China: You've Got That Wobbly Feeling
China has seen investor outflows before; it's seen stock market crashes. But this time structural and geopolitical concerns are spooking investors.
What if it’s all just an illusion? Picture: Photo by Magda Ehlers from Pexels
We’re all used to the US being somewhat deranged and off the rails, and we’re all equally accustomed to a puffed up China marching forward to the tune of an ever-growing GDP (a cheerful ditty involving brass instruments, ChinaDiction suggests) and an infinite rollout of high-speed rail lines to ever-growing cities full of housing, malls and hot pot restaurants that accrue in value by the day.
So when China gives the impression of having become “wobbly” investors in particular start to take note. As the Economist says:
This time around … foreign investors say that deeper, structural problems are sapping China’s markets. The outflows have been more violent. And they have been accompanied by a global sell-off in Chinese securities. The Hang Seng tech index, which tracks many of China’s biggest tech groups listed in Hong Kong, is down by 45% compared with a year ago. The NASDAQ Golden Dragon China index, which includes similar companies listed in America, has fallen by 58% over the same period. ‘A bounce is unlikely to come easily until investors see structural forces change again,’ says Kevin Lai of Daiwa Capital Markets, a broker.
The structural problems are probably beyond our reckoning, but the big ones are easy enough to identify. Take Omicron for example.
As the rest of the world muddles through day-to-day in a state of chaos, China never makes a mistake, but oddly it looks very likely to be losing control over the highly transmissible version of covid-19.
In Shanghai, says the Economist:
International flights have been diverted from the metropolis. A chaotic, rolling lockdown of districts is being implemented. The gates of residential communities are being welded shut to keep dwellers from leaving. The situation, in China’s most developed city, and two years into the pandemic, reveals Mr Xi’s lack of an exit strategy from the crisis.
And so far it appears that China is not backing down from its zero-covid strategy. Yes, there will be revisions (they are how China shuffles out of awkward ideological positions). But Xinhua reported last Friday that a senior official with the National Health Commission told a press conference “the revised program should achieve maximum effect with minimum costs through more science-based and accurate measures.”
It’s probably safe to read “maximum effect with minimum costs through more science-based and accurate measures” as, yes, we’re going to continue welding you into your apartment blocks.
Anyway, that’s Omicron. It’s probably all over China by now given that it’s nearly as transmissible as the measles, which is the most mobile and sticky of the viruses that like to replicate in human beings.
Meanwhile, in a unique turn for modern China, geopolitical issues have suddenly become a structural issue. How is this support of Russia in a war against a neighboring sovereign state going to affect China in terms of secondary sanctions, for example? Moreover, that old chestnut about “tensions” and “saber-rattling” in the context of Taiwan, which is either a “renegade province” or a de-facto sovereign state, depending on your politics, has suddenly become less of a hypothetical. If Xi is willing to throw in his luck with Putin and go to war on Nato’s doorstep might he not really attempt to invade Taiwan, the consequences of which are inconceivable, but at best “bad for business.”
Another structural issue is, what exactly does Beijing want to do with the private sector and in particular the tech giants? That’s a question of long standing now. More recently, there’s the issue of potential delistings for Chinese shares in New York and what’s up with the property sector, which appears to be going broke by the day?
Bloomberg reports today that Kaisa Group Holdings Ltd is the latest Chinese property giant that will probably miss its deadline for 2021 audited results, which are due this month.
It joins developers including China Evergrande Group, Sunac China Holdings Ltd. and Shimao Group Holdings Ltd. in delaying the publication of results.
Bondholders are closely watching Evergrande, the world’s most indebted developer with more than US$300 billion in liabilities, after it defaulted on dollar-bond payments in December. The firm’s debt restructuring is expected to be among China’s largest and most complex.
Evergrande’s restructuring, which is expected to be the largest ever in China, is a defining moment in the history of Asia’s dollar bond market. The company borrowed more than US$20bn in dollar-denominated bonds of its more than US$300bn in liabilities. But it has made few detailed disclosures as Chinese authorities work to limit the impact of the company’s collapse.
And there’s more, notes the Financial Times in another report:
On Tuesday, after China stocks notched their second day of double-digit falls, JPMorgan downgraded 28 of the 29 China internet stocks it covers to underweight or neutral. ‘We recommend investors avoid China internet on a six- to 12-month view,’ the analysts wrote, describing the sector as ‘unattractive, with no valuation support in the near term.’
China’s vice-premier, Liu He, stepped in last week and promised the government would take measures to boost the economy and introduce “policies that are favorable to the market.” Notes the FT:
State media immediately backed up Liu’s message with reports on talking points from a special meeting of China’s financial stability committee he had just chaired, which included a call to ‘quickly complete rectification of China’s big tech platforms’ and a move to scrap regional test-runs for property taxes that had weighed heavily on property developers.
“The message is very clear: the Chinese government wants to send a strong signal of market support,” said Jessica Tea, investment specialist for Greater China and Asia Pacific equities at BNP Paribas Asset Management. “It seems like they are pausing regulatory tightening to provide more support and shore up market confidence.”
Messaging is important. There’s already been a hopeful bounce in Chinese stocks in anticipation of changes to regulations. But all the messaging in the world is not going to fix those wobbles, because they’re grounded in undeniable structural problems.
All Lives Lost in Tragic China Eastern Crash
Only a thorough investigation can tell us what happened to China Eastern flight MU5735, which crashed on Monday with with no survivors among the 132 on board. China Eastern, which has vastly improved its safety record, like other Chinese airlines, since the 1990s–China has not had a fatal air accident since 2010–has grounded all its Boeing 737-800s.
In the meantime, the crash is highly unusual insofar as the flight lost more than 20,000 feet in just over a minute, according to Flightradar24, a tracking platform. That’s almost a nose-dive from a cruising altitude, which is obviously not supposed to happen and fortunately is very rare. The plane was at the point it should have been starting its initial descent to Guangzhou.
According to a Boeing report on data from 2011 through 2020. Just 3 percent of fatal crashes occur during the initial descent.
The Times added helpfully that airplanes are so “technologically complex” that official reports about what went wrong “can take months, or longer, to complete.”
In the meantime, Flightradar’s visual of how the accident played out shows the flight attempting a correction at 7,425 feet before going back into a fatal dive.
Does that attempted correction mean that the pilot was still “at the wheel?” It must have been horrific. The flight was approaching the speed of sound when it made impact.
‘Pulling Weeds’ Won’t Help Us Defend Taiwan – Students
Even students in Taiwan are debating longer or more rigorous conscription. Picture: Wang Yu Ching / Office of the President, Wiki Commons
The Russian invasion of Ukraine has widened eyes nowhere else in Asia–and for obvious reasons–than in Taiwan, which also has a massive unfriendly, autocratic neighbor that’s armed to the teeth. In fact Ukraine has triggered renewed debate about Taiwan’s military conscription system by students who want to able to fight back if Taiwan is attacked. They argue—or some do—that military service in Taiwan has effectively devolved into four months of “pulling weeds.”
Taiwan’s compulsory military service requires that men born after January 1, 1994, serve four months. Before 2000 conscription was two years. Meanwhile, it’s well known in Taiwan that there’s very little military about conscription these days. Taiwan’s military says it lacks the resources to train young men, who are more often than not simply put to menial public tasks.
Women are are also complaining that conscription is for men only, reports the Taipei Times.
Female students also weighed in, with NKNU student Liu Ting-yan (劉庭妍) saying that gender discrimination discourages women from military activity.
As an example, she cited a high school in central Taiwan that canceled a target shooting course on the grounds that ‘female students are easily frightened.’
It’s not as if Taiwan has been galvanized into awareness of its precarious state overnight. The readiness of its military to defend Taiwan and the state of the conscription system have been subjects of hot debate for years. Back in 2017, Enoch Wu of the ruling Democratic Progressive Party, lashed out in the New York Times:
Whether Taiwan eventually falls to Beijing depends on the choices we make now. Taiwan needs a new approach for its security: The political leadership must correct decades of mismanagement of the military and accept ultimate responsibility for the defense of the country.
Taiwan has reduced its active force from 400,000 in 1996 to well under 200,000 (the exact number is classified). The nearly two million reservists exist in name only: They are under-equipped, not assigned to actual units, and most have not been called up for retraining. We’ve acquired advanced weapons platforms that are impractical against the threats we face. (For example, we have slow-moving warships and tanks vulnerable to Chinese missiles.) We have neglected logistics and shortfalls in munitions. Training and education have become low priorities.
Wu complained that in some cases conscription had been “expanded to include trainee positions at chain restaurants and 7-Eleven. He said
We seem to expect American sons and daughters to risk their lives to protect our home, while relieving our own of that very duty.
This is a debate that will not go away until China is on Taiwan’s beaches. Retired admiral Lee Hsi-min, former leader of the Taiwan military, and Michael A. Hunzeker, a Taiwan security analyst and a veteran of the invasion of Iraq, call in War on the Rocks, an online magazine about war, for:
The creation of a standing, all-volunteer, Taiwanese territorial defense force.
But, as they admit:
A bottom-up force credibly organized, trained, and equipped to reshape Beijing’s calculus requires top-down leadership, vision, and resources.
Unfortunately, the truth is likely that nothing less than a nuclear-armed Taiwan will change Beijing’s calculus.
Beijing Is Still the Bad Boy on the Block
Uplifting stuff from the Wall Street Journal, which thinks that the Russian invasion of Ukraine is the stuff of “slight change of plans” but that the US still regards Beijing as the “long-term threat.”
Since 2018, the Pentagon’s strategy has defined China and Russia as primary concerns and North Korea, Iran and violent extremism as secondary threats. That “two-plus-three” approach—two chief adversaries with three secondary ones—was expected to be supplanted by a “one-plus-four” strategy, which put China first and placed Russia among the lesser threats.
Russia’s messed up that strategy somewhat. In fact, before Putin made his move on Ukraine, the US was poised to release its new defense strategy. It’s been held up. But it’s not for a wholesale rewrite. The document, the Journal reports, is all but finished and policy makers just “tweaked the language” after the invasion.
‘China remains in our assessment the only country that can systematically challenge the United States for now and for the rest of this century, that means diplomatically, technologically, economically, militarily, geopolitically,’ [a senior Pentagon official], said. ‘And Russia is not in that camp, they weren’t a year ago, they’re not today.’
Contrarian Views in China?
Global Voices has an interesting piece on the so-called Great Translation Movement. In short, it was a subreddit on Reddit called Chonglang TV before Reddit removed it, leading the Great Translation, as it started to call itself to move to:
other social platforms including Twitter, Facebook, Instagram, and Telegram with the hashtag, #TheGreatTranslationMovement (#大翻译运动). The group's goal is to expose extremist Chinese patriots’ viewpoints and counter Chinese propaganda by translating problematic content from Chinese languages.
China’s trusty Rottweiler state tabloid the Global Times is calling it a “color revolution.” That’s the equivalent of treason:
Different from other smear campaigns against Chinese people, this campaign blames the Chinese government for Chinese netizens’ negative behavior … it smears the Chinese government by smearing Chinese people and its ultimate goal is to achieve a ‘Color Revolution’ in China.
Meanwhile, the New York Times is reporting on China’s internet “war of words” over Ukraine.
When Hu Wei, a politically well-connected scholar in Shanghai, warned that China risked becoming a pariah if it didn’t denounce Russia’s invasion of Ukraine, he ignited a war of words on China’s internet.
Inside China, the war in Ukraine ‘has ignited enormous disagreements, setting supporters and opponents at polar extremes,’ Mr. Hu wrote. His own stance was clear: ‘China should not be yoked to Putin and must sever itself from him as soon as it can.’
“There is overwhelming support for the China-Russia partnership, and overwhelming support for Putin’s war against Ukraine,” Yawei Liu, the editor of the U.S.-China Perception Monitor, referring to Hu’s article and speaking of Chinese opinion to the Times. “But the political, academic and economic elite are different. There is this real worry.”
Chinese critics of the war include academics with a foothold in the political establishment, like Mr. Hu, who are usually shielded from the worst pressure. He is a professor in Shanghai’s school for Communist Party officials, and a vice president of a public policy center under the State Council, the Chinese cabinet of government ministers. He declined to be interviewed.
In recent days, Chinese officials warned many among some 130 alumni of Chinese universities who had signed a petition against the war, said Lu Nan, a retired businessman in New York who helped organize the campaign. The petition, also signed by alumni living abroad, had declared that Russia’s invasion was an “affront to the bottom line of human conscience.”
Signing a petition of this sort in China is not like signing a petition to stop global warming in Vancouver. It signals serious high-level concern that China has got itself mixed up in something it should not have, but everyone internally who points that out puts themselves at risk.
China’s ‘Teacher of the State’ Makes the Prime Time Abroad
Not the most riveting cover design, but Wang Huning’s meditations are now being seen as prescient by some in the West.
The New Yorker has come up with one of those revelatory pieces it does from time to time with an essay on “America Against America,” a 1991 travelogue by the political theorist Wang Huning. Whether he’s the genius that some Western intellectuals are now claiming him to be, he’s certainly been influential in China.
Wang Huning, a member of the Politburo Standing Committee, a seven-person entourage of the highest-ranking officials in the Chinese Communist Party, is a household name in China. Chinese netizens call him guoshi (literally, ‘teacher of the state’), an honorific bestowed upon powerful state councillors in China’s imperial past. A former academic, he is the only member of the Standing Committee who has never run a province or city, but he makes up for his inexperience with vision and craft. In the nineteen-eighties, Wang helped devise what became known as the theory of “neo-authoritarianism”, the idea that developing countries like China needed a heavy-handed state to guide their market reforms.
If that weren’t enough, now the West has discovered this gem of an intellect, until recently relatively unknown.
In the United States, Wang’s work has attracted interest across the political spectrum. In October, a profile of Wang, by a Washington-based foreign-policy analyst writing under the pseudonym N. S. Lyons, was published in a ‘governance futurism’ magazine called Palladium. Wang, Lyons wrote, ‘appears to have won a long-running debate within the Chinese system about what’s now required for the People’s Republic of China to endure. The era of tolerance for unfettered economic and cultural liberalism in China is over.’ The conservative radio host Hugh Hewitt highlighted Lyons’s profile in a column in the Washington Post, saying that it “ought to be on the desks of every institution tracking the Chinese Communist Party.” The Marxist philosopher Slavoj Žižek recently called Wang ‘maybe the most important intellectual today.’ Thirty years ago, ‘he saw all the deadlocks already that led to Trump, populism, and social disintegration.’ In an e-mail, Lyons told me [the writer], ‘There is now an acute sense, including in Washington, that liberalism may currently be imploding.’ On both the left and the right, ‘there is I believe a growing fear that in at least some ways Wang may have been correct.’
ChinaDiction doesn’t have a strong opinion on whether Wang is right, but we do suspect it’s in the nature of liberalism to implode and renew itself regularly—a messy process but an alternative to conservatively preserving the “verities of tradition” as one New Yorker interviewee puts it.
Across Chinese society, from the classroom to the living room, the Party is driving a program of cultural conservatism. Educators have been ordered to hire more gym teachers to ‘cultivate masculinity’ in boys. Media broadcasters have been forced to pivot from shows that display ‘effeminate men’ to those that promote ‘traditional Chinese culture.’ Gaming companies are now only allowed to offer minors a single hour of playtime, from 8pm to 9pm, on Fridays, Saturdays, and Sundays.
Some liberals might argue that implosion is more fun.
It’s not Taiwan’s first time to rattle the world of pizza lovers–the island nation is home to chicken testicle pizzas, century-egg pizzas and “boba” pizzas (boba are the sweet tapioca “pearls” more often found in milk tea in Taiwan). Bloomberg puts it all down to big data, which analyses food trends on social media:
The data-generated approach seems to have worked in Taiwan. The latest invention—featuring a street delicacy made of sticky rice and pig’s blood, and preserved eggs–broke Pizza Hut’s previous sales record set by the durian pizza in 2019 … One was bought every eight seconds and the creation was sold out just four days after the launch in late June, early July, the company said.