Military aid + Stumbling tech stocks

Dear reader,

Today marks the fourth week of the war in Ukraine. A war that is live for the entire world to see on social media as it continues to escalate. This disconcerting situation reminds us of the 1965 song “So Long, Mom” by American songwriter, mathematician and Harvard professor Tom Lehrer. The song is about the story of a war through the eyes of a soldier who tells his mother that she can simply watch everything live on television from the bomb shelter.

The world watches, debates – and many waver between mockery of Putin’s poorly organized military and concern about Chinese interference. China at Russia’s side – an image perfectly suited for speculation and juicy headlines. But how realistic is it that China will provide military assistance to Russia? Michael Radunski explores this question and takes a close look at the Chinese arms industry in particular.

The Chinese tech sector is “uninvestable”. Harsh words from US investment bank JPMorgan on Tuesday. And down they went. China’s tech stocks have been in a tailspin for months. And the poor market conditions are not the only reason for this, Beijing with its tech crackdown is also to blame. On top of that, there is mounting pressure from the US Securities and Exchange Commission. Yesterday, some share prices rose again by over 30 percent. The Chinese State Council had promised to keep the markets stable. Our Beijing team analyzed the situation and conclude, that in the long term, tech companies need more than soft words.

Your
Julia Fiedler

Military aid for Russia?

China has rearmed heavily in recent years. However, military assistance for Russia’s war in Ukraine is rather unlikely.

By

Michael Radunski

Russia’s advance in Ukraine stagnates. Moscow’s troops outnumber the Ukrainian forces, and the noose around cities like Kyiv, Mariupol and Kharkiv tightens. But Putin’s plan for a quick victory has failed. China is now supposed to come to the rescue. At least that is what renowned newspapers such as Washington Post, the New York Times and the Financial Times report, citing US officials. According to these reports, Moscow has requested military and economic aid from Beijing – and China has signaled its willingness.

China’s official answer sounds much clearer: It is all false. It labeled the reports as deliberate disinformation by the United States. “China is not a party to the crisis,” Foreign Minister Wang Yi said on Monday. China’s ambassador to the US, Qin Gang, reiterated in an op-ed for the Washington Post that China does not support Russia’s invasion. Strikingly, the diplomat referred to it as “war”.

Request to China: Information came just before Sullivan-Yang meeting

This process raises several questions, the first being the timing: Putin’s army increasingly struggles with logistics, organization and resupply. Russia needs significantly more weapons, ammunition and troops than originally calculated. The request for aid to its closest partner seems entirely plausible at this point.

What is also striking is that the news about the Russian request for Chinese assistance was made public only a few hours before the important meeting of US National Security Advisor Jake Sullivan with the highest-ranking Chinese foreign policy official Yang Jiechi in Rome (China.Table reported). And so it could very well be that Washington purposefully chose the timing of the release of this information to put the Chinese delegation on the defensive.

Sullivan made it clear that the United States is closely monitoring the extent of China’s material and economic support. And he warned: The US will not stand idly by should any country come to Russia’s aid. Yang’s response is not yet known.

China: military aid for Russia?

The issue of Chinese military support for Russia is a new factor in the debate over China’s role – especially since bilateral arms trade used to run in the other direction – from Moscow to Beijing. Due to US and European arms embargoes after 1989, China heavily relied on Russian military equipment to modernize its armed forces.

Research by the Stockholm International Peace Research Institute (Sipri) shows that between 2017 and 2021, about 80 percent of China’s total arms imports came from Russia. China’s acquisitions account for 21 percent of Russia’s total arms exports. Beijing is thus Moscow’s second-largest customer.

However, the People’s Republic has successfully expanded and modernized its own military production capacities in the meantime. The latest Sipri analysis on global arms trade shows that China has now become the world’s fourth-largest arms exporter. “China’s weapons are getting more advanced now. Its drones, for example, are one area that Russia would be very interested in,” Siemon Wezeman of Sipri told the British broadcaster BBC. So far, however, there has been no indication or even evidence that China has actually supplied drones to Russia.

Drones, fighter jets and missiles

So what could it be about? The American TV station CNN reports that Russia has asked for vacuum-packed field rations for its soldiers in combat, so-called Meal, Ready-to-Eat (MRE). Apparently, Russia is unable to adequately supply its troops in Ukraine. CNN reported raids and looting.

Military expert Peter Layton told China.Table that Russia could also be interested in other things: In addition to logistics, this could include aircraft in particular. “The PLA bought and still operates a fleet of Russian-built Su-27 fighters.” Russian aircraft of identical design appear to be currently operating in Ukraine. “China may hold stocks of these and or have replacements they can give to Russia quickly to keep its aircraft flying,” Layton explains. The researcher from the Griffith Asia Institute in Queensland, Australia, believes that individual Chinese components could also be used in the newer Russian fighter jets, such as the Su-30, Su-35 and maybe Su-34.

Russia has also sold many surface-to-air missiles to China in recent years – which China could theoretically also sell back, Layton says. “Russian stockholdings may be getting low, and so quick resupply from China might be possible.”

Lastly, when it comes to munitions, China could be of great help to Russia. “An old Soviet design philosophy was to make new equipment able to use the largest possible range of ammunition, and I would not be surprised if modern Chinese and Russian equipment remains true to that”, plains military expert Layton.

China: escalation unlikely

But so far, this is just a theory. Like Wezemann, Layton also points out that there are no indications of Chinese arms deliveries to Russia for the Ukraine war.

One thing is clear: Beijing would risk a dramatic escalation with such supplies. Despite all official statements of neutrality, China would suddenly be a party to the war. But despite all the support for Vladimir Putin and assurances that the partnership between Moscow and Beijing is “rock solid” and “without borders,” Xi Jinping is unlikely to enter into such an escalation.

The longer the war in Ukraine drags on, the more costly it will be for Moscow. Economic aid would be more probable. In this way, Beijing could at least limit the impact of Western sanctions on Russia.

The ups and downs of tech shares

China’s growing tense Covid situation and the uncertainties caused by the war in Ukraine are not leaving the Chinese stock market unscathed. The most important index, the Shanghai Composite, has lost almost nine percent of its value in the past 30 days – which is roughly equivalent to the losses of the Dax in Germany. But there is one sector that has been hit even harder. China’s major tech companies have recently experienced a real crash – until many of them recovered by between 10 and almost 40 percent on Wednesday.

The shares of the already badly hit online retailer Alibaba plummeted by around 40 percent at its peak within a month. Its competitor JD.com suffered a similar fate. Alibaba was temporarily traded in New York below its initial price at its IPO in 2014.

Delivery service Meituan had even lost around 50 percent of its market capitalization until Tuesday, and that was within only a month. Meituan faces accusations of low wages for its delivery drivers, among other things. Internet giant Tencent also lost a third of its value in the same period. And things were anything but a pleasant month for EV shares such as Nio, Li-Auto and Xpeng. The highest losses for the otherwise promising EV startups were between 30 and 48 percent.

Stumbling shares: Will announcements from Beijing also help tech shares?

An unexpectedly strong recovery rally began on Wednesday, at least. Alibaba shares rose by 27 percent. JD.com’s rise was even bigger at 36 percent. Shares of the three automakers rose by 30-34 percent on Wednesday. What had happened? China’s State Council had pledged to keep markets stable. Beijing will ensure that any regulation with a “significant impact on capital markets” is coordinated in advance with financial authorities, Vice Premier Liu He, who is in charge of economic policy, said on Wednesday, according to news agency Xinhua.

The Financial Stability and Development Committee also issued a brief statement in which it promised to support overseas listings, eliminate risks for real estate developers, and finalize the crackdown on big tech “as soon as possible.” Central bank chief Yi Gang followed with a statement that the People’s Bank of China would help implement the policy, as would the banking regulator.

China’s tech crash: poor market conditions only partly to blame

But is the government really the solution, or rather the cause of the problems? And do their statements help the tech companies in the long term?

The huge crash in tech stocks can only partly be explained by the weak market environment. What’s worse for the tech giants is that they simply can’t get out of the political spotlight. With Beijing and Washington, the corporations are dealing with the two most powerful governments in the world simultaneously. China’s government continues its tech crackdown undeterred. And in recent days, the United States has renewed its threat to cancel the listings of Chinese companies on US stock exchanges should they fail to comply with regulations.

Tech companies also under pressure from US stock exchange regulator

For some time now, the US Securities and Exchange Commission (SEC) has demanded that the 280 or so Chinese companies listed in the USA fully comply with US accounting regulations. The SEC wants to apply the same comprehensive enforcement rights to Chinese companies as it does to US companies. So far, however, it has not been successful in many cases, which is why the agency fired a clear warning shot last week: It named five Chinese companies that could soon face delisting. The quintet consists of Beigene, Yum China, Zai Lab, ACM Research Shanghai and Hutchmed China. Their share prices all subsequently tumbled, dragging down the share prices of Alibaba, JD.com and others listed in both New York and Hong Kong.

In response to the SEC’s step, China’s securities regulator announced that it had continued talks with the US side along with Beijing’s Ministry of Finance and had made “positive progress”. However, analysts did not quite believe that. The SEC’s move was “a reminder for the regulatory risks surrounding Chinese equities,” market strategist Jun Rong Yeap told Bloomberg.

Tech giants are also targeted by Chinese authorities

But there is also new pressure coming from Beijing. This time, the authorities targeted Tencent. As the Wall Street Journal reported on Monday, the payment service WeChat Pay, which is owned by Tencent, violates regulations of the Chinese central bank. A fine of at least hundreds of millions of yuan could be imposed, but has yet to be specified, the US newspaper said, citing people familiar with the matter. It would be significantly higher than previous fines imposed by regulators for violations of money laundering laws.

Observers viewed the announced fine as a clear indication that Beijing’s crackdown on the sector is far from over, even after more than a year now.

China’s tech shares continue to slide

Chinese tech shares continued their fall on Tuesday after US investment bank JPMorgan painted a particularly gloomy picture. It branded the entire sector “uninvestable”. “Due to rising geopolitical and macro risks, we believe a large number of global investors are in the process of reducing exposure to the China Internet sector, leading to significant fund outflows from the sector,” JPMorgan analysts wrote in a report cited by Bloomberg.

Accordingly, JPMorgan downgraded 28 Chinese Internet stocks to “neutral” or “underweight”. Only Chinese video service Kuaishou was still rated “overweight”, even though things only went downhill since its IPO in Hong Kong in 2021 – by a hefty 80 percent. Joern Petring/Gregor Koppenburg

Jilin continues to be a Covid hotspot – no relaxation in Hong Kong

China continues to stem the rising Omicron tide. On Wednesday, authorities reported about 3,000 new cases, of which slightly more than half were symptomatic. Noticeably, virtually all symptomatic cases were found in the northeastern Chinese province of Jilin. But symptoms are mostly mild, according to local health authorities. Volkswagen, meanwhile, extended the production stop at three local plants by another day on Wednesday because of the lockdown in the provincial capital Changchun.

A spokeswoman in Beijing announced that a VW factory in Shanghai, on the other hand, will resume production on Thursday after a two-day delay. Tesla announced it would suspend production at its Gigafactory 3 in Shanghai for two days to allow authorities to test all employees for the Coronavirus. Tensions are still running high in Shanghai.

In Shenzhen, iPhone contract manufacturer Foxconn partially resumed production. As the Taiwanese parent company Hon Hai announced on Wednesday, it set up “closed circuits” for employees. Most of them are migrant workers and live on-site – as is common at many manufacturing plants in southern China. The company thus followed the authorities’ requirements. Foxconn thus creates a kind of bubble for its factories, as the Beijing Olympics, for example, did for athletes. Shenzhen is still in a one-week lockdown and is testing all 17 million citizens.

Meanwhile, the health authority announced that people with mild cases will no longer be automatically admitted to special hospitals. They apparently attempt to keep more beds available in case numbers continue to rise. “Mild” cases, however, will still have to be isolated in special facilities across the country, where they will be monitored and hospitalized if needed, according to the statement. However, authorities want to simplify leaving quarantine early through testing.

The Hong Kong Special Administrative Region still waits for the situation to improve. On Wednesday alone, 29,000 new infections and 279 deaths were reported. On Wednesday, Government executive Carrie Lam urged Hong Kong’s seven million citizens to continue to be cautious. Public transport data showed people were traveling more again. “If we relax, the good work that we have done will be in vain,” Lam warned. “This is not the time to be complacent.” ck

Doubts about high growth

According to a Bloomberg report, analysts have discovered inconsistencies in robust growth indicators from January and February. Indicators in question are the gains in industrial production and retail trade announced this week. According to the National Bureau of Statistics, industrial production grew by a surprisingly high 7.5 percent year-on-year in the first two months, while retail sales grew by 6.7 percent. Both growth rates were significantly higher than in December 2021.

But experts quoted by Bloomberg found inconsistencies, for example in fixed-asset investment and construction materials. According to the official figures, fixed investment, which includes infrastructure construction, increased by 12.2 percent. At the same time, however, production of cement and crude steel fell by 17.8 percent and 10 percent, respectively.

Shen Jianguang, Chief Economist at online retailer JD.com, was among those who found contradictions, according to Bloomberg: “The true economic situation may not be so rosy.” The recovery in retail sales conflicts with the rise in unemployment rate, slow consumer price inflation, as well as the decline in new short-term household loans, Shen and peers wrote in a report. While investment in real estate development recovered, indicators such as new home constructions, land purchases, property sales, and sources of financing for developers have turned negative.

In a reaction, the statistics office once again explained the surprisingly strong figures with factors such as lower bottlenecks in power supply, strong foreign demand, more accurately focused Covid guidelines and growing inventories of companies as a result of uncertainties amid geopolitical tensions. GDP growth data for both months are yet to follow. For the full year, China is targeting 5.5 percent economic growth. But doubts about China’s data are as old as the data itself. ck

No tax on real estate for the time being

China will not expand its pilot program for a real estate tax this year. This was reported by Xinhua, citing a source in the Ministry of Finance. Current economic conditions would make it difficult to expand the program. The real estate market is currently under pressure, with property prices currently falling slightly. Major developers such as Evergrande are heavily indebted. In addition, the new Covid wave is clouding the growth outlook for the overall economy. A tax would put additional pressure on local real estate markets and increase liquidity pressure on developers, Cai x in reports.

China’s authorities had approved a five-year pilot program to test a property tax in October 2021. First cities had trialed the implementation of a property tax. Analysts had assumed that initial trials to levy a tax could start this year. While the real estate market in some cities could be disrupted in the short term by the pilot program, in the long term, however, a tax could have a positive impact by putting local government financing on a better footing, Caixin quoted experts as saying. But it can be assumed that the real estate tax will not be introduced until the real estate market has stabilized again. nib

BYD increases prices

Chinese car manufacturer BYD has once again raised prices. The Dynasty series models will cost ¥3,000 (€430) more, while prices for the Ocean series will increase by ¥6,000 (€860). The company cited the rising cost of raw materials as the reason, Bloomberg reported. Prices for important raw materials have recently risen significantly. This is especially true for nickel, an essential element for electric batteries. Since the war in Ukraine, the price of nickel has tripled.

This marks the second price adjustment in less than two months. In January, prices for BYDs cars had already increased by up to ¥7,000 (€1,000), and at the time, the reason was the reduction in government subsidies for EV. China wants to reduce these subsidies by 30 percent this year and abolish them completely at the end of the year.

Tesla has even announced two price increases in China this week. Tesla first raised the price of the Model Y Long Range and the Model 3 Performance by ¥18,000 (€2,570), then by another ¥10,000 (€1,430).

BYD is one of China’s largest EV manufacturers. In February, the company sold 87,473 electric cars and plug-in hybrids. Last year, the figure was around 600,000 in total. jul

We cannot retreat!

By Liao Yiwu

Many innocent people have died, and many more will die, be injured, be maimed, will flee and will be displaced – all because of the “imperial dream” of Putin, a madman, and a madman like Putin, Xi Jinping, who also has an “imperial dream.”

Putin and Xi Jinping, two of the world’s greatest villains, met as comrades in arms at the opening ceremony of the Beijing Winter Olympics, under the spotlight of the international community. They formed a demonic alliance: a joint declaration of “no no-go zones” between Russia and China, the latest fascist Axis alliance – Putin received more than 100 billion dollars in orders from Xi Jinping and agreed that Russia’s war of aggression would start as soon as China’s Olympics were over.

On February 24, 2022, the day the war started, Xi Jinping urgently summoned his foreign, national security, commerce ministers, and top military generals to order aid to Russia. To ease the crisis of Russia’s removal from the US dollar international settlement system SWIFT, China accepted Russia’s participation in the RMB settlement system and major Russian companies opened accounts with Chinese financial institutions. For more than half a month after the invasion, the Russian-Chinese “wartime air corridor” has been unimpeded, with large cargo planes to Russia filling the tarmac at Beijing airport. In support of Russia’s invasion of Ukraine, the Chinese government also completely eliminated anti-war voices in the country, even blocking the President of the International Paralympic Committee from delivering an anti-war speech at the opening ceremony of the Paralympic Games.

After more than two years of being held hostage by a virulent virus from Wuhan, all of humanity is now being held hostage by Putin’s nuclear deterrent.

Therefore, I strongly condemn the dictator Putin for kidnapping the entire Russian people and waging an aggressive war against Ukraine! This is the largest “regional invasion” since World War II. It is likely to trigger World War III.

If Putin wins, Xi Jinping will imitate Putin and launch a war of aggression against Taiwan! This would be many times more cruel than killing the freedom of Hong Kong!

Politicians, military, entrepreneurs, scientists, and ordinary citizens of democratic countries, if you remember the names of dictators like Lenin, Hitler, Stalin, Mao, and Pol Pot, who caused the deaths of millions, tens of millions, and hundreds of millions of innocent civilians, remember that Putin and Xi Jinping are also such dictators, and they are causing similar catastrophes.

We have experienced and are experiencing viral aggression and war aggression, and we cannot retreat!

To support Ukraine is to protect ourselves.

The book “Wuhan” by Liao Yiwu was published January 26th 2022 by S. Fischer. He is the recipient of the Peace Prize of the German Book Trade. He has lived in Berlin since 2011.

Staff at the rescue and rearing station for elephants in Xishuangbanna measure little Longlong. He was abandoned by his herd shortly after his birth due to a leg injury and is now being nursed here – like 20 of his fellow elephants before him. The Xishuangbanna Biosphere Reserve in the deep south of the Yunnan Province is home to 90 percent of China’s elephants. Until the 1920s, wild elephants roamed as far as the east of the country.

CHINA.TABLE EDITORIAL OFFICE

Amelie
Richter

Marcel
Grzanna

Fabian
Peltsch

Julia
Fiedler

Angela
Köckritz

Jörn
Petring