

Discover more from China BIG Idea
Technology: the Manifestation of Human progress that transpires in every Culture. Government Proposals, Huawei, FDI, Monetary Policy 2021, a special Weekly Edition
Intelligence and Insights on China's government actions, foreign policy, economy and the capital markets.
Mathematician, philosopher, politician Marquis of Condorcet affirmed in his final work Esquisse d'un tableau historique des progrรจs de l'esprit humain that incremental advancement of techniques lead to the progress of mankind. Like an ever-ascending staircase, the pursuit of innovation is endless, so is the perfectibility of human spirits.
A Letter from the Editor
Topping every local congressional agenda this week, leading to the annual twin congressional sessions, is the innovation of innovation policies themselves.
The expressions of digitization, innovation, and the Fourth Industrial Revolution transpire in every Chinese cityโs future vision, every corporate playbook, and every strategic communiquรฉ. Itโs all propaganda and all state-led. One might conveniently discard its significance.ย ย
Shanghai, Beijing, and Guangdong proclaimed their drive for fintech, digital economy, innovative banking, innovative capital markets, and innovation-based manufacturing at their annual congressional sessions.ย
The development challenges China faces are multifaceted. No single revolutionary technology can be the silver-bullet solution to all these challenges: the sovereign digital currency cannot magically establish RMBโs central position in the global currency system; the high-speed rail infrastructure alone cannot transport the Greater Bay Area into the worldโs next Silicon Valley.ย
The technology of today was born of problems of yesterday. It breeds the technologies of tomorrow.
For now, we see a society casting a bold pursuit of scientific advancements at an unnerving speed.ย
When the revolution of technology actually happens inside scientific laboratories, we commend the human drive for innovation itself. This same spirit created and propelled the modern Renaissance. When every era is eventually buried in historyโs remains, this spirit will last and carry humanity on.ย
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Government in Action
1. Shanghai Plans Critical City Transformation at Annual Congressional Session.
โ5 new satellite citiesโ and โ 5 poles to the economyโ are written into the Cityโs Government work report, as the annual congressional session takes place.
5 new satellite cities
Shanghai has designated Jiading, Qingpu, Songjiang, Fengxian, and Nanhui (ๅๅฎใ้ๆตฆใๆพๆฑใๅฅ่ดคใๅๆฑ) as the โ5 Satellite Citiesโ. The 5 satellite cities will focus on building coordinated and independent industrial supply chains to strengthen, particularly in strategic and frontier industries.
The core strengths of the 5 satellite cities have been in traditional manufacturing, as a component of the greater Yangtze River Delta region. The new focus will center on high-end manufacturing and digital transformation.
5 poles to the economy
Shanghai is now defined as an innovative economy, service economy, open economy, headquarter economy, and platform economy.
ไธๆตท็ปๆตๆฏๅ ธๅ็ๅๆฐๅ็ปๆตใๆๅกๅ็ปๆตใๅผๆพๅ็ปๆตใๆป้จๅ็ปๆตใๆต้ๅ็ปๆต.
Deliver digital transformation
The digital economy accounted for over 50% of Shanghaiโs GDP in 2020. The number is slightly lower than Beijingโs, but is a significant infrastructure to the cityโs future development.
2019ๅนดๆฐๅญ็ปๆตๅฏน็ปๆตๅข้ฟ็่ดก็ฎ็ไธบ67.7%๏ผๆฏ้ฉฑๅจๆๅฝ็ปๆตๅข้ฟ็ๆ ธๅฟๅ ณ้ฎๅ้ใ่ๆฐๅญ็ปๆตๅจไธๆตทๅ ไธปๅฏผๅฐไฝ๏ผGDPๅ ๆฏๅทฒ่ถ ่ฟ50%๏ผๅคง้้ซๆฐไผไธๅๆฐๅบๅปบ็ธๅ ณไผไธไธบไธๆตทๆฐๅญ็ปๆตๅๅฑๆไพไบๆฏๆๅไฟ้ใ
Develop technology banking infrastructure
The integration of finance and technology will inevitably be Shanghaiโs core strength. The city will lead in efforts to develop technology banking services specifically tailored for the financing needs of high-tech companies.
Technology banking refers to banks that specifically deliver financial services to high-tech companies. The expertise required will involve IP-based lending services and a different set of parameters in understanding collaterals and creditworthiness.
Technology banking services will make lending to tech firms for its development expedient.
ๆ่ฐ็งๆ้ถ่ก๏ผ้ๅธธๆฏๆไธไธบ้ซ็งๆไผไธๆไพ่่ตๆๅก็้ถ่กๆบๆ๏ผๅ ถไผๅฟๅจไบ๏ผ้ๅฏน็งๆ่ดทๆฌพ๏ผๅจ่ตไฟกๆกไปถๅๅฎขๆท่งๆจก่ฏไผฐๆน้ข๏ผๆกไปถๅนถไธ่ๅป๏ผๅ ่้ซๆๆฏไผไธ่ฝๅคไพฟๆทๅฐ่ทๅพ็งๆ่ดทๆฌพใ
We will bring you key congressional outcomes from other major cities in the subsequent issues.
2. Congressional Sessions: Guangdong Province
This is the second review of the regional annual congressional sessions. The first review was on Shanghaiโs annual congressional sessions. Please refer to yesterdayโs briefing.
Key priorities for 2021๏ผThe Guangdong-HK-Macau Greater Bay Area (GBA) and Shenzhen pilot city of Socialism with Chinese Characteristics
Develop the โRail Greater Bay Areaโ. ๏ผ่ฝจ้ไธ็ๅคงๆนพๅบ๏ผ
Guangzhou, Zhuhai, Foshan, Dongguan, Zhongshan, Jiangmen, and Zhaoqing 7 cities (ๅนฟๅทใ็ ๆตทใไฝๅฑฑใ ไธ่ใ ไธญๅฑฑใๆฑ้จใ่ๅบ) will be connected via inter-city high-speed rail links.
The high-speed rail will cover 636 kilometers, built over 13 projects, with over $5.8 billion.
13ไธช้กน็ฎๆป้็จ636ๅ ฌ้๏ผๆปๆ่ต3783ไบฟๅ ใ
The transportation targets for GBA:
Among major cities: within 1 hour
Among major cities and satellite and inner regions: within 2 hours
GBA with neighboring provincial capitals: within 3 hours.
The action plan for Guangzhou:
Guangzhou will excel on
building innovative commodities exchanges ( possibly the carbon exchange), and
incubating a GBA international commercial bank to support Guangzhou as the hub of Chinaโs trade status.
ใไธญๅ ฑๅนฟไธ็ๅงๅ จ้ขๆทฑๅๆน้ฉๅงๅไผๅ ณไบๅฐๅๅนฟๅทๅธๆจๅจโๅไธชๅบๆฐๅบๅฝฉโ่กๅจๆนๆก็้็ฅใๆ็กฎ๏ผๅปบ่ฎพ็ฐไปฃๆๅกไธๅผบๅธ๏ผๅ ๅฟซๅนฟๅทๅๆฐๅๆ่ดงไบคๆๆๅ็ฒคๆธฏๆพณๅคงๆนพๅบๅฝ้ ๅไธ้ถ่ก่ฝๅฐ
Shenzhen and Guangzhou's strategic partnerships will bring world-leading advanced industrial clusters and world transportation hubs.
This will start to form the core of the Chinese โSilicon Valley.โ
The plan also includes the โCanton Exports to the Worldโ strategy. ( ็ฒค่ดธๅ จ็๏ผ
Macro
China Surpasses the US as Largest Recipient of FDI in 2020
China topped the global ranking in one more economic benchmark in 2020. It attracted $163 billion in inflows last year, compared to $134 billion by the US, according to the UNCTAD report. This represented a small increase of 4% in its inflows.
India also saw a positive increase in FDI inflows under the pandemic.
Globally, FDI plunged 42% to $859 billion in 2020.
Investment in the US fell 49%. Still, the total stock of foreign direct investments in the US remains much larger than that in China. (read more)
Allocation of the Disbursement of Foreign Investment
Data from the Ministry of Commerce shows Chinaโs actual disbursement of foreign investment reached nearly $154.72 billion (RMB 999.98 billion) in 2020, up 6.2% YoY.
The service sector used foreign investment of over $119 billion (RMB 776 billion) in 2020, accounting for over 77% of its actual disbursement of foreign investment and growing by 13.9% YoY.
Foreign investment attracted by the high-tech industries grew by 11.4% YoY.
China continues to rely on FDIs under the New Development Theory.
Foreign-invested companies will play a critical role in Chinaโs pursuit of the new development pattern. Although these enterprises account for 2% of the total number of enterprises in China, they provide one-tenth of the jobs in urban areas and one-sixth in tax revenue.
3. Chinaโs M2 Money Supply & Monetary Policy 2021
Governor Yi Gang of the Peoples Bank of China (PBOC) seeks continuation of the PBOCโs current policy position. He stated that โChina will try and maintain a normal monetary policy for as long as possible and keep the yield curve upwards sloping.โย ย
Chinaโs debt to output ratio currently stands at 280% at the end of 2020, up 20% in 2019. The PBOC believes this will stabilize in 2021.
PBOC adviser Ma Jun argued that China should permanently abandon GDP targets from this year and instead prioritize stabilizing employment and controlling inflation as the major goals of macroeconomic policyโ. The argument was based on the fact that setting an official GDP target may incentivize the local government to borrow money to boost their economy, add to the financial risks, or inflate their statistics. However, this is practically not possible for 2021 as cities have already started to publicize 2021 GDP benchmarks.
Due to the macro leverage ratio climbing rapidly, asset inflation began forming in both the stock and property markets. Yet, it is important policy shifts shouldnโt happen too fast to avert hazards such as project suspensions and rise in bad loans continue. (Recent examples of this would be R&F properties).
The 2021 monetary policy guideline
The guideline is to match the growth speed of M2 and public finance to the growth speed of GDP.
Therefore, the growth of the M2 money supply should be kept at 9% in 2021 to manage inflation effectively.
The correlation between M2 and Asset inflation
It is worth noting that the increase in M2 provides a lot of liquidity to the market,ย which led to a rise in both overseas and domestic technology stocks and boosting returns in the secondary market and sentiment in the primary market. Tech likely continues to generate excess returns as well as policy friendly sectors and the online economy.ย
Technology
1. Biden Administrationโs Policies on Huawei Unclear
The Biden administration has yet issued clear signals on its policies towards the Chinese telecom giant.
At the White House press briefing today, the White House expressed it will continue to defend American technologies not to be used for the Chinese military build-up.
US Semi Industry Group urges correction to Huawei August Sanctions.
SEMI, the US semiconductor industry group, urged the Commerce Secretary-designate to quickly correct an August rule that expanded U.S. authority over foreign company sales to Chinaโs Huawei, which unintentionally affected some foreign-made semiconductor production and test equipment.
It also asked the Biden administration to promptly reduce the backlog of license applications to supply Chinese telecom companies.
2. Chinaโs Semiconductor Development
The semiconductor industry in China sawย $22 billion (140 billion Rmb) invested in 2020, more than four times that of 2019.ย The number of major investment deals has also soured to 413, nearly double the 211 deals seen in 2019.ย
The STAR market, which has acted as a catalyst for innovation, adopts a NASDAQ-style listing requirement than the more traditional Chinese intensive review process. By enabling IPOs without the profitability requirements, it allows chip startups the capital required to advance their development faster in cutting edge fields.ย
There were no semiconductor IPOs in China in 2018. After the STAR market launch in July 2019, this number jumped to 18 and 32 in 2020. The Semiconductor International Manufacturing Corp (SMIC) raised over 46 billion Rmb and now trades at over double the IPO price, reflecting a pattern of strong gains seen across the semiconductor industry.
3. Huawei Announced First Overseas Factory in France
Huawei announced on December 17, it would invest โฌ200 million in building a mobile phone network equipment factory in the east of France. Its products will be directed towards the European market despite French efforts to phase out Huaweiโs 5G gear. While the French government has yet to articulate a clear position on the company, authorities announced in July 2020 they won't allow firms to renew licensing of Huaweiโs 5G products once they expire. (source)
Europe is increasingly becoming a 5G battleground. Franceโs largest mobile operator, Orange, opted to partner with Nokia and Ericsson for 5G development. Other French providers, including Bouygues Telecom and SFR, already rely on Huawei, though they have not finalized 5G partnerships. (source)
In comparison to France, other European governments and businesses have developed a more lenient Huawei strategy. For example, Huawei won 5G contracts with providers in Hungary and Spain. Germany, the Netherlands, and Portugal, among others, allow Huawei to bid for their 5G development, noting that all participating firms would be subject to EU and national regulations. (source)
Debate remains on how to reconcile the benefits and shortcomings of doing business with Huawei and better coordinate cybersecurity approaches. The EU and the UK appear to have adopted the notion that they can mitigate risk by promoting market diversity to avoid dependence on any one vendor. (source)
4. Huawei Turns to Smart Vehicles
Last November, Huawei merged its smart vehicle and consumer businesses as a first step towards the creation of an EV segment. The Chinese smartphone producer has been harmed by US sanctions and has not revived its smartphone business ever since. To prevent the company from dying out stymied by the scarcity of semiconductors, the management of Huawei has eyed the opportunity to enter the EV business, which is currently booming in China.ย
Huaweiโs participation in the rise of the smart vehicles industry can bring innovation and accelerate the development of new fully autonomous driving technologies. Huawei still has the means to enter this industry and gain a dominant positionโalthough the competition will be fierce as other tech giants are eager to participate in the development of this growing industry.
Indeed, Huaweiโs competitors are in a better position as companies like Alibaba and Tencent can leverage their strengths in deep learning and AIโwhich Huawei currently lacks.
โThe smart vehicle business is Huaweiโs new business [โฆ]. We have sufficient strategic patience to invest in the sector, and there is no profitability requirement in the short term.โ
- Huawei Spokesman
Huawei believes that the world of mobility is undergoing significant changes, and the Chinese smartphone manufacturer thus wishes to โbring the digital world to every car.โ Indeed, the companyโs technology directly comes from its ICT business, representing its competitive advantage in the smart vehicle industry. For instance, in 2019, Huawei announced that it would use its 5G technology to develop state-of-the-art radars and laser radars for smart vehicles.
Consequences of Huaweiโs Entry
Thanks to its balance sheet, Huawei will sustain the substantial expenses stemming from R&D and government-issued testing licenses. The smartphone manufacturer will therefore be able to achieve cost-efficient ways to reach large-scale adoption of fully self-driving vehicles. Furthermore, Huawei will spearhead the process of cost reduction in equipment prices.
5. Apple Shifts More Supply Chains out of China
Apple is speeding up removing production out of China and pursuing diversification in Southeast Asia and South Asia. iPad production will allegedly begin in Vietnam by mid-2021, and iPhone production in India will be stepped up, including the latest iPhone 12 series as soon as March 2021 (source).
Apple is also increasing production capacity for its smart speakers, earphones, and computers in Southeast Asia to diversify the supply chain. Smart speakers had been produced in Vietnam since their introduction last year. Furthermore, some of Appleโs computer production will be relocated to Malaysia and Vietnam, although its bulk remains in China (source).
Suppliers have rushed to meet Appleโs desire for more diverse production bases.
Already in 2018, Chinaโs Goertek โ AirPods assembler โ asked its suppliers to assess the feasibility of moving production to Vietnam (source). In 2019 Apple asked several suppliers to calculate the costs of moving 15% to 30% of their production outside of China (source).
Last year, key supplier Foxconn invested $270 million to set up a subsidiary in Vietnam to expand its production capacity there (source).
Luxshare Precision Industry โ new iPhone assembler and supplier โ is ramping up production in Vietnam (source).
Appleโs restructuring of its supply chain is only one example of global tech giants reducing their production dependence on China. Although China maintains the worldโs most sophisticated supply chain, tensions between Washington and Beijing, the rise of labor costs, and the coronavirus-induced disruption of supply chains have exposed the risks of depending too heavily on one location for production.ย
Moreover, the Trump administration has launched a campaign to restructure supply chains, urging suppliers to flee China (source). The new Biden administration does not seem to be willing to immediately reverse the former administration's policy (source), meaning that technological decoupling is likely to continue in 2021.
Economy
30 of 31 Mainland Provinces Registered Positive Economic Growth in 2020
All mainland provinces, except Hubei Province (-5.00%)-the epicenter of the coronavirus outbreak, achieved positive economic growth in 2020. (read more in Chinese)
Five provinces that have not released full-year 2020 data - Hebei Province, Jiangsu Province, Henan Province, and Xinjiang Autonomous Region- achieved positive economic growth already by Q3 2020.
Hubeiโs GDP reached about $618 billion (RMB 4 trillion) last year and recovered to more than 95% of that in 2019.
Geographic Breakdown
More than half of the provinces grew faster than the national rate at 2.3%.ย
ยทย ย ย 6 western provinces grew the strongest in 2020 โ Tibet (7.80%), Guizhou (4.50%), Gansu (3.90%), Ningxia (3.90%), Chongqing (3.90%),ย Sichuan (3.80%);
ยทย ย ย 4 South Central provinces โ Anhui (3.90%), Hunan (3.80%), Guangxi (3.70%), Hainan (3.50%);
ยทย ย ย 2 eastern provinces โ Jiangxi (3.80%), Shandong (3.60%);
ยทย ย ย 1 northern province โ Shanxi (3.60%); and
ยทย ย ย 1 southeastern province โ Fujian (3.30%). (read more in Chinese)
Chart: eastmoney.com
Western Chinaโs stellar catch-up
Tibet Autonomous Region grew at a striking 7.8%.ย
Guizhou Province, the runner up, grew by 4.5%, ranking among the fastest-growing provinces for 10 consecutive years.
The Big Three Regional Economies.
Guangdong Province became the first province to surpass the $1.7 trillion (RMB 11 trillion) benchmark and topped Chinaโs regional GDP performance for the 32nd consecutive year.ย
Jiangsu Province came in second and ranked first in per capita GDP.ย
Shandong Province, the third-largest in economy scale, grew by 3.6% YoY, faster than Guangdong and Jiangsu.
Noticeably, all these big economic provinces are coastal regions.ย
Economic targets set for 2021
East China provinces, including Guangdong, Shanghai, Beijing, and Tianjin, set their growth targets at 6.5%.ย
Central provinces, having seen rapid growths in recent years, have set higher growth targets of more than 7%, while Shanxi set an 8% target.
Hubei sets its economic growth rate at over 10% in 2021, given the low base of 2020. โAs we expect favorable policies from the central government, Hubei will see great development in 2021," said Ye Qing, Deputy Director of Hubei Provincial Bureau of Statistics. (read more in Chinese)
Hainan anticipates a โno less than 10%โ growth rate in 2021, as it implements Chinaโs largest free trade port development. (read more in Chinese)
7 New Cities Achieve RMB 1 Trillion GDP Milestone
As of January 26, 23 cities have entered the RMB 1 trillion($154 billion) GDP club.
7 new cities were freshly minted to the Trillion RMB Club in 2020. Fuzhou (็ฆๅท๏ผ, Quanzhou ๏ผๆณๅท๏ผ, Nantong ๏ผๅ้๏ผ, Hefei ๏ผๅ่ฅ๏ผ, Xiโan๏ผ่ฅฟๅฎ๏ผ, Jinan ๏ผๆตๅ๏ผ, and Fuzhou ๏ผ็ฆๅท).ย 3 of the 7 cities are in Fujian province.
The remaining 16 cities are Shanghai, Beijing, Guangzhou(ๅนฟๅท๏ผ, Shenzhen ๏ผๆทฑๅณ๏ผ, Tianjin ๏ผๅคฉๆดฅ๏ผ, Suzhou ๏ผ่ๅท๏ผ, Chongqing ๏ผ้ๅบ๏ผ, Chengdu ๏ผๆ้ฝ๏ผ, Wuhan ๏ผๆญฆๆฑ๏ผ, Hangzhou ๏ผๆญๅท๏ผ, Nanjing ๏ผๅไบฌ๏ผ, Qingdao ๏ผ้ๅฒ๏ผ, Wuxi ๏ผๆ ้ก๏ผ, Changsha ๏ผ้ฟๆฒ๏ผ, Ningbo ๏ผๅฎๆณข๏ผ, Zhengzhou ๏ผ้ๅท๏ผ, and Foshan ๏ผไฝๅฑฑ).
International Relations
Biden Administration Commerce Secretary Designate: Gina Raimondo
Bidenโs pick for Commerce Secretary Gina Raimondo appeared before the Senate confirmation hearing on Tuesday. Governor Raimondo, with a background in the financial industry, has been the governor of Rhode Island since 2014. If confirmed, she will be responsible for promoting economic growth domestically and overseas and inherit a department that has imposed numerous restrictions against China.ย
โAggressiveโ steps to combat โunfairโ trade practices
Governor Raimondo, at her confirmation hearing, stated that China has โclearly behaved in ways that are anti-competitiveโ and has hurt American workers and businesses. She specifically mentioned the dumping of cheap steel and aluminum to compete. She asserted that โwhether it is the entities list, or tariffs, or countervailing duties, I intend to use all these tools to the fullest extent possible to level the playing field for the American workerโ (read more).ย
Shunned on Huawei and China telecom carriers
Senator Ted Cruz, who is well-known for his anti-China stance, asked Raimondo to assure that she would not remove Huawei from the Entity List (the list of blacklisted companies). She did not offer a direct answer but instead stated that she would consult with relevant stakeholders to โmake an assessment as to whatโs best for American national and economic security (read more).
This remark led to an outcry from Senator Ben Sasse, who said that โtough talk on China is empty if you let Huawei out of the box.โ However, Governer Raimondo repeatedly emphasized that she is committed to safeguarding threats posed by Chinese telecommunications equipment, such as preventing the establishment of a back door into the US network. (read more)
Chinaโs response to Raimondoโs hearing
At a Foreign Ministry press conference on Wednesday, Zhao Lijian stated in response to a question about Raimondoโs remarks at the Senate hearing, that the US administration has โblatantly engaged in unilateral, protectionist, and bullying practicesโ and that โChina will continue taking necessary measures to safeguard our companiesโ lawful rights and interestsโ (read more).
2. China and New Zealand Expand the FTA
China and New Zealand signed an expansion of the China-New Zealand Free Trade Agreement at a virtual ceremony (26th January). The initial deal was signed in 2008 and was last upgraded in November 2019.ย
Key points of the upgraded deal (read more):ย
It reduced compliance costs for New Zealand exports. Additional benefits for exporters of perishable goods such as seafood and forestry products.
Expand market access to China for New Zealand-based services exporters. Industries to benefit include advertising and education.
Commitments to promote environmental protection and environmental standards cannot be lowered for protectionist trade purposes.
Tariff-free access for 99% of New Zealandโs wood and paper trade to China (Worth $2.15 billion) and phased tariff elimination on dairy, wood products, and paper productsย
Chinese investors can participate in a greater range of industries in New Zealand, such as marketing, human resources, and tourism.
New Zealand will not investigate Chinese government-backed investors with investments less than $71.82 million or non-government investors with investments no more than $143.64 million.ย
New Zealand Trade Minister Damien OโConnor stated that โChina is one of New Zealandโs most important relationshipsโ and that the updated deal will deepen the relationship between the two countries (read more).
State media outlet Global Times said that the FTA serves as a model for New Zealandโs neighbor Australia (read more).