driving the day
1.Death blow for Huawei?
Huawei’s tough year may also be its last.
On Monday, the US Commerce Department announced new sanctions on the Chinese telecom giant (WSJ):
- “The new rules prohibit non-U.S. companies from selling any chips made using U.S. technology to Huawei without a special license.”
- “The rule covers even widely available, off-the-shelf chips made by overseas firms, placing potentially severe new limits on Huawei’s ability to source parts.”
More context: By effectively banning Huawei from using third-party chips, the company will have nothing to fall back on when its stockpile of domestically made chips runs out.
Foreign ministry spokesman Zhao Lijian lambasted the decision at a press conference (MoFA):
- “What the US has done shows clearly that the…fair competition principle it claims to champion is nothing but a fig leaf.”
Get smart:In the past year, Huawei has worked tirelessly to reduce its dependence on foreign supply chains, but it appears to be too little, too late.
The big question:Is Beijing willing and able to pull the country’s premier national tech champion out of its death spiral?
2.China’s export powerhouse status is threatened
China’s role as the world’s manufacturer is slipping.
That’s according to a new study, written up in the FT on Tuesday.
- “Last year Chinese exports of 1,200 products accounted for 22 per cent of the world’s exports, 3 percentage points down on the previous year, according to a new study by Baker McKenzie, the law firm, and Silk Road Associates, an economic consultancy.”
- “For consumer goods the country’s global market share fell by 4 percentage points to 42 per cent.”
The authors of the report say the toll is largely coming from the US-China trade war:
- “Companies that make technology hardware, one of the industries where manufacturing has been most concentrated in China, have moved production of some products out of China over the past three years as their customers in the US began raising concerns over security and as some components were hit by US tariffs under the China trade dispute.”
Get smart: Chinese leaders may not be losing sleep over this shift. Their latest and greatest economic policy framework – the dual circulation strategy – is all about emphasizing domestic demand to shift away from reliance on exports (see August 13 Tip Sheet).
Go deeper: For the latest thinking on the dual circulation strategy, check out today’s China Markets Dispatch.
3. As always, it pays to be rich
The global pandemic is causing deeper problems than temporarilyupending economic growth.
- It’s also driving increased inequality– and China is no exception.
According to the Financial Times, being amongChina’s affluent few is now comparatively greater than ever.
The wealthy are back tospending:
- “More than a dozen luxury western brands, ranging from fashion houses to carmakers, reported double-digit revenue growth in China during the second quarter of this year compared with 12 months earlier.”
Meanwhile, folks on lower incomes are struggling to make ends meet.
- “Per capita consumer spending by urban residents — mainly low to middle income groups — fell 6.2 per cent in the second quarter of 2020 following a 9.5 per cent drop in the first three months of the year, according to official data.”
- “The fall in spending is especially pronounced at the bottom of the ladder.”
Why the uneven outcome?
- Critics blame the government’s policy support choices, which they say don’t focus enough ondirectly supporting consumers and households.
Get smart:Not only isthe uneven recovery in consumer spending holding backoverall economic growth, it’s alsowidening China’s already yawningwealth gap.
Get smarter: China isn’t alone on this front. The pandemic has hit poorer communities throughout the world hard.
- We’re not giving China a pass, but we’ve seen few if any policy responses that have done a good job addressing this problem.
4.Xi is on the road in Anhui
On Tuesday, Xi Jinping hit the road, traveling down to Anhui.
Reporting so far has been limited.
Thus far, the trip has focused on the recent flooding (Xinhua 2):
- “While visiting Funan County in the city of Fuyang, Xi went to a floodgate, a luggage and bag company and a ‘zhuangtai,’ a residential structure on raised ground with higher elevation that functions as a safe haven from river floods.”
- “Xi checked the water situation of the Huaihe River and learned about local measures for flood control, disaster relief and post-flood production recovery. He also visited and consoled those affected by floods.”
With villagers, Xi put on his man of the people persona, saying (Xinhua 1):
- “I have been constantly worried about the masses in disaster areas.”
- “Seeing that the lives and work of villagers are settled and have hope, puts my heart at ease.”
Get smart: Because international travel is more or less off the table, Xi has been doing more local inspections this year. This is his seventh trip to the provinces in 2020 – up from five in the same period in 2019.
What to watch: These trips always culminate ina meeting with provincial officials to discuss policy. The readout from that meeting will shed light on Xi’s policy priorities.
5. Third day’s a charm
This morning, the National Health Commission (NHC) dropped the latest COVID-19 stats.
On Tuesday, China reported no new domestically transmitted cases – for the third consecutive day (NHC):
- There were 17 new imported cases – down from 22 on Monday.
- There were also 14 new asymptomatic cases – 13 of which were imported from abroad.
- One domestically transmitted asymptomatic case was reported in Shanwei, Guangdong.
The Xinjiang outbreak that started in Urumqi on July 15 is stabilizing (Xinjiang HC):
- Tuesday was the third consecutive day in which Xinjiang reported zero new confirmed COVID-19 cases.
- Tuesday was also the first time since the local outbreak started in which the daily increase in asymptomatic carriers leveled off.
Despite a few travelers coming from abroad still bringing COVID-19 across the border, China has continued to relax entry barriers.
- On Tuesday, transportation authorities in both China and the US moved to double the current four weekly round-trip flights to eight round-trip flights, for airlines on each side.
Get smart:Chinese authorities have not only mastered the abilityto contain local outbreaks domestically,they’ve also gained considerable experience in handling imported cases.
The bottom line: China will – gradually – allow more international travelers into the country.