1. Data dump – inflation
Earlier today, the National Bureau of Statistics (NBS) released August inflation data.
Here’s the rundown:
- The consumer price index (CPI) rose 2.4% y/y in August, down from 2.7% in July.
- The producer price index (PPI) fell 2.0% y/y in August, up from a 2.4% contraction in July.
Looking forward, we should be getting used to weaker consumer price growth.
Weaker consumer price growth in August was driven by a pullback in the growth in pork prices.
- Pork prices rose 52.6% y/y in August, down from 85.7% growth in July, and the slowest pace since last August.
Some context: Pork prices started rising steeply last summer, pushing the overall CPI up with it.
Get smart: That means that in coming months the y/y inflation calculation will be using an increasingly high base, so pork price growth will start to come down significantly.
Meanwhile over in the industrial sector, prices are still falling on a y/y basis.
We’ve said it before, and we’ll say it again: Things may be improving in China, but demand is still lagging far behind supply.
2. South Korean factories want to stay in China
I wish they could quit you.
In recent months, South Korea has joined the US and Japan in trying to bring its factories back home from China.
The South Korean government has incentivized companies to move back (FT):
- “Park Young-sun, minister for small to medium-sized enterprises and start-ups, said the government was redoubling efforts to encourage companies to return home.”
Newsflash: It ain’t working.
South Korean companies don’t want to leave(FT):
- “‘We’re now settled in China with stable business — it is a big market with cheaper wages. We can’t give it up just because the government is offering small tax incentives,’ said a Korean businessman who set up a Chinese plant 15 years ago.”
- “A recent survey showed that only 8 per cent of 200 South Korean SMEs with operations in China and Vietnam said they were willing to return home, according to local industry association K-Biz.”
Get smart: The COVID-19 pandemic sparked concerns about over-dependence on Chinese supply chains earlier this year. But Beijing’s rapid resumption of industrial activity cemented, rather than undermined, China’s status as the world’s factory.
3. DCS requires service sector opening
On Monday, we told you that the China International Fair for Trade in Services (CIFTIS) had kicked off in Beijing(see September 7 Tip Sheet).
- It signalled that the country’s service sector would continue to open to foreingers.
On the sidelines of the event, Liu Shijin, former president of State Council’s Development and Research Center, argued that opening the service sector is a key component of China’s broader dual circulation strategy (DCS).
Quick refresher: DCS is a strategy aimed at making theeconomy more resilient to external shocks by making domestic demand the main driver of the economy.
Liu thinks that the development of the service sector willboost domestic demand (Sina):
- “One characteristic of the service industry is that [most of] it is localized and cannot be traded.”
- “Therefore, [the development of the service industry] will inevitably increase the proportion of domestic demand in the overall economic activity.”
But Liu believes that for the sector to boom, China needs to continue to open:
- “[We need to] pay more attention to external circulation in sectors including financial services, logistics, [and] information services.”
Get smart: Liu is only the latest in a growing group of influential policy advisors who have said that DCS doesn’t spell the end of opening.
4. China starts own data security club, invites world
On Tuesday, Foreign Minister Wang Yi announced the launch of China’s Global Data Security Initiative.
What’s that: The initiative is an eight-point framework aimed at creating a set of global standards on data security.
Some context: The announcement is a response to the Washignton’s “Clean Network” initiative, aimed at keeping Chinese technology out of US networks and those of US-aligned countries (see August 6 Tip Sheet).
Wang couldn’t resist taking a swipe at the US (MoFA 2)
- “Some countries are engaged in unilateralism, splashing dirty water on other countries in the name of ‘cleanliness.’”
Key planks of the initiative include:
- Opposing the use of information technology to damage other countries’ key infrastructure or conduct large-scale surveillance
- Respecting the sovereignty, jurisdiction, and rights of other countries on data management regulations
- Prohibiting information technology products and services from installing backdoors to illegally obtain user data
Wang invited other countries to join hands with China in rolling out the initiative.
Good luck with that: China doesn’t exactly have a sterling reputation on internet governance issues globally. We’re not sure how many takers the new framework will get.
Get smart: Setting the global data governance agenda has been a longstanding priority for Chinese policymakers.Escalating tensions with the US have accelerated Beijing’s standard-setting timeline.
5. Former tech execs look to profit from decoupling
Over the past two years,building self-reliance in core technologies has becomethemotivating factor in economic policy.
Former tech execs are trying to do their part – and make a little dosh to boot (Reuters):
- “Venture capital firm China Europe Capital aims to raise 5 billion yuan (US$731.46 million) for [a] fund which will invest in start-ups specialising in technologies including semiconductors, 5G and artificial intelligence, said Zhang Jun, the firm’s chairman and a former vice-president at telecom equipment maker Huawei.”
Zhang won’t be on his own: He intends to launch the fund in partnership with local governments.
Some context: The technological self-sufficiency drive has become more pressing as the US increasingly cuts off Chinese companies – like Huawei – from US technology.
Zhang was blunt:
- “China and the US are in a Great Power rivalry that will end only when there’s a knockout.”
- “It’s not just about trade war, or sanctions. It’s a matter of life and death.”
The fund aims to turn lemons into lemonade:
- “[Zhang bets] the Sino-US decoupling will foster a self-sufficient home-grown tech sector that can one day live without incumbent US champions such as Qualcomm and Intel.”
Get smart: China’s industrial policy is evolving. It increasingly seeks to leverage private capital and market mechanisms.