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Dual circulation: How China is preparing for a new role in international trade

Dual circulation: How China is preparing for a new role in international trade | NEWS | Scoop.it

CNBC

‘A world divided into three parts — Europe, North America and Asia — which would interact with each other on a regional scale. China and its “internal circulation” stood at the center of Asia.’

‘Economists at ICBC International, the Hong Kong-based subsidiary of the giant state-owned Chinese bank, have put out a series of notes in the last few weeks on “dual circulation.” ’

  • ‘One of the reports discussed the implications of the Chinese policy for the next round of globalization.

‘The authors used two charts.’

  • ‘The firstshowed an international economy focused on the U.S. as a global demand hub.’ 
  • ‘The second painted a world divided into three parts — Europe, North America and Asia — which would interact with each other on a regional scale. China and its “internal circulation” stood at the center of Asia.’
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Scooped by Malcolm Riddell

Dual circulation: How China is preparing for a new role in international trade

Dual circulation: How China is preparing for a new role in international trade | NEWS | Scoop.it

CNBC

‘A world divided into three parts — Europe, North America and Asia — which would interact with each other on a regional scale. China and its “internal circulation” stood at the center of Asia.’

‘Economists at ICBC International, the Hong Kong-based subsidiary of the giant state-owned Chinese bank, have put out a series of notes in the last few weeks on “dual circulation.” ’

  • ‘One of the reports discussed the implications of the Chinese policy for the next round of globalization.

‘The authors used two charts.’

  • ‘The firstshowed an international economy focused on the U.S. as a global demand hub.’ 
  • ‘The second painted a world divided into three parts — Europe, North America and Asia — which would interact with each other on a regional scale. China and its “internal circulation” stood at the center of Asia.’
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Why Trade Will Continue to Power China, Even as it Tries to Look Inward

Why Trade Will Continue to Power China, Even as it Tries to Look Inward | NEWS | Scoop.it

Carnegie Endowment

Yukon Huang | Carnegie Endowment

‘Internationally, Xi confronts a trade war with the United States, a political push to uproot manufacturing supply chains and decouple from China, and a bleak overall outlook for global trade due to the coronavirus pandemic.

‘Invoking Mao Zedong’s 1938 essay on “protracted war”, Chinese President Xi Jinping is preparing his country for an external environment that is expected to harden both politically and economically in the coming years.’

  • ‘Internationally, Xi confronts a trade war with the United States, a political push to uproot manufacturing supply chains and decouple from China, and a bleak overall outlook for global trade due to the coronavirus pandemic.’

‘Xi’s remedy, first introduced at a Chinese Communist Party Politburo meeting in May, lies in the new “dual circulation” strategy.’

  • ‘Though the concept remains decidedly vague, it emphasises giving greater play to domestic growth drivers, or “internal circulation”, while shifting away from the economy’s traditional bent towards export orientation.’
  • ‘In this view, China should lean more heavily on domestic demand, given the diminishing role of trade in the economy over the past decade and a half.’

‘Exports have been falling almost continuously as a share of China’s gross domestic product – from a peak of 35 per cent in 2006 to 17 per cent in 2019. This rise and fall is similarly true of imports.’

  • ‘The decline is the result of three structural forces that shaped China as it moved from a low- to upper-middle income economy: graduating from labour-intensive products; onshoring of higher value activities; and rebalancing from investment to consumption and from manufacturing to services.’

‘Still, ‘exports still hold more potential for China than is widely believed, and general fears over trade decoupling and large-scale supply-chain restructuring are probably exaggerated:’

  • ‘foreign multinationals remain committed to the Chinese market and'
  • 'China’s comprehensive manufacturing ecosystem cannot be easily replicated elsewhere.’

‘Moreover, those now arguing for increasing consumption to drive China’s growth are mistaken.’

  • ‘The concept of consumption-driven growth doesn’t exist in economic theory.’
  • ‘Consumption is derived from growth; it does not drive growth.’

‘The only true growth drivers are investment and productivity increases from technological innovation and deepening human capital.’

  • ‘And, as highlighted by the World Bank Growth Commission, a strong external orientation is a key characteristic of developing economies that have succeeded in this regard.’
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Why is the Trump administration banning TikTok and WeChat?

Why is the Trump administration banning TikTok and WeChat? | NEWS | Scoop.it
 

Brookings

Jeffrey Gertz | Brookings

‘We appear to be headed toward a world where the internet applications available to citizens differ based on where they live—and the geopolitical commitments of their home country governments.’

‘Late Wednesday night, President Trump issued executive orders that will effectively ban two major Chinese apps from the U.S. market.’

  • ‘The orders state that, 45 days from now, Americans will be prohibited from carrying out any transactions with the parent companies of TikTok and WeChat—meaning U.S. companies and individuals couldn’t advertise with the platforms, offer them for download via app stores, or enter into licensing agreements with them.’ 

TikTok. ‘For TikTok, the most immediate question is how this will influence a possible acquisition by Microsoft.’

  • ‘Microsoft had previously publicly announced its interest in acquiring TikTok and was in advanced talks with both the U.S. government and ByteDance to work out the details of such a transaction subject to any CFIUS concerns.’
  • ‘But in the last few days, President Trump has declared that he expected any such deal to also include a substantial payment to the U.S. Treasury—a request without any clear founding in CFIUS statutes, and which may have raised some red flags for Microsoft.’

‘The new IEEPA ruling now means any sale of TikTok would need to be complete within 45 days, and also seemingly would prevent any ongoing commercial relationships between TikTok U.S. assets owned by Microsoft and TikTok operations still owned by ByteDance operating in other countries.’

  • ‘This would appear to make it impossible for certain star TikTok performers to have licensing deals integrated across TikTok platforms, for instance, or for any joint branding.’

‘Wednesday’s declaration thus likely lowers the value of TikTok U.S. to Microsoft (or any other potential acquirer).’

  • ‘If this ultimately quashes a deal and leads TikTok to entirely pull out of the U.S. market, the Trump administration may face political ramifications from 100 million disappointed users of the app in the U.S.’

WeChat. ‘With respect to WeChat, meanwhile, the biggest immediate question is how well the app will be able to continue functioning after the ban goes into effect.’

  • ‘The ban would seemingly block new downloads or updates of WeChat from any app stores within the U.S., but would not cut off access overnight.’

‘Continued functionality of WeChat is an important concern for the Chinese diaspora in the U.S.; in part because access to many American social network apps is blocked in China, WeChat is a primary communication tool for students and immigrants to keep in touch with friends and family in China.’

Impact. ‘The executive orders also underline what’s at stake in the potential “decoupling” of the U.S. and Chinese economies, and raise the prospect of a splintered global internet.’

  • ‘We appear to be headed toward a world where the internet applications available to citizens differ based on where they live—and the geopolitical commitments of their home country governments.’

‘Of course, this has long been the case in China, where the Chinese Communist Party’s ”Great Firewall” has significantly limited how the internet is experienced in China in line with its own political objectives.’

  • ‘But if this move signals the U.S. government is going to follow a similar path, then a broader rupturing of the global internet may be at hand.’
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Will China’s E-commerce Reshape a Reopening World?

Will China’s E-commerce Reshape a Reopening World? | NEWS | Scoop.it

The Cairo Review of Global Affairs

Cheng Li & Ryan McElveen | Brookings

‘In the early months of 2020, there was an unassailable advancement of China’s e-commerce platforms while many other sectors of the Chinese economy lay dormant.’

  • ‘While online sales dropped 0.8 percent overall when comparing the first quarters of 2019 and 2020, a broader comparison between those first quarters shows impressive year-on-year increases in several categories.’

‘For example, sales grew in physical commodities overall (by 5.9 percent); agriculture products (by 31 percent); fresh food (by 70 percent); and household necessities, including kitchenware and fitness equipment (by 40 percent).’

  • ‘The growth in these categories was made possible by the creative innovations of e-commerce platforms as well as their ability to keep consumers and employees safe.’

‘If not for the pandemic, China’s tech giants would not have innovated so quickly.’

  • ‘Similarly, the government would not have moved so quickly to support their advancements, nor would their innovations have been as widely adopted by society.’

‘Their adaptation and success during the pandemic have been helped by the fact that they:’

‘1) prioritized the health of their customers and employees by employing subsidies and price freezes on products and implementing safe delivery processes:’

  • ‘To deliver items to harder-to-reach places, firms ramped up the use of drones and self-driving vehicles.’ 
  • ‘JD.com also employed its smart vehicles by sending them to the locked-down Wuhan border, where they were remotely operated from Beijing to make urgent deliveries.’ 

‘2) allowed easier access to medical services by promoting telemedicine and creating COVID-19 test booking platforms:’

  • ‘Beginning in 2019, the government removed its ban on online sales of prescription drugs, and, during the coronavirus outbreak, allowed telemedicine services to both diagnose and treat patients.’

‘3) connected and networked communities by increasing the adoption of online education and livestreaming platforms:’

  • ‘Growth in online education has vastly outpaced expectations because of the pandemic, and the sector is expected to grow 12.3 percent to $61.5 billion this year.’
  • ‘Perhaps most significant for China’s economy, livestreaming has generated new sales channels for small merchants, enabling live interaction through which sellers can showcase their products—like clothes, food, and cosmetics—and personally respond to audience questions.’ 

‘Not all of China’s e-commerce advancements have been positive from the perspective of civil liberties and privacy protection.’

  • ‘They have laid bare the precarious nature of the close relationship between the government and tech companies.’

‘Perhaps most disconcertingly, data privacy is becoming an even greater concern given reports that, during the outbreak, Alibaba’s Ant Financial and Tencent developed an app utilizing digital barcodes to help the government control the movement of people.’

  • ‘This feature will continue to live on in the Alipay and WeChat platforms as COVID-19 recedes and the country reopens.’
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China increasingly worried about ‘losing face’ as Japan bankrolls exodus of firms | SCMP

China increasingly worried about ‘losing face’ as Japan bankrolls exodus of firms | SCMP | NEWS | Scoop.it

Japan’s decision to offer an initial group of 87 companies subsidies totalling US$653 million to expand production at home and in Southeast Asia has sparked debate whether the world’s third largest economy is trying to gradually decouple from China.

Using the subsidy, 57 of the companies will open more factories in Japan, while the remaining 30 plan to expand production in Southeast Asian countries, including Vietnam, Myanmar and Thailand.

Around 70 per cent of the companies are small and medium-sized enterprises, with over two thirds involved in medical supply manufacturing.

A second list of companies to be offered subsidies is also being drawn up, with a similar composition to the first, according to Japanese officials.

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Video: Peter Fisher Says Biden Might Be 'Right Dose' for China Relations - Bloomberg

Peter Fisher, Dartmouth College Tuck School of Business clinical professor and former BlackRock Inc. head of fixed-income portfolio management, says a "pragmatic" Joe Biden presidency could help stabilize U.S.-China relations without "kowtowing to the Chinese."

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Smash and grab

Trivium China

'On Monday, we told you the Trump administration had given Chinese tech company ByteDance 45 days to sell its popular video platform TikTok or be banned from the US (see August 3 Tip Sheet).'

'Now China, has (rhetorically) struck back:'

'The English-language state media outlet China Daily ran an editorial which called Washington out:'

''As TikTok's experience shows, no matter how unfounded the claims against them are, as long as they remain Chinese companies, they will be presented as being a ‘Red threat’ by the administration.”

'But China will by no means accept the ‘theft’ of a Chinese technology company, and it has plenty of ways to respond if the administration carries out its planned smash and grab.”

Get smart: We’re not sure what countermeasures Beijing is contemplating, but we suspect they will be cautious rather than escalatory.'

'Meanwhile ByteDance CEO Zhang Yiming has come under fire from nationalistic Chinese netizens who are accusing him of capitulating to American bullying.'

'On Tuesday, Zhang addressed the controversy in a letter to his employees claiming that the Trump administration’s goal was to destroy TikTok – but that the sale would thwart Washington’s purpose.'

'He also asked for understanding as ByteDance navigated these uncharted waters.'

Get smarter: Sometimes, you can’t win for losing.

[read more]

China Daily: US administration's smash and grab of TikTok will not be taken lying down: China Daily editorial

Bloomberg: China Brands Trump’s Demands on TikTok Sale a ‘Smash and Grab’

36Kr: 最前线 | 张一鸣最新内部信:字节跳动需要接受一段时间内的误解

Business Insider: The CEO of TikTok's parent firm says Trump's 'real objective' is to ban TikTok, not force a sale to Microsoft

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Special Report: COVID opens new doors for China's gene giant - Reuters

Special Report: COVID opens new doors for China's gene giant - Reuters | NEWS | Scoop.it

"As BGI’s foothold in the gene-sequencing industry grows, a senior U.S. administration official told Reuters on condition of anonymity, so does the risk China could harvest genetic information from populations around the world."

"Underpinning BGI’s global expansion are the Shenzhen-based company’s links to the Chinese government, which include its role as operator of China’s national genetic database and its research in government-affiliated key laboratories. BGI, which says in stock market filings it aims to help the ruling Communist Party achieve its goal to “seize the commanding heights of international biotechnology competition,” is coming under increasing scrutiny in an escalating Cold War between Washington and Beijing, Reuters found.

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China is far ahead on drilling for data | Financial Times

"Much of what was being spirited out of the US via China’s Houston consulate, these investigators allege, was raw data generated by the great army of energy and agricultural commodity firms clustered in America’s fourth city. Granular information was being siphoned out of companies involved in investment, production, distribution and trading of energy and other commodities."

"The information was wanted because it could provide Chinese companies with a hard commercial edge in the global energy and agricultural markets where China is the world’s largest consumer. The project appears to have been a meticulous long-term effort, systematically targeting data both for its quantity and quality, the investigators say."

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Trump Has a Point on TikTok and China, But His Method Is Wrong 

"The Trump administration was therefore right to express concern about TikTok. But its manner of intervention was wrong. Haphazardly targeting one application — without specifying what offense is being investigated or punished, or articulating any broader goals — makes little sense. It fails as a deterrent if foreign companies don’t know what conduct is deemed unacceptable. It’s unfair to American consumers (and content producers) who enjoy the app and object to perceived government censorship. And it leaves the U.S. open to charges of protectionism by proscribing competition to Silicon Valley without a clear rationale."

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Coronavirus crisis impacts China’s credit system

Coronavirus crisis impacts China’s credit system | NEWS | Scoop.it

MERICS | Mercator Institute for China Studies, Berlin

Michiel Haasbroek | MERICS

‘China’s financial system has gone from culprit to savior.’

‘China’s financial system has gone from culprit to savior.’

  • ‘Seen as the major source of economic risk at the start of 2020, it is now viewed as a critical to stabilizing the economy.’

‘Smaller banks are the weakest link in China’s financial system.’

‘Challenges to China’s economic growth in the recovery may spill over to the country’s banks, especially smaller regional banks that service small and medium enterprises (SMEs).’

  • ‘Generally, SMEs struggle to obtain financing despite their major role in employment and job creation.’
  • ‘They receive better support from the smaller banks focused on specific regions or cities.’
  • ‘This twin-track financial market is revealed in the declining market share of China’s traditional “Big Four” banks – Agricultural Bank of China (ABC), Industrial and Commercial Bank of China (ICBC, and the world’s largest by assets), Bank of China (BoC) and China Construction Bank (CCB) – and is a trend that is likely to increase.’

‘Smaller banks are the weakest link in China’s financial system.’

‘These smaller banks have weaker risk management and lower capital buffers.’

  • ‘They have been supporting an increase in leverage for SMEs, right at the moment when these enterprises saw their profit margins decline.’
  • ‘It can therefore be inferred that smaller banks are the weakest link in China’s financial system.’
  • ‘Reports point to 13 percent of Chinese banks at risk, as they were seen by aggressive regulator Guo Shuqing to have “expanded blindly”.

Deleveraging is shelved for now’

‘Regulators have tried to manage credit concerns by allowing forbearance measures and postponement of principal and interest.’

  • ‘This will put strains on banks’ liquidity, but the central bank is keeping a keen eye on developments.’
  • ‘The People’s Bank of China (PBOC) was quick to address liquidity concerns by injecting around CNY 1.5 trillion (USD 212 billion) through two monetary policy operations.’
  • ‘These measures were complemented by targeted cuts to banks’ reserve requirement ratios (RRRs), were liquidity is made available to them conditional on lending behavior.’

‘Nevertheless, potential for a significant increase in credit risk raises the question of how the balance between economic stimulus and financial risk will be addressed.’

  • ‘The National People’s Congress (NPC) held in May offered few clues: in his speech, Premier Li Keqiang spoke only of the “effective prevention and control of major financial risks”, acknowledging that the prevention of such risk “must be underpinned by economic growth”.’
  • ‘This represented a clear departure from 2017, when President Xi put the fight against financial risks in a much more existential light.’

‘It also offers some insight into priorities: clearly, economic growth and stability imperatives trump financial risk considerations for now.’

  • ‘The statement that “M2 (money supply) and aggregate financing [will be enabled] to grow at notably higher rates than last year” signals that deleveraging has been shelved for now, against the resolution of the earlier Central Economics Work Conference.’
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Sen. Marco Rubio: Trump right to shut Chinese consulate in Houston — it was a massive spying operation

Sen. Marco Rubio: Trump right to shut Chinese consulate in Houston — it was a massive spying operation | NEWS | Scoop.it

‘The CCP is seemingly unable to conduct international relations without spying.’

‘This week smoke billowed from the courtyard of the Chinese consulate in Houston as employees burned sensitive documents.’

  • ‘Typically, consulates carry out services such as issuing visas and engaging in cultural exchanges.’
  • ‘But the Chinese Communist Party (CCP) outpost in Houston was far from a typical consulate.’

‘Instead, the consulate served as a front for the CCP and a central node in the massive spying operation that China uses to undermine the United States.’

  • ‘This network carries out all sorts of espionage — political, defensive, industrial, academic, and commercial — to try to gain a strategic edge over the U.S. by cheating and stealing.’

‘America’s adversaries, including China and Russia, use their consulates to conduct all sorts of nefarious activities.’

  • ‘For the CCP, the Houston consulate served as a base of operations to exploit commercial joint ventures for state purposes and to gain access to advanced technology, proprietary information, and intellectual property in order to advance Beijing’s efforts to undermine U.S. economic and national security.’
  • ‘Critically, the Houston consulate covered China's activities in seven states, including my home state of Florida.’

‘The Chinese diplomats had been involved in stealing scientific research, as well as facilitating travel to China using falsified paperwork.’

  • ‘The consulate also had used CCP-controlled community groups to cultivate Texas elites.’
  • ‘And considering this occurred in Houston, the malign Chinese activity likely involved theft and espionage connected to the U.S. energy and health care sectors.’

‘As the consular staff members pack their bags, we must also remember that the Houston consulate was a cog in a much larger system of exploitation.’

  • ‘The CCP is seemingly unable to conduct international relations without spying, especially on the people the party claims as its own, such as Chinese-Americans — wherever they are and in every facet of their lives.’

‘The Trump administration’s decision to shut the consulate down is exactly right and sends a strong message to China, Russia and other adversaries that this illegal espionage will no longer be tolerated.’

‘We cannot simply ignore the prolific increase of Chinese espionage and political influence operations, especially on American soil.’

  • ‘Sometimes a hammer is required to send a message.’
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