China Chat 01: GDP, Antitrust and US-China Relations
From 2021, we are starting a series of subscriber-only events – China Chat – facilitating discussions on China’s economic, tech and industry trends. Each session will feature a quick overview of the economy, one hottest topic of the month, and a few other topics that we think you shouldn’t miss.
Jan 27 (Wed) 20:00-21:00 Beijing Time/7:00-8:00 EST/13:00-14:00 CET
Deputy Managing Editor and Editorial Board Member, Caixin Media
Chief Editor, Caixin.com; Assistant Managing Editor, Caixin Weekly Magazine
Deputy General Manager, Caixin Global; Director (International), Caixin Insight
Questions and answers
- With both RCEP and the EU IA now largely in place, what leverage does the US have in a multilateral approach against China?
Huang Shan: The WTO reform will be the next frontier where the US aligns with like-minded countries to push China to deliver its reform commitments. Also, the so-called D-10 (ten democratic countries) meeting on the sideline of G7 summit this summer will serve as a prototype to contain China's increasing assertiveness and muscle-flexing.
- Will china slow down on one belt one road?
Huang Shan: Yes. The reason has to do with more domestic financing needs amid a post-pandemic economic restructuring. The pandemic containment and control measures require extra financial contributions and putting greater strain on already tight fiscal revenues. Also, faced with such criticisms and concerns like debt trap and poor labor and environmental regulations over a number of BRI projects, the Chinese government has already put a brake on these projects, and instead focuses on so-called high-quality BRI. Each time you hear the word "high-quality", that means that they are no longer paying attention to the quantity or size of these projects but instead emphasizing on the quality.
-Why is consumption still weak and what measures are needed to boost it?
Li Zengxin: On the demand side, there is still the negative impact from lost jobs and income. On the supply side, travelling and tourism industries are still operating far below capacity. The recent cases and corresponding actions made this situation worse.
In the longer run though, the bigger problem came from a slower income growth (2020 as an exception) and higher household debt. The “indebted youth” phenomenon gained attention, and fintech companies, under pressure, were lowering consumer credit lines.
-What happened to all the money raised via Special Gov Bonds that should be spent in Infrastructure?
Li Zengxin: The special treasury bonds of 1 trillion yuan, did not crowd out spending on infrastructure. This, combined with 1 trillion yuan from higher official deficit, were spent on fighting the pandemic, including fiscal transfer, compensation for low-income families, reducing taxation and social welfare burden for companies, cutting interest rates for SMEs, subsidies to encourage consumption and investment etc.
The 3.75 trillion yuan new special bonds for local governments, which was bigger than previous years, were mainly targeted at infrastructure investment.
-Considering that the US is printing and injecting trillions of US dollars in the monetary circulation, what can we expect from the China Gov regarding exchange rates and finantial markets?
Li Zengxin: This again, creates a delicate situation for the PBOC, which has to take consideration of external conditions into its own monetary policy. If RMB keeps rising, the PBOC has smaller room for tightening, because rate hikes will widen US-China yield spreads, drawing more capital inflows and make the markets hotter. This is why the PBOC has been releasing some controls on capital outflows late last year. More such measures are expected.
-What type of impact do you expect on internet companies with the anti monopoly regulations - just small fines or more significant financial impact?
Qu Yunxu: Indeed, the current amount of fines for M&A is quite small. I don’t think fines will become the main means of monitoring Internet giants. The real impact on Internet companies is that anti-monopoly statements have be something “have-to-do”, and once the reviews on M&As are launched, it may slow down the speed of horizontal monopoly of Internet companies. Once the speed drops, it may give smaller competitors more opportunities.
In addition, I think it is more urgent to supplement the regulation of unfair competition.
-Thanks for your insights. Do you anticipate the government punishing the monopolists which could stop them from succeeding as global champions competing against US Big Tech?
Qu Yunxu: First of all, there is no competition between Chinese internet companies and American internet companies. Because they do business in segmented markets. The internationalization of Chinese Internet companies has never been particularly successful, except for TikTok, which has been banned in India, its largest overseas market. The US is the second-largest market of Tiktok, but we still don’t know the exact attitude of US new government.
On the other hand, American technology giants are facing a new wave of regulation in both Europe and the United States. Europe is exploring digital taxes in addition to GDPR, and the US Congress has begun anti-monopoly lawsuits against four technology companies.
In this sense, technology giants face similar changes in the policy environment all over the world.
-Could you discuss the relationship between Digital Silk Road projects and official attitudes toward the major tech platforms?
Qu Yunxu: According to the description of the Digital Silk Road Project from authority, I think it is more inclined to build digital infrastructure, such as 5G, data centers, and smart cities, in relevant countries. Solving the basic broadband speed problems, storage capacity, will be the first step. Thus I don’t think Ali or Tencent will get many contracts in Digital Silk Road. Those mobile phone companies such as Huawei and Xiaomi will benefit from the project sooner than internet companies.
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