Dull economic figures always become particularly exciting when the stories of the people behind them are told. If every fifth young person in Chinese cities is without a job, that means millions and millions of frustration, fear, disappointment and anger. So it stands to reason that the Communist Party is deeply concerned about social stability in the country. An angry youth can quickly spiral out of control. Ask Paris.
Youth unemployment is not a new problem, but so far, Beijing had probably hoped that the economy and the job market would also recover quickly with the end of the Covid policy. But the recovery has stalled, as Fabian Kretschmer writes.
It will be interesting to see what other solutions the autocrats come up with. So far, the result is very meager. A bit of financial aid here and there mixed in with the brilliant comment by the party leader that young people need to swallow a bit of bitterness. Someone clearly doesn’t speak the language of the youth. But perhaps that won’t matter too much either. Society is aging so fast that youth unemployment may soon be China’s lesser evil.
Of course, there are still economic success stories. And every now and then, they are even diverse in China. In the struggle for lucrative distribution contracts from Apple, Luxshare has come out on top. Thanks to a woman at its helm, the Shenzhen-based company became so big that Forbes named its CEO the most important businesswoman in China this year.
However, the awarding of the contract is a thorn in the side of the US government, writes Frank Sieren. The fact that a Chinese company is now succeeding Apple’s Taiwanese partner Foxconn runs counter to the idea of reducing the US economy’s dependence on Chinese partners. But for Beijing, this is good news. The more dependent the West remains, the more jobs stay in the country.
It was only at the beginning of the week that the global executive elite met at the World Economic Forum in the eastern Chinese city of Tianjin. Premier Li Qiang passionately tried to convince the attending entrepreneurs of the dynamism of the Chinese market. But a look at the facts shows: Li’s words have little to do with reality these days.
More than six months after the pandemic opening, it is becoming increasingly clear that China’s economic recovery is already over after an initially strong start. Instead, many signs point to a significant slowing growth:
The National Bureau of Statistics of China in Beijing published new economic figures on Friday morning. They show a decline in activity in China’s manufacturing sector for the third consecutive month in June. The Purchasing Managers’ Index (PMI) is currently at 49 points – still below the 50-point mark that separates growth from contraction. In the service sector, things look only slightly better: The value is still significantly lower than predicted by most economists.
Similarly, the competition from the private sector, the Caixin and S&P Purchasing Managers’ Index, sees sentiment only minimally above the negative line on Monday. “A slew of recent economic data suggests that China’s recovery has yet to find a stable footing, as prominent issues including a lack of internal growth drivers, weak demand and dimming prospects remain,” says Wang Zhe, economist at Caixin Insight Group.
A look at the steel industry, which is considered an early indicator of the overall economic situation, is particularly telling for the development of the following months. As Bloomberg reported on Friday, the leading state-owned enterprises in the sector warned in an unusually frank message that they face a tough second half of the year. Such openly formulated bad news is exceedingly rare in China.
The biggest headache for the central government cadres is likely the high youth unemployment rate in cities. It already crossed the 20 percent mark for the first time in the spring and is expected to rise further over the summer, when well over ten million university graduates will be flooding the job market.
Therefore, the government in Beijing expanded its subsidy measures on Monday. Companies employing people aged 16 to 24 or university graduates who have been unemployed for two years are now eligible for a subsidy of 1,500 yuan (207 US dollars) per person, according to a statement released by the Chinese Ministry of Human Resources on Monday.
Previously, only new college graduates were eligible for the subsidy. However, with unemployment among 16-24-year-olds remaining persistently high at 20.8 percent in May, the government has expanded the scope of the subsidy to encourage companies to hire more people.
The youth’s discontent could soon become an existential danger for the Communist Party. After all, in recent years, the CCP has legitimized its power above all by promising the population a materially better future. This social contract is now on the brink.
And apart from nationalist propaganda, Xi Jinping has hardly any sustainable solutions in store. Because the 70-year-old head of state is unwilling to continue his predecessors’ economic reform course. Liberalization would inevitably come at the expense of political and ideological control – a trade-off Xi is not willing to make.
Moreover, the usual formula used by economic planners has long since been exhausted: Time and again, they have introduced massive stimulus measures and infrastructure projects to boost demand in times of crisis. But this strategy has not only driven local government debt to an alarming level, it has also created an oversupply on the real estate market.
It is remarkable how openly Xi prepares China’s youth for hard times. Just recently, he urged them to “eat bitterness”. This metaphorical expression describes the ability to stoically endure hardship. But while Xi’s generation had to endure famine and was sent to the countryside to do forced labor, the current youth has grown up with smartphones and brand clothing. They are no longer willing to accept similarly radical sacrifices to build the Chinese nation.
But given the equally rapid demographic change, the People’s Republic may now face the same fate as Japan in the 1990s: a prolonged period of stagnation.
Economists expect China to achieve an annual growth rate of three percent in the next decade, but this is clearly too low for the current stage of development: Hundreds of millions of Chinese, especially in the hinterland provinces, have not yet benefited sufficiently from the prosperity of the past decades. Fabian Kretschmer
Today, innovation is no longer a matter of national unilateralism. That is why corporate R&D departments tend to ignore geopolitical tensions. Procurement specialists, on the other hand, wish and are expected to minimize risks. Apple is attempting a balancing act. The US company focuses more on China, tries to diversify within China, and simultaneously develops alternatives among China’s neighbors.
Apple’s latest product, the Vision Pro mixed reality headset, shows how this can be done. It was presented in June. The “spatial computing” device is intended to revolutionize communication between humans and machines.
The American headset is not only assembled to a large extent by Chinese companies but a lot of Chinese know-how is also involved in the development processes. More than half of the suppliers are Chinese or Taiwanese companies that mainly manufacture in China. And for the first time, Apple now even uses a China supplier for the first generation of a product. Previously, this role had always fallen to the Taiwanese company Foxconn. But Apple’s dependence on Foxconn has become too great. Apparently, only a Chinese company was able to meet this challenge.
Now the Shenzhen-based company Luxshare has been given this task. The company has already manufactured iPods in Kunshan in the coastal province of Jiangsu, south of Shanghai. Then, at the beginning of the year, they received the contract for the iPhone 15.
Besides Luxshare from Shenzhen, Chinese suppliers include:
Shenzhen Zhaowei Machinery & Electronics Co builds the VR-oriented electric focus drive system for the Vision Pro. Lingyi iTech Guangdong Co manufactures structural components such as the center frame and housing for the headset. Most of these suppliers are based in Shenzhen, the 25 million mega-metropolis known as China’s new Silicon Valley.
However, Luxshare is by far the largest company in this group, whose growth in 2022 and 2023 was almost entirely due to Apple contracts. Wang Laichun, the company’s founder and president, became the most important businesswoman in China in this year’s US Forbes list, ahead of Dong Mingzhu, president of Gree Electric Appliances, and Meng Wanzhou, Deputy Chairwoman and one of Huawei’s rotating CEO and CFO. She is the daughter of founder Ren Zhengfei.
Luxshare CEO Wang worked her way up at Taiwanese competitor Foxconn. Wang started out working on the assembly line before starting her own business with her husband ten years later. She is now considered one of the wealthiest women in China.
Last year, Luxshare generated 31 billion US dollars in revenue – a growth of almost 40 percent. In the process, the company made a profit of 1.2 billion dollars. Luxshare manufactured around 20 million iPhones in 2022. In 2023, that number could reach between 40 and 50 million. The company is expected to manufacture 15 percent of the new iPhones 15.
This makes Luxshare the third mega-supplier alongside Foxconn and Pegatron. The company’s shares have already gained a good six percent this year. In the past five years, it has jumped 235 percent.
The fact that Luxshare plays such a key role for Apple does not please the US government. In January, only a few days after it became known that Luxshare would play a stronger role in the Apple world and receive a large share of the iPhone 15, the United States International Trade Commission (USITC) launched a patent infringement investigation into Luxshare. This caused the share price to plummet by up to nine percent in one day.
So far, the investigation has not come to a conclusive result. It hangs over the company like a sword of Damocles. Apple seems unfazed by this, or else the Americans would not have subsequently awarded the Vision Pro contract to the Chinese.
Earlier this week, it became clear that Luxshare’s task is not easy: The British newspaper Financial Times reported that Luxshare is expected to produce 400,000 fewer units of the Vision Pro in 2024. The original target was one million units within the first twelve months after market launch.
The reason cited is the high complexity of the product, complicating mass production. However, industry insiders speculate that the high price has led to lower upfront demand. After all, the headset costs a whopping 3,499 US dollars.
The problems illustrate the enormous technical challenge Apple’s suppliers face. This is what makes it so difficult to diversify into China’s neighboring countries. As of March 2023, Apple operates 276 production facilities in China. But only 14 in India, 27 in Vietnam, 36 in South Korea, and 41 in Taiwan. Apple now wants to try and increase India’s share of global production from currently 5 to 25 percent.
According to a media report, Russia has been importing drones from Chinese companies for months explicitly for use in the war in Ukraine. This is the finding of an investigation published by Asia Nikkei on Monday.
The findings are particularly interesting given that the leadership in Beijing has so far publicly denied supplying equipment for the war. On the political level, however, China makes no secret of its close ties to Russia.
According to Asia Nikkei, Russian companies reportedly imported at least 37 Chinese unmanned aerial vehicles worth around 103,000 US dollars between December 2022 and April 2023. Customs documents explicitly identified it as “for use in the special military operation”. This is the Russian government’s formulation for the Ukraine war. Russian companies have allegedly been quite openly recording this intended use in the respective customs documents for months.
Investigations suggest that the drones in question are, among others, drones made by DJI. These drones are dual-use products, which means they have both civilian and military applications, according to official estimates. For this reason, Washington has blacklisted DJI from doing business with US companies.
The Nikkei report claims that the Russian military may use these drones to gather intelligence in the war zone. According to customs data, China allegedly exported at least 30,000 drones to Russia between March 2022 and May 2023. In addition, the data shows that Russian companies paid more than 1.2 million US dollars for devices that detect and jam drones. The respective customs documents stated they were intended for warfare.
However, it is unclear whether the Chinese companies or even the government in Beijing have any knowledge of the Russian customs documents. rad
Liya Yu prefers to bike through Taiwan’s capital Taipei late at night. “The streets there are networked like a brain,” says the artist and researcher. She is fascinated by the human brain – and the influence that our brain activity has on our political decisions. During her nighttime trips, she soaks up life, she says.
As a freelance writer and visiting scholar, Liya Yu has lived in many cities around the world. In 2020, she settled in Taipei, a city with winding streets where she sees the neural network of a brain. She also likes to retreat to the Alishan Mountains to a remote pension. There she writes books – at the moment, a feminist novel and two short stories.
In her various areas of work, from science, philosophy, art, and writing, Yu tries to bring people together – on a political and cultural level. She aims to encourage people to get to know and understand each other better so that they might question their own initial perceptions of each other.
The same principle applies to science, believes Yu. “The challenge is to find ways to humanize each other, despite or even because of political tensions.” By that, she means perceiving people or populations in all their complexity rather than as objects. What could that look like in practical terms? Perhaps an interdisciplinary center between Europe and Taiwan, she suggests.
Yu has been observing and dealing with dehumanization in interactions for many years. She wrote her thesis at Columbia University in New York on the political neuroscience of racism and dehumanization. She says it takes understanding each other’s identities, even if those identities are antithetical to one’s own. She argues that this is the only way to overcome polarization and division.
Her book, Vulnerable Minds, published last year, attempts a new social contract for the 21st century. “I wanted to offer our divided societies a new neuropolitical language and perspective in which people of opposing identities and views can talk to each other again.”
Liya Yu was born in Hunan. As a child, she moved to Germany with her parents. As a teenager, she returned to Beijing for a few years. She found herself slipping into a deep identity crisis, partly because she felt reservations about Chinese people within the German community in the city. “That was a form of racism that made my situation worse,” she says.
Yu began writing to keep her cultural identity alive, to capture the lack of a sense of belonging in German culture in words. At the age of 15, she was already writing award-winning short stories in Germany and China.
After graduating, she studied political philosophy at Cambridge. Her experiences in Germany and China had shown her that artistic equality for an Asian woman in Western culture would only be possible if there were political equality. “I wanted to dive into the heart of political theory and participate in determining what it means to be human. As an equal human being, from the brain cell up to my complex cultural identity.” Svenja Napp
The Chinese hip-hop freestyle finals were held in Nanjing over the weekend. Those who didn’t like the rap punchlines of the youngsters got their money’s worth from the spectacular moves.
Dull economic figures always become particularly exciting when the stories of the people behind them are told. If every fifth young person in Chinese cities is without a job, that means millions and millions of frustration, fear, disappointment and anger. So it stands to reason that the Communist Party is deeply concerned about social stability in the country. An angry youth can quickly spiral out of control. Ask Paris.
Youth unemployment is not a new problem, but so far, Beijing had probably hoped that the economy and the job market would also recover quickly with the end of the Covid policy. But the recovery has stalled, as Fabian Kretschmer writes.
It will be interesting to see what other solutions the autocrats come up with. So far, the result is very meager. A bit of financial aid here and there mixed in with the brilliant comment by the party leader that young people need to swallow a bit of bitterness. Someone clearly doesn’t speak the language of the youth. But perhaps that won’t matter too much either. Society is aging so fast that youth unemployment may soon be China’s lesser evil.
Of course, there are still economic success stories. And every now and then, they are even diverse in China. In the struggle for lucrative distribution contracts from Apple, Luxshare has come out on top. Thanks to a woman at its helm, the Shenzhen-based company became so big that Forbes named its CEO the most important businesswoman in China this year.
However, the awarding of the contract is a thorn in the side of the US government, writes Frank Sieren. The fact that a Chinese company is now succeeding Apple’s Taiwanese partner Foxconn runs counter to the idea of reducing the US economy’s dependence on Chinese partners. But for Beijing, this is good news. The more dependent the West remains, the more jobs stay in the country.
It was only at the beginning of the week that the global executive elite met at the World Economic Forum in the eastern Chinese city of Tianjin. Premier Li Qiang passionately tried to convince the attending entrepreneurs of the dynamism of the Chinese market. But a look at the facts shows: Li’s words have little to do with reality these days.
More than six months after the pandemic opening, it is becoming increasingly clear that China’s economic recovery is already over after an initially strong start. Instead, many signs point to a significant slowing growth:
The National Bureau of Statistics of China in Beijing published new economic figures on Friday morning. They show a decline in activity in China’s manufacturing sector for the third consecutive month in June. The Purchasing Managers’ Index (PMI) is currently at 49 points – still below the 50-point mark that separates growth from contraction. In the service sector, things look only slightly better: The value is still significantly lower than predicted by most economists.
Similarly, the competition from the private sector, the Caixin and S&P Purchasing Managers’ Index, sees sentiment only minimally above the negative line on Monday. “A slew of recent economic data suggests that China’s recovery has yet to find a stable footing, as prominent issues including a lack of internal growth drivers, weak demand and dimming prospects remain,” says Wang Zhe, economist at Caixin Insight Group.
A look at the steel industry, which is considered an early indicator of the overall economic situation, is particularly telling for the development of the following months. As Bloomberg reported on Friday, the leading state-owned enterprises in the sector warned in an unusually frank message that they face a tough second half of the year. Such openly formulated bad news is exceedingly rare in China.
The biggest headache for the central government cadres is likely the high youth unemployment rate in cities. It already crossed the 20 percent mark for the first time in the spring and is expected to rise further over the summer, when well over ten million university graduates will be flooding the job market.
Therefore, the government in Beijing expanded its subsidy measures on Monday. Companies employing people aged 16 to 24 or university graduates who have been unemployed for two years are now eligible for a subsidy of 1,500 yuan (207 US dollars) per person, according to a statement released by the Chinese Ministry of Human Resources on Monday.
Previously, only new college graduates were eligible for the subsidy. However, with unemployment among 16-24-year-olds remaining persistently high at 20.8 percent in May, the government has expanded the scope of the subsidy to encourage companies to hire more people.
The youth’s discontent could soon become an existential danger for the Communist Party. After all, in recent years, the CCP has legitimized its power above all by promising the population a materially better future. This social contract is now on the brink.
And apart from nationalist propaganda, Xi Jinping has hardly any sustainable solutions in store. Because the 70-year-old head of state is unwilling to continue his predecessors’ economic reform course. Liberalization would inevitably come at the expense of political and ideological control – a trade-off Xi is not willing to make.
Moreover, the usual formula used by economic planners has long since been exhausted: Time and again, they have introduced massive stimulus measures and infrastructure projects to boost demand in times of crisis. But this strategy has not only driven local government debt to an alarming level, it has also created an oversupply on the real estate market.
It is remarkable how openly Xi prepares China’s youth for hard times. Just recently, he urged them to “eat bitterness”. This metaphorical expression describes the ability to stoically endure hardship. But while Xi’s generation had to endure famine and was sent to the countryside to do forced labor, the current youth has grown up with smartphones and brand clothing. They are no longer willing to accept similarly radical sacrifices to build the Chinese nation.
But given the equally rapid demographic change, the People’s Republic may now face the same fate as Japan in the 1990s: a prolonged period of stagnation.
Economists expect China to achieve an annual growth rate of three percent in the next decade, but this is clearly too low for the current stage of development: Hundreds of millions of Chinese, especially in the hinterland provinces, have not yet benefited sufficiently from the prosperity of the past decades. Fabian Kretschmer
Today, innovation is no longer a matter of national unilateralism. That is why corporate R&D departments tend to ignore geopolitical tensions. Procurement specialists, on the other hand, wish and are expected to minimize risks. Apple is attempting a balancing act. The US company focuses more on China, tries to diversify within China, and simultaneously develops alternatives among China’s neighbors.
Apple’s latest product, the Vision Pro mixed reality headset, shows how this can be done. It was presented in June. The “spatial computing” device is intended to revolutionize communication between humans and machines.
The American headset is not only assembled to a large extent by Chinese companies but a lot of Chinese know-how is also involved in the development processes. More than half of the suppliers are Chinese or Taiwanese companies that mainly manufacture in China. And for the first time, Apple now even uses a China supplier for the first generation of a product. Previously, this role had always fallen to the Taiwanese company Foxconn. But Apple’s dependence on Foxconn has become too great. Apparently, only a Chinese company was able to meet this challenge.
Now the Shenzhen-based company Luxshare has been given this task. The company has already manufactured iPods in Kunshan in the coastal province of Jiangsu, south of Shanghai. Then, at the beginning of the year, they received the contract for the iPhone 15.
Besides Luxshare from Shenzhen, Chinese suppliers include:
Shenzhen Zhaowei Machinery & Electronics Co builds the VR-oriented electric focus drive system for the Vision Pro. Lingyi iTech Guangdong Co manufactures structural components such as the center frame and housing for the headset. Most of these suppliers are based in Shenzhen, the 25 million mega-metropolis known as China’s new Silicon Valley.
However, Luxshare is by far the largest company in this group, whose growth in 2022 and 2023 was almost entirely due to Apple contracts. Wang Laichun, the company’s founder and president, became the most important businesswoman in China in this year’s US Forbes list, ahead of Dong Mingzhu, president of Gree Electric Appliances, and Meng Wanzhou, Deputy Chairwoman and one of Huawei’s rotating CEO and CFO. She is the daughter of founder Ren Zhengfei.
Luxshare CEO Wang worked her way up at Taiwanese competitor Foxconn. Wang started out working on the assembly line before starting her own business with her husband ten years later. She is now considered one of the wealthiest women in China.
Last year, Luxshare generated 31 billion US dollars in revenue – a growth of almost 40 percent. In the process, the company made a profit of 1.2 billion dollars. Luxshare manufactured around 20 million iPhones in 2022. In 2023, that number could reach between 40 and 50 million. The company is expected to manufacture 15 percent of the new iPhones 15.
This makes Luxshare the third mega-supplier alongside Foxconn and Pegatron. The company’s shares have already gained a good six percent this year. In the past five years, it has jumped 235 percent.
The fact that Luxshare plays such a key role for Apple does not please the US government. In January, only a few days after it became known that Luxshare would play a stronger role in the Apple world and receive a large share of the iPhone 15, the United States International Trade Commission (USITC) launched a patent infringement investigation into Luxshare. This caused the share price to plummet by up to nine percent in one day.
So far, the investigation has not come to a conclusive result. It hangs over the company like a sword of Damocles. Apple seems unfazed by this, or else the Americans would not have subsequently awarded the Vision Pro contract to the Chinese.
Earlier this week, it became clear that Luxshare’s task is not easy: The British newspaper Financial Times reported that Luxshare is expected to produce 400,000 fewer units of the Vision Pro in 2024. The original target was one million units within the first twelve months after market launch.
The reason cited is the high complexity of the product, complicating mass production. However, industry insiders speculate that the high price has led to lower upfront demand. After all, the headset costs a whopping 3,499 US dollars.
The problems illustrate the enormous technical challenge Apple’s suppliers face. This is what makes it so difficult to diversify into China’s neighboring countries. As of March 2023, Apple operates 276 production facilities in China. But only 14 in India, 27 in Vietnam, 36 in South Korea, and 41 in Taiwan. Apple now wants to try and increase India’s share of global production from currently 5 to 25 percent.
According to a media report, Russia has been importing drones from Chinese companies for months explicitly for use in the war in Ukraine. This is the finding of an investigation published by Asia Nikkei on Monday.
The findings are particularly interesting given that the leadership in Beijing has so far publicly denied supplying equipment for the war. On the political level, however, China makes no secret of its close ties to Russia.
According to Asia Nikkei, Russian companies reportedly imported at least 37 Chinese unmanned aerial vehicles worth around 103,000 US dollars between December 2022 and April 2023. Customs documents explicitly identified it as “for use in the special military operation”. This is the Russian government’s formulation for the Ukraine war. Russian companies have allegedly been quite openly recording this intended use in the respective customs documents for months.
Investigations suggest that the drones in question are, among others, drones made by DJI. These drones are dual-use products, which means they have both civilian and military applications, according to official estimates. For this reason, Washington has blacklisted DJI from doing business with US companies.
The Nikkei report claims that the Russian military may use these drones to gather intelligence in the war zone. According to customs data, China allegedly exported at least 30,000 drones to Russia between March 2022 and May 2023. In addition, the data shows that Russian companies paid more than 1.2 million US dollars for devices that detect and jam drones. The respective customs documents stated they were intended for warfare.
However, it is unclear whether the Chinese companies or even the government in Beijing have any knowledge of the Russian customs documents. rad
Liya Yu prefers to bike through Taiwan’s capital Taipei late at night. “The streets there are networked like a brain,” says the artist and researcher. She is fascinated by the human brain – and the influence that our brain activity has on our political decisions. During her nighttime trips, she soaks up life, she says.
As a freelance writer and visiting scholar, Liya Yu has lived in many cities around the world. In 2020, she settled in Taipei, a city with winding streets where she sees the neural network of a brain. She also likes to retreat to the Alishan Mountains to a remote pension. There she writes books – at the moment, a feminist novel and two short stories.
In her various areas of work, from science, philosophy, art, and writing, Yu tries to bring people together – on a political and cultural level. She aims to encourage people to get to know and understand each other better so that they might question their own initial perceptions of each other.
The same principle applies to science, believes Yu. “The challenge is to find ways to humanize each other, despite or even because of political tensions.” By that, she means perceiving people or populations in all their complexity rather than as objects. What could that look like in practical terms? Perhaps an interdisciplinary center between Europe and Taiwan, she suggests.
Yu has been observing and dealing with dehumanization in interactions for many years. She wrote her thesis at Columbia University in New York on the political neuroscience of racism and dehumanization. She says it takes understanding each other’s identities, even if those identities are antithetical to one’s own. She argues that this is the only way to overcome polarization and division.
Her book, Vulnerable Minds, published last year, attempts a new social contract for the 21st century. “I wanted to offer our divided societies a new neuropolitical language and perspective in which people of opposing identities and views can talk to each other again.”
Liya Yu was born in Hunan. As a child, she moved to Germany with her parents. As a teenager, she returned to Beijing for a few years. She found herself slipping into a deep identity crisis, partly because she felt reservations about Chinese people within the German community in the city. “That was a form of racism that made my situation worse,” she says.
Yu began writing to keep her cultural identity alive, to capture the lack of a sense of belonging in German culture in words. At the age of 15, she was already writing award-winning short stories in Germany and China.
After graduating, she studied political philosophy at Cambridge. Her experiences in Germany and China had shown her that artistic equality for an Asian woman in Western culture would only be possible if there were political equality. “I wanted to dive into the heart of political theory and participate in determining what it means to be human. As an equal human being, from the brain cell up to my complex cultural identity.” Svenja Napp
The Chinese hip-hop freestyle finals were held in Nanjing over the weekend. Those who didn’t like the rap punchlines of the youngsters got their money’s worth from the spectacular moves.
