Pharmaceutical company develops pill against Covid
Major banks feel dependence on China
Baltic delegation in Taiwan
Joint Audi and FAW project delayed
Deutsche Bahn bundles Silk Road business
Solidarity with Covid blogger Zhang Zhan
Disney+ censors Simpsons episode
Profile: China pioneer Juergen Kracht from Fiducia
Dear reader,
Covid numbers are currently skyrocketing in Germany. Every day, the Robert Koch Institute announces new highs. In China, too, the incidence has risen in twenty provinces as a result of the latest outbreak – to 0.004. So it seems like the situation is currently under control. In their analysis, our Beijing author team notes that Xi Jinping’s decision-makers nevertheless do not play to deviate from the strict zero-covid strategy. Experts predict that a sudden drop of restriction would lead to a flare-up of the pandemic.
There is now virtually only one way out of sharp Corona measures: New medication that could treat the disease despite a spread of the pathogen. Chinese companies are therefore researching at full speed on an intravenous agent or anti-Covid pills. First test results already show promise.
It was a joke that almost got stuck in the throat of the head of JP Morgan. His humorous prediction that his bank would last longer than the equally old Communist Party caused great shock – both in China and among his investors. Ning Wang takes this anecdote as an opportunity to show how great the dependence of Wall Street banks on the goodwill of Beijing‘s leadership has become in the meantime. Stunningly, Beijing’s influence is increasing even further as a result of the liberalization of the Chinese market.
Your Michael Radunski
Feature
Covid medication as a way away from zero covid
With the rapid global spread of the new Omicron virus variant, China sees its strict zero-covid strategy confirmed. “If the Omicron variant launches a new wave of attack, it is China that will be best able to block its invasion,” state-run newspaper Global Times commented on Monday, almost sneeringly. China has become an “impregnable fortress” against the spread of the virus.
In fact, China has succeeded in keeping the infection largely at bay through strict measures (China.Table reported). Hotel quarantines of several weeks, which everyone who wants to enter the country has to endure, have proven to be particularly effective in preventing new variants. The readiness to send regions into lockdown on short notice also helps the authorities to keep the situation under control. Mass testing is another tool. In the most recent Covid wave, which has manifested itself in infections in more than 20 provinces since October, the number of new cases per day averaged less than 50 – an incidence of less than 0.004, in other words.
Mortality rate is decisive
Although criticism of such strict measures is also mounting in China (China.Table reported), it seems clear: China is not willing to change its approach as long as it would have to accept even remotely as many infections and deaths as is apparently considered acceptable in the West. In November, China’s top virologist, Zhong Nanshan said that China would only consider lifting restrictions at a mortality rate of 0.1 percent.
In addition to an almost fully vaccinated population, an effective anti-covid drug will likely be required to meet this goal. The US company Pfizer recently announced that its new Covid pill, Paxlovid, was able to reduce the risk of hospitalization or death by 89 percent. This was on the condition that the drug was administered within three days of the onset of symptoms. Shortly before, competitor Merck had announced the anti-Covid pill Molnupiravir, which was able to cut deaths in high-risk patients by half in a clinical trial.
China’s patchy health system
Chinese companies are also making steady progress in researching Covid drugs. According to authorities, both intravenous agents and several anti-Covid pills are in the works. High hopes have recently been raised, for example, by a compound by Kintor Pharmaceutical, a pharmaceutical company based in the eastern Chinese city of Suzhou. An initial study of Kintor’s anti-Covid pill, presented in May, found that the drug reduced deaths among Brazilian hospital patients by 77 percent. At the time, however, some experts called the results “too good to be true.” The results of final clinical tests are expectedbefore the end of December, according to Kintor.
In any case, Kintor CEO Tong Youzhi is convinced that his drug will make a breakthrough and help China return to normalcy. “The urgency for effective Covid drugs is no less in China than elsewhere if we want to regain our pre-pandemic life.,” Tong told Bloomberg. Without an effective drug, China’s patchy healthcare system will be quickly overwhelmed should the borders be opened, believes Tong, whose company has seen its value on the Hong Kong stock exchange increase more than six-fold this year.
No alternative to vaccination
In fact, according to health experts, China could be hit particularly hard in the event of an uncontrolled outbreak for two reasons: First, hardly any Chinese had contact with the coronavirus, which is why there is virtually no natural immunity. In addition, Chinese vaccines are considered less effective than their Western counterparts.
Still, officials also say that an effective covid drug could prompt China to ease the measures to some degree. An effective treatment method could be “a decisive factor” in such considerations, Gao Fu, director of China’s Center for Disease Control and Prevention, said in an interview with state media back in September. In combination with vaccinations, drugs would help in the transition to coexistence with the virus.
Covid pills, however, could certainly not replace vaccines, warned Chinese immunologist Zhuang Shilihe. Even if antiviral drugs make it to market, it would still be necessary to promote vaccination and booster shots, as medication alone cannot reduce the risk of infection, Zhuang said. Jörn Petring/Gregor Koppenburg
It was supposed to be a joke, and it began in a very stately manner: “The Communist Party is celebrating its 100th year. So is JPMorgan,” said Jamie Dimon. After all, US bank JP Morgan Chase is celebrating its 100th anniversary in China this year. But what Dimon then added turned the line into a disaster. “And I’ll make a bet we last longer.” he added with a chuckle, “I can’t say that in China, they probably are listening anyway.”
Dimon’s careless words were a colossal miscalculation – but his assumption that China was listening in was spot on. The very next day, he was forced to apologize publicly: “I regret and should not have made that comment. I was trying to emphasize the strength and longevity of our company,” Dimon clarified in a statement. And his remorse extends even further: “I regret my recent comment because it’s never right to joke about or denigrate any group of people, whether it’s a country, its leadership, or any part of a society and culture,” Dimon added.
A public comment questioning the political survival of the Communist Party is taboo for multinationals these days. “Dimon’s apology shows the degree of deference foreign businesses have to show to the Chinese government to remain in its good graces and maintain access to the country’s markets,” Eswar Prasad, a professor at Cornell University, told US financial network CNBC.
Dimon’s remarks were made at a Boston College event. The audience in the room and on social media was particularly eager to hear what he had to say about the Chinese market. After all, Dimon had come under fire a few days prior when he claimed special treatment when entering Hong Kong, where he was allowed to bypass the three-week quarantine rule for a one-day trip to the financial capital. Hong Kong’s Chief Executive Carrie Lam justified the preferential treatment of the top executive with the position of his bank, which conducts “key business” in Hong Kong.
Market reform as a strategy of tighter control over banks
Lam’s statement says a lot about the financial relationship between Washington and Beijing. Wall Street banks are looking to expand their business in China. They are especially chasing after the wealth of the Chinese middle class. Beijing, in turn, wants to use the resulting dependencies to soften political sanctions and also better present itself on the global stage.
Global financial centers should support cross-border financing “instead of becoming platforms and instruments that governments use to sanction other countries”, said Yi Huiman. He is chairman of the China Securities Regulatory Commission (CSRC). He made the statement in September at a conference organized by the World Federation of Exchanges. Yi thus criticized the United States without explicitly calling it by name.
China’s tougher stance against American financial institutions is also a reaction to aggressive US trade policies. Donald Trump tried to force foreign companies out of US stock exchanges by law: Suddenly, they had to prove they were not under the control of a foreign government. The law was broadly worded, but Trump had clearly targeted Chinese companies. And his successor, Joe Biden, has so far not significantly softened his predecessor’s China course.
So now follows China’s retaliation. While it is true that Beijing has significantly improved access to its financial market since 2018. This has primarily led to banks being able to expand their business in China – which in turn is now increasing their uncertainties. After all, it is now far from certain that China’s markets will open up further. By cracking down on private tech companiessuch as ride-sharing service DiDi, internet giant Tencent and e-commerce provider Alibaba, state and party leader Xi Jinping has made it clear that he wants to bring the economy back under political control (China.Table reported).
This caused such huge distress among foreign investors in the summer that Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission, felt the need to calm executives from BlackRock, Goldman Sachs, and other financial institutions at a meeting.
First the invite, then the collar
Beijing is pursuing a dual strategy: On the one hand, it is allowing international institutions to enter its market, where they will contribute to the modernization of the industry. At the same time, however, it wants to ensure that the actions of power-hungry Wall Street bankers are strictly regulated and contained. A thoughtless remark like the one made by JP Morgan CEO Dimon is enough to receive a deafening shot across the bow.
One thing is clear: Despite all the regulatory frenzy, Beijingwants tostrengthen the participation of foreign banks, as they are considered to be important for the development of domestic financial markets. Here, the advocates of opening have indeed gained the upper hand over the hardliners in the party: Last fall, Chen Yulu, Deputy Governor of China’s central bank PBOC, said China had lifted restrictions on foreign ownership in banking, securities, futures, and fund management, and reduced restrictions on shareholder qualifications (China.Table reported).
Since the barriers for foreign financial institutions have been gradually lifted in 2018, Goldman Sachs, Morgan Stanley, UBS, and Credit Suisse have all taken a majority stake in their previous joint ventures in the securities business. Four other banks, such as JP Morgan, the Japanese financial institutions Nomura and Daiwa Securities, as well as DBS Bank from Singapore, have set up their own securities businesses in China, which they either own a majority of or even 100 percent of. European banks are lagging somewhat behind in comparison, with many currently still waiting for approvals by Chinese authorities to set up securities firms – such as the French bank BNP Paribas and the British Standard Chartered.
Rising tensions among foreign investors despite opening
However, finance experts are beginning to urge caution when it comes to the Chinese market. A transparent, open financial market had not yet emerged as a result of the openings. For example, US asset manager BlackRock had to agree to store the data of its Chinese clients in China. Xi’s current campaigns have also tarnished the consistency and predictability of China’s reform policies. Since it’s not clear if and when Beijing will pull the ripcord, company documents state that JP Morgan could lose up to $20 billion in China, Bloomberg reported.
A recent failed deal by investment group Blackstone has once again highlighted the potential risks of doing business in China. The deal fell through despite the fact that the firm’s co-founder, Stephen Schwarzman, had deep enough ties to the country that he was known as former US President Donald Trump’s “China whisperer”. Nevertheless, he failed to acquire the Soho Group’s Shanghai properties from the husband-and-wife team of Pan Shiyi and Zhang Xin for $3 billion, as it was planned.
This puts the global financial institutions in a bind: On the one hand, they are desperate to get involved in one of the world’s largest markets. On the other hand, they have to learn that Chinese rules apply there. And so Jamie Dimon, after his whimsical remark, quickly realized that he doesn’t have much time to clear up any misunderstandings that could affect his bank’s operations in China. This could have otherwise caused quite a mess for his employees and investors.
Chinese Communist Party
Finance
JP Morgan
USA
News
Baltic MPs visit Taiwan
It’s a step that is supposed to show deeper cooperation between the Baltic States and Taiwan: Parliamentarians from Estonia, Latvia, and Lithuania met with Taiwan’s President Tsai Ing-wen on Monday. Tsai personally welcomed the group, which will attend the “Open Parliament Forum” in the coming days. Taiwan and the Baltic States “share similar experiences of breaking free of authoritarian rule and fighting for freedom,” Tsai said on Monday. The democracy they enjoy today had been hard fought for.
They came to Taiwan to express solidarity with the island, said Matas Maldeikis, who heads the Lithuanian delegation. He said he hoped to open a Lithuanian trade office in Taiwan soon. It should help further strengthen the partnership between Taiwan and Lithuania, Maldeikis said, according to Euronews.
A planned joint venture between Audi and FAW in China will apparently only begin operations after a delay. This was reported exclusively by the magazine “Automobilwoche” on Monday. The required license will now be granted at the beginning of December, following an intervention by the German Ministry of Economics in Beijing. Construction of the joint plant could then begin next year, the report continues. The source for this information is not named, however. An Audi spokeswoman told Reuters that there have been delays in the project approval. The company is said to be in ongoing communication with its partner FAW and the authorities. Preparations for the start of construction were continuing.
Audi and FAW intend to jointly produce various Audi electric models in China based on the PPE platform developed jointly with Porsche. The joint venture is to be headed by Audi managerHelmut Stettner, who already has experience in China (China.Table reported). The Germans are to hold a majority stake in the joint venture. Audi and FAW are already producing several EVs in China. rad
Autoindustrie
Railway bundles Silk Road routes
Deutsche Bahn’s freight subsidiary is merging the operation of routes to China into a separate company. DB Cargo Transasia aims to increase the market share of rail on the Far East routes. To this end, the company already has 23 employees at its Shanghai and Xi’an sites. A rapid expansion is planned. The business unit started in 2018 as a liaison office with two employees. The head of DB Cargo Transasia is Frank Schulze, who already assisted in setting up the liaison office. fin
Logistics
New Silk Road
Trade
German support for detained blogger
In a joint effort, journalists and human rights activists have pressed for the release of Chinese Covid blogger Zhang Zhan. On Monday morning, journalists as well as
Amnesty International,
the authors’ association PEN,
Reporters Without Borders,
the German Journalists’ Union and the
German Journalists Association
flooded short message service Twitter withcorresponding posts.
The tweets are coupled with a call on the next German Chancellor Olaf Scholz and his confidant, Wolgang Schmidt, as well as the next German Foreign Minister Annalena Baerbock, and her predecessor, Heiko Maas. The authors and associations urge politicians to plead with the Chinese government on behalf of the citizen journalist. The detained woman has begun a hunger strike and is fighting for her life, according to her family.
Zhang had begun reporting from the city of Wuhan, the pandemic’s ground-zero, in early 2020, shortly after the COVID-19 outbreak. Bypassing state censors, she provided images and impressions that painted a different picture of the situation in the city and of the authorities’ crisis management, contrary to official statements. Zhang was sentenced to four years in prison for her reports. grz
Amnesty International
Annalena Baerbock
Coronavirus
Human Rights
Olaf Scholz
Wuhan
Zhang Zhan
Disney censors Simpsons in Hong Kong
Streaming provider Disney+ has removed China-critical episode from cartoon series The Simpsons from its Hong Kong service. The 2005 episode is about a visit to Beijing by the bug-eyed US cartoon family and draws various satirical connections to the Tiananmen Square massacre, nation founder Mao Zedong or the occupation of Tibet.
The episode, for example, features a memorial plaque whose inscription reminds us that “nothing happened” at the square in 1989. In another scene, main character Homer Simpson stands in front of the laid-out body of state founder Mao Zedong and says, “Look at him sleeping, he’s like a little angel that killed 50 million people.”
An official statement from Disney+ regarding the self-censorship of its program was not yet available on Monday. Although a law has been in effect in China since last month that prohibits the broadcast of films that the parliament considers a potential risk for national security, the law does not apply to streaming services.
However, in July 2020, the National Security Act was introduced in Hong Kong, which, according to legal experts, allows authorities to prosecute any form of political dissent. While the Simpsons episode is not directed at Hong Kong, but rather at the People’s Republic, Beijing’s influence on Hong Kong has increased greatly in the past two years. grz
Censorship
Hongkong
Human Rights
Leak: CP leadership ordered camps in Xinjiang
Xinjiang researcher Adrian Zenz has published excerpts from a series of party documents that allegedly prove the direct involvement of the CP leadership in planning human rights violations in Xinjiang. It is 317 pages of text leaked by an anonymous whistleblower to the organization “Uyghur Tribunal”. Zenz is convinced that the material is genuine. It would prove that China’s President Xi Jinping personally decreed the establishment of camps and the creation of a police state in the autonomous region in a series of top-secret speeches. Xi is also said to have given the impetus for “optimizing the population structure,” a euphemism for forced birth control.
Zenz is controversial for various reasons but has repeatedly caused a stir with explosive analyses of the situation in sealed-off Xinjiang (China.Table reported), which are carefully documented. These newly surfaced documents are classified as “top secret,” according to Zens. In the history of the People’s Republic, party papers with this level of secrecy have never become public. fin
Chinese Communist Party
Human Rights
Xinjiang
Profile
Juergen Kracht – seasoned China pioneer
Jürgen Kracht is founder of Fiducia Management Consultants
Three guiding principles have accompanied Jürgen Kracht since he arrived in Hong Kong almost 50 years ago: “Seek common ground, build personal relationships, and trust your counterpart – but verify.” In the 1980s, former American President Ronald Reagan made the verify part a catchphrase during disarmament negotiations with the Soviet Union. In China, it’s good to trust your business partner and employees, says Kracht. “But Chinese negotiators are proven masters at saying ‘yes.’ Then later you realize that this was actually a ‘no’.” But by then, they’ve already implemented their original plan: “C’est la Vie.”
Born in East Westphalia, he came to Hong Kong in the early 1970s and still knows the People’s Republic from a time when access was only possible twice a year during the major trade fairs in Beijing. Investments did not exist, trade was almost non-existent. Since then, he has experienced the four phases of China’s rise: isolation, opening, boom, and, more recently, isolation again. In 1982, Kracht and his wife founded the consulting firm Fiducia – Latin for “trust” – in Hong Kong. Since then, he has been helping German companies enter the Chinese market.
In the meantime, the 74-year-old has passed on the day-to-day business to his son. However, Kracht continues to provide his analytical view of China’s rise. Learning from the past helps him understand the developments of the present. Four years ago, he wrote a book about 300 years of trade history between Europe and China.
In this broad perspective, Kracht also sees the purpose of China’s isolation in recent years. “In terms of mechanical engineering, China is now largely on a par with Germany. In terms of digital technology, China has long since surpassed us.” The economic policy concept of “dual circulation”, i.e. two circuits with an ever stronger domestic market, will further amplify the trend, predicts Kracht.
For China, it is now a matter of securing the rapid boom and success of the past decades and to decouple itself from imports. This process will have far-reaching consequences. In the course of this development, the Chinese self-perception has already changed: “By now, foreign companies had to learn to treat their Chinese employees or customers as equals – arrogance has no place.” The boom and the wealth of recent years have – understandably – increased national pride. Arrogance like in the past, when China was still seen as a global workbench, is something that foreign companies in China can no longer afford.
In his experience, naivety or arrogance are the most common reasons for the failure of foreign companies in China, reports Kracht. In the coming years, it is likely to become increasingly difficult to strike the right note. Kracht may not be able to foresee the details of the next phase of development. But he does have some important advice for his old home country of Germany: “To keep up with China as a global power, Germany would have to put every available euro into education.” David Renke
Economic policy
Trade
Executive Moves
Jan Timm has taken the position of Materials Requirements Planning Expert at Daimler Greater China’s Zhenjiang site. Previously, he worked in ramp-up management in Germany.
Nils Griesbach, Key Account Manager at Kerry Logistics, has returned to Bremen after five years in Shanghai. Kerry Logistics is a shipping company from Hong Kong.
Pharmaceutical company develops pill against Covid
Major banks feel dependence on China
Baltic delegation in Taiwan
Joint Audi and FAW project delayed
Deutsche Bahn bundles Silk Road business
Solidarity with Covid blogger Zhang Zhan
Disney+ censors Simpsons episode
Profile: China pioneer Juergen Kracht from Fiducia
Dear reader,
Covid numbers are currently skyrocketing in Germany. Every day, the Robert Koch Institute announces new highs. In China, too, the incidence has risen in twenty provinces as a result of the latest outbreak – to 0.004. So it seems like the situation is currently under control. In their analysis, our Beijing author team notes that Xi Jinping’s decision-makers nevertheless do not play to deviate from the strict zero-covid strategy. Experts predict that a sudden drop of restriction would lead to a flare-up of the pandemic.
There is now virtually only one way out of sharp Corona measures: New medication that could treat the disease despite a spread of the pathogen. Chinese companies are therefore researching at full speed on an intravenous agent or anti-Covid pills. First test results already show promise.
It was a joke that almost got stuck in the throat of the head of JP Morgan. His humorous prediction that his bank would last longer than the equally old Communist Party caused great shock – both in China and among his investors. Ning Wang takes this anecdote as an opportunity to show how great the dependence of Wall Street banks on the goodwill of Beijing‘s leadership has become in the meantime. Stunningly, Beijing’s influence is increasing even further as a result of the liberalization of the Chinese market.
Your Michael Radunski
Feature
Covid medication as a way away from zero covid
With the rapid global spread of the new Omicron virus variant, China sees its strict zero-covid strategy confirmed. “If the Omicron variant launches a new wave of attack, it is China that will be best able to block its invasion,” state-run newspaper Global Times commented on Monday, almost sneeringly. China has become an “impregnable fortress” against the spread of the virus.
In fact, China has succeeded in keeping the infection largely at bay through strict measures (China.Table reported). Hotel quarantines of several weeks, which everyone who wants to enter the country has to endure, have proven to be particularly effective in preventing new variants. The readiness to send regions into lockdown on short notice also helps the authorities to keep the situation under control. Mass testing is another tool. In the most recent Covid wave, which has manifested itself in infections in more than 20 provinces since October, the number of new cases per day averaged less than 50 – an incidence of less than 0.004, in other words.
Mortality rate is decisive
Although criticism of such strict measures is also mounting in China (China.Table reported), it seems clear: China is not willing to change its approach as long as it would have to accept even remotely as many infections and deaths as is apparently considered acceptable in the West. In November, China’s top virologist, Zhong Nanshan said that China would only consider lifting restrictions at a mortality rate of 0.1 percent.
In addition to an almost fully vaccinated population, an effective anti-covid drug will likely be required to meet this goal. The US company Pfizer recently announced that its new Covid pill, Paxlovid, was able to reduce the risk of hospitalization or death by 89 percent. This was on the condition that the drug was administered within three days of the onset of symptoms. Shortly before, competitor Merck had announced the anti-Covid pill Molnupiravir, which was able to cut deaths in high-risk patients by half in a clinical trial.
China’s patchy health system
Chinese companies are also making steady progress in researching Covid drugs. According to authorities, both intravenous agents and several anti-Covid pills are in the works. High hopes have recently been raised, for example, by a compound by Kintor Pharmaceutical, a pharmaceutical company based in the eastern Chinese city of Suzhou. An initial study of Kintor’s anti-Covid pill, presented in May, found that the drug reduced deaths among Brazilian hospital patients by 77 percent. At the time, however, some experts called the results “too good to be true.” The results of final clinical tests are expectedbefore the end of December, according to Kintor.
In any case, Kintor CEO Tong Youzhi is convinced that his drug will make a breakthrough and help China return to normalcy. “The urgency for effective Covid drugs is no less in China than elsewhere if we want to regain our pre-pandemic life.,” Tong told Bloomberg. Without an effective drug, China’s patchy healthcare system will be quickly overwhelmed should the borders be opened, believes Tong, whose company has seen its value on the Hong Kong stock exchange increase more than six-fold this year.
No alternative to vaccination
In fact, according to health experts, China could be hit particularly hard in the event of an uncontrolled outbreak for two reasons: First, hardly any Chinese had contact with the coronavirus, which is why there is virtually no natural immunity. In addition, Chinese vaccines are considered less effective than their Western counterparts.
Still, officials also say that an effective covid drug could prompt China to ease the measures to some degree. An effective treatment method could be “a decisive factor” in such considerations, Gao Fu, director of China’s Center for Disease Control and Prevention, said in an interview with state media back in September. In combination with vaccinations, drugs would help in the transition to coexistence with the virus.
Covid pills, however, could certainly not replace vaccines, warned Chinese immunologist Zhuang Shilihe. Even if antiviral drugs make it to market, it would still be necessary to promote vaccination and booster shots, as medication alone cannot reduce the risk of infection, Zhuang said. Jörn Petring/Gregor Koppenburg
It was supposed to be a joke, and it began in a very stately manner: “The Communist Party is celebrating its 100th year. So is JPMorgan,” said Jamie Dimon. After all, US bank JP Morgan Chase is celebrating its 100th anniversary in China this year. But what Dimon then added turned the line into a disaster. “And I’ll make a bet we last longer.” he added with a chuckle, “I can’t say that in China, they probably are listening anyway.”
Dimon’s careless words were a colossal miscalculation – but his assumption that China was listening in was spot on. The very next day, he was forced to apologize publicly: “I regret and should not have made that comment. I was trying to emphasize the strength and longevity of our company,” Dimon clarified in a statement. And his remorse extends even further: “I regret my recent comment because it’s never right to joke about or denigrate any group of people, whether it’s a country, its leadership, or any part of a society and culture,” Dimon added.
A public comment questioning the political survival of the Communist Party is taboo for multinationals these days. “Dimon’s apology shows the degree of deference foreign businesses have to show to the Chinese government to remain in its good graces and maintain access to the country’s markets,” Eswar Prasad, a professor at Cornell University, told US financial network CNBC.
Dimon’s remarks were made at a Boston College event. The audience in the room and on social media was particularly eager to hear what he had to say about the Chinese market. After all, Dimon had come under fire a few days prior when he claimed special treatment when entering Hong Kong, where he was allowed to bypass the three-week quarantine rule for a one-day trip to the financial capital. Hong Kong’s Chief Executive Carrie Lam justified the preferential treatment of the top executive with the position of his bank, which conducts “key business” in Hong Kong.
Market reform as a strategy of tighter control over banks
Lam’s statement says a lot about the financial relationship between Washington and Beijing. Wall Street banks are looking to expand their business in China. They are especially chasing after the wealth of the Chinese middle class. Beijing, in turn, wants to use the resulting dependencies to soften political sanctions and also better present itself on the global stage.
Global financial centers should support cross-border financing “instead of becoming platforms and instruments that governments use to sanction other countries”, said Yi Huiman. He is chairman of the China Securities Regulatory Commission (CSRC). He made the statement in September at a conference organized by the World Federation of Exchanges. Yi thus criticized the United States without explicitly calling it by name.
China’s tougher stance against American financial institutions is also a reaction to aggressive US trade policies. Donald Trump tried to force foreign companies out of US stock exchanges by law: Suddenly, they had to prove they were not under the control of a foreign government. The law was broadly worded, but Trump had clearly targeted Chinese companies. And his successor, Joe Biden, has so far not significantly softened his predecessor’s China course.
So now follows China’s retaliation. While it is true that Beijing has significantly improved access to its financial market since 2018. This has primarily led to banks being able to expand their business in China – which in turn is now increasing their uncertainties. After all, it is now far from certain that China’s markets will open up further. By cracking down on private tech companiessuch as ride-sharing service DiDi, internet giant Tencent and e-commerce provider Alibaba, state and party leader Xi Jinping has made it clear that he wants to bring the economy back under political control (China.Table reported).
This caused such huge distress among foreign investors in the summer that Fang Xinghai, Vice Chairman of the China Securities Regulatory Commission, felt the need to calm executives from BlackRock, Goldman Sachs, and other financial institutions at a meeting.
First the invite, then the collar
Beijing is pursuing a dual strategy: On the one hand, it is allowing international institutions to enter its market, where they will contribute to the modernization of the industry. At the same time, however, it wants to ensure that the actions of power-hungry Wall Street bankers are strictly regulated and contained. A thoughtless remark like the one made by JP Morgan CEO Dimon is enough to receive a deafening shot across the bow.
One thing is clear: Despite all the regulatory frenzy, Beijingwants tostrengthen the participation of foreign banks, as they are considered to be important for the development of domestic financial markets. Here, the advocates of opening have indeed gained the upper hand over the hardliners in the party: Last fall, Chen Yulu, Deputy Governor of China’s central bank PBOC, said China had lifted restrictions on foreign ownership in banking, securities, futures, and fund management, and reduced restrictions on shareholder qualifications (China.Table reported).
Since the barriers for foreign financial institutions have been gradually lifted in 2018, Goldman Sachs, Morgan Stanley, UBS, and Credit Suisse have all taken a majority stake in their previous joint ventures in the securities business. Four other banks, such as JP Morgan, the Japanese financial institutions Nomura and Daiwa Securities, as well as DBS Bank from Singapore, have set up their own securities businesses in China, which they either own a majority of or even 100 percent of. European banks are lagging somewhat behind in comparison, with many currently still waiting for approvals by Chinese authorities to set up securities firms – such as the French bank BNP Paribas and the British Standard Chartered.
Rising tensions among foreign investors despite opening
However, finance experts are beginning to urge caution when it comes to the Chinese market. A transparent, open financial market had not yet emerged as a result of the openings. For example, US asset manager BlackRock had to agree to store the data of its Chinese clients in China. Xi’s current campaigns have also tarnished the consistency and predictability of China’s reform policies. Since it’s not clear if and when Beijing will pull the ripcord, company documents state that JP Morgan could lose up to $20 billion in China, Bloomberg reported.
A recent failed deal by investment group Blackstone has once again highlighted the potential risks of doing business in China. The deal fell through despite the fact that the firm’s co-founder, Stephen Schwarzman, had deep enough ties to the country that he was known as former US President Donald Trump’s “China whisperer”. Nevertheless, he failed to acquire the Soho Group’s Shanghai properties from the husband-and-wife team of Pan Shiyi and Zhang Xin for $3 billion, as it was planned.
This puts the global financial institutions in a bind: On the one hand, they are desperate to get involved in one of the world’s largest markets. On the other hand, they have to learn that Chinese rules apply there. And so Jamie Dimon, after his whimsical remark, quickly realized that he doesn’t have much time to clear up any misunderstandings that could affect his bank’s operations in China. This could have otherwise caused quite a mess for his employees and investors.
Chinese Communist Party
Finance
JP Morgan
USA
News
Baltic MPs visit Taiwan
It’s a step that is supposed to show deeper cooperation between the Baltic States and Taiwan: Parliamentarians from Estonia, Latvia, and Lithuania met with Taiwan’s President Tsai Ing-wen on Monday. Tsai personally welcomed the group, which will attend the “Open Parliament Forum” in the coming days. Taiwan and the Baltic States “share similar experiences of breaking free of authoritarian rule and fighting for freedom,” Tsai said on Monday. The democracy they enjoy today had been hard fought for.
They came to Taiwan to express solidarity with the island, said Matas Maldeikis, who heads the Lithuanian delegation. He said he hoped to open a Lithuanian trade office in Taiwan soon. It should help further strengthen the partnership between Taiwan and Lithuania, Maldeikis said, according to Euronews.
A planned joint venture between Audi and FAW in China will apparently only begin operations after a delay. This was reported exclusively by the magazine “Automobilwoche” on Monday. The required license will now be granted at the beginning of December, following an intervention by the German Ministry of Economics in Beijing. Construction of the joint plant could then begin next year, the report continues. The source for this information is not named, however. An Audi spokeswoman told Reuters that there have been delays in the project approval. The company is said to be in ongoing communication with its partner FAW and the authorities. Preparations for the start of construction were continuing.
Audi and FAW intend to jointly produce various Audi electric models in China based on the PPE platform developed jointly with Porsche. The joint venture is to be headed by Audi managerHelmut Stettner, who already has experience in China (China.Table reported). The Germans are to hold a majority stake in the joint venture. Audi and FAW are already producing several EVs in China. rad
Autoindustrie
Railway bundles Silk Road routes
Deutsche Bahn’s freight subsidiary is merging the operation of routes to China into a separate company. DB Cargo Transasia aims to increase the market share of rail on the Far East routes. To this end, the company already has 23 employees at its Shanghai and Xi’an sites. A rapid expansion is planned. The business unit started in 2018 as a liaison office with two employees. The head of DB Cargo Transasia is Frank Schulze, who already assisted in setting up the liaison office. fin
Logistics
New Silk Road
Trade
German support for detained blogger
In a joint effort, journalists and human rights activists have pressed for the release of Chinese Covid blogger Zhang Zhan. On Monday morning, journalists as well as
Amnesty International,
the authors’ association PEN,
Reporters Without Borders,
the German Journalists’ Union and the
German Journalists Association
flooded short message service Twitter withcorresponding posts.
The tweets are coupled with a call on the next German Chancellor Olaf Scholz and his confidant, Wolgang Schmidt, as well as the next German Foreign Minister Annalena Baerbock, and her predecessor, Heiko Maas. The authors and associations urge politicians to plead with the Chinese government on behalf of the citizen journalist. The detained woman has begun a hunger strike and is fighting for her life, according to her family.
Zhang had begun reporting from the city of Wuhan, the pandemic’s ground-zero, in early 2020, shortly after the COVID-19 outbreak. Bypassing state censors, she provided images and impressions that painted a different picture of the situation in the city and of the authorities’ crisis management, contrary to official statements. Zhang was sentenced to four years in prison for her reports. grz
Amnesty International
Annalena Baerbock
Coronavirus
Human Rights
Olaf Scholz
Wuhan
Zhang Zhan
Disney censors Simpsons in Hong Kong
Streaming provider Disney+ has removed China-critical episode from cartoon series The Simpsons from its Hong Kong service. The 2005 episode is about a visit to Beijing by the bug-eyed US cartoon family and draws various satirical connections to the Tiananmen Square massacre, nation founder Mao Zedong or the occupation of Tibet.
The episode, for example, features a memorial plaque whose inscription reminds us that “nothing happened” at the square in 1989. In another scene, main character Homer Simpson stands in front of the laid-out body of state founder Mao Zedong and says, “Look at him sleeping, he’s like a little angel that killed 50 million people.”
An official statement from Disney+ regarding the self-censorship of its program was not yet available on Monday. Although a law has been in effect in China since last month that prohibits the broadcast of films that the parliament considers a potential risk for national security, the law does not apply to streaming services.
However, in July 2020, the National Security Act was introduced in Hong Kong, which, according to legal experts, allows authorities to prosecute any form of political dissent. While the Simpsons episode is not directed at Hong Kong, but rather at the People’s Republic, Beijing’s influence on Hong Kong has increased greatly in the past two years. grz
Censorship
Hongkong
Human Rights
Leak: CP leadership ordered camps in Xinjiang
Xinjiang researcher Adrian Zenz has published excerpts from a series of party documents that allegedly prove the direct involvement of the CP leadership in planning human rights violations in Xinjiang. It is 317 pages of text leaked by an anonymous whistleblower to the organization “Uyghur Tribunal”. Zenz is convinced that the material is genuine. It would prove that China’s President Xi Jinping personally decreed the establishment of camps and the creation of a police state in the autonomous region in a series of top-secret speeches. Xi is also said to have given the impetus for “optimizing the population structure,” a euphemism for forced birth control.
Zenz is controversial for various reasons but has repeatedly caused a stir with explosive analyses of the situation in sealed-off Xinjiang (China.Table reported), which are carefully documented. These newly surfaced documents are classified as “top secret,” according to Zens. In the history of the People’s Republic, party papers with this level of secrecy have never become public. fin
Chinese Communist Party
Human Rights
Xinjiang
Profile
Juergen Kracht – seasoned China pioneer
Jürgen Kracht is founder of Fiducia Management Consultants
Three guiding principles have accompanied Jürgen Kracht since he arrived in Hong Kong almost 50 years ago: “Seek common ground, build personal relationships, and trust your counterpart – but verify.” In the 1980s, former American President Ronald Reagan made the verify part a catchphrase during disarmament negotiations with the Soviet Union. In China, it’s good to trust your business partner and employees, says Kracht. “But Chinese negotiators are proven masters at saying ‘yes.’ Then later you realize that this was actually a ‘no’.” But by then, they’ve already implemented their original plan: “C’est la Vie.”
Born in East Westphalia, he came to Hong Kong in the early 1970s and still knows the People’s Republic from a time when access was only possible twice a year during the major trade fairs in Beijing. Investments did not exist, trade was almost non-existent. Since then, he has experienced the four phases of China’s rise: isolation, opening, boom, and, more recently, isolation again. In 1982, Kracht and his wife founded the consulting firm Fiducia – Latin for “trust” – in Hong Kong. Since then, he has been helping German companies enter the Chinese market.
In the meantime, the 74-year-old has passed on the day-to-day business to his son. However, Kracht continues to provide his analytical view of China’s rise. Learning from the past helps him understand the developments of the present. Four years ago, he wrote a book about 300 years of trade history between Europe and China.
In this broad perspective, Kracht also sees the purpose of China’s isolation in recent years. “In terms of mechanical engineering, China is now largely on a par with Germany. In terms of digital technology, China has long since surpassed us.” The economic policy concept of “dual circulation”, i.e. two circuits with an ever stronger domestic market, will further amplify the trend, predicts Kracht.
For China, it is now a matter of securing the rapid boom and success of the past decades and to decouple itself from imports. This process will have far-reaching consequences. In the course of this development, the Chinese self-perception has already changed: “By now, foreign companies had to learn to treat their Chinese employees or customers as equals – arrogance has no place.” The boom and the wealth of recent years have – understandably – increased national pride. Arrogance like in the past, when China was still seen as a global workbench, is something that foreign companies in China can no longer afford.
In his experience, naivety or arrogance are the most common reasons for the failure of foreign companies in China, reports Kracht. In the coming years, it is likely to become increasingly difficult to strike the right note. Kracht may not be able to foresee the details of the next phase of development. But he does have some important advice for his old home country of Germany: “To keep up with China as a global power, Germany would have to put every available euro into education.” David Renke
Economic policy
Trade
Executive Moves
Jan Timm has taken the position of Materials Requirements Planning Expert at Daimler Greater China’s Zhenjiang site. Previously, he worked in ramp-up management in Germany.
Nils Griesbach, Key Account Manager at Kerry Logistics, has returned to Bremen after five years in Shanghai. Kerry Logistics is a shipping company from Hong Kong.
