enrique Pena Nieto, the president of Mexico at the time, met with his Chinese counterpart Xi Jinping three times during a six-month span in 2013, including in June 2013, when the two countries elevated their relationship to a “comprehensive strategic partnership.”

 

Despite the interest of individual Mexican businesspersons and politicians in profiting from Chinese investment and exports to the Chinese market, Mexico’s overall embrace of the PRC has been limited—mainly due to its integration with the U.S. through the North American Free Trade Agreement (NAFTA), and its close security relationship under the governments of Felipe Calderon and Enrique Pena Nieto. Mexico is currently one of a small group of countries in the Hemisphere that has not signed onto the 2013 PRC “Belt and Road” initiative.

 

 

Mexican experts consulted for this work also argue that the relationship was limited by structural competition between Chinese and Mexican industries, such as manufacturing, as well as distrust of the PRC within certain parts of Mexico’s business elite and society. There have also been difficulties within both Mexico’s business community and the Mexican government in understanding and promoting the nation’s interest toward China.

 

The relationship was also arguably impaired by the PRC’s displeasure with political actions by the Mexican government and its actions on projects displeasing the Communist Chinese government. These included then-President Felipe Calderon’s reception of Tibet’s Dalai Lama in 2011, the cancellation of the Mexico City to Queretaro rapid train project in January 2015, the stoppage of the China-focused “Dragon Mart” retail-wholesale-distribution hub in Quintana Roo in 2015, and the 2016 stoppage of the Chicoasen II hydroelectric project, in which the Chinese company Sinohydro was the principal contractor.

 

Although Mexico has continued its contradictory posture toward the PRC under the government of President Andres Manuel Lopez Obrador (AMLO), multiple factors have combined to bolster the importance of the PRC for the AMLO government. On one hand, its focus on state-led growth—including its prioritization of a state role in the petroleum, electricity, and mining sectors—have decreased the interest of market-oriented players in Mexico in those sectors. As a result, Chinese loans, tied to work by PRC-based companies, have remained as one of the few remaining options. Indeed, PRC-based companies play a key role in AMLO’s signature infrastructure project, the Maya train, as well as in the lithium, petroleum, electricity, and manufacturing sectors, as discussed in subsequent sections. At the same time, the expanded vulnerability of Mexicans due to the lingering economic effects of COVID-19, the inflationary effects of Russia’s invasion of Ukraine, and lackluster prospects for Mexican GDP growth increase the importance of Chinese demand for Mexican products in sectors such as pork and tequila, where they make such purchases.

 

The expanding possibilities for the PRC in Mexico under AMLO are reinforced by the country’s Sinophile Foreign Minister Marcelo Ebrard. In his previous role as mayor of Mexico City, Ebrard was one of the first major local-level Latin American officials to travel to the PRC and played a key role in supporting connections between Mexico City-based institutions and businesspersons with the PRC during that time. As Foreign Minister, Ebrard showed his interest in the PRC by traveling to the country in July 2019 to promote expanded economic and other forms of engagement. Ebrard also played a key role in Mexico’s engagement with the PRC in conjunction with the country’s role as President of the Community of Latin American and Caribbean States (CELAC) from 2020-2021, including the December 2021 China-CELAC forum and the associated generation of the 2022-2024 China-CELAC joint action plan.

 

Patterns of Trade

As with many other countries in Latin America, Mexico’s bilateral trade with the PRC has increased exponentially since the PRC was admitted into the World Trade Organization (WTO) in 2001. Total trade between Mexico and the PRC expanded from USD $7.3 billion in 2002, just after the PRC was admitted into the WTO, to $85.8 billion in 2020, an 11.7-fold expansion.

 

Mexico has historically run deficits with the PRC. In 2020, its imports from the PRC of $77.9 billion were ten times greater than the $8.0 billion in goods and services that it exported to the country.

 

 

It is important to note that Mexico’s trade with the PRC consistently continues to be eclipsed by its trade with the U.S. By comparison to Mexico’s previously-noted $85.8 billion in trade with the PRC in 2020, its trade with the U.S. for the same year was $516.5 billion. Moreover, in contrast to its consistent enormous deficits with the PRC, Mexico has consistently had a surplus with the United States. In 2020, for example, Mexico’s exports of $338.7 billion in goods and services to the US were almost double its $177.8 billion in imports from the country that same year.

 

Although the aggregate numbers show that the U.S. is both a much more significant and much more beneficial trade partner to Mexico than the PRC, the possibilities of doing business with the PRC continue to capture the attention of certain portions of Mexico’s political and business elites. Such sentiments reflect perceptions of the possibilities stemming from the size of the Chinese market and the resources that its banks and state-owned enterprises (SOEs) can potentially bring to bear as a partner. 

 

Despite the broader patterns, such interest also reflects the hopes of individual Mexican businesspersons and other actors of benefitting from particular projects with the PRC.

 

The subsequent sections examine major Chinese projects in particular sectors of the Mexican economy.

 

 

Petroleum

China was a relative latecomer to the Mexican petroleum sector. China National Offshore Oil Company (CNOOC) entered the Mexican market in December 2016 with its purchase of rights to exploit a deep-water block in the Perdido basin, adjacent to U.S. oil fields in the Gulf of Mexico. CNOOC reportedly paid a premium for the rights, illustrating its prioritization of securing a presence in Mexico’s oil sector, then open to private-sector participation under the Peña Nieto government, although the block’s performance has reportedly underwhelmed Chinese expectations.

 

Just as PRC-based banks offered a $10 billion loan to Brazil’s Petrobras in 2009 when they were pursuing opportunities in that nation’s oil sector, in 2014, the PRC reportedly offered Mexico’s national oil company Pemex a $5 billion line of credit to support its expansion of capabilities. This move reflected the desire of Chinese companies to establish a presence in Mexico’s oil sector. However, the Mexican government never took the PRC up on the offer. In 2020, the PRC offered $600 million to help finance the AMLO government’s signature Dos Bocas refinery, although as with the previous offer, Mexico does not appear to have pursued this offer either. Nonetheless, as the AMLO government continues to push forward with its state-led development of the petroleum sector, the PRC has shown itself to be willing to provide the funding. Up until the writing of this work, Mexico’s need for energy financing under AMLO has not grown sufficiently to agree to China’s often predatory loan terms.

 

Mining

China’s role in Mexico’s traditional mining sector has historically been relatively limited. In 2009, China’s Jinchuan group committed to invest $600 million in the Bahuerachi mine, located in the southeast region of the Mexican state of Chihuahua. Many of the Chinese projects are, however, small-scale, in areas where irregular mining is commonly tied to other illicit activities. Examples include the 11 small mining sites operated by China Unified Mining Development in the states Guerrero, Michoacan, and Colima. Similarly, the Tianjin-based company Shaanxi Dongling Group also made a modest investment of $3.4 million in the Los Vasitos mine in Sinaloa.

 

China’s most notable engagement in the Mexican and mining sector is in lithium, where, in 2021, the PRC-based firm Ganfeng spent $264 million to acquire 100% ownership in the Bacanora lithium deposit in Mexico’s Sonora desert. In April 2022, however, the Mexican Congress, dominated by AMLO’s MORENA party, passed a bill nationalizing the lithium sector and announced plans to review existing contracts, putting the status of the just-made acquisition by Ganfeng in question. In June, however, AMLO appeared to reverse his actions, declaring that previously granted lithium contracts “would be respected,” effectively ceding to Chinese pressure and negating the point of his nationalization of the sector.

 

 

Electricity

In electricity generation, Chinese progress has been mixed. Work on the $414 million, 240-megawatt Chicoasen II hydroelectric facility, awarded to a Chinese contractor Sinohydro, was halted in 2016 due to a labor dispute. Nonetheless, in 2020, the AMLO government announced that the plant would be completed, the only hydroelectric facility in Chiapas state. It is currently planned to begin operating in 2025.

 

Beyond Chicoasen II, in November 2020, the China State Power Investment Corporation (SPIC) acquired Mexico’s largest private renewable energy producer, Zuma. The Zuma acquisition gave SPIC a substantial presence in operating wind and solar power facilities across Mexico. The acquisition was surprising, mainly because it occurred at a time in which the AMLO government was publicly and controversially advancing policies and a law to prioritize electricity generation by the state entity Corporacion Federal de Electricidad (CFE).The AMLO government was also downplaying the value of renewable energy generation and blocking other firms from operating renewable electricity plants. Since the acquisition by SPIC, Zuma has maintained a relatively low profile. It is not clear whether, like Ganfeng in the lithium sector, Zuma hopes to use broader PRC leverage as a market and source of loans and investments, specifically to secure an exception for Zuma from AMLO’s broader plans to favor the state entity CFE over U.S., Canadian, and other private sector electricity providers.

 

Manufacturing

The Chinese have long had a small but important position in the Mexican manufacturing sector, partially oriented towards accessing the U.S. market through Mexico’s trade integration with it under NAFTA and subsequently through USMCA. Early investments from PRC-base firms include the construction of a garment factory by Sinatex in Ciudad Obregon, investment by Golden Dragon Precise Copper Tube Group in a plant in Coahuila for manufacturing copper tubes, and a computer manufacturing plant in Monterrey by the Chinese firm Lenovo, the firm’s largest factory in North America.

 

In the automotive sector, the Chinese company FOTON established a component manufacturing facility in Veracruz. PRC-based FAW began work on a final assembly auto factory in Michoacan, although the venture in the end did not prove viable. Other Chinese automakers FOTON, BAIC, JAC, Chang’an, and BYD are all present in the Mexican market. In 2020, BYD announced a contract to supply 1,000 electric taxis to the Mexican market. Chinese bus manufacturers, including Yutong, are also selling products to Mexico City and other Mexican municipalities.

 

Despite such advances, PRC-based manufacturers have been looked upon with suspicion by their Mexican competitors. As noted previously, in 2015, a large-scale project by Mexican businessman Carlos Castillo to set up a China-oriented retail wholesale distribution hub in Quintana Roo, called Dragon Mart, was stopped following an extended series of legal battles concentrating on its alleged environmental and other impacts.

 

Transportation Infrastructure

China’s role in Mexican infrastructure projects, previously characterized by high profile failures such as the cancelled Mexico City-Queretaro high speed train, has begun to take on new life under AMLO.

 

Presently, the Chinese company China Communications and Construction Corporation (CCCC) is a key partner in AMLO’s signature project to develop the south of Mexico, specifically through the $7.4 billion, 1,500 kilometer Maya train project. Not only did CCCC win the contract for the first segment of the project, but its partner Mota Engil is 30 percent owned by CCCC.

 

Beyond the Maya train, in November 2020, PRC based China Railway Road Corporation Zuzhou won a $1.6 billion contract for the renovation of Line One of the Mexico City Metro, and is reportedly also interested in bidding for a $29.4 million contract to supply rail cars to the line.

 

 

Telecommunications

In telecommunication, the Chinese company Huawei has operated in Mexico since the early 2000s, alongside its smaller PRC-based counterpart ZTE. Not only does Huawei have a strong position in the Mexican smartphone market, but 80 percent of Mexican telecommunication infrastructure currently is reportedly supplied by Huawei, including its role in Mexico’s 4G “shared network” project, begun in 2013. Mexican billionaire Carlos Slim, and his company America Movil reportedly work closely, although not exclusively, with Huawei. Huawei is also currently conducting pilot projects for the deployment of 5G in Mexico, and is reportedly strongly positioned to take a leading role in 5G in the country as it is rolled out.

 

Other Digital Technologies

Beyond telecommunication, Huawei is building substantial cloud computing capacity in Mexico, targeting new technology-oriented and other Mexican small businesses to provide services to.

 

In the surveillance technology industry, in 2021, the PRC-based company Hikvision acquired a major stake in Syscom, Mexico’s largest surveillance system company.

 

The PRC-based ride sharing company Didi Chuxing entered the Mexican market in 2018 and is growing strongly there. Indeed, Mexico and Brazil are the two countries in which the Chinese company has most successfully expanded its presence in Latin America during the pandemic.

 

 

Finance

In traditional banking, Bank of China, HSBC, ICBC, and other institutions are well established in Mexico. With the exception of HSBC, which is one of Mexico’s most important financial institutions, the activities of PRC-based banks in the country are concentrated on supporting Chinese clients operating in the country, as well as Mexican companies wishing to do business in the PRC, where the relationships of PRC-based banks in China give them a comparative advantage. In addition, the Chinese electronic payment system UnionPay is also broadly available in Mexico.

 

Although Mexico has a burgeoning non-traditional financial sector, the role of PRC-based firms in the sector has been relatively limited by comparison to their growing presence in Brazil, where Alibaba acquired a $200 million stake in Nubank in 2018.

 

Beyond the commercial and political influence that comes from China’s growing commercial presence in, and ties with Mexico, the operation of cartels and other transnational criminal organizations in Mexico creates an additional problem. 

 

Chinese criminal entities in Mexico and the PRC play an increasingly important role in helping Mexico-based criminal organizations to launder their proceeds in ways difficult to monitor for Western authorities. To this end, the expanding array of legitimate transactions and accounts by Mexico-based entities in PRC-owned banks in the country expands options for criminal organizations, which launder their money in accounts in the PRC, to gain access to those funds in Mexico.

 

Intellectual Infrastructure

Although the effectiveness of the Mexican government and business elites in engaging with China has been subject to criticism, the country has one of the most developed intellectual infrastructures in the region for studying and engaging with the PRC. This includes five PRC-sponsored Confucius Institutes across the country (two in Mexico City, and one each in Nuevo Leon, Yucatan, and Chihuahua). Mexico also has multiple private and public universities with Chinese studies programs, including Mexico’s National Autonomous University (UNAM), whose China studies center CECHIMEX is arguably one of the most capable such institutions in Latin America. Such intellectual infrastructure contributes to a cadre of Mexican diplomats and businesspersons with capabilities in Chinese language, politics, and business, but not necessarily effective business initiatives or policy which optimally serves Mexico’s national interests.

 

Conclusion

Over the last two decades, as the PRC has expanded its economic and political engagement in Latin America and the Caribbean, Mexico has represented a bulwark against that expansion. The progress that the PRC and its companies are beginning to make under the AMLO government with respect to Mexican infrastructure projects, the digital sector, and other areas of the Mexican economy has significant strategic implications for Mexico, the United States, and the region.

 

As illustrated in this work, AMLO’s increasing need for the PRC and its resources is already manifesting itself in subtle compromises that his administration has made towards Chinese companies with respect to lithium, and possibly electricity generation, among other areas. While Mexico’s linkages to the United States in terms of trade, investment, geography, and family are far greater than Mexico’s ties to the PRC, the government’s increasingly complicated economic and fiscal situation—driven in part by the populist orientation of the AMLO government—as well as the hopes and perceptions of Mexican businesspersons, should not be underestimated. A Mexico whose economic and political elites are significantly penetrated by the PRC, and whose political orientation is swayed by that leverage, would have cascading effects with respect to facilitating China’s advance in other parts of the Hemisphere as well, particularly Central America and the Caribbean, where Mexico has had some historical influence. Such an advance would significantly complicate the position of the United States in its own near abroad, particularly as the rest of the Hemisphere increases its engagement with China and its need to work with it. The result could likely be an unprecedented wave of political transitions and economic and fiscal crises that push the region in a direction ever less disposed to cooperate closely with the United States.

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Source: By Dr. Evan Ellis for Global Americans

 

 

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