Chinese President Xi Jinping’s (習近平) top economic adviser earlier this year commissioned a study to see how China could avoid the fate of Japan’s epic bust in the 1990s and decades of stagnation that followed.
The report covered a wide range of topics, from the Plaza Accord on currency to a real-estate bubble to demographics that made Japan the oldest population in Asia, according to a person familiar with the matter who has seen the report.
While details are scarce, the person revealed one key recommendation that policymakers have since implemented: The need to curtail a global buying spree by some of the nation’s biggest private companies.
Photo: Bloomberg
Chinese Communist Party (CCP) leaders discussed Japan’s experience in a politburo meeting on April 26, according to the person, who asked not to be identified as the discussions are private.
Chinese state media came alive afterward, with reports trumpeting Xi’s warning that financial stability is crucial in economic growth.
Then in June came a bombshell: reports that China’s banking regulator had asked lenders to provide information on overseas loans made to Dalian Wanda Group Co (萬達集團), Anbang Insurance Group Co (安邦保險集團), HNA Group Co (海航集團), Fosun International Ltd (復星國際) and the owner of Italian soccer team AC Milan.
While the timing of the requests is unclear, other watchdogs soon issued directives to curb excessive borrowing, speculation on equities and high yields in wealth-management products.
Jim O’Neill, previously chief economist at Goldman Sachs Group Inc and a former UK government minister, said Chinese policymakers are constantly looking to avoid the mistakes of other countries — and Japan in particular.
“You see it in repeated attempts to stop various potential property bubbles so China doesn’t end up with a Japan-style property collapse,” O’Neill said in an e-mail. “There does appear to be some signs that some Chinese investors don’t invest in clear understandable ways, but they wouldn’t be the only ones where that is true.”
On Tuesday, Chinese Vice Minister of Commerce Qian Keming (錢克明) told reporters that Chinese companies must be prudent in outbound investment in the entertainment, sports, hotel and property sectors.
The moves reflect concerns that China’s top dealmakers have borrowed too much from state banks, threatening the financial system and ultimately the CCP’s legitimacy to rule — a key worry ahead of a once-in-five-year conclave this fall that would cement Xi’s power through 2022.
The study was commissioned by Liu He (劉鶴), whose role as director of the office of the CCP’s top economic policy committee makes him one of Xi’s most senior advisers, the person said.
It provides at least one key reason for Beijing’s moves to rein in outbound investment that jumped to a record US$246 billion last year.
The impact has been swift: Acquisitions abroad tumbled 55 percent in the first six months from the same period last year, according to data compiled by Bloomberg.
Beyond stemming China’s deal flow, the study also recommended a new law to spell out the rules for overseas investments and tighter scrutiny by regulators on the long-term viability of overseas investments — particularly return on assets — to ensure that risks do not blow up.
It likened Chinese companies to speculative retail investors looking for quick returns on the stock exchange.
The study said China is in danger of emulating Japan in the 1980s, when it had become a manufacturing powerhouse after years of near double-digit economic growth.
It cited Japanese purchases of everything from Pebble Beach golf club to Columbia Pictures to Rockefeller Center in New York as examples of what could go wrong when companies have a strong currency and the ability to borrow cheaply against surging land valuations at home.
China is moving to ensure its companies do not repeat those mistakes.
Still, even as authorities look to deleverage the economy, the CCP remains committed to ensuring annual growth of about 6.5 percent this year to achieve a promise of building a “moderately prosperous society” by 2020, with GDP and income levels double those of 2010.
Whether they can both hit that target and curb financial risks is an open question.
“The deleveraging push is serious when it comes to limiting the potential for systemic financial stress in the short term,” said Logan Wright, Hong Kong-based director of China markets research at Rhodium Group LLC.
“But it is less clear that Chinese authorities are truly prepared for the longer-term economic consequences of a financial system growing at a much slower rate in the future,” he said.
Three experts in the high technology industry have said that US President Donald Trump’s pledge to impose higher tariffs on Taiwanese semiconductors is part of an effort to force Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) to the negotiating table. In a speech to Republicans on Jan. 27, Trump said he intends to impose tariffs on Taiwan to bring chip production to the US. “The incentive is going to be they’re not going to want to pay a 25, 50 or even a 100 percent tax,” he said. Darson Chiu (邱達生), an economics professor at Taichung-based Tunghai University and director-general of
‘LEGACY CHIPS’: Chinese companies have dramatically increased mature chip production capacity, but the West’s drive for secure supply chains offers a lifeline for Taiwan When Powerchip Technology Corp (力晶科技) entered a deal with the eastern Chinese city of Hefei in 2015 to set up a new chip foundry, it hoped the move would help provide better access to the promising Chinese market. However, nine years later, that Chinese foundry, Nexchip Semiconductor Corp (合晶集成), has become one of its biggest rivals in the legacy chip space, leveraging steep discounts after Beijing’s localization call forced Powerchip to give up the once-lucrative business making integrated circuits for Chinese flat panels. Nexchip is among Chinese foundries quickly winning market share in the crucial US$56.3 billion industry of so-called legacy
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday held its first board of directors meeting in the US, at which it did not unveil any new US investments despite mounting tariff threats from US President Donald Trump. Trump has threatened to impose 100 percent tariffs on Taiwan-made chips, prompting market speculation that TSMC might consider boosting its chip capacity in the US or ramping up production of advanced chips such as those using a 2-nanometer technology process at its Arizona fabs ahead of schedule. Speculation also swirled that the chipmaker might consider building its own advanced packaging capacity in the US as part
A move by US President Donald Trump to slap a 25 percent tariff on all steel imports is expected to place Taiwan-made steel, which already has a 25 percent tariff, on an equal footing, the Taiwan Steel & Iron Industries Association said yesterday. Speaking with CNA, association chairman Hwang Chien-chih (黃建智) said such an equal footing is expected to boost Taiwan’s competitive edge against other countries in the US market, describing the tariffs as "positive" for Taiwanese steel exporters. On Monday, Trump signed two executive orders imposing the new metal tariffs on imported steel and aluminum with no exceptions and exemptions, effective