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Businesses struggle as cracks appear in China’s economy

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Cracks are opening in China’s mighty economy: investors are backing away from deals, factories are moving abroad and companies are shedding jobs.

The world’s second-largest economy is losing steam, hitting its slowest growth in almost three decades last year, and flagging further in recent months.

While gross domestic product grew at 6.6 percent in 2018 a rate that would be the envy of most nations — China’s efforts to cut its debt mountain have weighed on the economy.

Private businesses in particular face new hurdles as costs rise and financing becomes harder to come by, while the trade war with the United States has not helped.

Here is a look at some of the struggles faced by Chinese companies and people:

Feeding China’s addiction to video games seemed an easy bet for Beijing Yixin Technology, a tech startup behind the mobile game Farm Take Home.

The game allows players to harvest wheat, raise chickens and plant apple trees — a bucolic refuge from the pressures of urban China.

But in real life, the tech firm has struggled to find investors.

“In December our company’s funding ran out, we had an investment lined up, but the money never came through,” said chairman Cui Yi.

“This month I arranged another investor, then he backed out too. I think we can’t hold out.”

His company is not alone.

Venture capital funding dried up at the end of last year. Total investment in the fourth quarter fell 13 percent from a year earlier, according to data from Preqin market research.

Policymakers are partly to blame, pushing a war on debt and financial risk that has cut the funding flowing into investment firms, industry insiders say.

Another government diktat halted new video game approvals for months — officially due to youth gaming addiction concerns — sending firms like Beijing Yixin into a deep freeze.

Other companies are facing the fallout from the trade war with the United States.

More than a handful of exporters have sought to get around U.S. tariffs by building factories outside China, according to a review of public stock filings.

Others are sending workers home early for Chinese New Year or cutting overtime.

Last month China’s exports fell.

“It has hit our profits,” Harry Shih, manager of Runfine Bearings in eastern Zhejiang province, said of the trade war.

Washington slapped 25 percent taxes on many types of ball bearings in July. Shih said he had shared the cost increase with his customers, roughly half of whom are from the U.S.

“Business is going down for most companies including factories. Like me they have the same problems, profits are going down” as costs rise, said Shih.

Slowing disposable income growth and tighter credit have hit consumer spending, with car sales falling last year for the first time in more than 20 years.

“Volumes have fallen by half,” said Wang Jingjing, a fast-talking 23-year-old salesman at a Ford dealership in Beijing, noting about one third of the salespeople had been fired or left.

Wang’s own salary has roughly halved, he said, from around 10,000 yuan ($1,474) a month in 2017 down to less than 5,000 yuan ($737).

“I’ve definitely controlled my own spending, going out to eat less, buying less, cutting down on these things,” he said, adding he believes things will turn around this year with new car models coming out.

Official data shows unemployment at a stable rate, rising slightly to 4.9 percent last month.

But independent data paints a different picture.

In October-December advertised tech positions fell by 20 percent from a year earlier, after declining 51 percent in the third quarter, according to data from Zhaopin, China’s largest recruitment website and Renmin University.

China’s economy “faces downward pressure, and to some extent this pressure will be transmitted to the job market,” said Meng Wei, a spokeswoman for the National Development and Reform Commission, China’s state planner.

A lawyer who consults on labour disputes, Guo Xuehai of Beijing Zhonghai Law Firm, said, “there are definitely more employees coming for help than before,” but added this was usually the case at this time of the year.

At Beijing Yixin, Cui said he could only afford to pay his 30-odd employees 70 percent of their salaries as money ran out in November. By December he paid them nothing and this month he cut their insurance and benefit plan, unofficially firing them.

“We worked 9 a.m. to 9 p.m. plus Saturdays with no overtime pay and now no pay at all,” said a 3D designer surnamed Li, who helped build Farm Take Home.

Employees looking for new jobs have found that companies are not hiring at the moment.

“Hopefully it will be better after Chinese New Year,” Li said.

© 2019 AFP

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China Launches Military Drills Amid Visit by U.S. Official

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China launched a fresh round of military drills in the Taiwan Strait, as a top U.S. diplomat demonstrated increasing American support for the democratically ruled island with a visit to Taipei.

The Eastern Theater Command of the People’s Liberation Army will conduct “scenario-based exercises” in the Taiwan Strait starting Friday, Senior Colonel Ren Guoqiang told a news conference in Beijing. Ren, who was speaking at a briefing on the Chinese military’s international peacekeeping efforts, didn’t elaborate on the nature of the drills or how close they would come to the sensitive median line of the strait.

“It is a legitimate action of the Chinese army in promoting our security and sovereignty and territorial integrity,” Ren said. “The U.S. and Taiwan authorities have been in close contact recently, frequently stirring up trouble. In fact, it will only be a day dream for Taiwan to promote independence by colluding with foreign countries.”

China has stepped up military activities in the waterway, as Taiwanese President Tsai Ing-wen courts greater military and diplomatic support from the U.S. and its allies. Beijing regards the island as part of its territory, and reserves the right to take it by force, even though the two sides have been ruled separately for more than 70 years and have deep social and economic ties.

The latest announcement came after Undersecretary of State Keith Krach began a visit to Taiwan, ostensibly to attend the Saturday funeral of former Taiwanese President Lee Teng-hui. It’s the second such visit in as many months, after Health and Human Services Secretary Alex Azar became most senior American official to travel to the island since Washington switched diplomatic ties to Beijing from Taipei in 1979.

The PLA has conducted more than 30 maritime drills in all four of its major sea regions since late July, the Communist Party’s Global Times newspaper reported Monday, citing unidentified experts. The U.S. and Taiwan have also increased military drills in the area.

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Follow Party’s lead, Beijing tells private firms

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A new directive issued by the Communist Party’s top leadership on stepping up the “United Front” work for the nation’s wide swath of private businesses has again ignited fears. Some entrepreneurs wonder if Beijing aims to sit on the board of each and every private company and poke its nose into business operations.

In related guidelines issued on Wednesday, Beijing has laid out plans to strengthen “guidance and supervision” of entrepreneurs and foreign businesspeople running joint-ventures or wholly-owned companies in the country.

“Owners and the management of private and foreign-invested firms, as well as stakeholders in these businesses, should learn and keep themselves up to speed the party’s overarching tenets, in particular, Xi Jinping’s thought on Socialism with Chinese Characteristics that is enshrined in the party’s constitution,” read a circular from Xinhua.

The document drafted by the party’s United Front Work Department, the first of its kind in decades regarding the party’s networking and broad coalition affairs in the private sector, also added that all businesses, irrespective of their ownership structure, should “heed the party’s call and follow the party’s lead.”

There is a special chapter dedicated to ideological training and aggrandizing the party’s supervision in the day-to-day running of private companies.

Also, another internal memo, issued separately to all party cadres of the rank of deputy mayoral level and viewed by Asia Times, stated that Beijing’s new United Front drive had everything to do with the challenges arising from the growing heft of the private sector as well as the “manifold political and ideological demands from high-profile entrepreneurs.”

The guidelines come on the heels of Chinese President Xi Jinping’s latest ukase about the United Front work for non-state-owned enterprises. In a nutshell, Xi has highlighted the need to rally the entire private sector behind the party and make the sector more yoked to the party and the state-owned economy.

Wang Yang, a standing member of the Politburo, the party’s top decision-making caucus, and chair of the Chinese People’s Political Consultative Conference, China’s top political advisory body, was quoted by Xinhua as saying at a recent meeting that successful entrepreneurs must realize that “they owe their fame and fortune to the party.” Wang also heads the party’s working group on United Front affairs.

Cadres from well-off provinces like Zhejiang, Jiangsu and Guangdong, where the private sector contributes the lion’s share of local economic output, also attended the meeting on implementing Xi’s instructions.

Beijing has already mandated that party branches must be established in sizable private companies whose revenues or market capitalization reach a specific level.

Chinese corporate leviathans like Huawei, Tencent and Alibaba that claim they are owned by employees and shareholders already have party branches, with party representatives getting involved in their business activities at various levels.

Such party-building in China’s private sector has been expedited since Xi took power in 2012, raising concerns that the party’s tentacles are reaching into every nook and cranny of people’s lives.

Critics say the latest move is yet another step towards the party’s “takeover” of the entire Chinese economy and the muzzling of calls for political reforms from the private sector.

A file photo shows Alibaba founder Jack Ma briefing President Xi Jinping on the e-commerce giant’s business performance. Photo: Weibo

“Beijing may be getting wary of the influence of [Alibaba founder] Jack Ma, Pony Ma and the like, whose growing sway over the economy and people could make the party feel uneasy and insecure,” said Taiwan-based current affairs commentator Lin Heli, who fled the mainland during Mao Zedong’s anti-landlords movement in the 1950s that saw the forced sequestration of private properties.

But Jack Ma has repeatedly shrugged off rumors about Beijing’s plan to take over his e-commerce empire, stressing that the party’s leadership was a requisite for his success and that of the entire private sector.

An official with the Shanghai branch of the All-China Federation of Industry and Commerce, a state-backed nationwide alliance pooling leading private business leaders, told Asia Times that United Front work was meant to strengthen the party’s leadership but that may also entail greater responsibility.

“The party may get more involved in the running of private firms but that also means more responsibility to address their problems and difficulties to further nature growth. And such arrangement also helps party cadres to better feel and grasp business sentiments and make their policies more pertinent,” said the official, who refused to be named.

“Also, all businesses seek to maintain sound relationships with the government and align themselves with new policy initiatives… China’s private sector has never been too ‘private’ or independent from the party, and the party’s overarching role, like it or not, is part and parcel the political reality that all entrepreneurs must live by and adapt to… Still, over the past 20 years we have cultivated an impressive line-up of world-class companies. Why would Beijing want to take over these private firms when it can get decent tax revenues from them and convince the world that private firms can also thrive in a Communist country.”

Meanwhile, the Chinese State Council has also launched a pilot scheme to dispatch officials to private firms, SMEs and startups to gauge sentiments and seek views to improve government services. Premier Li Keqiang has reportedly requested that all provinces and municipalities make public the views collected from these businesses, which must be followed up. Feedback from entrepreneurs will be part of Li’s annual appraisal of local officials.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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China Passed ‘Extraordinary’ Covid-19 Test, Says Bullish Xi

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President Xi Jinping. REUTERS

China has passed “an extraordinary and historic test” with its handling of the coronavirus, President Xi Jinping said on Tuesday (Sep 8) at a triumphant awards ceremony for medical professionals decorated with bugle calls and applause.

The nation’s propaganda machine has churned out praise for China’s COVID-19 response, reframing the public health crisis as an example of the agility and organisation of the Communist leadership.

Xi doled out gold medals to four “heroes” from the medical field in front of hundreds of applauding delegates on Tuesday, all wearing face masks and strikingly large red flower pins.

“We have passed an extraordinary and historic test,” Xi said, praising the country for a “heroic struggle” against the disease.

“We quickly achieved initial success in the people’s war against the coronavirus. We are leading the world in economic recovery and in the fight against COVID-19.”

China has come under intense global scrutiny over its response to the virus, with the United States and Australia leading accusations against Beijing that it covered up the origins and severity of the virus.

Defying charges from the United States and elsewhere that early failures enabled the coronavirus pandemic to spread more quickly, Xi said that China acted in an open and transparent manner throughout, and took decisive actions that saved lives.

“China has helped save the lives of tens of millions of people around the world with its practical actions, showing China’s sincere desire to build a common future and community for humanity,” Xi said.

Tuesday’s lavish ceremony in the Great Hall of the People began with a minute’s silence for those who lost their lives during the outbreak.

The four awardees included 83-year-old Zhong Nanshan – the country’s most famous medical expert who emerged as the face of China’s fight against the contagion.

He was awarded China’s top national medal by Xi, who placed it around Zhong’s neck.

“We will join hands with the … world’s medical workers to continue the fight in tracing the origins of the virus,” said Zhong.

Beijing has insisted the source of the virus, which first emerged in the Chinese city of Wuhan late last year, is still unknown.

Three others were given the honorary title of “The People’s Hero” – biochemical expert Chen Wei, the head of a hospital in Wuhan, and a 72-year-old expert in traditional Chinese medicine.

Some delegates were in tears during a series of speeches.

There was no mention however of whistleblower doctor Li Wenliang, who was among the first to be silenced for raising the alarm about the outbreak and later died from the disease.

Local authorities in Wuhan, the city where the coronavirus was first identified, were accused of a cover-up that delayed the country’s emergency response by at least two weeks.

But as infections spread throughout the world while slowing domestically, Beijing grew more assertive, resisting global investigations into the origins of the outbreak and saying its swift actions helped buy time for other countries to prepare.

Before the ceremony, state broadcaster CCTV showed a video montage of Wuhan at the peak of the outbreak set to rousing music, including images of medical staff in hazmat suits and crowded hospitals.

According to official numbers there have been 4,634 deaths in China from COVID-19. The government has largely contained the outbreak through a serious of strict lockdowns and travel restrictions.

State media has stressed Xi’s role in China’s containment of the coronavirus.

The official Xinhua news agency said in a long special report on Tuesday that Xi has worked tirelessly since January and even suffered sleepless nights as he “shouldered the extremely difficult mission of fighting the epidemic”.

Beijing has sought to focus on China’s success at overcoming the virus, rather than its origins.

During a government-arranged tour of Wuhan last week, reporters were shown schools and tourist sites reopening, but were not allowed to report from the Huanan seafood market where the outbreak was first believed to have originated.

“The shifting narrative is aided by the government’s success in containing the spread and it has been quite successful at home, though internationally it isn’t as successful as it would hope,” said Yanzhong Huang, senior fellow with the Council on Foreign Relations, a US think-tank. t

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