Even the talks at the EU-Western Balkans summit cannot change the fact that Serbia, an EU accession candidate, is continuing to orient itself towards China. At present, Serbia is China’s most important trading partner in the Balkan region. In October, the two countries signed a free trade agreement, which Serbia described as a historic moment in bilateral relations.
However, observers see the business relations promoted by the political elite around President Vučić as one-sidedly in China’s favor. Beijing could use Serbia to gain better access to the markets of the Eurasian Economic Union to sell its cheap products, writes Amelie Richter. However, if Serbia were to become an EU member state, it would have to cancel the agreement with China. How realistic the EU accession is for Serbia is currently questionable for a variety of reasons.
Pinduoduo is perhaps best known in this country as the parent company of the cheap shopping app Temu. The e-commerce company founded in 2015 has now overtaken the top dog Alibaba in terms of market capitalization in China. Former Alibaba boss Jack Ma also thinks that the competitor has done a good job by overtaking the company he built up so quickly.
But what exactly is the secret of its success? Pinduoduo has “gamified” the shopping experience like no platform before. To get discounts and vouchers, users gamble their way through addictive mobile games. And then there are the global low-price offers: With Temu, Pinduoduo is now active in 48 countries. But it is precisely this international success that could prove to be the Group’s Achilles heel, explains Jörn Petring.
On Wednesday, the heads of state and government of the European Union and the Western Balkans met for a joint summit in Brussels. Not present: Serbia’s authoritarian President Aleksandar Vučić. He was represented by Prime Minister Ana Brnabić. Vučić thus skipped the second EU-Western Balkans summit in a row. This is not surprising. After all, he just emphasized a completely different direction for his country, namely towards Beijing instead of Brussels. He signed a free trade agreement with China. On the one hand, Belgrade has complicated the path to a possible EU membership. On the other hand, however, his move comes as no surprise given the slow progress in the accession talks.
In Serbia itself, the free trade agreement concluded in October was presented as a “crucial and historic moment in bilateral relations,” as Stefan Vladisavljev, Program Director at the Serbian BFPE Foundation and part of the Belgrade Security Forum team, told Table.Media. “The main message was that this agreement presents a great opportunity for Serbian industry and economy and that it will benefit Serbian agriculture.” The political elite around President Vučić pushed this message.
However, Vladisavljev emphasizes that concerns were raised outside the ruling coalition that the biggest profit from the agreement would actually have Chinese companies operating in Serbia. “The amount of exports from Serbia to China continuously rises, but the main exporters are Chinese-owned companies.” The level of imports from China is also already significantly higher than Serbia’s exports. In terms of trade, however, this is not necessarily surprising, says Vladisavljev.
However, he does not see this as a bad omen for the free trade agreement per se: “If Serbia increases its imports from China, it is not necessarily a bad thing.” The crucial question is whether Serbia offers equal competitive opportunities and equal positioning for domestic manufacturers and partners, says Vladisavljev. Serbia’s government must thus prevent a glut of cheap products.
Serbia is China’s most important trading partner in the Balkan region. Conversely, China is also Serbia’s most important trading partner in Asia. In 2022, the bilateral trade volume amounted to 3.55 billion US dollars, which corresponds to an increase of a good ten percent compared to the previous year. According to the United Nations Comtrade database, Serbian exports to China reached a value of 1.17 billion US dollars in 2022. The most important exported goods are ores, slag and ash (worth around 913 million US dollars), copper (around 133 million US dollars) as well as wood, electrical goods and machinery.
China’s exports to Serbia are almost twice as high: 2.18 billion US dollars in 2022. According to Comtrade, the largest items are machinery, nuclear reactors and boilers (around 754 million US dollars) and electronic equipment (around 488 million US dollars). Items made of iron or steel and aluminum are also among China’s most important exports to Serbia.
The free trade agreement that has now been concluded has another strategic advantage for China: Serbia also has a free trade agreement with the Eurasian Economic Union, which includes countries such as Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. China can now theoretically gain better access to their markets via Serbia.
According to Vladisavljev, the relationship between Serbia and the European Union cannot only be measured by the exchange between Beijing and Belgrade. The situation is much more complex. However, in his opinion, the free trade agreement confirms the Serbian government’s diversified approach to its foreign policy: “The question arises as to the realistic commitment of the governing coalition to the process of EU integration.”
If Serbia would become an EU member state, it would have to cancel the agreement with China. How realistic it is for Serbia to join the EU in the near future is questionable anyway – from both sides. President Vučić skipped an EU-Western Balkans meeting in Tirana in October, at which the EU promised the region billions in financial aid. Vučić also sent Prime Minister Brnabić to the appointment at the time. Just one day after the meeting, Serbia’s president signed the free trade agreement with China. The negotiations for the trade contract are said to have been completed in just a few months.
Meanwhile, the accession negotiations with Brussels are dragging on and on. In addition to Serbia, the official candidate countries of the Western Balkans region are Albania, Bosnia and Herzegovina, Montenegro and North Macedonia. Accession negotiations are already underway with Montenegro and Serbia, and negotiation chapters have been opened. Negotiations also began with Albania and North Macedonia in July 2022, and Kosovo submitted its application to join the EU in December 2022. In Serbia’s case, the difficult relationship with Kosovo is also slowing down accession talks.
Added to this is Belgrade’s foreign policy lurch towards China and Russia – and many domestic problems such as rising corruption and increasing violence. On December 17, new elections will be held at the parliamentary and municipal levels. And opposition to Vučić and his Progressive Party SNS is greater than ever. Since 19 people were shot dead in two rampages in May, thousands of people have taken to the streets every week to protest against the autocrat. These were the largest anti-government protests in 20 years.
Nevertheless, it is very unlikely that Vučić and the SNS will emerge from the election with a defeat. The government controls a large part of the media in Serbia.
Jack Ma has long relinquished control of Alibaba’s day-to-day business. Recently, however, the billionaire and founder of the Chinese online giant spoke out. Ma wrote an article on Alibaba’s intranet about the success of its young competitor Pinduoduo. The reason was the exorbitant growth shown by the company, founded in 2015.
Ma praised Pinduoduo for its strategy and decisions and immediately called for more commitment from its own workforce. The company’s course must be “corrected,” said Ma. He was confident that Alibaba had the ability to develop and adapt.
Investors were quick to judge after the publication of the latest business figures and Ma’s commentary. Pinduoduo’s share price jumped sharply and overtook Alibaba for the first time.
As of Wednesday, Pinduoduo’s market value remained higher at around 195 billion US dollars than Alibaba’s market capitalization, which was only around 181 billion US dollars, a dramatic change from three years ago when Alibaba was valued at around 860 billion US dollars and Pinduoduo at 108 billion US dollars.
In the third quarter of 2023, Alibaba achieved revenue of 224.79 billion Yuan (approximately 30.81 billion US dollars), a year-on-year increase of nine percent. In comparison, Pinduoduo achieved sales of 68.84 billion Yuan (about 9.6 billion US dollars) in the same quarter, an impressive increase of 93.9 percent year-on-year.
Pinduoduo was founded in 2015 by Colin Huang. Huang, a former Google employee, recognized a gap in the market in China’s e-commerce landscape. The company started as a shopping platform that focused on group buying, where users could buy products together at lower prices.
Pinduoduo grew rapidly, driven by the integration of social media elements and a strong focus on low prices. The platform used social networks such as WeChat to encourage users to share offers with friends and family and make joint purchases.
Following its IPO in New York in 2018, Pinduoduo continued its rapid growth and expanded its offering to cover a wider range of products and appeal to a larger customer group. Although Pinduoduo has also been repeatedly criticized in recent years, for example, for counterfeit products or the long working hours of its employees, the company has generally maneuvered through the changing regulatory environment in its home market more skillfully than Alibaba.
Pinduoduo also stood out from other e-commerce platforms with its special sales strategies. These included “gamification” elements to improve the shopping experience. Game-like challenges were offered in which users had to complete certain tasks to receive discounts or vouchers.
However, Pinduoduo’s biggest boost came from its rapid expansion abroad. Pinduoduo’s cross-border e-commerce platform Temu experienced rapid growth, which contributed significantly to the company’s market value. Launched in North America in September 2022, Temu quickly spread to 48 countries and became the most downloaded iPhone app in the US for a time in 2023.
Alibaba has been less successful in its international expansion and has so far mainly been active in Southeast Asia. However, there is no guarantee that Pinduoduo will remain at the top of the list in terms of market capitalization and even overtake Alibaba in terms of sales. A few years ago, no one could have imagined that the group would come under such massive pressure from Jack Ma. If Temu were to be targeted by the US authorities, like the Chinese social network Tiktok before it, investors would probably be very unsettled.
Northern China is experiencing a severe cold snap with storms and heavy snowfall. The authorities in the capital have ordered the suspension of train services to major cities such as Shanghai, Hangzhou and Wuhan. Schools have been closed and lessons have been moved online. Citizens are being urged to stay at home until further notice. Companies have been asked to offer their employees flexible working conditions. The city government has issued the second-highest warning for snowstorms until Thursday.
Temperatures could drop by more than 14 degrees in much of northern, northwestern and southern China, as well as parts of Inner Mongolia, Guizhou province and even regions south of the Yangtze River, the weather agency said. Heavy rain and snowfall is forecast for the central and eastern regions until Friday, with parts of Shaanxi, Henan and Shandong provinces likely to receive several centimeters of precipitation from snowstorms.
Even for Shanghai in the south, where temperatures are currently a mild 20 degrees Celsius, icy temperatures of up to minus four degrees are forecast for Saturday and Sunday. More than 6,000 rescue workers have been put on standby to clear the snow and more than 5,800 pieces of equipment and machinery have been made available. rtr
Last month, China held its first Central Financial Work Conference – the highest-level review of the financial sector that the Communist Party of China (CPC) conducts – since 2017. Given that China’s financial sector includes the world’s largest banking system by assets (53.1 trillion US dollars) – and the second-largest (after the United States) by stock-market capitalization – and that the full Politburo Standing Committee attends the conference, the decisions made, and even the tone struck, have global implications.
The report released after the conference confirmed that the CPC’s fundamental view of the financial sector has not changed. For China’s leaders, the fundamental function of finance is to serve the real economy, and the government is responsible for maintaining stability, managing risks, and promoting homegrown innovation and high-quality development.
But the focus of the discussions shifted significantly since 2017, when the main priority was managing the imbalances arising from shadow banking, local-government spending, and real-estate excesses. All of the risks in these domains had been exacerbated by the massive monetary and fiscal stimulus that China’s government implemented in the wake of the 2008 global financial crisis.
Last month, monetary and fiscal policy were again at the top of the agenda, but the circumstances – and associated challenges – were very different. After all, China tightened its macroeconomic-policy stance years ago. The key question now is: How should monetary and fiscal policy be adapted and deployed to support quality growth and structural reform in the face of changing internal and external conditions?
Among the most important external factors China’s leaders must consider is the enduring looseness of monetary and fiscal policy in OECD countries. According to Federal Reserve data, the one-year real interest rate in the US has been mostly negative since 2009. This was true even last year: though the Fed consistently raised rates in an effort to rein in surging inflation, the one-year real interest rate amounted to -1.9 percent.
One finds similar rates in the eurozone, Japan, and the United Kingdom. But in China, real interest rates are much higher, even though the nominal interest rate is low. According to World Bank data, China’s real interest rate in 2022 reached 2.1 percent, compared to just 0.2 percent in India.
This monetary-policy divergence has had far-reaching implications for China’s financial sector and foreign-exchange markets. In the four quarters ending in June 2023, China’s portfolio investment deficit (net outflow) reached 186 billion US dollars, compared to just 96 billion in the previous four quarters. And in the first nine months of 2023, China’s real effective exchange rate fell by 5.4 percent, because its inflation rate was below that of its major trading partners.
Internally, China faces the momentous challenge of decarbonizing its economy. Achieving peak carbon emissions by 2030 and net-zero emissions by 2060 – per China’s “30-60” commitment – is essential to enable high-quality, sustainable development. But, in the short term, decarbonization puts considerable downward pressure on growth. After all, China’s manufacturing value-added still accounts for some 28 percent of GDP – far higher than the 13 percent average for OECD countries.
This tension between short-term considerations and long-term goals extends far beyond decarbonization; in fact, it defined last month’s conference. To get to the long term, China must overcome short-term liquidity issues caused by recent shifts and shocks, including developed-economy interest-rate hikes, the COVID-19 pandemic, geopolitically motivated changes to supply chains, and falling asset prices.
Only with abundant liquidity can China counter deflationary pressures and weakening consumer and investor confidence; restore local-government balance sheets (which were severely damaged by the COVID-19 pandemic); and finance innovation (crucial to China’s long-term prosperity). Massive amounts of funding will also be needed to meet China’s decarbonization goals.
Mobilizing the necessary resources will require a lower real interest rate, which would also help China to address short-term issues like asset-price deflation and overcome medium- and long-term challenges, from stabilizing the real-estate sector to coping with population aging. Fortunately, China built up considerable financial assets and reserves during its decades of rapid growth, so it has the monetary and fiscal space it needs to meet short-term liquidity needs and support long-term structural reforms.
While the conference report underscored areas where the central government will intervene to strengthen and stabilize the economy – from restoring corporate and local-government balance sheets to supporting investment in innovation – it would be a mistake to assume that China is embracing greater economic centralization. On the contrary, the conference report reaffirmed the need for the financial sector to support high-quality, sustainable development, by financing innovation, improving efficiency, and continuing to open up.
To this end, the report endorsed a major upgrading of the equity market, including diversifying channels for equity financing. Chinese leaders recognize the crucial role of such funding in sharing and managing risk in areas ranging from innovation and advanced manufacturing to food and energy security.
Moreover, the conference report highlighted China’s need for private firms to contribute to economic growth and upgrading. This includes foreign companies and investors, whose interest in the Chinese market remains robust, despite geopolitical tensions. At the recent Shanghai China International Import Expo – one of the world’s largest trade fairs – US firms comprised the largest foreign delegation.
China’s massive and complex economy is defined by tensions between the central and local governments, the public and private sectors, various regions, and internal and external conditions. In such a system, a central authority must take responsibility for maintaining overall stability and defining the policy direction.
But just as unbridled liberalization would lead to chaos, excessive centralization would impede growth and development. That is why, even as it reaffirms the government’s role in ensuring macroeconomic stability, the conference report reflects an enduring commitment to opening up the Chinese economy gradually to foreign investment and private competition. Add to that the thawing of US-China relations augured by Chinese President Xi Jinping’s recent meeting with his American counterpart, Joe Biden, and there is plenty of reason to believe that the China of tomorrow will be more innovative, open, and dynamic than ever.
Andrew Sheng is a Distinguished Fellow at the Asia Global Institute of the University of Hong Kong. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is Professor and Director of the Institute of Policy and Practice at the Shenzhen Finance Institute of the Chinese University of Hong Kong, Shenzhen.
Copyright: Project Syndicate, 2023.
www.project-syndicate.org
Students and soldiers of the People’s Liberation Army gathered at a state memorial ceremony on Wednesday to commemorate the victims of the Nanjing Massacre. As has been customary for a few years now, white doves were released over the grounds of the Nanjing Memorial Hall. The war crimes began on December 13, 1937, following the occupation of the city by troops of the Imperial Japanese Army. Between 200,000 and 300,000 civilians and prisoners of war lost their lives at the time. The memory of the atrocities is now part of patriotic education in China and an open wound in relations with Japan.
Even the talks at the EU-Western Balkans summit cannot change the fact that Serbia, an EU accession candidate, is continuing to orient itself towards China. At present, Serbia is China’s most important trading partner in the Balkan region. In October, the two countries signed a free trade agreement, which Serbia described as a historic moment in bilateral relations.
However, observers see the business relations promoted by the political elite around President Vučić as one-sidedly in China’s favor. Beijing could use Serbia to gain better access to the markets of the Eurasian Economic Union to sell its cheap products, writes Amelie Richter. However, if Serbia were to become an EU member state, it would have to cancel the agreement with China. How realistic the EU accession is for Serbia is currently questionable for a variety of reasons.
Pinduoduo is perhaps best known in this country as the parent company of the cheap shopping app Temu. The e-commerce company founded in 2015 has now overtaken the top dog Alibaba in terms of market capitalization in China. Former Alibaba boss Jack Ma also thinks that the competitor has done a good job by overtaking the company he built up so quickly.
But what exactly is the secret of its success? Pinduoduo has “gamified” the shopping experience like no platform before. To get discounts and vouchers, users gamble their way through addictive mobile games. And then there are the global low-price offers: With Temu, Pinduoduo is now active in 48 countries. But it is precisely this international success that could prove to be the Group’s Achilles heel, explains Jörn Petring.
On Wednesday, the heads of state and government of the European Union and the Western Balkans met for a joint summit in Brussels. Not present: Serbia’s authoritarian President Aleksandar Vučić. He was represented by Prime Minister Ana Brnabić. Vučić thus skipped the second EU-Western Balkans summit in a row. This is not surprising. After all, he just emphasized a completely different direction for his country, namely towards Beijing instead of Brussels. He signed a free trade agreement with China. On the one hand, Belgrade has complicated the path to a possible EU membership. On the other hand, however, his move comes as no surprise given the slow progress in the accession talks.
In Serbia itself, the free trade agreement concluded in October was presented as a “crucial and historic moment in bilateral relations,” as Stefan Vladisavljev, Program Director at the Serbian BFPE Foundation and part of the Belgrade Security Forum team, told Table.Media. “The main message was that this agreement presents a great opportunity for Serbian industry and economy and that it will benefit Serbian agriculture.” The political elite around President Vučić pushed this message.
However, Vladisavljev emphasizes that concerns were raised outside the ruling coalition that the biggest profit from the agreement would actually have Chinese companies operating in Serbia. “The amount of exports from Serbia to China continuously rises, but the main exporters are Chinese-owned companies.” The level of imports from China is also already significantly higher than Serbia’s exports. In terms of trade, however, this is not necessarily surprising, says Vladisavljev.
However, he does not see this as a bad omen for the free trade agreement per se: “If Serbia increases its imports from China, it is not necessarily a bad thing.” The crucial question is whether Serbia offers equal competitive opportunities and equal positioning for domestic manufacturers and partners, says Vladisavljev. Serbia’s government must thus prevent a glut of cheap products.
Serbia is China’s most important trading partner in the Balkan region. Conversely, China is also Serbia’s most important trading partner in Asia. In 2022, the bilateral trade volume amounted to 3.55 billion US dollars, which corresponds to an increase of a good ten percent compared to the previous year. According to the United Nations Comtrade database, Serbian exports to China reached a value of 1.17 billion US dollars in 2022. The most important exported goods are ores, slag and ash (worth around 913 million US dollars), copper (around 133 million US dollars) as well as wood, electrical goods and machinery.
China’s exports to Serbia are almost twice as high: 2.18 billion US dollars in 2022. According to Comtrade, the largest items are machinery, nuclear reactors and boilers (around 754 million US dollars) and electronic equipment (around 488 million US dollars). Items made of iron or steel and aluminum are also among China’s most important exports to Serbia.
The free trade agreement that has now been concluded has another strategic advantage for China: Serbia also has a free trade agreement with the Eurasian Economic Union, which includes countries such as Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. China can now theoretically gain better access to their markets via Serbia.
According to Vladisavljev, the relationship between Serbia and the European Union cannot only be measured by the exchange between Beijing and Belgrade. The situation is much more complex. However, in his opinion, the free trade agreement confirms the Serbian government’s diversified approach to its foreign policy: “The question arises as to the realistic commitment of the governing coalition to the process of EU integration.”
If Serbia would become an EU member state, it would have to cancel the agreement with China. How realistic it is for Serbia to join the EU in the near future is questionable anyway – from both sides. President Vučić skipped an EU-Western Balkans meeting in Tirana in October, at which the EU promised the region billions in financial aid. Vučić also sent Prime Minister Brnabić to the appointment at the time. Just one day after the meeting, Serbia’s president signed the free trade agreement with China. The negotiations for the trade contract are said to have been completed in just a few months.
Meanwhile, the accession negotiations with Brussels are dragging on and on. In addition to Serbia, the official candidate countries of the Western Balkans region are Albania, Bosnia and Herzegovina, Montenegro and North Macedonia. Accession negotiations are already underway with Montenegro and Serbia, and negotiation chapters have been opened. Negotiations also began with Albania and North Macedonia in July 2022, and Kosovo submitted its application to join the EU in December 2022. In Serbia’s case, the difficult relationship with Kosovo is also slowing down accession talks.
Added to this is Belgrade’s foreign policy lurch towards China and Russia – and many domestic problems such as rising corruption and increasing violence. On December 17, new elections will be held at the parliamentary and municipal levels. And opposition to Vučić and his Progressive Party SNS is greater than ever. Since 19 people were shot dead in two rampages in May, thousands of people have taken to the streets every week to protest against the autocrat. These were the largest anti-government protests in 20 years.
Nevertheless, it is very unlikely that Vučić and the SNS will emerge from the election with a defeat. The government controls a large part of the media in Serbia.
Jack Ma has long relinquished control of Alibaba’s day-to-day business. Recently, however, the billionaire and founder of the Chinese online giant spoke out. Ma wrote an article on Alibaba’s intranet about the success of its young competitor Pinduoduo. The reason was the exorbitant growth shown by the company, founded in 2015.
Ma praised Pinduoduo for its strategy and decisions and immediately called for more commitment from its own workforce. The company’s course must be “corrected,” said Ma. He was confident that Alibaba had the ability to develop and adapt.
Investors were quick to judge after the publication of the latest business figures and Ma’s commentary. Pinduoduo’s share price jumped sharply and overtook Alibaba for the first time.
As of Wednesday, Pinduoduo’s market value remained higher at around 195 billion US dollars than Alibaba’s market capitalization, which was only around 181 billion US dollars, a dramatic change from three years ago when Alibaba was valued at around 860 billion US dollars and Pinduoduo at 108 billion US dollars.
In the third quarter of 2023, Alibaba achieved revenue of 224.79 billion Yuan (approximately 30.81 billion US dollars), a year-on-year increase of nine percent. In comparison, Pinduoduo achieved sales of 68.84 billion Yuan (about 9.6 billion US dollars) in the same quarter, an impressive increase of 93.9 percent year-on-year.
Pinduoduo was founded in 2015 by Colin Huang. Huang, a former Google employee, recognized a gap in the market in China’s e-commerce landscape. The company started as a shopping platform that focused on group buying, where users could buy products together at lower prices.
Pinduoduo grew rapidly, driven by the integration of social media elements and a strong focus on low prices. The platform used social networks such as WeChat to encourage users to share offers with friends and family and make joint purchases.
Following its IPO in New York in 2018, Pinduoduo continued its rapid growth and expanded its offering to cover a wider range of products and appeal to a larger customer group. Although Pinduoduo has also been repeatedly criticized in recent years, for example, for counterfeit products or the long working hours of its employees, the company has generally maneuvered through the changing regulatory environment in its home market more skillfully than Alibaba.
Pinduoduo also stood out from other e-commerce platforms with its special sales strategies. These included “gamification” elements to improve the shopping experience. Game-like challenges were offered in which users had to complete certain tasks to receive discounts or vouchers.
However, Pinduoduo’s biggest boost came from its rapid expansion abroad. Pinduoduo’s cross-border e-commerce platform Temu experienced rapid growth, which contributed significantly to the company’s market value. Launched in North America in September 2022, Temu quickly spread to 48 countries and became the most downloaded iPhone app in the US for a time in 2023.
Alibaba has been less successful in its international expansion and has so far mainly been active in Southeast Asia. However, there is no guarantee that Pinduoduo will remain at the top of the list in terms of market capitalization and even overtake Alibaba in terms of sales. A few years ago, no one could have imagined that the group would come under such massive pressure from Jack Ma. If Temu were to be targeted by the US authorities, like the Chinese social network Tiktok before it, investors would probably be very unsettled.
Northern China is experiencing a severe cold snap with storms and heavy snowfall. The authorities in the capital have ordered the suspension of train services to major cities such as Shanghai, Hangzhou and Wuhan. Schools have been closed and lessons have been moved online. Citizens are being urged to stay at home until further notice. Companies have been asked to offer their employees flexible working conditions. The city government has issued the second-highest warning for snowstorms until Thursday.
Temperatures could drop by more than 14 degrees in much of northern, northwestern and southern China, as well as parts of Inner Mongolia, Guizhou province and even regions south of the Yangtze River, the weather agency said. Heavy rain and snowfall is forecast for the central and eastern regions until Friday, with parts of Shaanxi, Henan and Shandong provinces likely to receive several centimeters of precipitation from snowstorms.
Even for Shanghai in the south, where temperatures are currently a mild 20 degrees Celsius, icy temperatures of up to minus four degrees are forecast for Saturday and Sunday. More than 6,000 rescue workers have been put on standby to clear the snow and more than 5,800 pieces of equipment and machinery have been made available. rtr
Last month, China held its first Central Financial Work Conference – the highest-level review of the financial sector that the Communist Party of China (CPC) conducts – since 2017. Given that China’s financial sector includes the world’s largest banking system by assets (53.1 trillion US dollars) – and the second-largest (after the United States) by stock-market capitalization – and that the full Politburo Standing Committee attends the conference, the decisions made, and even the tone struck, have global implications.
The report released after the conference confirmed that the CPC’s fundamental view of the financial sector has not changed. For China’s leaders, the fundamental function of finance is to serve the real economy, and the government is responsible for maintaining stability, managing risks, and promoting homegrown innovation and high-quality development.
But the focus of the discussions shifted significantly since 2017, when the main priority was managing the imbalances arising from shadow banking, local-government spending, and real-estate excesses. All of the risks in these domains had been exacerbated by the massive monetary and fiscal stimulus that China’s government implemented in the wake of the 2008 global financial crisis.
Last month, monetary and fiscal policy were again at the top of the agenda, but the circumstances – and associated challenges – were very different. After all, China tightened its macroeconomic-policy stance years ago. The key question now is: How should monetary and fiscal policy be adapted and deployed to support quality growth and structural reform in the face of changing internal and external conditions?
Among the most important external factors China’s leaders must consider is the enduring looseness of monetary and fiscal policy in OECD countries. According to Federal Reserve data, the one-year real interest rate in the US has been mostly negative since 2009. This was true even last year: though the Fed consistently raised rates in an effort to rein in surging inflation, the one-year real interest rate amounted to -1.9 percent.
One finds similar rates in the eurozone, Japan, and the United Kingdom. But in China, real interest rates are much higher, even though the nominal interest rate is low. According to World Bank data, China’s real interest rate in 2022 reached 2.1 percent, compared to just 0.2 percent in India.
This monetary-policy divergence has had far-reaching implications for China’s financial sector and foreign-exchange markets. In the four quarters ending in June 2023, China’s portfolio investment deficit (net outflow) reached 186 billion US dollars, compared to just 96 billion in the previous four quarters. And in the first nine months of 2023, China’s real effective exchange rate fell by 5.4 percent, because its inflation rate was below that of its major trading partners.
Internally, China faces the momentous challenge of decarbonizing its economy. Achieving peak carbon emissions by 2030 and net-zero emissions by 2060 – per China’s “30-60” commitment – is essential to enable high-quality, sustainable development. But, in the short term, decarbonization puts considerable downward pressure on growth. After all, China’s manufacturing value-added still accounts for some 28 percent of GDP – far higher than the 13 percent average for OECD countries.
This tension between short-term considerations and long-term goals extends far beyond decarbonization; in fact, it defined last month’s conference. To get to the long term, China must overcome short-term liquidity issues caused by recent shifts and shocks, including developed-economy interest-rate hikes, the COVID-19 pandemic, geopolitically motivated changes to supply chains, and falling asset prices.
Only with abundant liquidity can China counter deflationary pressures and weakening consumer and investor confidence; restore local-government balance sheets (which were severely damaged by the COVID-19 pandemic); and finance innovation (crucial to China’s long-term prosperity). Massive amounts of funding will also be needed to meet China’s decarbonization goals.
Mobilizing the necessary resources will require a lower real interest rate, which would also help China to address short-term issues like asset-price deflation and overcome medium- and long-term challenges, from stabilizing the real-estate sector to coping with population aging. Fortunately, China built up considerable financial assets and reserves during its decades of rapid growth, so it has the monetary and fiscal space it needs to meet short-term liquidity needs and support long-term structural reforms.
While the conference report underscored areas where the central government will intervene to strengthen and stabilize the economy – from restoring corporate and local-government balance sheets to supporting investment in innovation – it would be a mistake to assume that China is embracing greater economic centralization. On the contrary, the conference report reaffirmed the need for the financial sector to support high-quality, sustainable development, by financing innovation, improving efficiency, and continuing to open up.
To this end, the report endorsed a major upgrading of the equity market, including diversifying channels for equity financing. Chinese leaders recognize the crucial role of such funding in sharing and managing risk in areas ranging from innovation and advanced manufacturing to food and energy security.
Moreover, the conference report highlighted China’s need for private firms to contribute to economic growth and upgrading. This includes foreign companies and investors, whose interest in the Chinese market remains robust, despite geopolitical tensions. At the recent Shanghai China International Import Expo – one of the world’s largest trade fairs – US firms comprised the largest foreign delegation.
China’s massive and complex economy is defined by tensions between the central and local governments, the public and private sectors, various regions, and internal and external conditions. In such a system, a central authority must take responsibility for maintaining overall stability and defining the policy direction.
But just as unbridled liberalization would lead to chaos, excessive centralization would impede growth and development. That is why, even as it reaffirms the government’s role in ensuring macroeconomic stability, the conference report reflects an enduring commitment to opening up the Chinese economy gradually to foreign investment and private competition. Add to that the thawing of US-China relations augured by Chinese President Xi Jinping’s recent meeting with his American counterpart, Joe Biden, and there is plenty of reason to believe that the China of tomorrow will be more innovative, open, and dynamic than ever.
Andrew Sheng is a Distinguished Fellow at the Asia Global Institute of the University of Hong Kong. Xiao Geng, Chairman of the Hong Kong Institution for International Finance, is Professor and Director of the Institute of Policy and Practice at the Shenzhen Finance Institute of the Chinese University of Hong Kong, Shenzhen.
Copyright: Project Syndicate, 2023.
www.project-syndicate.org
Students and soldiers of the People’s Liberation Army gathered at a state memorial ceremony on Wednesday to commemorate the victims of the Nanjing Massacre. As has been customary for a few years now, white doves were released over the grounds of the Nanjing Memorial Hall. The war crimes began on December 13, 1937, following the occupation of the city by troops of the Imperial Japanese Army. Between 200,000 and 300,000 civilians and prisoners of war lost their lives at the time. The memory of the atrocities is now part of patriotic education in China and an open wound in relations with Japan.
