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Moves by the Chinese central bank and government officials to curtail the use of Bitcoin and other digital currencies stretches back almost to their inception. The last week has seen crypto markets battered by news that the Chinese government is firmly clamping down on digital currencies within its borders.

Multiple provinces, many of which host large crypto mining operations, have moved to ban or severely restrict the ability of the industry to operate in compliance with the mood in Beijing, while the country’s central bank recently ordered all financial institutions to stop facilitating transactions in digital currency.

The actions of China’s authorities sent the price of Bitcoin and several other cryptos tumbling earlier this week, with Bitcoin briefly dipping below US$30,000 on Tuesday afternoon for the first time since January. However, for many long-time observers of the Chinese crypto market, Beijing’s moves are nothing new and such an outcome may have been inevitable.

Tightening the screws

The Chinese government’s hostile attitude to crypto goes back to when digital currency first rose to prominence in the early 2010s.

Bitcoin transactions were banned by The People’s Bank of China (PBOC) all the way back in 2013, while initial coin offerings (ICOs) and cryptocurrency exchanges were halted in 2017 amid worries they could be used in illegal financing and money laundering.

Some have even said that the reaction by officials to crypto represents a fundamental concern about whether digital currencies represent a possible challenge to the dominance of the ruling Chinese Communist Party (CCP).

Another reason for the renewed crackdown may be the imminent introduction of the Digital Yuan, China's attempt to introduce a digital currency that is both backed and controlled by its central bank, and a joint venture with SWIFT (the international payment and cross-border payment gateway). Although China’s not going to replace its fiat currency with the Digital Yuan completely, it’s too soon to tell as trials are still going on with central banks, like the People’s Bank of China, leading the operation.

What is the Digital Yuan?

Officially known as a Digital Currency Electronic Payment (DCEP), China wants to replace its fiat currency with the digital one to encourage cashless transactions, ushering in a new era for world economics. Like Bitcoin, it also relies on blockchain technology to facilitate and verify transactions, but unlike Bitcoin, it is centrally controlled by regulatory authorities and backed up by fiat currency reserves.

The rest of the world’s gain?

Novogratz added that while a lot of crypto-related activity and trading is currently focused within Asia and in China specifically, the latest crackdown could result in a shift of the industry elsewhere that could prove a boon for participants in the rest of the world.

Possible beneficiaries could be non-China based miners such as Argo Blockchain PLC, which operates Bitcoin mining facilities in Canada and the US, as well as non-Chinese crypto exchanges such as Coinbase Global Inc.

Countries with less strict rules around digital currency could also see an influx of miners, particularly those offering cheap electricity or favourable regulation. A notable example may be the Central American nation of El Salvador, which made Bitcoin legal tender earlier this month.

Some of China’s biggest players in the sector are also seeking out greener pastures following the latest crackdown, with both mining machine maker Canaan Inc and crypto mining heavyweight BIT Mining setting up bases of operation in neighbouring Kazakhstan.

Or the planet’s loss?

There’s also speculation that the Chinese government may be concerned about optics: crypto mining’s reputation as an environmental disaster doesn’t square with the China’s desire to be seen as a leader in green energy, with XiJinPing pledging that the country will be carbon-neutral by 2060. China still accounts for more than half of Bitcoin mining: concerns related to the climate as bitcoin mining requires tremendous amounts of energy to run Application-Specific Integrated Circuits (ASICs) – computers that solve complex cryptographic mathematical problems part of the verification process in the blockchain.

The move of mining operators to Kazakhstan may be a particular concern, given the country derives over 90% of its electricity from fossil fuels. By contrast, the Chinese province of Sichuan, which until recently served as a crypto mining hub, derives large portions of its electrical power from hydroelectricity.

Any move toward less climate-friendly energy usage is also likely to give institutional investors pause when considering crypto investments.

Future Cryptocurrency Regulations

There’s no indication that China intends to lift or loosen its ban on cryptocurrencies anytime soon but recent developments suggest that the government intends to position the country as a leader in the crypto space. Those developments include statements by Chinese government officials endorsing blockchain technology, the extensive trial and testing of the central bank’s digital currency.

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Earlier this month, one of China's largest conglomerates held a conference in Beijing to address what the company plans to do in support of the government's environmental targets.

One by one, every one of the company's dozens of large subsidiaries, from its financial arms to its specialty steelmaking unit, announced ambitious goals.

Such events are now a feature of corporate life in China. Beijing's ambitious plans to move to peak carbon emissions by 2030 and net zero emissions by 2060 may be a top-down initiative from Xi Jinping himself, but it is being widely embraced not just by the most privileged economic entities, but private entrepreneurs and civil society at large.

Outside China, though, there is widespread questioning of the authenticity of Beijing's commitment, as well as its ability to meet its objectives. Many analysts also question whether a commitment to greener growth inevitably means slower growth.

"China could be trapped in contradictory goals of economic development and emissions reductions," noted Helen Qiao, chief Asia economist for Bank of America in a recent report.

That likely is far too pessimistic. China is well on its way to leapfrogging the rest of the world in everything to do with a cleaner environment. One of Beijing's most powerful tools is by forcing companies to focus on environmental, social and corporate governance, which has become a major catalyst for higher-quality growth, improving the standard of living for its people and retain its edge as the manufacturing workshop of the world.

China will use recent technological advances to make itself cleaner and greener, while simultaneously keeping its edge in value-added manufacturing.

Before last year, China was spending 2.2 trillion yuan ($341 billion) every year on environment-related investment. Beginning in 2030, it plans to increase that to almost 4 trillion yuan. Moreover, for every unit of gross domestic product, China has been reducing carbon emissions at an accelerating rate, leading some economists to wrongly suggest that growth in China was slowing.

Economists calculate that the shift to new, ESG-related technologies could generate 40 million net new jobs.

China already is the world's workplace for making solar panels and wind turbines, the innards of the renewables that will inevitably replace fossil fuels, with its companies accounting for up to 80% of all global production. Given their scale, the cost of renewables becomes more affordable and relatively attractive compared to coal with every passing year.

China has equally ambitious goals for electric vehicles, indeed analysts estimate that 20% of all car sales will be electric by 2025, at a time when other leading carmakers elsewhere are still more vested in hybrid vehicles. Ongoing urbanization increasingly means smarter cities with new infrastructures such as widely available charging stations.

That is good news not only for China and its neighbors -- and the rest of the world. Today, the mainland accounts for 29% of all global carbon emissions.

Climb a mountain today in the northern alps of Japan and new snow is covered by acid rain carried by easterly winds from thermal power plants across the sea. Indeed, many analysts contemplating toxic air, polluted rivers and water shortages leading to drought and sandstorms, until recently wondered if China was on the edge of some tipping point into environmental Armageddon.

But China has been steadily reducing its dependence on coal, with the carbon emissions that follow set to decline from their peak by 2030. Moreover, China is already in the process of transforming its old economy sectors.

In the past, for example, steel making accounted for 17% of the country's total emissions, or 5% of all global emissions, according to data from Goldman Sachs. But the combination of stern edicts on capacity cuts, and cleaner technologies being introduced in steel furnaces, are reducing those emissions over time. The same is also true for aluminum and cement.

There will be winners and losers from these trends -- beyond newly unemployed coal miners who number somewhere between 2.7 million and 6 million workers. Fossil fuel-rich regions in China's heartland will inevitably become poorer, leading to widening disparities with ever wealthier coastal provinces.

There will be defaults among companies in discredited sectors -- as well as in those new economy companies that are mismanaged. It is hard to imagine that every new electric carmaker or battery producer will succeed. Inflation is already rising as new environmental regulations force capacity cuts in commodities processing, pushing up prices.

Still, even as China voices these ambitious targets, it is still building coal-fired plants and -- ironically -- the processes involved in producing things like solar panels are not themselves always the cleanest technology. Despite the inevitable pain, though, most Chinese people believe that green, not oil, is the new gold.

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Source: Nikkei Asia

The Chinese government has unveiled the summary of the country’s five-year plan for 2021 to 2025, amid a heavy smog in Beijing. Among other things, the plan sets a target of “basically eliminating” heavy air pollution days by 2025.

As China is responsible for almost 30% of global energy sector CO2 emissions, and emissions have returned to growth in recent years, the new plan gives critical insight into how fast the country is planning to start limiting emissions growth and making progress towards the goal of achieving carbon neutrality by 2060, announced last autumn.

The plan sets a target of 20% non-fossil energy in total energy consumption, and a target to reduce the CO2 emissions per unit of GDP by 18% from 2020 to 2025. Most notable was that two targets that have regularly featured in earlier five-year plans were dropped: a 5-year GDP growth target and a target for limiting total energy consumption. CO2 intensity fell by 18.8% from 2015 to 2020, so the 18% target does not represent an acceleration from past targets and trends.The target for reducing energy consumption per unit of GDP is lower than in earlier plans: 13.5%, compared with 15% in the previous one.

Less obsessed about GDP?

The abandonment of GDP targets, long the cornerstone of the five-year planning process, is momentous, even if it was largely expected. The government will continue to set annual targets for GDP growth, only doing away with a fixed five-year target. This is potentially good news for the environment, as it should give the government more flexibility to pursue other targets, and reduce the pressure to prop up GDP numbers at all costs. The lack of a GDP target does however mean that the implications of the CO2 intensity target are harder to assess.

For 2021, the government is targeting a 6% GDP growth rate. At this rate of growth, the intensity target doesn’t do much at all to limit the growth in CO2 emissions. However, the targeted growth rate in the following years could be lower, as this year is expected to see a rebound from the COVID-19 economic shock and low growth rate last year. China has also tended to significantly over-achieve the intensity targets.

Slowing down emissions growth – maybe

China’s CO2 emissions increased by approximately 1.7% per year from 2015 to 2020, and kept growing at 1.5% even in 2020, despite the pandemic. Assuming that GDP growth over the period averages 5.5%, CO2 emissions could grow at 1.1% from 2020 to 2025, and still meet all the targets announced today. This would be a slight deceleration compared with past years. However, if there is a strong rebound in growth this year and the rest of the period averages 6%, CO2 emission growth could even accelerate under these targets, compared with the past five years. 

Without the energy consumption control target, there’s even less in this five-year plan to constrain emissions growth than in the previous ones.  As a result, there’s no guarantee that emissions growth will slow down, let alone stop, by 2025. So it’s leaving the decisions about how fast to start limiting emissions growth to the energy sector five-year plan and other plans expected at the end of the year.

The other headline target, a share of 20% non-fossil energy in total energy consumption by 2025, also largely continues the trend of the past years: the share increased from 12.3% in 2015 to 15.9% in 2020, a 3.6%-point gain. Therefore, the targeted 4.1% increase by 2025 signals a modest acceleration.

A slightly more promising sign was a recent statement by the China Coal Association that coal consumption in 2025 would be capped at 4.2 billion tonnes – close to current level. This target would likely be included in the energy sector plan later, and indicates that the government could target peaking coal consumption before 2025. However, oil and gas consumption are still expected to grow, so peaking and declining CO2 emissions requires coal consumption to not only stop growing but to begin falling again in absolute terms.

A shot in the arm for nuclear?

In a bit of a surprise, the plan includes a target for nuclear power capacity in 2025, of 70 gigawatts, from 52 gigawatts currently. This is less than the increase achieved from 2015 to 2020, but a surprisingly ambitious target given that there is much less capacity under construction currently than is needed to get there. So it can be read as a high-level signal to speed up new projects – such a specific capacity target would usually be relegated to more detailed sectoral plans.

A “major push” for clean energy – while also investing in coal

No specific targets were set for wind, solar, hydro, coal or other energy sources, as was expected – this is a high-level “plan of plans”. However, the language in the document promises a “major push” for clean energy. A wind&solar capacity target of 1200GW by 2030 was already announced by Xi Jinping in December – although more will very likely be needed to hit the other targets, particularly the target for 25% non-fossil energy in 2030. The plans also contain language on “promoting the clean use of coal”, so the contradiction between targeting low-carbon development and continuing to invest in coal and fossil fuels still seems stark in China’s plans.

Overall, the picture is one of very gradual progress in aligning China’s energy and emissions trends with the target of achieving carbon neutrality by 2060. The overall five-year plan just left the decision about how fast to start curbing emissions growth and displacing fossil energy to the sectoral plans expected later this year – particularly the energy sector five-year plan and the CO2 peaking action plan. The central contradiction between expanding the smokestack economy and promoting green growth appears unresolved.

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Source: EnergyandCleanAir.org

A slew of Chinese startups went public in 2020, and it looks like Chinese tech IPOs will keep booming through 2021.

Three of China's "four AI dragons" (AI四小龙) are almost certain to go public this year. Some of China's biggest unicorns, such as ByteDance and Didi Chuxing, are also likely to join them. Here are the China tech IPOs you need to know for 2021.

Companies gearing up for IPOs

Megvii

One of China's largest facial-recognition developers, Megvii is ready for an IPO on the Shanghai Stock Exchange's STAR board, according to an announcement posted by the China Securities Regulatory Commission in mid-January.

• What it does: Megvii is often called one of China's "four AI dragons" alongside SenseTime, Yitu and CloudWalk. The Beijing-based company is the creator of the facial-recognition software Face++, the world's largest open-source computer vision platform. The company provides AI technologies to government agencies and enterprises including Alibaba, Lenovo and Huawei. Megvii was placed on the U.S. Department of Commerce's entity list in 2019 for its alleged role in mass surveillance of Muslim minorities in Xinjiang.
• Funding: Megvii filed for an IPO in Hong Kong in August 2019, but the application has since expired. In its latest funding round in May 2019, Megvii raised $750 million from investors including Bank of China Group Investment, Alibaba and Australia's Macquarie Group at what Reuters reported was slightly north of a $4 billion valuation.
• What to watch for: In 2020, Megvii launched Brain++, its own AI productivity platform, and made MegEngine, a major component of Brain++, an open-source deep learning framework. This is largely seen as one element of China's plan to develop home-grown AI tech and reduce Chinese companies' reliance on American open-source frameworks.

Yitu Technology

In November 2020, the Shanghai Stock Exchange accepted Yitu Technology's IPO request. The Shanghai-based AI unicorn intends to raise $1.16 billion.

• What it does: Yitu claims to have provided AI tech for more than 800 governments and companies across more than 30 Chinese provinces and regions and more than 10 countries and regions outside China. It's also on the U.S. entity list for its alleged role in aiding the Chinese government's abuse of Uyghurs and other Muslim minority groups.
• Funding: Valued at about $2.2 billion, the company has financial backing from leading VCs such as Sequoia China, Hillhouse Capital, Gaorong Capital and ZhenFund. Yitu plans to issue 36.4 million shares in the form of Chinese Depositary Receipt on the STAR market.
• Financials: As disclosed in its prospectus, Yitu's revenue was $111 million in 2019, and it reported a net loss of $567 million in the same period.
• What to watch for: Yitu has made its name in applying AI to the medical industry and is gradually expanding its business to other fields, including security and finance. The company is expected to lead the AI care sector as major Chinese hospitals continue to embed Yitu's AI products into clinical workflows.

CloudWalk Technology

In December 2020, the state-backed facial-recognition developer CloudWalk filed a prospectus with the Shanghai Stock Exchange, seeking to raise roughly $580 million in an IPO on the Star Market.

• What it does: Founded in 2013, CloudWalk Technology is described as the "state team" (国家队) among the four AI unicorns because so many of its investors are state-owned. Its founder and CEO Zhou Xi came from the Chinese Academy of Sciences' Chongqing Research Institute, and a precursor to the company came out of the Chinese Academy of Sciences' facial-recognition research team. CloudWalk was added to the U.S. entity list in May 2020 for allegedly participating in human rights abuses in Xinjiang.
• Financials: CloudWalk has also been losing money, just like its competitors. Compared with Yitu, CloudWalk's net profit loss is smaller. During the first half of 2020, its net loss reached approximately $44.5 million, and the 2019 annual net loss was about $265 million. Money-losing AI companies all attribute the net losses to business expansion and increasing investments in R&D. Valued at $3.1 billion, CloudWalk ranks No. 3 among the four AI dragons by valuation, according to the 2020 Hurun Global Unicorn Index.
• What to watch for: Thanks to its state affiliations, CloudWalk will continue to focus on building projects for Chinese government entities, focusing mainly on fintech, smart security and transportation.

Rumored IPOs

ByteDance's Douyin and Toutiao

Competitor Kuaishou's $5.4 billion IPO has made people wonder just how big ByteDance's IPO could be. Last November, Bloomberg reported ByteDance was in talks with investors, including Sequoia, over funding that would boost its valuation to $180 billion, and was preparing some of its biggest assets — including Douyin and Toutiao — for an IPO in Hong Kong.

• What it does: ByteDance is the creator of short video-sharing app TikTok, its original Chinese version Douyin and news aggregator Toutiao. The company makes money mainly through advertising, livestreaming and gaming. It has products available in over 150 markets, and has 100,000 employees across 126 offices.
• Financials: ByteDance is one of the largest Chinese unicorns. While it spent last year at the center of U.S. controversy over data-sharing with Beijing, ByteDance's revenue more than doubled to about $35 billion in 2020, Bloomberg reported. And its operating profit in 2020 grew to around $7 billion, from less than $4 billion the year before.
• What to watch for: ByteDance has been looking to diversify its revenue stream by expanding its business into fields like education, fintech and SaaS. Last October, ByteDance established an independent education brand, Dali Education (meaning "big power"), whose business encompasses K-12 and adult education software and hardware. Most recently, it reportedly set up a business unit dedicated to expanding the so-called "local life business" in sectors such as culture, tourism and restaurants, where Meituan is winning.

Didi Chuxing

The Information reported on Feb. 3 that China's other large unicorn, Didi Chuxing, is in early discussions with Goldman Sachs, Morgan Stanley and JPMorgan Chase about a potential IPO later in 2021, targeting a $100 billion valuation. Reuters previously reported Didi could go public this year in Hong Kong.

• What it does: Didi Chuxing is the dominant carpooling startup in China, founded in 2012. It won a costly turf war with Uber China in 2016 by acquiring the American app's China business. Its other businesses include shuttle bus services, bike-sharing, designated driving, auto after-service, delivery and logistics.
• Financials: Didi Chuxing has been known as a cash-burner; it didn't turn a profit in its first six years. However, according to The Information, it managed to make an annual profit of about $1 billion in 2020, its first time doing so.
• Funding: Last valued at $56 billion, Didi's backers include SoftBank, Alibaba and Tencent.
• What to watch for: In 2020, Didi announced an organizational restructuring, consolidating its services outside its core car-hailing business — including bike-sharing and freight — into a newly established "Urban Transportation and Service Business Group." In an attempt to diversify its revenue stream before its IPO, Didi directed much of its internal resources into community group-buying, which uses grassroots intermediaries to distribute groceries across the "last mile." Its CEO Cheng Wei reportedly said in early November that the company's investment in Chengxin Youxuan, Didi's community group-buying service, would not be capped: that the company would "go all out to take the first place in the market."

SenseTime

Tencent News broke the story late January that SenseTime had completed a pre-IPO round of fundraising at the end of 2020 with a valuation of $12 billion. Investors are mostly Chinese state institutions, including state-owned insurance companies and local governments. SenseTime is considering a dual listing in Hong Kong and China, Bloomberg has reported.

• What it does: SenseTime is China's largest artificial intelligence unicorn by valuation. It has developed and established its own deep-learning platform and supercomputing center for its artificial intelligence technologies, which include facial recognition, image recognition, text recognition, video analysis and remote sensing. SenseTime was among eight Chinese tech companies placed on the U.S. entity list in 2019 for allegedly playing a role in massive human rights abuses against Muslim minorities in Xinjiang.
• Funding: SenseTime has been an investor darling over the past few years, and became the world's most valuable AI startup after it raised over $2 billion in 2018, according to Bloomberg. Its investors include SoftBank, Singapore's Temasek Holdings and Alibaba.
• Financials: According to Caijing, SenseTime's 2019 operating revenue was $780 million, with a gross margin of 43%, which is lower than Megvii's 64.6% and Yitu's 63.9%.
• What to watch for: Like other AI unicorns, SenseTime has been getting many government contracts to help build smart cities across China. Caijing reported that its smart city revenue reached approximately $258.6 million in 2019 (nearly 33% of its total revenue). Management expected that in 2020, revenue from smart city projects would reach approximately $621.6 million, comprising about 42.7% of total company revenue.

Hellobike

The International Financing Review reported Hellobike is considering a U.S. IPO, seeking to raise up to $1 billion. Chinese-language tech website 36Kr confirmed the bike-sharing company's 2021 IPO plan. It would be China's first bike-sharing company to go public.

• What it does: Hellobike is a mobility service platform based in Shanghai. Founded in 2016, it started as a bicycle-sharing company, later expanded its services to include rented e-bikes and e-scooters, as well as carpooling. Backed by Ant Financial, the company survived the bike-sharing battle that flared up in 2017. Because of its relationship with Ant, Alipay users can rent Hellobike's bikes without downloading a separate app. Hellobike claims to have 400 million registered users.
• Funding: iFeng Tech reported Hellobike shed 20% of its value over the pandemic, and that the company is now worth $3.2 billion. Fintech giant Ant Financial is a major investor in Hellobike, which powered the startup through Series D to F funding rounds. Other backers include Primavera Capital Group and Fosun International.
• What to watch for: Local governments distribute very limited compliance quotas to bike-sharing companies. Since 2019, 80% of Chinese cities have adopted quota systems, according to 36Kr. Bicycle-sharing is a business that requires bike distribution scale. Hellobike, even if it's public, will likely face a considerable regulatory challenge.

Waterdrop

Online health insurance marketplace Waterdrop plans to file for a U.S. IPO in the first quarter of 2021, with an estimated fundraise of about $500 million, according to IPO Zaozhidao, a WeChat public account tracking IPO scoops. Goldman Sachs and Bank of America are among the underwriters. Last summer, Bloomberg reported Waterdrop was seeking a valuation of about $4 billion.

• What it does: Waterdrop was established in 2016 by Shen Peng, a co-founder of Meituan's meal-delivery unit. The 4-year-old startup focuses on health care crowdfunding. Its major business units include Waterdrop Insurance Mall (its main source of revenue), Waterdrop Mutual Aid (a patient payout platform designed to reduce the financial burden on those afflicted with major injury or disease) and Waterdrop Crowdfunding. Shen Peng boasted more than 250 million paying users across the platforms in 2019. As of September 2020, the cumulative annualized signed premiums of Waterdrop Insurance Mall exceeded $2.8 billion, according to the company. The company has about 140 million users, with 76% from third-tier cities and below.
• Financials: The startup, which works with China's 30 top insurance companies, announced in August a Series D financing round of over $230 million, co-led by Swiss Re and Tencent. Other backers include IDG Capital, Boyu Capital and Meituan Dianping. TMTPost reported that the valuation of Waterdrop was between $4 billion and $6 billion after its latest round of financing.
• What to watch for: Waterdrop Mutual Help and Waterdrop Crowdfunding operate somewhat like public services. Waterdrop Crowdfunding allows people to chip in small amounts of money to help those with critical illness, and in return receive payouts when they are in need. But the company is walking on thin ice balancing public welfare and its business interests. The company has encountered scandals where it was accused of mismanaging funds, and a subsidiary was fined last year for deceiving insurers and policyholders and concealing material circumstances related to insurance contracts.

BOSS Zhipin

Internet recruitment platform BOSS Zhipin is working with Goldman Sachs and UBS on a U.S. IPO that could occur this year, with the goal of raising $300 million, according to IPO Zaozhidao.

• What it does: BOSS Zhipin means BOSS Direct Recruitment. It's a provider of a recruitment mobile application that matches job candidates and applicants directly with recruiters, human resources staff and company executives. Founded in 2013, it also has features such as customized recommendations, online interview scheduling and candidate screening that enable companies to find ideal candidates with increased efficiency.
• Funding: According to Qichacha, BOSS has finished five rounds of financing, with the latest round co-led by Tencent in late 2019. In 2019, the company was valued at nearly $500 million.
• Financials: The company says it broke even in 2017, achieved monthly profitability for the first time in November 2017, and has continued to maintain profitability since 2018, with annual revenue exceeding $150 million in 2019.
• What to watch for: TalkingData's "2020 College Graduate Job Search Research Report" shows that it was one of the most highly-rated job recruitment apps among Chinese college students and graduates. Between May and October 2020, the app's average number of daily active users was 2.8 million, up 80% from a year ago during the same period. More than 45% of its users spent over 20 minutes on the app each visit.

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Source: By Shen Lu for Protocol

In 2008, Alibaba founder Jack Ma famously declared, “if the banks don’t change, we will change the banks.” His words sparked an entrepreneurial renaissance in China’s fintech industry. ‘Fintech’ (金融科技), a portmanteau of financial technology, refers to the application of new technologies to “improve and automate the delivery of financial services.” Since Ma’s pronouncement, mainland China has produced eight fintech ‘unicorns,’ collectively worth 214.6 billion USD. Although each of these companies works to reimagine a different aspect of banking, on the whole, Chinese fintech has two objectives: to maximize the economic potential of China’s banked, while integrating the country’s remaining unbanked. This piece profiles some of the fintech unicorns engaged in this mission — specifically within two sectors, lending and payments — and explores the global implications of their innovation.

 
Empowering China’s Banked
The first half of China’s fintech strategy is to maximize the economic potential of China’s banked.
 
Lending
The largest of all Chinese fintech unicorns, Jack Ma’s Ant Financial (“Ant”) is breathing new life into an outdated lending sector. 39.4% of Ant’s revenue comes from its lending platform, CreditTech, which “addresses the unmet credit demands of unserved consumers and small businesses in China.” Specifically, it leverages Ant’s AI algorithms to more accurately identify default risks and “compress lending costs.” This technological insight allows CreditTech to service individuals and ventures that would otherwise appear too risky to traditional banks.

Lufax is a peer-to-peer (P2P) lending marketplace that matches borrowers with investors. P2P implies that users enter into an agreement with one another, not the company. Lufax simply collects a 4% commission on the total loan for arranging the transaction. Though perhaps riskier for investors, Lufax nevertheless solves a key limitation in the lending sector: capital supply. After all, centralized lenders like Ant can only underwrite so many loans. However, with Lufax, anyone can be a bank. Its decentralized system renders every Chinese saver’s excess deposits available for investment. This fintech breakthrough marks a tremendous democratization of lending services, which until now, had been monopolized by China’s commercial banks, and by extension, the CCP.
 
Payments
China’s innovation in the payments sector is as impressive. Whereas in the U.S., credit cards are the preferred non-cash payment method, in China, ‘e-Wallets’ reign supreme. e-Wallets, as their name suggests, are digital wallets that interact seamlessly with the payments environment. Like regular wallets, they consolidate various payment methods: cash, credit, debit, and more.

China’s e-Wallet space can best be characterized as a duopoly, split between Ant and Tencent. Ant’s product, Alipay, leads slightly with 54.5% market share. The payments giant has 785 million monthly active users and handles upwards of 175 million transactions a day. Tencent’s equivalent, WeChat Pay, comes in at a close second with 39.5% market share. That said, WeChat Pay enjoys one significant advantage over Alipay: compatibility. Unlike Alipay, which is a standalone product, Chinese consumers depend on WeChat for a range of services, from shopping, to food delivery, to ride-hailing. Once in the app, users are unlikely to inconvenience themselves with an external payment method like Alipay.

Even if Alipay and WeChat Pay are industry competitors, from a Western perspective, they represent a united force. Combined, the two e-Wallets processed 20.5 trillion USD in 2016. For reference, PayPal only processed 354 billion USD in 2016. China’s dominance in the e-Wallet space will soon have global implications, with e-Wallets predicted to become the leading payment method globally by 2023.

 
Integrating China’s Unbanked
The second half of China’s fintech strategy is to integrate its remaining 225 million unbanked.
 
In terms of lending, unicorn WeBank specializes in “inclusive finance.” Founded in 2014 by Ant’s rival, Tencent, WeBank provides loans to low-income individuals with little-to-no borrowing records. In fact, 8.2 million of its users had no prior credit. By the numbers, WeBank’s average loan is 8,000 RMB (1,215 USD), the average borrowing period is 52 days, and its self-reported delinquency rate is 0.64%. (U.S.-based Lending Tree’s delinquency rate is 3.3%.) WeBank prides itself on its industry-low borrowing fees: over 70% of borrowers pay less than 100 RMB (15 USD) in interest. As for payments, e-Wallets’ ability to send and receive money via mobile phone makes them perfect for rural unbanked people, who could be miles from the nearest payments terminal.

China is already the largest economy in the world. Integrating the country’s 225 million unbanked — 16% of the total population — would boost its GDP by trillions. This prospect holds not only financial merit, but political significance as well. The World Bank estimates that there are an additional 1.5 billion unbanked beyond China’s borders. Chinese fintech is uniquely positioned to service this demographic. After all, the challenge of delivering financial services to an unbanked farmer in Gansu isn’t all that different from reaching one in Niger or Yemen. As one Tech in Asia reporter notes, “the entire financial system could be due for an overhaul, and China is right at the forefront.”
 
Conclusion
Where exactly China’s fintech revolution will lead is not yet wholly clear. What is clear, in the words of Dr. Julian Gruin, is that “the image of China’s financial system as deeply repressed and dominated by a few large state-owned commercial banks is rapidly becoming outdated.” In its place, a new, decentralized fintech ecosystem is emerging — one better poised to unlock the economic potential of China’s banked, unbanked, and foreigners alike.

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Source: CSIS, by Marko Marsans

Asia may be leading the transformation in B2B e-commerce but there are still untapped opportunities.

If 2020 becomes known as the year e-commerce erupted, then Asia will be remembered as the epicentre of the transformation. In a region that was already emerging as the global hub for e-commerce in 2019 – the top seven countries for online consumer spending growth were all in Asia – the COVID-19 pandemic accelerated the pace.

Now, as broadband access widens, 5G networks mushroom and Asia’s middle-class population eclipses its global counterparts, that dominant position is only likely to strengthen. By the end of 2021, Asian e-commerce sales are forecast to reach USD3.5 trillion¹, more than three times higher than those in North America, the second-largest region.

“The surprise has been the sheer pace at which this has happened,” said Mahesh Narayan, Global Product Lead – Mobile Money & E-Commerce at Standard Chartered. “E-commerce will continue to grow exponentially in Asia. It’s even starting to impact more traditional industries amid a shift in consumer habits, regulatory developments and innovations from banks and FinTech companies.”

Undoubtedly, the pandemic has accelerated progress. A Bain-Facebook survey found that 85 per cent of people in the region tried new apps for the first time, with e-commerce, food delivery and digital payments among the most popular categories. Online grocery sales in Southeast Asia grew nearly three times during the outbreak. The “Double Five” online shopping festival in Shanghai in May generated USD2.2 billion in orders in 24 hours. And sales during Alibaba’s annual Singles Day shopping event reached a record USD74 billion.

Despite the remarkable pace of transformation, there are still abundant untapped opportunities. According to a Bain & Co. study, three-quarters of micro, small and medium-sized enterprises in ASEAN see the potential of digital integration, but only 16 per cent are realising the full potential of technology. A Google-Temasek Holdings report meanwhile estimated that digital integration could deliver a USD1 trillion rise in the region’s GDP by 2025, while its internet economy alone could be worth USD240 billion by the same year.

Role of FI partners

As small and medium-sized businesses start digitising their lending operations, FIs are also expanding existing platforms with new services and technologies to address their needs.

“We're doing quite a few things in this space,” said Ankur Kanwar, Managing Director, Head of Cash Management, Singapore and ASEAN at Standard Chartered. “One is we're building a state-of-the -art single scalable payment engine. This is a global payment platform that supports both B2B and B2C domestic and cross border payments. We are also investing heavily in the e-commerce space and providing consistent and scalable solutions for online collections, escrow accounts, QR codes and real time direct debits.”

Standard Chartered partnered with Deutsche Post DHL Group to co-create a new online collections solution for their DHL Express Division that would allow their customers across Asia to make online payments in local currencies for shipping charges and duties & taxes, using local payment methods (including instant / QR payments, bank transfers, eWallets and cards). The solution is live across six countries and expanding.

We also supported them with digitisation of their in-store collections and payments on delivery using QR code and instant payments powered by our proprietary app and integration with the hand held devices of their couriers. This provided DHL with a cost effective solution, enabling elimination of cash in the last mile service, access to a variety of local payment methods across multiple geographies and automation of their reconciliation, all through a single integration and a single contract with Standard Chartered.

There are also opportunities for B2B e-commerce technologies to not only help B2B vendors migrate online, but to also optimise both the selling and purchasing process for business partners. Hence, a big area of focus is B2B payments because establishing payment terms or financing is fundamental to B2B e-commerce transactions.

Payments surge

B2B e-commerce revenues rose 20 per cent from the beginning of the crisis. Digital payments surged, both in advanced digital markets and traditionally cash-dominated countries. GCash in the Philippines, for instance, reported a 30 per cent increase in payments. SC Pay – Standard Chartered’s payment-processing engine – saw its share of fast payments in Hong Kong grow to 23 percent in the first half of 2020, from 10 per cent a year earlier. The buildout of SC Pay into a single global payments system will be complete in three years.

“One of our clients in Hong Kong is a telco,” Kanwar said. “Traditionally they had sent paper bills customers, which were both businesses and consumers. The customers would then make a payment through cheque or cash electronic payments. We helped them transform by printing a QR code on their paper bills. This enabled customers to simply scan the QR code and make an instant payment, cutting down on cash and cheques. In turn, that made the collections more efficient, cutting down the cycle time.”

Singapore mall operator CapitaLand introduced a new e-commerce platform featuring the wares of retailers whose shops had been forced to shut during lockdown. Other businesses used the crisis to develop new digital commercial collaborations. In Indonesia, e-commerce company Bukalapak teamed up with ride-hailing firms Grab and Gojek to run deliveries. Gojek partnered with Indonesia’s Agriculture Ministry to help local farmers and market vendors move their services online – and saw rice sales from partnership markets increase 30 per cent. Vietnamese e-commerce platform Sendo began partnering with overseas companies, including giants like Unilever and Proctor & Gamble, to expand the range of products available to local shoppers.

The way ahead

On the B2C front, there has already been a huge amount of innovation,” Kanwar said. “B2B has lagged because it’s more complicated. Going forward, B2B innovation is going to be on how do I digitise my entire supply chain? And how do I start interacting with my suppliers on the one side, as well as let's say distributors and consumers on the other side, completely through digital means.”

Moreover, progress is uneven across the region. While countries such as China, Singapore and Thailand have surged ahead in e-commerce, other parts of Asia remain underserved. Internet penetration is still low in countries such as Laos (43 per cent), Cambodia (50 per cent) and Myanmar (39 per cent), and many nations also lack the digital, regulatory and financial infrastructure to drive the growth seen elsewhere in the region. Furthermore, the immediate social and cultural expectations of B2B e-commerce users in some of these countries are not being met by existing technologies that have evolved from the West.

But with its extensive experience across Asian markets, Standard Chartered is developing solutions to overcome these obstacles. In India, for example, the bank has backed SOLV, a 360-degree B2B marketplace platform helping the country’s micro, small and medium enterprises (MSMEs) connect and do business with a large network of buyers and suppliers, build their credit scores, source working capital finance and access business services such as logistics.

As lockdowns threatened to cripple businesses, SOLV drew on its network of manufacturers and delivery channels to get essential goods to small village shops, resident welfare societies, NGOs and small hospitals, providing supplies to thousands of families through the SMEs on the platform.  The SOLV adoption rate grew threefold during the first four months of the crisis, signalling both a rising affinity for digital platforms and a greater awareness of the need to build future resilience.

“While the broad trend is digitisation for every market, the underlying solutions that are being built are very country specific,” Kanwar said. “That's where banks like Standard Chartered are trying to take the lead. We’re not only investing in all of these technologies across the region, we’re also trying to make sure that from our corporate client perspective, we present a standardised set of solutions and use cases no matter which country they deal with.”

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Source: Bloomberg Media Studios in partnership with Standard Chartered.

ADDIS ABABA, Ethiopia — Africa was supposed to be China’s new stomping grounds. Instead, the novel coronavirus has spawned a growing backlash that threatens to unwind the ties Beijing has carefully cultivated over decades.

The trigger for the burgeoning diplomatic crisis: Anger over the treatment of African citizens living in China and frustration at Beijing’s position on granting debt relief to fight against the outbreak.

China has spent untold billions in Africa since its emergence as a global power, investing in its natural resources, underwriting massive infrastructure projects and wooing its leaders. The campaign has bought China friends and allies in multilateral institutions such as the United Nations and the World Health Organization, undermining the West’s once-reliable lock on the postwar world order while fueling its economy back home.

But that decadeslong quest for influence in Africa was gravely challenged last week when a group of disgruntled African ambassadors in Beijing wrote to Foreign Affairs Minister Wang Yi to complain that citizens from Togo, Nigeria and Benin living in Guangzhou, southern China, were evicted from their homes and made to undergo obligatory testing for COVID-19.

The incident, which caused widespread discontent both within Africa and among the diaspora after videos posted on social media showed people of African descent being evicted from their homes, resulting in a rare diplomatic showdown between Chinese and African officials.

It also broke a long-standing tradition of Africa voicing its problems with China — the continent’s biggest trade partner — behind closed doors.

In one incident, Nigeria’s speaker of the House of Representatives, Femi Gbajabiamila, posted a video of himself summoning Chinese Ambassador Zhou Pingjian to his office where he expressed his displeasure about a Nigerian man being evicted from his home.

While nobody expects China to lose its place as Africa’s biggest bilateral lender and trade partner, analysts and African diplomats say there is a distinct possibility of lasting damage. Reluctance from China to endorse a G-20 decision to suspend Africa’s debt payments until the end of the year has exacerbated the sense of frustration, they said.

“There is a lot of tension within the relationship. I think both of these issues are the newest manifestations of long-term problems,” said Cobus van Staden, a senior researcher at the South African Institute of International Affairs. “Africa’s official response [to its citizens in China] took into account popular sentiment a lot more than it usually would have.”

Some scholars have documented how politicians in Africa have boosted their electoral base by mobilizing anti-Chinese sentiment, while many ordinary people perceive China’s success in the region as a threat to their own well-being.

Although China’s government and the billionaire founder of the Alibaba Group, Jack Ma, have been among the most generous and eager members of the international community to assist Africa in fighting COVID-19, Beijing’s overtaking of the World Bank as the biggest single lender to Africa has made it less inclined to write off the money it is owed. The Chinese government and the China Development Bank lent more than $150 billion to Africa between 2000 and 2018, according to the China Africa Research Initiative at Johns Hopkins School of Advanced International Studies.

U.S. officials, including Tibor Nagy, assistant secretary for the U.S. State Department’s Bureau of African Affairs, have strongly condemned the treatment of Africans in China, resulting in China snapping back at Washington by accusing it of sowing unnecessary discord between the pair.

Chinese officials have moved quickly to seal the emerging rift. Ambassador Liu Yuxi, Beijing’s head of mission to the African Union, released a photo of himself giving a socially distanced elbow bump to his African counterpart — while distancing the Beijing government from the authorities in Guangzhou.

At the same time, Zhang Minjing, political counselor at the mission, downplayed the controversy in comments to POLITICO. Beijing had “championed” a debt initiative agreed upon by the G-20, he said, and is “committed to taking all possible steps to support the poor.” As for the recent tumult in Guangzhou, he said, “the rock-solid China-Africa Friendship will not be affected by isolated incidents.”

“China is against any differential treatment targeting any specific group of people. China and Africa are good brothers and comrades-in-arms. We are always there for each other come rain or shine,” he added.

But there are also growing concerns in Beijing that its multibillion-dollar infrastructure projects in places such as Zimbabwe have now ground to a halt because of the coronavirus. Not only are engineering personnel unable to travel to the continent, but construction materials are running low as supply chains dry up.

Africans are going to need all the help they can get. After years of rapid growth, the International Monetary Fund on Wednesday said sub-Saharan Africa’s gross domestic product would shrink this year by 1.6 percent due to the effects of the coronavirus, low oil prices and poor commodity prices. In Ethiopia alone, the government has estimated that 1.4 million jobs will be lost over the next three months, according to a document seen by POLITICO, roughly 3 percent of the workforce. Africa has recorded 17,701 coronavirus cases and 915 deaths — a toll that will likely climb rapidly, and likely underestimates the scale of the continent’s predicament.

So far, the rest of the world has done little to help. On Monday, the IMF granted $215 million in initial debt relief to 25 African countries — a relative pittance compared with the vast sums those countries owe. On Wednesday, G-20 nations, which include China, the U.S., India and others, did offer to suspend debt payments until the end of 2020 despite calls from French President Emmanuel Macron to help African countries by “massively canceling their debt.”

But Ngozi Okonjo-Iweala, one of four special envoys to the African Union to solicit G-20 support in dealing with the coronavirus, said Africa was still “pushing for more.” In an interview, Okonjo-Iweala said she believed “China is coming along” to provide Africa with debt relief across the board and not simply on a case-by-case basis. “I don’t believe it’s against supporting African countries on this. I’ve heard actually to the contrary,” she said. “What we need from China is not a case-by-case examination, but an across-the-board agreement.”

Stephen Karingi, director of the trade division at the U.N.’s Economic Commission for Africa, said support from the international community should be “weighed against the damage COVID-19 will cause” in Africa. “We think that 2020 and 2021 will be difficult and support should have that in mind or such a horizon,” Karingi said.

How damaging the latest events will be to the political and commercial ties that have made China Africa’s largest trading partner are unclear.

On the official level, there are signs that all will soon be forgotten. A senior African diplomat to the African Union, who spoke on the condition of anonymity due to the sensitive nature of the issue, said, “When it comes to China, I doubt we will see long-term problems.” “They’ve got a lot invested on the continent, in the AU, in this city,” the official added.

“They’re everywhere. Realistically, I think it’s important both sides understand why this is happening and try and resolve this mutually.”

Still, a host of African officials have made sure China does not get away lightly with its treatment of Africans living in China. Over the weekend, Moussa Faki, chairman of the African Union Commission, said he had “invited” the Chinese ambassador to the AU to express his “extreme concern” for the situation, while Chinese ambassadors in Nigeria and Ghana were summoned to give an explanation.

President Cyril Ramaphosa of South Africa said the ill treatment of African nationals in China was “inconsistent with the excellent relations that exist between China and Africa, dating back to China’s support during the decolonization struggle in Africa.”

A senior AU official, who spoke on the condition of anonymity due to the sensitive nature of the matter, said Chinese officials were particularly alarmed by the public dimension of the incident that exploded on social media. But, the official said, many African nations were pleased by remarks delivered by Foreign Ministry spokesman Zhao Lijian on Sunday in which he underlined “the African side’s reasonable concerns and legitimate appeals.”

Whether the people living on the continent forget so easily is another matter altogether.

“It’s going to be contentious among those communities for a lot longer,” said van Staden of the South African Institute of International Affairs.

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Sourse: By Simon Marks for Politico

The 500-meter Aperture Spherical Telescope (FAST), known as the "China Tianyan", has officially begun the search for extraterrestrial civilizations, looking for signals from intelligent life deep in the universe, the National Astronomical Observatory of the Chinese Academy of Sciences said today.

The search for and monitoring of radio pulsars is a core scientific objective of FAST. And the search for extraterrestrial civilizations is one of the scientific goals of the FAST telescope. In September 2018, researchers from the National Astronomical Observatory of the Chinese Academy of Sciences, the University of California, Berkeley, and Beijing Normal University conducted installation tests on the high-resolution extraterrestrial civilization search backend at the FAST site.

In July 2019, the researchers again analyzed and processed the obtained drift scan data to achieve a frequency resolution of 4 Hz and successfully removed most of the RF interference to screen out multiple sets of narrowband candidate signals.

On April 14, the FAST Scientific Research and Data Processing Center, which will be built in Gui'an New District, has been approved by the National Development and Reform Commission for the feasibility study of the project. The FAST Scientific Research and Data Processing Center project has a total investment of about 170 million yuan and a construction area of 28,000 square meters, including a scientific research center and data processing center. After the completion of the project, "China Tianyan" will finalize the three complete scientific research frameworks of observation, research, and data, providing the conditions for the storage and calculation of the huge amount of data generated by the long-term operation.

"China Tianyan" was conceived by the Chinese astronomer Nan Rendong in 1994 and took 22 years to build and opened on September 25, 2016. It is a radio telescope led by the National Astronomical Observatory of the Chinese Academy of Sciences, with independent intellectual property rights in China, the world's largest single-caliber, most sensitive radio telescope. Its integrated energy is ten times that of the famous radio telescope Arecibo.Tianyan literally means Eye of the Sky. It is a radio telescope located in the Dawodang depression, a natural basin in Pingtang County, Guizhou.This project is a major national science and technology infrastructure consisting of several parts, such as an active reflector system, a feed support system, a measurement and control system, a receiver and a terminal, and an observation base.

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Source: CNTechPost

Decades of rapid economic growth have dramatically expanded China’s energy needs. China is now the world’s largest consumer of energy, the largest producer and consumer of coal, and the largest emitter of carbon dioxide. However strong growth of renewable power is currently the key driver of China’s energy transition.

Projections for 2050

2% to 14% Increase in primary energy between 2018 and 2050

-44% to -94% Decline in coal consumption between 2018 and 2050

34% to 55% Share of renewables in power generation by 2050

Projections Summary

• China's economy grows at 3.5% p.a. between 2018 and 2050, down from 9.6% p.a. between 1990 and 2018.
• Primary energy consumption in China increases slightly, in all three scenarios. With the economy size nearly tripling from 2018 to 2050, China’s energy intensity declines by over 60% in all scenarios.
• China’s share in global energy demand drops from 24% in 2018 to 23% in Rapid, 22% in Net Zero and 21% in BAU by 2050. Nonetheless, China remains the world’s largest consumer.
• Renewables expand rapidly, with an annual growth rate >5.5% p.a. in all scenarios. Renewables’ share of the energy mix increases sharply, reaching 48%, 55% and 23% in Rapid, Net Zero and BAU, respectively.
• Coal’s share of the China power generation mix declines sharply under all scenarios, falling to 4% in Rapid, 1% in Net Zero and 31% in 2050 in BAU.
• Production of coal declines in China, dropping by nearly 90% in Rapid, and 57% under BAU.
• Nuclear power grows quickly in all scenarios, increasing its share of primary energy demand from 2% in 2018, to 11%, 12% or 9% in Rapid, Net Zero and BAU scenarios respectively.
• Production of natural gas greatly increases in China, by 76% in Rapid and 114% in BAU scenario. Conversely, production of oil declines by 73% in Rapid and 21% in BAU.
• Under all three scenarios liquids demand in China peaks in the next 5 years, driven by increased efficiency and fuel substitution in industry and mobility.
• Net CO2 emissions from energy use drop by 99% in the Net Zero scenario, 84% under Rapid and 35% under BAU.

Powering China’s Future

China is increasingly looking toward securing its future energy needs with sustainable alternatives. In accordance with the 2016 Paris Agreement, China has committed to make non-fossil fuel energy 20 percent of its energy supply by 2030.

China is the world’s largest investor in clean energy. Between 2013 and 2018, the country’s investments in renewables grew from $53.3 billion to an impressive peak of $125 billion. This figure has fallen in recent years, but in 2019 China’s investments still stood at $83.4 billion – roughly 23 percent of global renewable energy investment.

China is also becoming the largest market in the world for renewable energy. It is estimated that 1 in every 4 gigawatts of global renewable energy will be generated by China through 2040.

Due to large-scale investments in massive infrastructure projects, hydroelectric power has become China’s main source of renewable energy production. The controversial Three Gorges Dam, completed in 2012 at a cost of over $37 billion, is the largest hydroelectric dam in the world and boasts a generation capacity of 22,500 MW. The dam generates 60 percent more electricity than the second-largest hydropower dam, the Itaipu dam in Brazil and Paraguay.

Including the Three Gorges Dam, China has constructed 4 of the top 10 largest energy-producing hydroelectric dams in the world. From 2000 to 2017, China more than quintupled its generation of hydroelectricity, from 220.2 billion Kilowatt Hours (kWh) to 1,145.5 kWh. As a result of the Three Gorges Dam and other projects, China became the world leader in hydropower in 2014.

Over the past decade, China has also emerged as a global leader in wind and solar photovoltaic (PV) energy. China’s electricity generated by wind power accounted for just 2.1 percent of its total consumption in 2012, compared to 3.7 in the United States and 9.4 percent in Germany. By 2017, China’s wind-energy generation surged to 304.6 billion kWh, a 28.5 percent increase from the previous year. As a result, China accounted for over a quarter of global wind-energy generation in 2017.

In solar PV, China is both the leading supplier and consumer. Due to rapidly decreasing costs, aggressive policy incentives, and low-interest loans from local governments, China has dramatically increased its production of solar panels. In 2014, China became the world’s largest producer of solar panels, and a year later it surpassed Germany’s solar power generation capacity.

China is now home to two-thirds of the world’s solar-production capacity. The future development of China’s solar industry, however, has been called into question. Due to an over-saturated domestic market, Beijing halted all new solar projects and lowered tariffs on imported clean energy in June 2018. Additionally, the ongoing trade dispute between the US and China could further disrupt China’s solar panel industry. In January 2018, President Donald Trump announced a 30 percent tariff on solar panel imports from China.

How does China currently secure its energy needs?

Much of China’s foreign energy supply comes from politically unstable regions and must travel through narrow straits and contested waterways before reaching China. Securing guaranteed access to foreign sources of energy is vital for China’s ongoing growth and development.

China holds the third largest coal reserves in the world, which it has historically leaned on to satisfy its domestic energy needs. Yet as its economy has grown, China has increasingly relied on imported coal. In 1990, China produced 1.02 billion tons of coal for consumption, needing just 2 million tons of additional imports. By 2009, China’s rising demand drove it to become a net importer of coal, importing 125.8 million tons of coal to meet domestic consumption demand.

China fulfills its demand for coal by purchasing it from regional neighbours. In 2017, its coal imports primarily came from Australia (79.9 million tons), Indonesia (35.2 million tons), Mongolia (33.5 million tons), and Russia (25.3 million tons). Prior to 2017, North Korea was China’s fourth largest coal supplier, ahead of Indonesia and Mongolia. Due to the implementation of UN sanctions on North Korea, China has suspended all coal imports from the regime. As a result, China has shifted to rely more on Russia and Mongolia to fulfill its coal needs.

China’s demand for crude oil similarly outpaces its domestic production. Since 1993, China has been a net importer of crude oil, and in 2017 it surpassed the United States as the largest importer in the world. According to China National Petroleum, more than 70 percent of China’s crude oil supply in 2018 will come from imports. This dependence on foreign energy is likely to increase. Some estimates have suggested that by 2040 around 80 percent of China’s oil needs will be sourced from elsewhere. While China has taken steps to diversify its oil portfolio, it still must confront potential bottlenecks to access.

Given its political instability, the Middle East represents an important energy security concern for China, as roughly half of China’s oil imports come from the troubled region. China’s reliance on Middle Eastern oil is only likely to increase in the future. The International Energy Agency predicts that China will double its Middle East imports by 2035.

China’s oil trade with Iran is especially illustrative of this uncertainty. While sanctions against Iran had for years restricted Chinese access to Iranian oil, this quickly changed once a preliminary agreement on Iran’s weapons program was reached in November 2013. Chinese imports of Iranian oil in 2014 surged by 28 percent compared to 2013. In 2017, China imported 7.5 percent of its crude oil from Iran, just behind Oman at 7.7 percent and Iraq at 8.6 percent. The withdrawal of the US from the Iran nuclear deal in May 2018 has had seemingly little effect on this exchange, as China remains the top destination for Iranian oil.

China has diversified its oil portfolio by investing heavily in Africa. Africa only possesses around 9 percent of global proven petroleum reserves (compared to 62 percent in the Middle East), but there is considerable potential for gaining access to untapped resources. China has pursued a strategy of offering economic development loans to African states, such as Angola, in exchange for favorable access to oil reserves. Additionally, in 2015 China sent troops to support UN peacekeeping operations in South Sudan, where China has considerable oil investments. While South Sudan’s oil represents a miniscule amount of China’s total imports, 96 percent of its oil exports were sent to China in 2017.

Securing maritime energy shipments is another critical energy-security priority for China. Over 80 percent of Chinese maritime oil imports by sea pass through the Strait of Malacca. Therefore, this strategic waterway represents a potential risk to China should it be unable to protect its shipping interests in the narrow strait.

Another means through which China is seeking to mitigate its dependence on foreign oil is by building a strategic petroleum reserve (SPR), which is designed to insulate China from external market shocks. In November 2014, China’s Bureau of Statistics announced for the first time the size of China’s SPR, claiming to have 91 million barrels, or around nine days of reserves. China’s most recent update on SPR levels came in December 2017, when it reported a volume of 276.6 million barrels. China aims to accumulate 600 million barrels of oil, which would meet the OECD standard of 90 days of import reserves.

Although China holds the world’s largest shale gas reserves, the amount of natural gas readily available for extraction is much lower due to geographical complexities. Some deposits are buried as deep as 3,500 meters underground, making extraction difficult. In 2017, 38.4 percent (95.5 billion cubic meters) of China’s natural gas needs were met by foreign sources, a 27 percent increase from 2016.

With over 60 percent of its trade in value traveling by sea, China’s economic security is closely tied to the South China Sea.China currently relies on foreign natural gas delivered via land pipelines and carriers in the form of liquefied natural gas (LNG). Two existing pipelines supplied 46 percent of China’s natural gas imports in 2017, with three-quarters of this coming from Turkmenistan. The share of overland energy sources is likely to increase in the coming years. In 2014, China and Russia signed a 30-year, $400 billion deal to deliver Russian natural gas to China, and in December 2019, the $55 billion Power of Siberia pipeline sent its first shipments of natural gas from Russia to China.

However, China also imports LNG from several other countries, including Australia (47 percent), Qatar (21 percent), and Malaysia (11 percent) in 2017. The International Energy Agency predicts that in 2030, over 60 percent of China’s natural gas demands will have to be met through imports. In late 2019, China became the world’s top importer of LNG, overtaking Japan for two consecutive months. While monthly imports fluctuate significantly, China is expected to replace Japan as the world’s top LNG importer annually by 2022.

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Source: BP Insights, International Energy Statistics

The UAE has set its sights on boosting trade and investment ties with the world's second largest economy – China. While the economic powerhouse of Asia has been a strong market for UAE oil exports, the relationship between the two countries has deepened over the past few years as they find synergies and areas of co-operation in a wide range of sectors that go beyond hydrocarbons. China and the UAE launched a US$ 10 billion fund in late 2015, which focuses on sectors of strategic importance to them.

"This fund will also play a critical role in supporting the One Belt, One Road initiative, as we work towards improving connectivity and co-operation with our regional partners across Eurasia," Chinese president Xi Jinping said at the time. The relationship was further cemented in 2018 when Xi visited the UAE and signed a raft of deals to deepen China's ties with the Arab world's most diverse economy.

''UAE-China strategic partnerships constitute an important model in the international economic relations. Agreements signed during president Xi Jinping's state visit to the UAE will definitely catapult this partnership to new heights,'' said Sultan bin Saeed Al Mansouri, minister of economy. The two countries said they are building on their strategic partnership, which was launched in 2012, and expanding their co-operation to develop China's 'Belt and Road Initiative', while establishing sustainable trade and investment ties to achieve their common interests. The two sides are also working together to organise conferences and forums under the 'Belt and Road' banner. In November, for example, UAE was one of more than 130 countries that took part in the China International Import Expo (CIIE) in Shanghai. During the event, president Xi reiterated China's commitment to global free trade. In addition, the UAE is a founding member of the Asian Infrastructure Investment Bank (AIIB), a Chinese initiative, which aims to support development efforts in Asia.

Collaborative Projects

Another area of collaboration is the expansion of co-operation in e-commerce specialised training, developing cross-border e-commerce, and supporting the development of bilateral trade via e-commerce. The UAE and China are also considering a 'framework agreement' to work on various projects. They intend to collaborate in fields involving innovation, technology transfer, and economic diversification, as well as leverage the UAE-China Business Committee to co-operate in the areas of logistics, transport, industry, technology, artificial intelligence and energy, renewable and food security fields, and training for small and medium enterprises (SMEs).

The two sides are exploring partnerships in the free trade zones through ports and by building special export-oriented economic zones, establishing industrial projects, including fourth generation and other advanced industries. A testament to this initiative was the decision in 2016 of China's COSCO Shipping Limited, the world's largest container operator, to choose Khalifa Port as hub for its operations in the Middle East. It also has plans to expand the annual capacity to 6 million TEUs at the facilities – making it the largest container freighter station in the region. The move will make the Abu Dhabi-based Khalifa Port attractive to investors in Eastern Asia.

And since 2017, more than 15 Chinese companies have set up base in the Khalifa Industrial Zone Abu Dhabi (Kizad) to build various industries with a total investment of US$ 1 billion, according to Mohamed Juma al Shamsi, chief executive of Abu Dhabi Ports.

Cross-Border Deals

The two countries also plan to take their partnership across the border with joint investments in the African continent and Pacific Islands. UAE and China are keen to boost financial services ties by enabling bank branches in each other's countries to facilitate support for trade and bilateral investment, by strengthening co-operation between the UAE international financial centres and Shanghai Stock Exchange.

In 2018, the Abu Dhabi Global Market (ADGM), an international financial centre signed a memorandum of understanding with Shanghai Stock Exchange, China's largest securities exchange, to establish a “Belt and Road" Exchange in ADGM. When created, the “Belt and Road" Exchange in Abu Dhabi will serve as a key international capital-raising platform supporting Chinese enterprises, foreign companies and global organisations to finance their investments, including along the Silk Road Economic Belt network, the companies said. ADGM followed up the deal by opening its first overseas representative office in Beijing, to strengthen Abu Dhabi's ongoing collaborations with the Chinese government and financial and business community. Meanwhile, ADGM and the Hong Kong Securities and Futures Commission recently agreed to jointly promote and support financial services innovation in Hong Kong and the UAE. Together, the two regulators aim to develop financial technology (fintech) ecosystems and bolster the financial industries in their respective markets.

Other areas of co-operation outlined in the memorandum of understanding include education, science and technology under the "Partnership Programme between China and Arab countries in Science and Technology". Under the programme, young Emirati scientists will be facilitated to conduct short-term scientific research in China and learn new technologies.

Finally, the two countries will work on developing crude oil trade; exploration and development of oil and natural gas resources and engineering construction services for oil fields and for networking of strategic storage facilities; refining derivatives and petrochemicals domains; and other industries and related business activities. The agreements should help enhance the UAE's role as a regional gateway for China, as about 60 per cent of exports from the Asian country pass through UAE ports. China has been the UAE's top trading partner for the past three years, with trade between the two partners likely to cross US$ 70 billion by 2020, according to a UAE official.

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Source: HSBC Insight & Research