Evergrande reveals weaknesses of the Chinese economic system
Is the land Silk Road an alternative to sea shipping?
China’s TikTok sets time limit for children
Guterres warns of Cold War between China and US
Beijing reassures Wall Street investors
Number of new Covid infections in Fujian drops
Cargo vessel docks successfully with Tianhe space station
Tools: What the new Data Security Law means for German companies
Dear reader,
The impending bankruptcy of Chinese real estate giant Evergrande is causing unrest far beyond China’s borders. Their debt of the equivalent of €250 billion brings back dark memories. Some people see parallels to the U.S. banking crisis of 2008 or the Asian crisis of 1997. Frank Sieren analyzes the true dimensions of the Evergrande case for you – and explains why there is no risk of a collapse or even a global financial crisis. Nevertheless, this case clearly shows one thing: the weak points of China’s financial and economic system.
Another global problem is the current container deadlock at ports. Many industries suffer from a shortage of materials and supplier parts, production facilities are at a standstill, and store prices are rising. How fortunate that China’s state media are announcing a supposed remedy: the increasingly expanded freight railway between the People’s Republic and Europe as part of the prestigious “Belt and Road” initiative. Finn Mayer-Kuckuk has taken a closer look at the potential of the land Silk Road and comes to the conclusion: Even if land routes have gained recent importance, they will not be able to replace sea freight traffic.
I hope our latest issue will provide you with many new insights!
Evergrande is not only one of the largest privately-held companies in China, but also one of the most over-indebted corporations in Asia. Its debt amounts to the equivalent of €300 billion, which is roughly equivalent to the national debt of the whole of Portugal.
The stock price of the Hong Kong-listed real estate developer conglomerate has dropped by around 75 percent since the beginning of the year. Some corporate bonds are trading at only one-third of par. Rating agency Standard & Poor’s has since downgraded Evergrande’s credit rating and its subsidiaries to the third-lowest grade of “CC” due to tight liquidity, declining sales, and deferred payments. Xu Jiayin, who founded the group in 1996, was already forced to withdraw from operational business in mid-August – most likely due to pressure by Beijing (China.Table reported).
A major factor of uncertainty is the number of obscure holdings of the Evergrande conglomerate, which invested in various areas from e-mobility to professional soccer. The loans and mutual financial obligations to more than 200 subsidiaries are almost impossible to keep track of.
After a price drop of more than 20 percent, the trading of the bond, which matures in May 2023, was suspended on the Shenzhen Stock Exchange. The price of the Shanghai-traded bond, which matures in May 2024, fell more than 20 percent. In total, Evergrande has 24 bonds outstanding, worth $26.6 billion. Repayments of about $7.7 billion are due in 2022. In 2023, the figure is $8.6 billion. The risk here is not only default but also interest accruing. This month alone, Evergrande has to pay $129 million in interest. If the company fails to meet its interest payments, this would be considered a default by the rating agencies.
Rescue operations are underway
The company must make interest payments of $83.5 million on a dollar bond and ¥232 million ($36 million) on a local bond on September 23, Bloomberg reports. Evergrande is also already negotiating with domestic lending institutions for possible deferrals or rescheduling of loans, just like a normal debtor. Major state-owned banks such as ICBC, AgBank, and China Minsheng are among its biggest creditors.
Evergrande has hired Houlihan Lokey and Admiralty Harbour Capital to review “all possible solutions” to its liquidity problems, and videos are circulating on the internet showing protests outside the company’s headquarters in the southern Chinese metropolis of Shenzhen. The Evergrande conglomerate accounts for around 3.8 million jobs, 200,000 of them directly. Around 1.5 million Chinese have made down payments for non-existing apartments.
Manageable economic impact
Nevertheless, the economic impact on China will not be as great as the West fears, where it is already being compared to the US banking crisis of 2008 or even the Asian crisis of 1997. Although Evergrande is one of China’s three major real estate developers, it only has a four percent market share. The real estate market, in turn, accounts for 14 percent of China’s GDP, according to calculations by US rating agency Fitch. That compares with a 17.6 percent share in the US. In the event of a total collapse, Evergrande’s impact on the economy would therefore amount to just 0.56 percent of China’s GDP.
At this point, authors of horror scenarios cite Evergrande’s total debts, which amount to two percent of Chinese GDP. But the debts will not all fall due immediately. And a total collapse can be ruled out since, unlike Germany’s bankrupt Wirecard, for example, the company owns valuable assets such as land and real estate. Evergrande’s land reserves alone are worth about €60 billion, which can be sold to make repayments. While that’s not nearly enough to service all of its liabilities, it may be enough to strike a deal with creditors and avert bankruptcy. In any case, over 70,000 investors, including many Evergrande employees, have bought into Evergrande. Approximately €5.2 billion are now due for these products, writes business portal Caixin.
Evergrande is now offering investors to choose between discounted apartments, office and retail space, or parking garages (China.Table reported). This means they will at least get back part of their investment. Even a default of 50 percent on loans – which would already be very high – would only amount to less than 0.3 percent of the Chinese economy.
Real estate market remains stable
Even if, like Harvard professor Kenneth S. Rogoff and Yuanchen Yang of Beijing’s Tsinghua University did, the Evergrande case were to be played out in a worst-case scenario where the real estate industry’s share of GDP would double, the risk would still remain manageable. The authors assume the following development in their worst case: If real estate investment and the market collapse by 20 percent, GDP growth will shrink by five to ten percent.
The reason for this is obvious: only about 25 percent of the Chinese population belongs to the middle class. In the US it is more than 50 percent and in Europe almost 70 percent. It took China around 20 years of growth to achieve this proportion. In the meantime, growth is slowing down. As a result, it is very likely that it will take another 30 years before 50 percent of the Chinese population belongs to the middle class. This is why residential real estate will remain a scarce commodity for the foreseeable future – even though China builds about 15 million new homes every year. That is more than five times as many as in the US and Europe combined, whose housing infrastructure is already developed.
But sometimes even a drop can make a barrel overflow, a manageable bankruptcy could trigger a major crisis. Accordingly, the question arises whether the Chinese state-owned banks will be able to cope with the defaulting loan repayments at all?
Here, the answer is yes. The ratio of non-performing loans (NPLs) in China stood at 1.8 percent in July. For years, the government has been working to reduce these NPLs. In 2005, they still stood at a whopping 12.4 percent. Although they rose again in the wake of the Covid crisis, they have remained at a very low level.
The trends are well known on the stock market. That is why there is no sign of fear in the markets: The Shanghai Composite Index is higher than it has been since the beginning of 2016 – and has even been gaining strength against the US dollar since September 15. No sign of the Evergrande crisis. “We currently assume that the government in Beijing is deliberately letting air out of the real estate bubble – for example by making loans more expensive,” believes Volker Treier, head of foreign trade at the Association of German Chambers of Industry and Commerce (DIHK). He expects a “soft landing”.
Not comparable with the US financial crisis
The differences to the US banking crisis and the 1997 Asian crisis, which are now brought up, again and again, are great: in the case of the US crisis, policymakers were taken by surprise. The Evergrande crisis has been triggered by the government itself by tightening the framework conditions for real estate companies and banks earlier this year.
With Evergrande, Beijing now apparently wants to make an example. Large companies should not be able to rely on being “too-big-to-fail” – that is, too large to go bankrupt. The state wants to develop a more social market economy, and thus pursues three goals: Banks and real estate developers should bear their own risks; housing must remain affordable, and it must represent a stable investment.
The even bigger difference to the US crisis: in the US, people who couldn’t afford houses took out huge loans, without equity, without having to pay interest, and with no limit on the number of homes. That’s not the case in China. Interest rates are high. The government has raised them again this year. Rates are currently 5.33 percent for the first apartment and 6.61 percent for the second. Equity of at least 30 percent is required, and in some cities like Shanghai, it can go up to 70 percent. What’s more, the purchase of apartments is limited to two per household. Even divorced couples have to wait three years.
In the Asian crisis, the problem was yet different: companies, including real estate groups, borrowed money in US dollars on international financial markets but generated their revenues in their local currency. As international investors lost confidence in the economy, the local currency lost value and US debt rose to such dramatic proportions that companies could no longer service it. Such a development is not possible in China because, firstly, its currency is hardly tradable internationally and, secondly, China has hardly any foreign debt. It is true that among the ten largest shareholders of the Evergrande Group are some Western fund companies such as Vanguard and BlackRock. However, they only hold 0.63 and 0.25 percent, respectively, and have already started to reduce their Evergrande holdings some time ago.
China’s weaknesses are obvious
Nevertheless, there are three major systemic weaknesses affecting the role of real estate in China’s economy.
The first: Residential real estate accounts for about 70 percent of the wealth of Chinese living in cities. For Americans, the figure is only 35 percent. That’s why Beijing is opening its market to international asset managers like BlackRock or Goldman Sachs, which are even allowed to set up majority joint ventures. They have the know-how to diversify assets.
The second problem is that apartments are too expensive, with peak values of more than 40 average annual salaries. In Shenzhen in southern China, the figure is as high as 43.5. Here, too, the government must intervene – and is already doing so by launching large social housing programs and forcing real estate developers to offer some apartments below market price.
The third and probably the biggest problem: The highly indebted municipalities live off plot sales. That means they have a high interest in widespread building, and local banks are lending accordingly. Here, too, the central government must put the brakes on and create alternatives for the municipalities. One possibility would be a real estate tax. The taxes in Shanghai, for example, are only between 0.4 and 0.6 percent. Even in the US, they are more than 2.1 percent.
All in all, the situation is quite serious – but not as serious as to fear a collapse, especially since the government still has some corrective measures at its disposal. It now depends on the extent to which the government succeeds in getting the real estate sector and the banks to show more discipline.
Evergrande
Finance
Real Estate
Will the Land Silk Road beat the container ship?
The first containers from Xi’an arrive in Mukran on the island of Rügen. Cargo ships of the shipping company BREB bring the cargo over from the Russian port of Baltiysk (archive image from 2019).
Der Mangel an Container-Kapazitäten belastet weiterhin den Welthandel (China.Table berichtete). Grund sind vor allem Engpässe in den Häfen. Chinesische Staatsmedien propagieren in den vergangenen Monaten die vermeintliche Lösung in Gestalt der Land-Seidenstraße und schüren gezielt die Hoffnung, dass die immer besser ausgebauten Schienenverbindungen für Güterzüge zwischen China und Europa zur Entlastung der Seestrecken beitragen könnten. Diese Erzählung wird begleitet von Erfolgsnachrichten des Prestigeprojekts der Neuen Seidenstraße (Belt and Road Initiative, BRI).
Experts agree, however, that although the land connection is gaining in importance, it will have little practical effect on the current problems. “Rail transport can of course provide a small amount of relief. But it is not big enough to really solve the problem,” Holger Görg, head of the International Trade and Investment Research Department at the Kiel Institute for the World Economy (IfW), tells China.Table.
The Land Silk Road has increased the rail network enormously, but rail transport also suffers from bottlenecks, Görg said. These include, for example:
Transhipments at the border, where the tracks do not continue with the same gauge. In Kazakhstan, Belarus and Russia, the rails are 1.52 metres apart, in the EU they are 1.435 metres apart.
A costly alternative is gauge change, in which the axles of the wagons adapt to the new track width.
Changes of personnel are also often necessary at the borders.
Passenger trains often have priority on the shared tracks.
The ship beats the train 20,000 to 40
Much more decisive as a bottleneck, however, is the fundamentally much smaller capacity of trains compared to ships. The operators of the Silk Road routes on land were able to announce last year that for the first time they had transported more than 100,000 standard containers within one month. But that is only as much as can fit on five container ships. Moreover, hundreds of these are constantly on the move on the world’s oceans. Only about 40 containers fit on one train. On a ship, up to 20,000.
So even though twice as many containers are moving by rail as in the previous year, the relief is limited in the short term. The train continues to be primarily a means of transporting groups of goods that need to reach their destination more quickly at a higher price.
Yet relief would be most welcome. The British magazine “Economist” is already asking: “Will the continued disruptions shift trading patterns?” Container shipping companies have suffered one disaster after another since the pandemic began. China’s authorities have repeatedly curtailed operations at major ports after workers contracted Covid-19(China.Table reported). In between, a ship got stuck in the Suez Canal, triggering a backlog around the planet. Currently, frequent typhoons are disrupting operations – a result of climate change.
The logisticians have not had a chance to get the cargo ship traffic back on track since spring 2020. Every small irregularity has knock-on effects that disrupt the fragile fabric again. The irregularities contribute to the shortage of supply parts and goods from East Asia. Moreover, as container space is scarce, prices are rising. The corresponding index is currently three times higher than a year ago and five times higher than before the pandemic. The container shortage is a real problem for the economy.
High investments increase rail capacity
But even if rail transport will bring little relief in the current crisis, it could still compete with shipping in the long term. The “Eurasian Railway Alliance”, through which about half of the freight train traffic from China to Europe rolls, wants to significantly expand its capacities. By 2025, the volume of container transport by rail between Asia and Europe is to rise to one million standard containers. The strong increase in freight traffic as a result of the pandemic in particular is seen by Allianz as a strong sign that further investment is worthwhile.
The driver of the trend is, of course, Beijing. “China is investing heavily in rail infrastructure,” says economist Görg of the IfW. Official Chinese statistics show: There were around 12,400 international rail connections from China at the beginning of the year – in 2015 there were fewer than 1,000. “And this positive trend is likely to continue in a similar way in the foreseeable future,” says Görg.
Shipping company BREB sees freight train traffic on the verge of a boom
German companies with links to the Land Silk Road are pleased with the trend and expect further strong growth. “Looking back, the Land Silk Road has developed magnificently,” says a spokeswoman for BREB, a shipping company from Bremen (formerly Eilemann & Bischoff). BREB receives many Silk Road containers in Baltic ports that have come to Europe via the land route. Since this spring, a complete train from Xi’an has been arriving daily in the Russian port city of Baltiysk, east of Gdansk.
In Baltiysk, ships from BREB take over the Conatiners and bring them to Mukran on the island of Rügen. There they are loaded onto the train and roll into the German hinterland. The shipping company continuously uses two ships for this shuttle service, the “BREB Mukran” and the “BREB Bylktiysk”. The two freighters now also take on containers in Sweden for loading in the direction of China. “Cargo volumes via the Land Silk Road continue to grow steadily,” BREB observes. “At this stage, there is no end in sight.”
The train remains faster, but more expensive
From the point of view of the shipping company BREB, the higher speed of the train connection is particularly decisive: “Transit time has become a decisive factor.” The deep-sea routes continue to be burdened with uncertainties, “while the transit time on the overland Silk Road remains the same at plus/minus one to two days.”
At present, rail offers are even cheaper than freighter offers in individual cases. However, land transport will remain more expensive in the long term. Ships simply transport very, very many containers at once. “True, the price difference has narrowed due to the extreme increase in freight rates by sea,” Lars Jensen, CEO of consultancy Vespucci Maritime in Denmark and one of the leading experts on container logistics, tells China.Table. But with demand now going up, so are freight rates by rail. “When the congestion at the ports clears, we will see a normalization.”
Görg confirms the assessment that the advantage for rail will dwindle again once the pandemic is over. “One should not forget the reason for the current capacity problems of maritime transport,” says Görg. Closures of container terminals as a result of Corona outbreaks can also happen to rail transport. “Perhaps even more frequently there, as many borders have to be crossed.”
IfW
New Silk Road
Trade
News
Douyin limits usage time for teens
Douyin, the Chinese version of the short video app TikTok, is restricting the time children under 14 are allowed to use the app. In the future, the time should only be 40 minutes per day. Between 10 PM and 6 AM., young people will then no longer be able to access Douyin at all. Douyin operator ByteDance also announced a “youth mode” for children under 14, which would only provide users with “healthy”, curated content.
China’s leadership recently limited the amount of time young people are allowed to play online to three hours a week (China.Table reported). This is intended to curb dangers such as video game addiction.
Until now, young people were able to circumvent the time restriction on ByteDance’s short video platform, as many users were not required to sign in with their real names. Now parents are supposed to confirm their children’s identities so that the app can also identify them.
The new restrictions come at a time when Beijing is trying to impose tighter controls on its big tech companies after years of unchecked growth. On ByteDance’s sites and games, algorithms recommend content to keep users on the platforms longer and then serve them ads, this move is a significant restriction on its successful business model. niw
ByteDance
Children
Chinese Communist Party
Douyin
Tiktok
UN Secretary-General Guterres appeals to China and the USA
UN Secretary-General Antonio Guterres has made a strong appeal to China and the US, urging them to repair their “totally dysfunctional” relationship before their problems spread to the rest of the world. “We need to avoid at all cost a Cold War that would be different from the past one, and probably more dangerous and more difficult to manage,” the UN secretary-general warned.
Prior to the next UN summit, Guterres called on the two leading economic powers to work together on climate protection and negotiate more intensively on trade and technology – regardless of their disputes over human rights, economic policy, online security, or sovereignty in the South China Sea. “Unfortunately, today we only have confrontation,” Guterres told Associated Press over the weekend.
The UN secretary-general stressed the “need to re-establish a functional relationship between the two powers,” calling them “essential to address the problems of vaccination, the problems of climate change and many other global challenges, that cannot be solved without constructive relations within the international community and mainly among the superpowers.” rad
Climate
Geopolitics
South China Sea
United Nations
Beijing assures Wall Street of further openings
A top Chinese official has assured U.S. financial regulators that the crackdown by China’s regulators is not aimed at decoupling from the U.S. or international financial markets.
Rather, the goal of these measures is to better regulate consumer-oriented platform companies as they play a key role in promoting “common prosperity” and reducing wealth inequality, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said at a private meeting, according to guests.
“I don’t think you can find a government anywhere in the world that is as positive and as focused on technology as China,” Fang said at the fifth China-U.S. Financial Table (CUFR) last week. As an example, he said Beijing was expected to approve a record number of initial public offerings this year and that the majority of companies going public in China would be private companies, according to two attendees, quoted by Reuters.
Although tensions between China and the US on issues ranging from trade to geopolitics have increased recently, Beijing began opening up China’s financial sector to US companies in recent years. But recent measures, including crackdowns on internet companies, profit-oriented education, online gaming, and excesses in the real estate market, as well as a drive for “common prosperity” to reduce inequality, have raised concerns among a large number of foreign investors. Now, state media and officials are stepping up efforts to reassure markets. China’s Vice Premier Liu He said earlier this month that the government would continue to support the private sector (China.Table reported).
In any case, Fang’s statements at last weekend’s CUFR meeting were said to be welcomed by Wall Street officials, according to an attendee. The CUFR, formed in 2018 amid escalating tensions between the world’s two largest economies, last met virtually in October 2020 after meeting twice in person the year before the Covid outbreak. niw
CSRC
Finance
Liu He
Covid infections drop in Fujian
Hope is spreading in Fujian. On Sunday, only 28 new Covid infections were recorded in the Chinese province. It’s the lowest figure in a week – and a sharp drop from the 43 infections recorded the day before. Fujian has been hit particularly hard by the spread of the delta variant, which was first diagnosed in the province on September 10 (China.Table reported). Since then, 363 new infections have been registered in Fujian alone, although no deaths have been reported.
At a press conference, Fujian authorities said 92 children under 14 had to be hospitalized, 81 in Putian, 11 in Xiamen. No further details were provided, but it is clear that eight preschool children are among them and 28 primary school students from Putian. In China, children as young as 12 are being vaccinated. rad
Coronavirus
Delta
Health
Cargo spacecraft docks with space station
China is one step closer to its plan to complete its space station by the end of the year. A Chinese resupply spacecraft carrying robots docked with an outpost in space on Monday during the 4th of 11 missions (China.Table reported).
A Long March-7 rocket carrying the Tianzhou-3 spacecraft launched from the Wenchang Space Launch Center on the southern island of Hainan, according to China’s state media. Tianzhou-3 will deliver fuel and supplies for three astronauts scheduled to travel to the Tianhe module in October. Their planned six-month stay would be the fifth consecutive mission and the last planned for this year.
Next year, China will launch two additional core modules for the Wentian and Mengtian space stations on Long March-5B rockets. They are China’s most powerful spacecraft.
China began construction of the three-module Tianhe space station back in April. Last week, a three-month manned mission ended. Once completed, the station willrival the International Space Station (ISS) (China.Table reported), which is supported by nations including the United States, Russia, and Japan. China was barred by the United States from participating in the ISS. niw
Aerospace
Science
Technology
Tools
The Chinese data security law – more security or more challenge?
By Jiawei Wang
In order to be able to ensure compliance with the new regulations on handling data in China and when transferring data abroad, the companies concerned should quickly get to grips with the Data Security Act. After all, non-compliance can result in heavy penalties for companies; their representatives may face criminal prosecution.
Historically, the DSL caps a series of actions by Chinese lawmakers in recent years. In 2017, the Cyber Security Law (CSL) set the course for data handling requirements for critical information infrastructure (CII) operators for the first time in the history of the People’s Republic. Since then, the National Internet Information Administration (“Cyberspace Administration of China”, or “CAC”) has played a central role in concretizing legal measures. With the 2019 draft regulation, there has been a drastic tightening and expansion of the security assessment obligation.
Network and information security upgrade
Das neue DSL der chinesischen Gesetzgeber stellt ein systematisches “Upgrade” im Bereich Netzwerk- und Informationssicherheit sowie der Sicherheit von persönlichen Daten dar. Bemerkenswert ist vor allem der geographische Anwendungsbereich. So schreibt § 2 des neuen DSL vor, dass das Gesetz nicht nur für Datenverarbeitungstätigkeiten innerhalb Chinas, sondern auch für Datenverarbeitungstätigkeiten außerhalb Chinas gilt, wenn die nationale Sicherheit oder das öffentliche Interesse Chinas gefährdet sind.
The strong linkage with the CSL cannot be overlooked in the new DSL. Accordingly, the CSL’s security management provision continues to apply to the export of data collected or produced by operators of critical information infrastructures within Chinese territory. As an innovation, a uniform procedure in relation to security review, known as security assessment, has been created in Section 24 of the DSL. However, the scope of application and procedural details are currently unclear. Furthermore, the relationship between the data security assessment and the cybersecurity assessment also remains to be clarified.
Attention should be paid to the – quite drastic – penalties for identified violations. The legal consequences include civil liabilities, administrative penalties (e.g. fines and revocation of the business license) as well as criminal liabilities.
In parallel to the DSL, another new law is considered a key element in the field of data security: the Personal Data Protection Act, which will come into force on 1 November 2021. Data processors of personal data must comply with various compliance obligations. Similar to the DSL, the Personal Data Protection Act is also applicable extraterritorially. This set of rules is similar in many ways to the European Union’s General Data Protection Regulation GDPR; however, it is much stricter in terms of protecting public safety.
Automotive industry in focus
Legislation in individual industry sectors is also noteworthy: Interim regulations for data security management in the automotive industry will take effect on October 1, 2021. These regulations affect so-called automotive data processors, i.e., automobile manufacturers, parts and software suppliers, dealers, repair facilities, and driving service providers. Automotive data processors must comply with the provisions of these regulations when processing personal data and important data related to the design, manufacture, sale, use, operation, or maintenance of vehicles. Automotive data processors must report annually to the relevant authorities on “data security management”.
It remains to be seen how the new laws and regulations will be implemented in practice. However, it is foreseeable that numerous additions will be introduced in the area of data protection. This trend can already be observed in the area of cybersecurity. After the adoption of the Cybersecurity Law, numerous regulations and national standards were issued. The competent authority CAC is actively enforcing the law.
A case in point was the launch of the cybersecurity review of Chinese ride-hailing company Didi in early July 2021(China.Table reported). Shortly after its IPO in New York, the CAC published a draft revision of the cybersecurity review rule. According to the draft, a foreign IPO will now be subject to cybersecurity review if the company stores data of more than one million users. Foreign IPOs of Chinese companies could thus certainly become more difficult in the future.
Outlook and conclusion
The tightening of data protection legislation in China will pose a challenge to compliance regimes for China-related companies. Due to higher legal requirements, listed companies in China – including their foreign subsidiaries – are strongly affected. To reduce compliance risks, German companies with subsidiaries in China must also be fully prepared. In the event of a breach, there is not only the threat of penalties such as fines, but also the impairment of business activities. In particular, attention should be paid to whether the company or its business partner is classified as an “operator of critical information infrastructure” and whether the company processes “important data”. Internal company rules should be adapted accordingly to the new data protection provisions without delay.
Quo vadis: With DSL, the legal anchor in the area of data protection has been set in China. Certainly, further concretization of the implementing measures will follow in the coming years. The legislator’s goal is also certain: maximum security for China-related data. What is not certain, however, is how far the tightening will go. Businesses and companies will certainly face further challenges in this regard in their activities in China.
Jiawei Wang LL.M. is Legal Counsel at Rödl & Partner in Stuttgart and responsible for the China Desk. He studied law in Shanghai and Heidelberg and is admitted to practice in the People’s Republic of China as Lü Shi (lawyer under Chinese law). Wang represents, among others, German industrial companies in contract negotiations and in legal disputes with Chinese business partners. He also specialises in providing comprehensive advice to companies and managing directors on issues relating to Chinese labour law and in the areas of company compliance and white-collar crime.
Cybersecurity
Data
Internet
Technology
Executive Moves
Conglin (Forrest) Deng (38) has been elected chief executive of Moxian with immediate effect. Previously, Deng was appointed as director of the internet media marketing service provider in Hong Kong. Since 2016, he was responsible for managing its blockchain and bitcoin mining-related investments as the General Manager of Beijing Jiuteng Investment Limited. Prior to this position, he co-founded a company focused on online gaming and game publishing. Deng majored in English at the Beijing Foreign Language University.
Thierry Colin, previously chief financial officer for Burberry in New York, is the new chief executive officer at Gabriela Hearst. According to his LinkedIn profile, Colin has also been Brioni’s president in the Americas. Before that, he served as general manager for Bottega Veneta in China, and a clutch of other Asian markets, and regional CFO for Fendi in Asia-Pacific and China. A graduate in finance and economics from elite French school Sciences Po, Colin started his career in 1998 at Hermès International in New York as an internal auditor, moving over to management consultancy Capgemini in 2004.
Dessert
These two children from Lincheng baked moon cakes for the Chinese Moon Festival. With sweet or savory fillings, they are eaten as dessert when the families watch the full moon together. One legend is not only about love, but also about climate change: according to this legend, a terrible threat terrified the world. Ten suns had appeared in the sky and threatened to dry up the earth. But the archer Hou Yi managed to shoot down nine of these suns with his bow and arrow. In return, he received an immortality potion, but his girlfriend Chang Er tasted it without permission and was banished to the moon forever. Only once a year, at the Moon Festival, are the lovers allowed to meet again.
Evergrande reveals weaknesses of the Chinese economic system
Is the land Silk Road an alternative to sea shipping?
China’s TikTok sets time limit for children
Guterres warns of Cold War between China and US
Beijing reassures Wall Street investors
Number of new Covid infections in Fujian drops
Cargo vessel docks successfully with Tianhe space station
Tools: What the new Data Security Law means for German companies
Dear reader,
The impending bankruptcy of Chinese real estate giant Evergrande is causing unrest far beyond China’s borders. Their debt of the equivalent of €250 billion brings back dark memories. Some people see parallels to the U.S. banking crisis of 2008 or the Asian crisis of 1997. Frank Sieren analyzes the true dimensions of the Evergrande case for you – and explains why there is no risk of a collapse or even a global financial crisis. Nevertheless, this case clearly shows one thing: the weak points of China’s financial and economic system.
Another global problem is the current container deadlock at ports. Many industries suffer from a shortage of materials and supplier parts, production facilities are at a standstill, and store prices are rising. How fortunate that China’s state media are announcing a supposed remedy: the increasingly expanded freight railway between the People’s Republic and Europe as part of the prestigious “Belt and Road” initiative. Finn Mayer-Kuckuk has taken a closer look at the potential of the land Silk Road and comes to the conclusion: Even if land routes have gained recent importance, they will not be able to replace sea freight traffic.
I hope our latest issue will provide you with many new insights!
Evergrande is not only one of the largest privately-held companies in China, but also one of the most over-indebted corporations in Asia. Its debt amounts to the equivalent of €300 billion, which is roughly equivalent to the national debt of the whole of Portugal.
The stock price of the Hong Kong-listed real estate developer conglomerate has dropped by around 75 percent since the beginning of the year. Some corporate bonds are trading at only one-third of par. Rating agency Standard & Poor’s has since downgraded Evergrande’s credit rating and its subsidiaries to the third-lowest grade of “CC” due to tight liquidity, declining sales, and deferred payments. Xu Jiayin, who founded the group in 1996, was already forced to withdraw from operational business in mid-August – most likely due to pressure by Beijing (China.Table reported).
A major factor of uncertainty is the number of obscure holdings of the Evergrande conglomerate, which invested in various areas from e-mobility to professional soccer. The loans and mutual financial obligations to more than 200 subsidiaries are almost impossible to keep track of.
After a price drop of more than 20 percent, the trading of the bond, which matures in May 2023, was suspended on the Shenzhen Stock Exchange. The price of the Shanghai-traded bond, which matures in May 2024, fell more than 20 percent. In total, Evergrande has 24 bonds outstanding, worth $26.6 billion. Repayments of about $7.7 billion are due in 2022. In 2023, the figure is $8.6 billion. The risk here is not only default but also interest accruing. This month alone, Evergrande has to pay $129 million in interest. If the company fails to meet its interest payments, this would be considered a default by the rating agencies.
Rescue operations are underway
The company must make interest payments of $83.5 million on a dollar bond and ¥232 million ($36 million) on a local bond on September 23, Bloomberg reports. Evergrande is also already negotiating with domestic lending institutions for possible deferrals or rescheduling of loans, just like a normal debtor. Major state-owned banks such as ICBC, AgBank, and China Minsheng are among its biggest creditors.
Evergrande has hired Houlihan Lokey and Admiralty Harbour Capital to review “all possible solutions” to its liquidity problems, and videos are circulating on the internet showing protests outside the company’s headquarters in the southern Chinese metropolis of Shenzhen. The Evergrande conglomerate accounts for around 3.8 million jobs, 200,000 of them directly. Around 1.5 million Chinese have made down payments for non-existing apartments.
Manageable economic impact
Nevertheless, the economic impact on China will not be as great as the West fears, where it is already being compared to the US banking crisis of 2008 or even the Asian crisis of 1997. Although Evergrande is one of China’s three major real estate developers, it only has a four percent market share. The real estate market, in turn, accounts for 14 percent of China’s GDP, according to calculations by US rating agency Fitch. That compares with a 17.6 percent share in the US. In the event of a total collapse, Evergrande’s impact on the economy would therefore amount to just 0.56 percent of China’s GDP.
At this point, authors of horror scenarios cite Evergrande’s total debts, which amount to two percent of Chinese GDP. But the debts will not all fall due immediately. And a total collapse can be ruled out since, unlike Germany’s bankrupt Wirecard, for example, the company owns valuable assets such as land and real estate. Evergrande’s land reserves alone are worth about €60 billion, which can be sold to make repayments. While that’s not nearly enough to service all of its liabilities, it may be enough to strike a deal with creditors and avert bankruptcy. In any case, over 70,000 investors, including many Evergrande employees, have bought into Evergrande. Approximately €5.2 billion are now due for these products, writes business portal Caixin.
Evergrande is now offering investors to choose between discounted apartments, office and retail space, or parking garages (China.Table reported). This means they will at least get back part of their investment. Even a default of 50 percent on loans – which would already be very high – would only amount to less than 0.3 percent of the Chinese economy.
Real estate market remains stable
Even if, like Harvard professor Kenneth S. Rogoff and Yuanchen Yang of Beijing’s Tsinghua University did, the Evergrande case were to be played out in a worst-case scenario where the real estate industry’s share of GDP would double, the risk would still remain manageable. The authors assume the following development in their worst case: If real estate investment and the market collapse by 20 percent, GDP growth will shrink by five to ten percent.
The reason for this is obvious: only about 25 percent of the Chinese population belongs to the middle class. In the US it is more than 50 percent and in Europe almost 70 percent. It took China around 20 years of growth to achieve this proportion. In the meantime, growth is slowing down. As a result, it is very likely that it will take another 30 years before 50 percent of the Chinese population belongs to the middle class. This is why residential real estate will remain a scarce commodity for the foreseeable future – even though China builds about 15 million new homes every year. That is more than five times as many as in the US and Europe combined, whose housing infrastructure is already developed.
But sometimes even a drop can make a barrel overflow, a manageable bankruptcy could trigger a major crisis. Accordingly, the question arises whether the Chinese state-owned banks will be able to cope with the defaulting loan repayments at all?
Here, the answer is yes. The ratio of non-performing loans (NPLs) in China stood at 1.8 percent in July. For years, the government has been working to reduce these NPLs. In 2005, they still stood at a whopping 12.4 percent. Although they rose again in the wake of the Covid crisis, they have remained at a very low level.
The trends are well known on the stock market. That is why there is no sign of fear in the markets: The Shanghai Composite Index is higher than it has been since the beginning of 2016 – and has even been gaining strength against the US dollar since September 15. No sign of the Evergrande crisis. “We currently assume that the government in Beijing is deliberately letting air out of the real estate bubble – for example by making loans more expensive,” believes Volker Treier, head of foreign trade at the Association of German Chambers of Industry and Commerce (DIHK). He expects a “soft landing”.
Not comparable with the US financial crisis
The differences to the US banking crisis and the 1997 Asian crisis, which are now brought up, again and again, are great: in the case of the US crisis, policymakers were taken by surprise. The Evergrande crisis has been triggered by the government itself by tightening the framework conditions for real estate companies and banks earlier this year.
With Evergrande, Beijing now apparently wants to make an example. Large companies should not be able to rely on being “too-big-to-fail” – that is, too large to go bankrupt. The state wants to develop a more social market economy, and thus pursues three goals: Banks and real estate developers should bear their own risks; housing must remain affordable, and it must represent a stable investment.
The even bigger difference to the US crisis: in the US, people who couldn’t afford houses took out huge loans, without equity, without having to pay interest, and with no limit on the number of homes. That’s not the case in China. Interest rates are high. The government has raised them again this year. Rates are currently 5.33 percent for the first apartment and 6.61 percent for the second. Equity of at least 30 percent is required, and in some cities like Shanghai, it can go up to 70 percent. What’s more, the purchase of apartments is limited to two per household. Even divorced couples have to wait three years.
In the Asian crisis, the problem was yet different: companies, including real estate groups, borrowed money in US dollars on international financial markets but generated their revenues in their local currency. As international investors lost confidence in the economy, the local currency lost value and US debt rose to such dramatic proportions that companies could no longer service it. Such a development is not possible in China because, firstly, its currency is hardly tradable internationally and, secondly, China has hardly any foreign debt. It is true that among the ten largest shareholders of the Evergrande Group are some Western fund companies such as Vanguard and BlackRock. However, they only hold 0.63 and 0.25 percent, respectively, and have already started to reduce their Evergrande holdings some time ago.
China’s weaknesses are obvious
Nevertheless, there are three major systemic weaknesses affecting the role of real estate in China’s economy.
The first: Residential real estate accounts for about 70 percent of the wealth of Chinese living in cities. For Americans, the figure is only 35 percent. That’s why Beijing is opening its market to international asset managers like BlackRock or Goldman Sachs, which are even allowed to set up majority joint ventures. They have the know-how to diversify assets.
The second problem is that apartments are too expensive, with peak values of more than 40 average annual salaries. In Shenzhen in southern China, the figure is as high as 43.5. Here, too, the government must intervene – and is already doing so by launching large social housing programs and forcing real estate developers to offer some apartments below market price.
The third and probably the biggest problem: The highly indebted municipalities live off plot sales. That means they have a high interest in widespread building, and local banks are lending accordingly. Here, too, the central government must put the brakes on and create alternatives for the municipalities. One possibility would be a real estate tax. The taxes in Shanghai, for example, are only between 0.4 and 0.6 percent. Even in the US, they are more than 2.1 percent.
All in all, the situation is quite serious – but not as serious as to fear a collapse, especially since the government still has some corrective measures at its disposal. It now depends on the extent to which the government succeeds in getting the real estate sector and the banks to show more discipline.
Evergrande
Finance
Real Estate
Will the Land Silk Road beat the container ship?
The first containers from Xi’an arrive in Mukran on the island of Rügen. Cargo ships of the shipping company BREB bring the cargo over from the Russian port of Baltiysk (archive image from 2019).
Der Mangel an Container-Kapazitäten belastet weiterhin den Welthandel (China.Table berichtete). Grund sind vor allem Engpässe in den Häfen. Chinesische Staatsmedien propagieren in den vergangenen Monaten die vermeintliche Lösung in Gestalt der Land-Seidenstraße und schüren gezielt die Hoffnung, dass die immer besser ausgebauten Schienenverbindungen für Güterzüge zwischen China und Europa zur Entlastung der Seestrecken beitragen könnten. Diese Erzählung wird begleitet von Erfolgsnachrichten des Prestigeprojekts der Neuen Seidenstraße (Belt and Road Initiative, BRI).
Experts agree, however, that although the land connection is gaining in importance, it will have little practical effect on the current problems. “Rail transport can of course provide a small amount of relief. But it is not big enough to really solve the problem,” Holger Görg, head of the International Trade and Investment Research Department at the Kiel Institute for the World Economy (IfW), tells China.Table.
The Land Silk Road has increased the rail network enormously, but rail transport also suffers from bottlenecks, Görg said. These include, for example:
Transhipments at the border, where the tracks do not continue with the same gauge. In Kazakhstan, Belarus and Russia, the rails are 1.52 metres apart, in the EU they are 1.435 metres apart.
A costly alternative is gauge change, in which the axles of the wagons adapt to the new track width.
Changes of personnel are also often necessary at the borders.
Passenger trains often have priority on the shared tracks.
The ship beats the train 20,000 to 40
Much more decisive as a bottleneck, however, is the fundamentally much smaller capacity of trains compared to ships. The operators of the Silk Road routes on land were able to announce last year that for the first time they had transported more than 100,000 standard containers within one month. But that is only as much as can fit on five container ships. Moreover, hundreds of these are constantly on the move on the world’s oceans. Only about 40 containers fit on one train. On a ship, up to 20,000.
So even though twice as many containers are moving by rail as in the previous year, the relief is limited in the short term. The train continues to be primarily a means of transporting groups of goods that need to reach their destination more quickly at a higher price.
Yet relief would be most welcome. The British magazine “Economist” is already asking: “Will the continued disruptions shift trading patterns?” Container shipping companies have suffered one disaster after another since the pandemic began. China’s authorities have repeatedly curtailed operations at major ports after workers contracted Covid-19(China.Table reported). In between, a ship got stuck in the Suez Canal, triggering a backlog around the planet. Currently, frequent typhoons are disrupting operations – a result of climate change.
The logisticians have not had a chance to get the cargo ship traffic back on track since spring 2020. Every small irregularity has knock-on effects that disrupt the fragile fabric again. The irregularities contribute to the shortage of supply parts and goods from East Asia. Moreover, as container space is scarce, prices are rising. The corresponding index is currently three times higher than a year ago and five times higher than before the pandemic. The container shortage is a real problem for the economy.
High investments increase rail capacity
But even if rail transport will bring little relief in the current crisis, it could still compete with shipping in the long term. The “Eurasian Railway Alliance”, through which about half of the freight train traffic from China to Europe rolls, wants to significantly expand its capacities. By 2025, the volume of container transport by rail between Asia and Europe is to rise to one million standard containers. The strong increase in freight traffic as a result of the pandemic in particular is seen by Allianz as a strong sign that further investment is worthwhile.
The driver of the trend is, of course, Beijing. “China is investing heavily in rail infrastructure,” says economist Görg of the IfW. Official Chinese statistics show: There were around 12,400 international rail connections from China at the beginning of the year – in 2015 there were fewer than 1,000. “And this positive trend is likely to continue in a similar way in the foreseeable future,” says Görg.
Shipping company BREB sees freight train traffic on the verge of a boom
German companies with links to the Land Silk Road are pleased with the trend and expect further strong growth. “Looking back, the Land Silk Road has developed magnificently,” says a spokeswoman for BREB, a shipping company from Bremen (formerly Eilemann & Bischoff). BREB receives many Silk Road containers in Baltic ports that have come to Europe via the land route. Since this spring, a complete train from Xi’an has been arriving daily in the Russian port city of Baltiysk, east of Gdansk.
In Baltiysk, ships from BREB take over the Conatiners and bring them to Mukran on the island of Rügen. There they are loaded onto the train and roll into the German hinterland. The shipping company continuously uses two ships for this shuttle service, the “BREB Mukran” and the “BREB Bylktiysk”. The two freighters now also take on containers in Sweden for loading in the direction of China. “Cargo volumes via the Land Silk Road continue to grow steadily,” BREB observes. “At this stage, there is no end in sight.”
The train remains faster, but more expensive
From the point of view of the shipping company BREB, the higher speed of the train connection is particularly decisive: “Transit time has become a decisive factor.” The deep-sea routes continue to be burdened with uncertainties, “while the transit time on the overland Silk Road remains the same at plus/minus one to two days.”
At present, rail offers are even cheaper than freighter offers in individual cases. However, land transport will remain more expensive in the long term. Ships simply transport very, very many containers at once. “True, the price difference has narrowed due to the extreme increase in freight rates by sea,” Lars Jensen, CEO of consultancy Vespucci Maritime in Denmark and one of the leading experts on container logistics, tells China.Table. But with demand now going up, so are freight rates by rail. “When the congestion at the ports clears, we will see a normalization.”
Görg confirms the assessment that the advantage for rail will dwindle again once the pandemic is over. “One should not forget the reason for the current capacity problems of maritime transport,” says Görg. Closures of container terminals as a result of Corona outbreaks can also happen to rail transport. “Perhaps even more frequently there, as many borders have to be crossed.”
IfW
New Silk Road
Trade
News
Douyin limits usage time for teens
Douyin, the Chinese version of the short video app TikTok, is restricting the time children under 14 are allowed to use the app. In the future, the time should only be 40 minutes per day. Between 10 PM and 6 AM., young people will then no longer be able to access Douyin at all. Douyin operator ByteDance also announced a “youth mode” for children under 14, which would only provide users with “healthy”, curated content.
China’s leadership recently limited the amount of time young people are allowed to play online to three hours a week (China.Table reported). This is intended to curb dangers such as video game addiction.
Until now, young people were able to circumvent the time restriction on ByteDance’s short video platform, as many users were not required to sign in with their real names. Now parents are supposed to confirm their children’s identities so that the app can also identify them.
The new restrictions come at a time when Beijing is trying to impose tighter controls on its big tech companies after years of unchecked growth. On ByteDance’s sites and games, algorithms recommend content to keep users on the platforms longer and then serve them ads, this move is a significant restriction on its successful business model. niw
ByteDance
Children
Chinese Communist Party
Douyin
Tiktok
UN Secretary-General Guterres appeals to China and the USA
UN Secretary-General Antonio Guterres has made a strong appeal to China and the US, urging them to repair their “totally dysfunctional” relationship before their problems spread to the rest of the world. “We need to avoid at all cost a Cold War that would be different from the past one, and probably more dangerous and more difficult to manage,” the UN secretary-general warned.
Prior to the next UN summit, Guterres called on the two leading economic powers to work together on climate protection and negotiate more intensively on trade and technology – regardless of their disputes over human rights, economic policy, online security, or sovereignty in the South China Sea. “Unfortunately, today we only have confrontation,” Guterres told Associated Press over the weekend.
The UN secretary-general stressed the “need to re-establish a functional relationship between the two powers,” calling them “essential to address the problems of vaccination, the problems of climate change and many other global challenges, that cannot be solved without constructive relations within the international community and mainly among the superpowers.” rad
Climate
Geopolitics
South China Sea
United Nations
Beijing assures Wall Street of further openings
A top Chinese official has assured U.S. financial regulators that the crackdown by China’s regulators is not aimed at decoupling from the U.S. or international financial markets.
Rather, the goal of these measures is to better regulate consumer-oriented platform companies as they play a key role in promoting “common prosperity” and reducing wealth inequality, Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC), said at a private meeting, according to guests.
“I don’t think you can find a government anywhere in the world that is as positive and as focused on technology as China,” Fang said at the fifth China-U.S. Financial Table (CUFR) last week. As an example, he said Beijing was expected to approve a record number of initial public offerings this year and that the majority of companies going public in China would be private companies, according to two attendees, quoted by Reuters.
Although tensions between China and the US on issues ranging from trade to geopolitics have increased recently, Beijing began opening up China’s financial sector to US companies in recent years. But recent measures, including crackdowns on internet companies, profit-oriented education, online gaming, and excesses in the real estate market, as well as a drive for “common prosperity” to reduce inequality, have raised concerns among a large number of foreign investors. Now, state media and officials are stepping up efforts to reassure markets. China’s Vice Premier Liu He said earlier this month that the government would continue to support the private sector (China.Table reported).
In any case, Fang’s statements at last weekend’s CUFR meeting were said to be welcomed by Wall Street officials, according to an attendee. The CUFR, formed in 2018 amid escalating tensions between the world’s two largest economies, last met virtually in October 2020 after meeting twice in person the year before the Covid outbreak. niw
CSRC
Finance
Liu He
Covid infections drop in Fujian
Hope is spreading in Fujian. On Sunday, only 28 new Covid infections were recorded in the Chinese province. It’s the lowest figure in a week – and a sharp drop from the 43 infections recorded the day before. Fujian has been hit particularly hard by the spread of the delta variant, which was first diagnosed in the province on September 10 (China.Table reported). Since then, 363 new infections have been registered in Fujian alone, although no deaths have been reported.
At a press conference, Fujian authorities said 92 children under 14 had to be hospitalized, 81 in Putian, 11 in Xiamen. No further details were provided, but it is clear that eight preschool children are among them and 28 primary school students from Putian. In China, children as young as 12 are being vaccinated. rad
Coronavirus
Delta
Health
Cargo spacecraft docks with space station
China is one step closer to its plan to complete its space station by the end of the year. A Chinese resupply spacecraft carrying robots docked with an outpost in space on Monday during the 4th of 11 missions (China.Table reported).
A Long March-7 rocket carrying the Tianzhou-3 spacecraft launched from the Wenchang Space Launch Center on the southern island of Hainan, according to China’s state media. Tianzhou-3 will deliver fuel and supplies for three astronauts scheduled to travel to the Tianhe module in October. Their planned six-month stay would be the fifth consecutive mission and the last planned for this year.
Next year, China will launch two additional core modules for the Wentian and Mengtian space stations on Long March-5B rockets. They are China’s most powerful spacecraft.
China began construction of the three-module Tianhe space station back in April. Last week, a three-month manned mission ended. Once completed, the station willrival the International Space Station (ISS) (China.Table reported), which is supported by nations including the United States, Russia, and Japan. China was barred by the United States from participating in the ISS. niw
Aerospace
Science
Technology
Tools
The Chinese data security law – more security or more challenge?
By Jiawei Wang
In order to be able to ensure compliance with the new regulations on handling data in China and when transferring data abroad, the companies concerned should quickly get to grips with the Data Security Act. After all, non-compliance can result in heavy penalties for companies; their representatives may face criminal prosecution.
Historically, the DSL caps a series of actions by Chinese lawmakers in recent years. In 2017, the Cyber Security Law (CSL) set the course for data handling requirements for critical information infrastructure (CII) operators for the first time in the history of the People’s Republic. Since then, the National Internet Information Administration (“Cyberspace Administration of China”, or “CAC”) has played a central role in concretizing legal measures. With the 2019 draft regulation, there has been a drastic tightening and expansion of the security assessment obligation.
Network and information security upgrade
Das neue DSL der chinesischen Gesetzgeber stellt ein systematisches “Upgrade” im Bereich Netzwerk- und Informationssicherheit sowie der Sicherheit von persönlichen Daten dar. Bemerkenswert ist vor allem der geographische Anwendungsbereich. So schreibt § 2 des neuen DSL vor, dass das Gesetz nicht nur für Datenverarbeitungstätigkeiten innerhalb Chinas, sondern auch für Datenverarbeitungstätigkeiten außerhalb Chinas gilt, wenn die nationale Sicherheit oder das öffentliche Interesse Chinas gefährdet sind.
The strong linkage with the CSL cannot be overlooked in the new DSL. Accordingly, the CSL’s security management provision continues to apply to the export of data collected or produced by operators of critical information infrastructures within Chinese territory. As an innovation, a uniform procedure in relation to security review, known as security assessment, has been created in Section 24 of the DSL. However, the scope of application and procedural details are currently unclear. Furthermore, the relationship between the data security assessment and the cybersecurity assessment also remains to be clarified.
Attention should be paid to the – quite drastic – penalties for identified violations. The legal consequences include civil liabilities, administrative penalties (e.g. fines and revocation of the business license) as well as criminal liabilities.
In parallel to the DSL, another new law is considered a key element in the field of data security: the Personal Data Protection Act, which will come into force on 1 November 2021. Data processors of personal data must comply with various compliance obligations. Similar to the DSL, the Personal Data Protection Act is also applicable extraterritorially. This set of rules is similar in many ways to the European Union’s General Data Protection Regulation GDPR; however, it is much stricter in terms of protecting public safety.
Automotive industry in focus
Legislation in individual industry sectors is also noteworthy: Interim regulations for data security management in the automotive industry will take effect on October 1, 2021. These regulations affect so-called automotive data processors, i.e., automobile manufacturers, parts and software suppliers, dealers, repair facilities, and driving service providers. Automotive data processors must comply with the provisions of these regulations when processing personal data and important data related to the design, manufacture, sale, use, operation, or maintenance of vehicles. Automotive data processors must report annually to the relevant authorities on “data security management”.
It remains to be seen how the new laws and regulations will be implemented in practice. However, it is foreseeable that numerous additions will be introduced in the area of data protection. This trend can already be observed in the area of cybersecurity. After the adoption of the Cybersecurity Law, numerous regulations and national standards were issued. The competent authority CAC is actively enforcing the law.
A case in point was the launch of the cybersecurity review of Chinese ride-hailing company Didi in early July 2021(China.Table reported). Shortly after its IPO in New York, the CAC published a draft revision of the cybersecurity review rule. According to the draft, a foreign IPO will now be subject to cybersecurity review if the company stores data of more than one million users. Foreign IPOs of Chinese companies could thus certainly become more difficult in the future.
Outlook and conclusion
The tightening of data protection legislation in China will pose a challenge to compliance regimes for China-related companies. Due to higher legal requirements, listed companies in China – including their foreign subsidiaries – are strongly affected. To reduce compliance risks, German companies with subsidiaries in China must also be fully prepared. In the event of a breach, there is not only the threat of penalties such as fines, but also the impairment of business activities. In particular, attention should be paid to whether the company or its business partner is classified as an “operator of critical information infrastructure” and whether the company processes “important data”. Internal company rules should be adapted accordingly to the new data protection provisions without delay.
Quo vadis: With DSL, the legal anchor in the area of data protection has been set in China. Certainly, further concretization of the implementing measures will follow in the coming years. The legislator’s goal is also certain: maximum security for China-related data. What is not certain, however, is how far the tightening will go. Businesses and companies will certainly face further challenges in this regard in their activities in China.
Jiawei Wang LL.M. is Legal Counsel at Rödl & Partner in Stuttgart and responsible for the China Desk. He studied law in Shanghai and Heidelberg and is admitted to practice in the People’s Republic of China as Lü Shi (lawyer under Chinese law). Wang represents, among others, German industrial companies in contract negotiations and in legal disputes with Chinese business partners. He also specialises in providing comprehensive advice to companies and managing directors on issues relating to Chinese labour law and in the areas of company compliance and white-collar crime.
Cybersecurity
Data
Internet
Technology
Executive Moves
Conglin (Forrest) Deng (38) has been elected chief executive of Moxian with immediate effect. Previously, Deng was appointed as director of the internet media marketing service provider in Hong Kong. Since 2016, he was responsible for managing its blockchain and bitcoin mining-related investments as the General Manager of Beijing Jiuteng Investment Limited. Prior to this position, he co-founded a company focused on online gaming and game publishing. Deng majored in English at the Beijing Foreign Language University.
Thierry Colin, previously chief financial officer for Burberry in New York, is the new chief executive officer at Gabriela Hearst. According to his LinkedIn profile, Colin has also been Brioni’s president in the Americas. Before that, he served as general manager for Bottega Veneta in China, and a clutch of other Asian markets, and regional CFO for Fendi in Asia-Pacific and China. A graduate in finance and economics from elite French school Sciences Po, Colin started his career in 1998 at Hermès International in New York as an internal auditor, moving over to management consultancy Capgemini in 2004.
Dessert
These two children from Lincheng baked moon cakes for the Chinese Moon Festival. With sweet or savory fillings, they are eaten as dessert when the families watch the full moon together. One legend is not only about love, but also about climate change: according to this legend, a terrible threat terrified the world. Ten suns had appeared in the sky and threatened to dry up the earth. But the archer Hou Yi managed to shoot down nine of these suns with his bow and arrow. In return, he received an immortality potion, but his girlfriend Chang Er tasted it without permission and was banished to the moon forever. Only once a year, at the Moon Festival, are the lovers allowed to meet again.
