MERICS Blog - European Voices on China en Shanghai’s new tech board might perform better than previous attempts <span>Shanghai’s new tech board might perform better than previous attempts</span> <span><span lang="" about="/en/user/646" typeof="schema:Person" property="schema:name" datatype="">jheller</span></span> <span>Mon, 03/18/2019 - 15:23</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-03-18T12:00:00Z">2019-03-18</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/maximilian-karnfelt" hreflang="en">Maximilian Kärnfelt</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><span>The Shanghai Stock Exchange will establish an innovation and technology equity board to turn stock market gains into technological innovation. Previous tech boards have underperformed the market for years. But increased foreign investment and bank lending to the private sector as well as an improved listing process give reason to be optimistic.</span></span></span></span></span></strong></p> <p> </p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-03/171024_Economic_graph_64455090_ml.jpg?itok=CvaYYa-b 325w, /sites/default/files/styles/max_650x650/public/2019-03/171024_Economic_graph_64455090_ml.jpg?itok=3m5a2aiC 650w, /sites/default/files/styles/max_1300x1300/public/2019-03/171024_Economic_graph_64455090_ml.jpg?itok=KGcTkyok 1300w, /sites/default/files/styles/max_2600x2600/public/2019-03/171024_Economic_graph_64455090_ml.jpg?itok=uvIQACLX 1678w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-03/171024_Economic_graph_64455090_ml.jpg?itok=CvaYYa-b" alt="Image" title="Tech boards have underperformed the market for years. A new board is supposed to change that. Source: 123rf." typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>President Xi Jinping announced in November 2018 that the Shanghai Stock Exchange will establish an innovation and technology equity board. No exact launch date appears to have been provided to the public. The new board represents a renewed attempt to turn stock markets into a catalyst for technological innovation. By improving smaller companies’ access to capital, the new board is intended to help put capital into the hands of companies who have promising new business models or technology.</p> <p>Whether the tech board can help to effectively accomplish this goal is far from certain. Other tech boards previously launched have been underperforming the market for years. Characteristics of the market are unfavorable for the shares of smaller idiosyncratic firms, but recent developments address some of these problems. There is reason to be optimistic about the new board.</p> <p><strong>The new board could address several government goals at once</strong></p> <p>Recent documents related to the Made in China 2025 industrial upgrading plan highlight innovative businesses’ role in the future of the Chinese economy. Providing these companies with enough financial support and sharing their profits with the domestic market is becoming a policy priority. According to some reports China now has more unicorns than the US. But more favorable conditions outside the country often lead to these companies choosing to list abroad or in Hong Kong where most Chinese cannot benefit from their success.</p> <p>The Chinese government likely hopes the board will also attract existing tech giants to list their shares there. Attempts to bring the shares of Chinese tech companies listed abroad such as Alibaba and Xiaomi home to the domestic market have been unsuccessful. A <a href="">report</a> co-authored by CICC states that the board is expected to attract a larger number of overseas stocks. As CICC is majority government owned the report’s predictions might give a window to the government’s hopes for the board.</p> <p>Beijing has drafted special rules designed to make the board an attractive place for companies to list. The rules clearly favour start-ups. It allows companies which have not yet become profitable to list; the listing process will be faster; companies with weighted voting rights will be accepted (this corporate structure typically puts more power in the hands of founders); and more price movements are to be tolerated. Additionally, the launch of the board will likely be covered closely and favourably by the state media. This should lead to large amounts of capital being raised in the first round of IPOs.</p> <p><strong>Past attempts at using equity markets to spur innovation might give an idea of the new board's life cycle</strong></p> <p>Shenzhen’s ChiNext tech board which was launched in 2010 had similar goals as the new tech board. Initially, ChiNext performed extremely well, between 2010 and 2015 the value of the index quadrupled. It then crashed and stabilized at a lower level. In recent years it has underperformed the market. The amount of capital raised has been declining, and the number of IPOs has likewise fallen.</p> <a href="/sites/default/files/inline-images/MK_Blog_ChiNext_graph.png"><img alt="Graph" data-entity-type="file" data-entity-uuid="dc5e988c-c5fa-4d39-b60f-ff30c8368471" height="75%" src="/sites/default/files/inline-images/MK_Blog_ChiNext_graph.png" width="75%" class="align-center" /></a> <p>ChiNext’s initial performance looked very much like a bubble, a common phenomenon in China’s financial markets (see a MERICS blog on the topic <a href="">here</a>). Once stock prices left bubble territory performance deteriorated. ChiNext has underperformed the Shanghai Stock Exchange since 2017. There is more than one likely reason why this is the case.</p> <p>One problem faced by the kind of smaller firms which might list on a tech board is poor access to credit as state banks generally prefer lending to SOEs. This problem has been covered extensively (for example by me <a href="">here</a>). </p> <p>A lesser known problem is <em>Stock Price Synchronicity, </em>when stock prices move together. This phenomenon, caused primarily by a lack of reliable firm-specific information, is common in emerging markets. The most cited scientific <a href="">study</a> on the topic found that 80 percent of Chinese stocks move together in a given week (compared to 56 percent in the US).</p> <p>This following example illustrates how this phenomenon can distort the market, and hurt the performance of companies with unique business models:</p> <p>Imagine a skilled investor who is considering buying shares in a company which is developing industrial robots. Despite being very different from most listed companies the share price of this company will, because of stock price synchronicity, often move in a similar way. The investor would, however, still bear the risk of losing his entire investment. This could happen if, for example, it was discovered that company’s robots did not work, causing it to go out of business. While the returns are distorted, the risk of losing everything is the same. Under these circumstances the investor might decide to buy into a fund which tracks the market instead. The returns on his investment would often be similar, but without the risk of losing the whole investment.</p> <p>Scale this example up to the whole market, and it becomes clear how stock price synchronicity can cause investors to systematically avoid risky stocks, contributing to them underperforming the market.</p> <p><strong>Reasons for optimism</strong></p> <p>Several developments make it likely the new board will perform better than ChiNext:</p> <p>Firstly, as mentioned in the first part of this piece, new rules will improve the listing process.</p> <p>Secondly, increasing foreign investment can help address stock price synchronicity. <a href="">Research</a> shows that the stock price of companies with large degrees of foreign ownership is more closely related to fundamentals and less driven by the market.  This is likely because foreign ownership leads to a greater number of independent analysts covering the stock. China’s inclusion into the MSCI index and the establishment of the stock connect programs are examples of recent changes which will attract more foreign investment.</p> <p>Finally, the government is pressuring banks to lend more to the private sector, this should also help the performance of stocks on the new board.</p> <p>It would be surprising if Shanghai’s New Tech Board did not at least have a good start. Chinese investors have limited investment options, so the new board will be welcomed. Additionally, the government is guaranteed to lend a hand with promotion. At the very least a few impressive companies should make the board their home. However, there is a large risk that an initial stampede of investors could cause stock price overvaluations and subsequent crashes.</p> <p><em>This text was first published by the <a href="">China Economic Review</a>.</em></p></div> </div> </div> Mon, 18 Mar 2019 14:23:21 +0000 jheller 8961 at China’s space program is about more than soft power <span>China’s space program is about more than soft power</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Wed, 02/20/2019 - 10:53</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-02-21T12:00:00Z">2019-02-21</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>By Rebecca Arcesati</p> <p><strong>The historic moon landing of China’s Chang'e 4 marks a symbolic victory for the emerging space power. But lack of transparency along with concerns about dual-use plans and surveillance undermine China’s efforts to persuade the world of its peaceful rise. For Europe, Beijing can be a selective partner on space matters at best.</strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-02/190222_TV%20screen%20shot_lunar%20probe_Chang_e_4_ImagineChina_bjl591940.jpg?itok=ffr4ePir 325w, /sites/default/files/styles/max_650x650/public/2019-02/190222_TV%20screen%20shot_lunar%20probe_Chang_e_4_ImagineChina_bjl591940.jpg?itok=tF6-MFAe 650w, /sites/default/files/styles/max_1300x1300/public/2019-02/190222_TV%20screen%20shot_lunar%20probe_Chang_e_4_ImagineChina_bjl591940.jpg?itok=kLRnFUy9 1300w, /sites/default/files/styles/max_2600x2600/public/2019-02/190222_TV%20screen%20shot_lunar%20probe_Chang_e_4_ImagineChina_bjl591940.jpg?itok=WBichafB 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-02/190222_TV%20screen%20shot_lunar%20probe_Chang_e_4_ImagineChina_bjl591940.jpg?itok=ffr4ePir" alt="TV screen shot of China&#039;s robotic lunar probe Chang&#039;e-4 landing on the far side of the moon on January 3, 2019." title="TV screen shot of China&#039;s robotic lunar probe Chang&#039;e-4 landing on the far side of the moon on January 3, 2019. Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>NASA administrator Jim Brindestine called it “an impressive accomplishment.” On January 3, the China National Space Administration (CNSA) successfully landed the probe Chang’e 4 on the unexplored side of the moon. A remarkable scientific success, the landing also <a href="">sparked</a> concerns in Washington that China may use the remote lunar dark side to conceal anti-satellite weapons.</p> <p>Establishing China for the first time as an emerging space power in global public view, Chang’e 4 is only the tip of the iceberg of Beijing’s long-nurtured <a href="">space ambitions</a>. Later in 2019, a follow-up mission will bring samples of lunar soil back to Earth. A lunar research <a href="">base</a> “shared by multiple countries” and the world’s first probe to Mars are in the pipeline. In 2018, China <a href="">launched</a> more space rockets than any other country. The indigenous technological base is <a href="">improving</a> steadily, narrowing the gap with established space powers.  </p> <p>China has also made notable progress in satellite applications, including earth observation and imagery, communications and broadcasting, and navigation and positioning. After president Xi Jinping opened the space industry to private players in 2014, a host of <a href="">new space startups</a> are competing with state-owned aerospace giants. By 2020, China’s commercial space sector will be worth an estimated <a href="">120 billion USD</a>. </p> <p>In line with the core message of the <a href="">2016 White Paper</a> on Space Activities, China has been eager to present itself as a peaceful and trustworthy space power opposed to arms races in outer space and committed to multilateralism. Such a narrative appeals to developing countries lacking autonomous space capabilities. It also seems to <a href="">persuade</a> the European Space Agency (ESA.  </p> <p>For now, China downplays more controversial aspects of its space program, such as the interest in space mining and military applications. However, the Chinese government has been rather open about the fact that it sees space policy as a tool for strengthening its “comprehensive national power” (综合国力), gaining international prestige and soft power while also advancing its commercial and geostrategic interests. “The space dream is part of the dream to make China stronger,” Xi <a href="">said</a> in 2013 shortly after taking power. The vision is for China to become the <a href="">global leader</a> in space technology by 2045. </p> <p>Mindful of how Beijing <a href="">extracted</a> critical dual-use technology from the Galileo satellite navigation program, Europe must exercise caution when cooperating with China in space. </p> <p><strong>Lunar silkworms and low-cost satellites </strong></p> <p>China’s space program is, on paper, a peaceful endeavor to advance mankind’s progress, from insight into the origins of the universe to the potential of future human colonization of the moon. Equipped with scientific payloads from the Netherlands, Germany, Sweden and other countries, the Chang'e 4 mission hit headlines for sending silkworms, cotton and potato seeds to the moon’s dark side.  </p> <p>Central to China’s space rhetoric is an emphasis on international collaboration. As the United States banned taikonauts from working with NASA and, consequently, with the International Space Station (ISS), China pushed back by pledging to <a href="">open</a> its own space station scheduled for 2022 to all UN member states. In Asia, China has backed the creation of a new regional institution, the <a href="">Asia Pacific Space Cooperation Organization (APSCO)</a>. </p> <p>The primary focus of China’s space outreach on earth is in the developing world. Besides tapping into a multibillion market, China seeks to cement ties with selected countries through space diplomacy. Beijing has <a href="">sold</a> low-cost commercial satellites to several countries, such as Brazil, Nigeria and Pakistan, and offered a dozen others money, training and technology to launch their own. In <a href="">Venezuela</a>, some 145 million USD in space assistance was granted in exchange for natural resources.  </p> <p>Satellite launches are also <a href="">part</a> of the Belt and Road Initiative (BRI). The rhetoric of a “<a href="">Spatial Information Corridor</a>” emphasizes benign applications such as prevention of natural disasters and emergency rescue: last year, the Chinese Academy of Sciences (CAS) launched its <a href="">Big Earth Data</a> initiative (the Digital Belt and Road, or DBAR), which uses remote sensing for sustainable development. And by 2020, China’s indigenous network of 35 BeiDou navigation and positioning satellites will provide services to 60-plus BRI countries, challenging American GPS and Europe’s Galileo. If the Chinese military makes no secret of BeiDou’s <a href="">role</a> in upgrading its guidance and surveillance capabilities, the government instead underlines digital connectivity.  </p> <p><strong>Lack of transparency fuels mistrust</strong></p> <p>The Chinese government is much less vocal on other crucial aspects of its space ambitions (including budgetary ones), raising legitimate international concerns that undermine China’s desire to be perceived as a reliable spacefaring nation. The outdated 1967 Outer Space Treaty has <a href="">gaps</a> when it comes to regulating, say, asteroid mining. Chinese engineers are working on ways to <a href="">capture</a> small asteroids as well as to <a href="">harvest</a> natural resources in orbit. The moon’s minerals, including rare earth metals and Helium-3 (which can be used for nuclear fusion), also <a href="">attract</a> an energy-hungry Beijing. </p> <p>Last year, China signed an <a href="">MoU</a> on space cooperation with Luxembourg, a country which codified a law giving companies the rights to material they mine in space (the United States passed a similar bill). The 2016 White Paper is remarkably silent on space mining, but as Chinese legislators formulate an <a href="">overdue legal framework</a> for space activities, it will be interesting to see how they address questions of territorial sovereignty and resource appropriation. Given Beijing’s track record in some earthly arenas, such as the South China Sea and the Antarctica, international trust might be hard to secure. </p> <p>Besides being rich in natural resources, outer space is seen as a strategic domain for China’s national security and defense, as clearly <a href="">stated</a> in the 2015 Military Strategy; it is also one where China aims at <a href="">dominance</a>. Xi Jinping established the PLA’s Strategic Support Force (PLASSF) in 2015 to support joint combat operations in space and integrate them with electronic warfare and cyber capabilities. Last year, a US Department of Defense <a href="">report</a> warned that China would step up the militarization of space through the development of counterspace capabilities. In December, Boeing <a href="">canceled</a> a controversial satellite order, which had secretly been backed by  financing from a PLA-linked entity in order to bypass US export control laws.     </p> <p>China’s lack of transparency over its ambitions of civil-military integration (军民融合) undermines its own efforts to boost its soft power through space exploration. It may also fuel self-fulfilling prophecies of a new space race: largely in response to China’s moves, US President Donald Trump <a href="">signed</a> a directive on February 19 to set up the previously planned military Space Force.</p> <p>Several developments motivate US concerns. In 2007, China conducted a <a href="">test</a> which destroyed one of its satellites, raising fears over a potential weaponization of space. In addition, a <a href="">network</a> of at least eight Chinese satellite ground stations scattered around the world is facing growing scrutiny.  In 2017, the launch of a project to set up a potential ground station in Nuuk, Greenland was reportedly <a href="">orchestrated</a> to conceal its military component. Now researchers <a href="">warn</a> against the potential use of a Chinese satellite station in Northern Sweden for intelligence collection, casting doubts over the proclaimed civilian nature of China’s remote sensing program.  </p> <p>Amid growing anxieties over the BRI’s lack of transparency, space cooperation with developing countries also raises scrutiny. Satellites are the channel through which countries access information. They are also vulnerable to cyber hacks. Just as the digital infrastructure funded and built by China facilitates government-led surveillance, censorship and espionage in some <a href="">cases</a>, a space-based Silk Road may well <a href="">increase China’s influence</a> over those countries.  </p> <p><strong>For Europe, China can only be a selective partner in space </strong></p> <p>The ESA has long been keen to work with China, particularly on scientific missions for which pooling resources is key to success. Last year, the European space industry <a href="">expressed wariness</a> of the Trump administration’s vision of US dominance in space. At first glance, with its rhetoric of cooperation and peaceful development, Beijing may appear like an ideal partner. ESA director general Jan Woerner <a href="">told</a> Xinhua News that the agency welcomed more cooperation with China. Aside from <a href="">human spaceflight</a> and lunar research, China and European countries collaborate on a variety of projects, from <a href="">earthquake early warning</a> to <a href="">oceanography</a>.  </p> <p>But despite the undisputed scientific benefits of such cooperation initiatives, Beijing is far from being a reliable partner in space. The opaque role of the military in the country’s space program, coupled with China’s behavior in similarly uncertain legal spaces on earth, calls for a cautious approach in Europe. If Washington’s zero-sum posture fueled greater competition and mistrust with China, a soft approach may underestimate very real risks, such as the transfer of dual-use space technology to the PLA. Europe should limit cooperation efforts to shared scientific goals, for instance space debris mitigation. At the same time, it must use this opportunity to demand greater transparency from China. </p> <p><em>Rebecca Arcesati is an intern in the Foreign Relations program at MERICS. She holds a double Master’s degree in China Studies from the University of Turin and Yenching Academy of Peking University.</em></p></div> </div> </div> Wed, 20 Feb 2019 09:53:54 +0000 h.seidl 8871 at China’s blockchain conundrum <span>China’s blockchain conundrum</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Wed, 02/06/2019 - 10:33</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-02-06T12:00:00Z">2019-02-06</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Kai von Carnap</p> <p><strong>China is a world leader in blockchain development and is testing it in applications from civil administration and tax documents to evidence in the criminal justice system. Yet the technology creates a dilemma for China’s leaders. Their priority on centralized control contradicts the decentralized distribution of data through a blockchain. </strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-02/190206_Blockchain_Imagine_China_20180912_11577.jpg?itok=3cXNiemT 325w, /sites/default/files/styles/max_650x650/public/2019-02/190206_Blockchain_Imagine_China_20180912_11577.jpg?itok=9wEUjbXt 650w, /sites/default/files/styles/max_1300x1300/public/2019-02/190206_Blockchain_Imagine_China_20180912_11577.jpg?itok=jLVrtVfP 1300w, /sites/default/files/styles/max_2600x2600/public/2019-02/190206_Blockchain_Imagine_China_20180912_11577.jpg?itok=fOSYxqid 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-02/190206_Blockchain_Imagine_China_20180912_11577.jpg?itok=3cXNiemT" alt="Blockchain" title="Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p>Blockchain pilots are popping up everywhere in China: The civil administration of 1.3 million citizens of the Chancheng district in Foshan has been lifted on a blockchain. The latest addition is a blockchain-based <a href="">community correction application</a> (区块链+社区矫正), which tracks and evaluates the movement of former prison inmates. Since September 2018, Chinas <a href="">Supreme Court</a> accepts evidence in legal disputes on a blockchain. <a href="">Shenzhen</a> has introduced a payment system that generates electronic invoices trough a blockchain. </p> <p>A growing number of international tech executives see China in a <a href="">leadership position</a> in the application of the blockchain technology. Nowhere else are companies hiring more <a href="">staff with blockchain experience</a>, and in 2017, Chinese organizations, from Alibaba to the central bank, PBoC, led on <a href="">blockchain patent applications</a>. </p> <p>The innovative vigor is spurred by expectations that the blockchain will fundamentally reshape whole industries. The technology replaces cumbersome and expensive external verification processes because the decentralized information distribution guarantees the authenticity of data. Everyone (everyone’s computer) needs to be able to constantly check all past and present transactions within a network. The more people take part in this verification process, the better, which is why participation is incentivized by monetary rewards, i.e. through cryptocurrencies. If everyone is aware of the current distribution of, say, the total money supply, or available property and arable land, no inside or outside crook could cheat the system. </p> <p>China’s companies and cadres have acknowledged the potential, too. After banning global cryptocurrencies – scorned for their volatility and bubble character – Beijing has now fervently embraced the underlying blockchain technology. The 13th Five Year Plan declared blockchain a driving factor of the digital evolution. In May 2018, party and state leader Xi Jinping <a href="">called</a> it “a breakthrough technology,” and the host of a <a href="">CCTV2 documentary</a> aired in June stated that the blockchain were ten times more valuable than the internet. </p> <p><strong>China wants to use blockchain to expand control </strong></p> <p>But what China wants to get out of the blockchain is more than what most governments, start-ups and multinationals envision. The international blockchain industry today mostly seeks to raise efficiency in administration and to increase security and trust amongst participants. China is certainly also interested in these administrative efficiency aspects. Finance and logistics along the Belt and Road Initiative, for example, would certainly benefit. </p> <p>But China also wants to use the blockchain to expand its centralized control capabilities. Lifting the currency onto a blockchain would fulfill the self-imposed objective of <a href="">strengthening</a> the “quality of control” over the <a href="">RMB</a>. Such an immutable and digital crypto yuan would not only be cheaper, it could also help in the fight against corruption. Similarly, credible transaction ledgers could make the distribution of rewards and punishment within China’s soon-to-be rolled out Social Credit System much more accurate. The Chancheng “correction chain” certainly points in that direction. </p> <p>But the party state’s attempt to hold the reins of the blockchain creates a dilemma for its developers: How can they make maximum use of blockchain’s decentralized verification powers and efficiency gains, while keeping central political control high and democratic participation rights low.  </p> <p>Having said that, some of China’s trials make use of fully decentralized, international blockchains, allowing virtually everyone to participate in verification and maintenance. (These designs are often open-source, offer interoperability options with other blockchains and draw from a pool of international tech geeks). Foshan is such a case. The whole civil administration, including the tracking of former inmates, is built on the QTUM blockchain. Only <a href="">56 percent</a> of QTUM participants live in China. </p> <p>Giving away security and control can hardly be what China’s leaders envision for large-scale projects related to domestic and regime security. This is why there are also projects that, unlike most international blockchains, run entirely behind closed doors on Chinese servers (i.e. centralized alternatives, also known as permissioned or private blockchains). These allow central control over the verification process, including censorship or changes to the algorithm, and they may lead to a China-specific blockchain model, cut from the outer world like the Chinese internet. </p> <p><strong>Centralization creates network vulnerability</strong></p> <p>However, such a centralization comes at a hefty price: vulnerability of the whole network. The reason why (decentral) blockchains are considered to be immutable is because data is stored on so many independent devices that it would require a huge amount of money, computing power or luck (depending on the algorithm) to successfully break them. </p> <p>For example, on most public, decentral blockchains participants must pay a minuscule fee for every transaction. One of the major purposes of this fee is to make it too expensive for malevolent attackers to flood and break the network with superfluous requests (also known as DDOS, a common form of hacking attacks). But this protective mechanism requires a cryptocurrency with which participants can pay their fees. Private blockchains, however, could refrain from using a cryptocurrency because there is no need to incentivize public participation, which in turn could open the gates to such hacking attacks. By centralizing power, China would therefore create a centralized potential point of failure. </p> <p>China faces the delicate question of how to balance maximum control (centralization) and maximum security (decentralization) for developing its blockchains. If an architecture is too centralized, China risks more severe consequences of hacks than without a blockchain (after having dug it’s on grave by accumulating and centralizing all the data). If it is too decentral, China runs the risk of having foreign entities involved that might potentially influence blockchain processes. Both extremes would seem calamitous to China’s control-fixated leadership. In that light, a large-scale rollout of the blockchain technology in China seems far from self-evident. </p> <p><em>Kai von Carnap is an intern in the Society and Media program at MERICS. He holds a Master's degree in Chinese-European Economics and Business Studies from Berlin Professional School.</em></p></div> </div> </div> Wed, 06 Feb 2019 09:33:27 +0000 h.seidl 8806 at Chinese tech standards put the screws on European companies <span>Chinese tech standards put the screws on European companies</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Tue, 01/29/2019 - 12:56</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-01-29T12:00:00Z">2019-01-29</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>By Rebecca Arcesati</p> <p><strong>China’s efforts to shape global technology standards and norms have been at the heart of its ambitions to achieve technological self-reliance. Now these efforts are yielding results in areas like 5G, Artificial Intelligence (AI) and cybersecurity – and they endanger Europe’s industrial competitiveness.</strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-01/190129_Mobile_screen_5G_ImagineChina_bjl6613453.jpg?itok=o-xC69CN 325w, /sites/default/files/styles/max_650x650/public/2019-01/190129_Mobile_screen_5G_ImagineChina_bjl6613453.jpg?itok=v8VhgTt- 650w, /sites/default/files/styles/max_1300x1300/public/2019-01/190129_Mobile_screen_5G_ImagineChina_bjl6613453.jpg?itok=CcxNlSJJ 1300w, /sites/default/files/styles/max_2600x2600/public/2019-01/190129_Mobile_screen_5G_ImagineChina_bjl6613453.jpg?itok=bRp5JvVB 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-01/190129_Mobile_screen_5G_ImagineChina_bjl6613453.jpg?itok=o-xC69CN" alt="5G" title="Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><a><span> </span></a><span>Chinese tech companies’ involvement in European ICT infrastructure faces growing scrutiny after a Huawei employee was arrested in Poland on spying charges recently. Australia and other countries have banned Huawei and ZTE from their 5G networks based on </span><a href="">documented</a> </span><span>national security risks. Several European governments are considering doing the same. Looking beyond security, earlier last year, French president Emanuel Macron </span><a href=""><span>urged</span></a><span> Europe to set global standards for regulating technology instead of letting an “over-centralized” Chinese model become the norm.</span></span></span></p> <p><span><span><span><span>While a debate about the societal and security impact of China’s policies on the global governance of technology is emerging across the European Union, the economic battle over technical standards receives less attention. Yet, firms having their technologies translate into standards earn massive returns through market dominance and royalties. The competitive advantage that Microsoft, Google and Qualcomm with their standard-essential patent portfolios bring to the American economy is indicative of this point.</span></span></span></span></p> <p><span><span><span><span>Recently, China has been highly </span><a href=""><span>proactive</span></a><span> in influencing global tech standards and exporting its own along the “Digital Silk Road.” China’s transformation from a standard-taker into a standard-maker bears economic implications for Europe. First, as Beijing’s state-led approach to standardization exacerbates competitive disadvantages for non-Chinese businesses operating in China and in third markets, European companies must be prepared to face losses of market share. Second, as a new, powerful player enters the standardization game for emerging technologies, European economies may find themselves increasingly dependent not just on US but also on Chinese digital solutions.</span></span></span></span></p> <p><span><span><span><strong><span>Homegrown standards power China’s “indigenous innovation” agenda</span></strong></span></span></span></p> <p><span><span><span><span>There is a saying in Chinese that only companies that are able to set standards qualify as “first tier companies” (</span><span lang="ZH-CN" xml:lang="ZH-CN" xml:lang="ZH-CN">一流企业</span><span>). As standardization is the bridge between research and commercialization of innovation, China’s desire to be in the game is natural.</span></span></span></span></p> <p><span><span><span><span>Setting standards could lower the expensive licensing fees paid to foreign multinationals. Payments for the use of foreign technology have </span><a href=""><span>quadrupled</span></a><span> since 2005, making China the second-largest payer of licensing fees in the world. The “trade war” with Washington has increased the sense of urgency in Beijing for reducing supply-chain dependency on US tech giants, particularly in hardware segments like semiconductors. In 2017, China </span><a href=""><span>imported</span></a><span> chips at a value of 260 billion USD, more than the price of its oil imports. </span></span></span></span></p> <p><span><span><span><span>Standardization, too, must be seen in the context of China’s state-led plan of technological dominance. As part of a quest to boost “indigenous innovation” (</span><span lang="ZH-CN" xml:lang="ZH-CN" xml:lang="ZH-CN">自主创新</span><span>) and develop homegrown technologies and national champions, a government-sponsored “patent fever” has led China to file </span><a href=""><span>more</span></a><span> than any other country in the world. Although the level of domestic R&amp;D has improved dramatically (Chinese companies hold </span><a href=""><span>ten percent</span></a><span> of patents essential to 5G standards, only ranking behind Qualcomm and Nokia), quality is often sacrificed to quantity. </span></span></span></span></p> <p><span><span><span><span>China’s domestic “standardization work” (</span><span lang="ZH-CN" xml:lang="ZH-CN" xml:lang="ZH-CN">标准化工作</span><span>) is driven by a top-down logic. At a time when the government appears to have </span><a href=""><span>toned down</span></a><span> the Made in China 2025 rhetoric of industrial self-reliance, the standardization push is emerging as the “next big thing” for China’s techno-nationalist ambitions.</span></span></span></span></p> <p><span><span><span><span>Although last year’s revision of the national Standardization Law aims to make the existing system more enterprise-driven and aligned with international practices, the government retains a central role by setting compulsory standards, particularly in areas such as the Internet of Things (IoT), where vaguely defined national security is at stake. Such a </span><a href=""><span>bifurcated</span></a><span> standards system – simultaneously industry- and state-led – is difficult for foreign businesses to navigate, let alone influence. By contrast, until recently, </span><a href=""><span>Huawei</span></a><span> and </span><a href=""><span>ZTE</span></a><span> were able to actively take part in the conversation about ICT specifications in Europe.</span></span></span></span></p> <p><span><span><span><span>To preempt competitors in emerging technologies ranging from cloud to virtual reality, the Standardization Administration of China (SAC) and the National Academy of Engineering are quietly working on </span><a href=";archive"><span>“China Standards 2035”</span></a><span> (</span><span lang="ZH-CN" xml:lang="ZH-CN" xml:lang="ZH-CN">中国标准</span><span>2035), a nation-wide effort to develop industrial standards and eventually internationalize them.</span></span></span></span></p> <p><span><span><span><span>Besides dictating technical specifications, China has cybersecurity regulations in stock that can be used to multiply post-market access barriers for foreign companies at any time and in a targeted manner. With the Cybersecurity Law, a host of foreign businesses have already been </span><a href=""><span>forced</span></a><span> to comply with an array of sophisticated yet vague standards for cybersecurity review and certification as a precondition for doing business in China. As a result, European firms may be asked to disclose sensitive information and IP.</span></span></span></span></p> <p><span><span><span><strong><span>China gains voice in the standards game</span></strong></span></span></span></p> <p><span><span><span><span>Chinese companies are intensifying their influence in international standard-setting bodies such as ITU and ISO. State-sponsored efforts to shape international standards have been ongoing since the country entered the WTO. Following China’s accession, the Standards Administration of China had explicitly mentioned technical standards as a </span><a href=""><span>protective tool</span></a><span> that could compensate for lower trade barriers.</span></span></span></span></p> <p><span><span><span><span>Previous attempts to internationalize Chinese standards, such as bids to promote homegrown alternatives to </span><a href=""><span>Wi-Fi</span></a><span> (WAPI) and </span><a href=""><span>3G</span></a><span> (TD-SCDMA), often met with failure. This seems to change. Fueled by renewed ambitions, Chinese companies like Huawei have scored successes in </span><a href=""><span>5G standards</span></a><span> by playing a leading role in the Third-Generation Partnership Project (3GPP, the organization that sets global telecommunications standards) and promoting adoption and testing of their solutions across Europe. Though standardization forums host technical and non-discriminatory discussions which are difficult for states to manipulate, </span><a href=""><span>Beijing has sought</span></a><span> to further China’s prominence in 5G standardization in a targeted manner. The Chinese government recognizes 5G’s significance for powering virtually all disruptive applications, from driverless cars to AI weapons. </span></span></span></span></p> <p><span><span><span><span>In a </span><a href=""><span>bid</span></a><span> for leadership in AI governance, Beijing also managed to host the first meeting of the SC42 (currently the main venue for AI standardization) and secure a high level of domestic representation, a sign that Chinese voices will be influential in shaping the future of this ubiquitous technology. Domestically there is a sentiment that China should take the unprecedented opportunity to set the rules for </span><a href=""><span>emerging</span></a><span> technological developments in which it plays a leading role. Meanwhile, China </span><a href=""><span>lead</span></a><span><span><span>s</span></span></span><span> the newly created international research group on IoT and blockchain standardization.</span></span></span></span></p> <p><span><span><span><span>China has also worked to change the rules of the game: by pushing for </span><a href=""><span>inexpensive licensing</span></a><span> for IP embedded into standards, Chinese firms prioritize profits derived from increased product sales over monetization of intellectual property. Such preference for cheap IP threatens the competitiveness of European companies, even more so now that low-cost, Chinese ICT hardware gains market share in developing countries along the Belt and Road (BRI). Popularizing Chinese standards is in fact </span><a href=""><span>part</span></a><span> of the BRI design. To remain competitive, European firms might have to fundamentally rethink their approach to IP, including by designing ways to improve developing countries’ access to patented technologies.</span></span></span></span></p> <p><span><span><span><strong><span>Europe must closely monitor China’s standardization ambitions </span></strong></span></span></span></p> <p><span><span><span><span>Greater Chinese involvement with international standard-setting bodies should be welcomed. It is in the interest of European companies that China harmonizes its standards with international ones. But standardization for China is part of a larger toolkit of distorting industrial policies. Europe is right to focus on the risks Huawei poses to its national security. Yet at the same time, the company was the </span><a href=""><span>top filer</span></a><span> with the European Patent Office in 2017. </span></span></span></span></p> <p><span><span><span><span>The standards race is about profits and technological leadership. Europe must do more to support its startup community instead of turning into a testing lab for Chinese technologies.  Instruments like the pan-European </span><a href=""><span>VC Fund-of-Funds</span></a><span> are smart, but fragmentation between national regulatory, tax and digital landscapes hampers the development of “first-tier” companies. In China, European firms should keep lobbying in standardization working groups, which requires coalition-building. Closely monitoring China’s domestic and international standard-setting strategies is a precondition to crafting effective responses. </span></span></span></span></p> <p><em><span lang="EN-GB" xml:lang="EN-GB" xml:lang="EN-GB"><span>Rebecca Arcesati is an intern in the Foreign Relations program at MERICS. She holds a double Master’s degree in China Studies from the University of Turin and Yenching Academy of Peking University.</span></span></em></p></div> </div> </div> Tue, 29 Jan 2019 11:56:51 +0000 h.seidl 8776 at Charting a risky course: The People’s Bank of China further eases monetary policy <span>Charting a risky course: The People’s Bank of China further eases monetary policy </span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Fri, 01/25/2019 - 12:18</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2019-01-25T12:00:00Z">2019-01-25</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/maximilian-karnfelt" hreflang="en">Maximilian Kärnfelt</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span>The People’s Bank of China has begun easing monetary policy to respond to slowing economic growth, falling producer prices, and peak bond repayments. The success of this round of monetary easing depends on the allocation of funds to relevant companies and the effectiveness of heavy-handed restrictions on capital flows.</span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2019-01/190125_PBOC_Headquarters_Beijing_2018_Imagine_China_bjl315393_Blog.jpg?itok=hI_-4KPu 325w, /sites/default/files/styles/max_650x650/public/2019-01/190125_PBOC_Headquarters_Beijing_2018_Imagine_China_bjl315393_Blog.jpg?itok=jvX2DC1u 650w, /sites/default/files/styles/max_1300x1300/public/2019-01/190125_PBOC_Headquarters_Beijing_2018_Imagine_China_bjl315393_Blog.jpg?itok=JSGBYebu 1300w, /sites/default/files/styles/max_2600x2600/public/2019-01/190125_PBOC_Headquarters_Beijing_2018_Imagine_China_bjl315393_Blog.jpg?itok=y7Bz2fPi 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2019-01/190125_PBOC_Headquarters_Beijing_2018_Imagine_China_bjl315393_Blog.jpg?itok=hI_-4KPu" alt="People’s Bank of China headquarters" title="Image by ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span><span>In response to slowing economic growth, falling producer prices, and peak bond repayments the People’s Bank of China has begun easing monetary policy. On January 15, the PBOC lowered banks’ required reserve ratio (RRR) by half a percentage point to 14 percent. It will be reduced by another half point on January 25. The central bank governor, Yi Gang, has said that there is room for further reductions and the cuts will be paired with policies that incentivize lending to small and micro enterprises. Yi also said he expects the cuts to release 1.5 trillion CNY into the banking system.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>This round of monetary easing can only generate long-term positive benefits if two conditions are met: state banks must allocate a large enough proportion of the released funds to the relevant private companies. Second, strong outflow restrictions which can insulate the Chinese economy sufficiently from US rate hikes are necessary. Otherwise, the easing could lead to an even bigger accumulation of bad debt by state-owned companies and could result in damaging capital outflows.</span></span></span></span></span></span></p> <p><span><span><span><span><strong><span><span>State banks must be incentivized to lend to the private sector</span></span></strong> </span></span></span></span></p> <p><span><span><span><span><span><span>With peak amounts of debt maturing in 2019, providing liquidity is necessary to protect big corporates with weak cash flows from default. But for the easing to also generate growth in the real economy it must reach credit-starved sectors. If not, the easing will only postpone an urgently needed resolution of problems in the financial sector without strengthening the economy’s ability to service debt. </span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>The Chinese financial system allocates a disproportionate amount of new lending to unproductive investments. This becomes visible by looking at the relationship between new credit and GDP, the second of which is consistently smaller, meaning that debt is increasing at a faster pace than the ability to service it. </span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>Domestic debt levels have risen steeply across all sectors of China’s economy – in 2018, total credit to non-financials exceeded 250% of GDP, compared to 150% before the global financial crisis struck a decade ago.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>Since the beginning of 2017, the government has waged a partially successful deleveraging campaign. Positive achievements include moving off-balance-sheet shadow finance products back on to banks’ balance sheets. This is now clearly visible in credit data; the growth of bank lending is increasingly outpacing that of off-balance sheet financial products. Yet, the overall campaign has yet to see credit growth fall below nominal GDP growth. (See also our blog post: <span><a href=""><span>Policy in China still puts growth before deleveraging</span></a></span>)</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>For small and micro enterprises, which already were neglected by the financial system, the deleveraging campaign brought about more difficulties in accessing financial opportunities. Under pressure to contain risks, banks directed the lion’s share of their lending to larger entities which are perceived to be more reliable when it comes to repayment. In the first quarter of 2018, outstanding bank loans to small and micro enterprises grew at 14.4 percent. By the third quarter, growth had fallen to 9.8 percent. Meanwhile, overall bank lending remained almost unchanged, growing at 12.9 percent.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>This sector is an important factor in the Chinese economy. Tightening credit conditions in the sector limit the abilities of potentially lucrative smaller businesses to take off or expand, which will hamper the growth potential of the economy. By injecting credit into the sector, the Chinese government tries to reduce the pressure. The PBOC now incentivizes state bank lending to the private sector by giving banks that lend sufficiently to smaller enterprises more room to set their own interest rates. This will be very difficult to accomplish as large institutions difficult to reform. </span></span> </span></span></span></span></p> <p> </p> <a href=""><img alt="Lending to small and micro entreprises is drying up" data-entity-type="file" data-entity-uuid="e8223204-3325-48ae-81d2-101a083dc013" src="/sites/default/files/inline-images/190125_Q4_Economic-Indicators_Focus-topic_817x404px_0.jpg" class="align-center" /></a> <p> </p> <p><span><span><span><span><strong><span><span>Capital controls are necessary</span></span></strong> </span></span></span></span></p> <p><span><span><span><span><span><span>Interest rates in the United States and China have decoupled, and the rapidly increasing US rates are a very serious problem for China. The success of the easing program therefore also rests on heavy-handed restrictions of capital flows.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>The US Federal Reserve has been raising interest rates, which are now close to China’s central bank rates. The US Fed’s December 2018 rate hike took its benchmark funds rate to 2.4 percent, further hikes are possible. </span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>The return on some financial assets is now greater in the United States than in China. One example is the one-year treasury rate. Additionally, perceived lower risk is driving investors to the United States. and away from China. The CNY/USD exchange rate, which the PBOC manages, appreciated by 5 percent in 2018, indicating lower demand for the Chinese currency. As the interest rate differential expands, the CNY will come under further pressure. This in turn increases the risk of capital flight, as investors try to move their wealth out of China to seek higher returns.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>Capital flight is a self-reinforcing herd phenomenon, which means that the initial wave of outflow increases the incentive for further capital movement. This could result in more money leaving the country than the PBOC initially injected, which could severely destabilize the economy. Unless capital controls are strong enough, the risk of this scenario will increase as monetary policy becomes looser.</span></span> </span></span></span></span></p> <p><span><span><span><span><strong><span><span>Success hinges on policy alignment</span></span></strong> </span></span></span></span></p> <p><span><span><span><span><span><span>The Chinese economy faces a large amount of separate problems, many of which the central bank is tasked with solving. The biggest issues on the central bank’s agenda are growth, financial stability, price stability and the value of the currency. The problem with being faced with so many difficulties at once is that when the central bank targets one variable, another is bound to be adversely affected.</span></span> </span></span></span></span></p> <p><span><span><span><span><span><span>To make monetary policy implementation effective in this difficult environment, other government agencies must align their policies with those of the central bank. State banks’ lending practices must change to prioritize lending to SMEs, and various government entities need to be involved in restricting cross-border financial flows. If coordination fails, the risk is that the monetary easing will be downright counterproductive, leading to further credit build-up and capital flight. </span></span></span></span></span></span></p> <p><strong>The article is part of<a href="/merics-trackers/economic-indicators-q4-2018"> the latest issue of the MERICS Economic Indicators, </a>a project monitoring China's economic development.</strong></p></div> </div> </div> Fri, 25 Jan 2019 11:18:50 +0000 h.seidl 8766 at Greening China’s Belt and Road in Africa <span>Greening China’s Belt and Road in Africa</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Thu, 12/20/2018 - 11:23</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2018-12-21T12:00:00Z">2018-12-21</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/lauren-johnston" hreflang="en">Lauren A. Johnston</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><span><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">One country and one region that are each home to more than a billion people – China and Africa – are fundamental to international efforts to combat climate change. Since China is a leading investor in Africa’s infrastructure as part of its Belt and Road Initiative, it is timely to identify lessons – good and bad – from China’s own development experience for African policy makers and interested investors. This can support African countries to adopt a more sustainable industrial path than did China over the last forty years.</span></strong></span></span></span></span></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2018-12/181221_Tazara%20railway_flickr_richard%20stupart.jpg?itok=KQiuxsc8 325w, /sites/default/files/styles/max_650x650/public/2018-12/181221_Tazara%20railway_flickr_richard%20stupart.jpg?itok=xqSXgbt8 650w, /sites/default/files/styles/max_1300x1300/public/2018-12/181221_Tazara%20railway_flickr_richard%20stupart.jpg?itok=vHQ1AjLV 1024w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2018-12/181221_Tazara%20railway_flickr_richard%20stupart.jpg?itok=KQiuxsc8" alt="image" title="Section of the TAZARA railway, whose construction in the 1960s and 1970s was made possible by a Chinese loan. Source: Richard Stupart on flickr. " typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">This month the world’s environmental scientists, decision-makers and activists gathered in Poland for the 24<sup>th</sup> session of the Conference of the Parties (COP24) to the UN Convention on Climate Change (UNFCCC). They defined three target outcomes: raising climate change-related ambition; transformative action in the real economy; and unprecedented citizen and youth mobilization.</span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">No country’s decisions matter more to those aspirations than China’s. China is the world’s largest carbon emitter. In coming decades, the nation is also forcastet to become the world’s largest economy. It will remain the world’s largest population for some decades forth. What China does at home – and abroad – matters, as well as how. China is a leading global investor in greenfield energy and infrastructure systems across the developing world. It is the lead investor in these fields Africa – a trend that may intensify under its Belt and Road Initiative. This makes it timely to explore lessons from China’s own infrastructure experience.</span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">The African continent meantime is rich in renewables-related resources and home to some of the world’s fastest growing economies. At the same time, a majority of African economies lag in development and are in need of sustainable economic transformation. Sub-Saharan Africa specifically is home to the world’s fastest-growing populations. This is moreover the only region in the world where the median population age remains below 20 years. Directly and indirectly, a sustainable development partnership between China and Africa, thus, is imperative to prospects for achieving COP24’s goals.</span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Africa is a logical target for Chinese investment</span></strong></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Slowing growth and structural change at home and in China’s traditional export markets has been an important driver of <span><span><a href="">Xi Jinping’s flagship Belt and Road Initiative</a></span></span></span><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU"><span>, launched in 2013. </span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Alongside China’s more proximate Central and South East Asian neighbors, Africa is a logical target of China’s new outbound investment agenda. Not only is the region home to resources that are important to new growth sectors in China, such as renewable energy industries, it is also home to a large pool of youthful lower-wage labor.  As labor costs in China rise, the terms of trade are shifting in favor of labor markets in African economies. This is especially true for African economies sitting in the pre- or emerging phase of demographic transition, the transition from high fertility and mortality to low fertility and mortality. The latter infers that those countries, with appropriate policies in place, are poised to enjoy a <span><span><a href="">period of low-wage demographic dividend</a></span></span> development – as China did over recent decades. China, now at the tail end of that growth model, is eager to become a stakeholder in the industrialization of those lesser-developed countries.</span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">China is especially interested to invest in infrastructure – a sector in which it is very competitive and which serves to unlock the growth of other sectors. A recent World Bank estimate suggests that the infrastructure gap presently slows Africa’s growth by some 1.2 percent annually, and that improving the quality of existing infrastructure alone would add 0.5 percent to growth. This complementarity between Chinese supply and African demand means that China is now Africa’s greatest foreign investor in the infrastructure sector. This suggests it is timely to extract lessons from China’s own experience of infrastructure development for decision-makers in Africa. </span></span></span></span></span></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">China’s domestic infrastructure investments underpinned the transformation of its place in the global economy, but the approach was not perfect. It left lasting burdens for the country’s economy and environment also. At a time of accelerating technological progress and heightened preference for environmental protection, it is timely to review what China did, including, and perhaps especially, what China did less well, in its infrastructure development. This might enable later developers, including in African countries, to benefit from cost- and environmentally-friendly gains to their own infrastructure development program. </span></span></span></span></span></span></p> <p><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Infrastructure could be more sustainable from the get-go</span></strong></span></span></span></p> <p><span><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">China got a lot of things right when it comes to building public transit systems. It <span>illustrated the potential of metro rail as the primary means of transportation for millions of urbanizing residents. A share of its rail projects drove up debt without later offering revenue streams to cover operational costs, let alone related debts. African countries must dexterously balance the need to foster growth and employment via infrastructure investment with debt sustainability. That is especially true for African countries that are low in population density, since this would imply a prospective lower per-capita usage of transportation.</span></span></span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">China gave weight to the environment relatively late in its development. The “Airpocalypse” of 2012, however, in which smog rose to record levels in major Chinese cities, reflected a turning point. It led to the September 2013 State Council issue of a Pollution Action Plan. This year, the Ministry of Ecology and Environment, covering water, oceans, soil, air and climate, was instigated (as an upgrade).  </span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">As part of that process, China is presently re-visiting the energy efficiency of its infrastructure stock. Shanghai Port for example, is taking steps to become more energy-efficient. For example, it has established a domestic emissions control area around the broader Yangtze River delta port region, to limit the pollutant transfer to coastal residents. Vessels entering the area must meet strict environmental criteria, or otherwise offload their cargo. Port authorities make land-based energy sources (that are more efficient than on-board sources) available to vessels while in port.</span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">Efficiency gains like these could be implemented in the first instance in the case of port and other infrastructural developments in African countries. Domestically, China’s Ministry of Transportation works with an approach described as “Avoid-Shift-Improve,” which is something akin to a “Reduce-Reuse-Recycle” mantra. The approach may be usefully adopted, where possible, to China’s outbound infrastructure investment program – and African recipients of Chinese investment should push for this.</span></span></span></span></span></p> <p><span><span><span><span><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">In sum, <span>China offers many timely examples of the importance of public infrastructure during the process of economic development. The solutions China now uses to make its domestic infrastructure more environmentally sustainable might also be affordably implemented in BRI-related investments in the first instance. Many African countries, like China before them, now face that narrow window of demographic circumstances that are favorable to development. As partners, both sides have an important opportunity to forge a greener development model at an earlier stage in African development than was the case for China.</span></span></span></span></span></span></p> <p><span><span><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">This blogpost is based on </span></strong><span><span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"><a href="">Occasional Paper 292</a> of the</span></strong></span></span><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US"> South African Institute for International Affairs (SAIIA) published on December 13 and authored by Lauren A. Johnston and Robert Early. </span></strong></span></span></span></span></p></div> </div> </div> Thu, 20 Dec 2018 10:23:17 +0000 komprakti 8646 at China's digital economy offers employment for disabled people <span>China&#039;s digital economy offers employment for disabled people</span> <span><span lang="" about="/en/user/286" typeof="schema:Person" property="schema:name" datatype="">h.seidl</span></span> <span>Mon, 12/03/2018 - 12:24</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2018-12-03T12:00:00Z">2018-12-03</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Karen Fisher, Haiqing Yu</p> <p><span><span><span><span><strong><span><span>The digital economy offers new employment opportunities for China’s disabled people. Expanding the digital economy to include broader parts of the population combines the economic goal of China’s transition to a high-tech nation with the political imperatives of growth and social stability. </span></span></strong><strong><span><span><span>This is the fourth part of a series based on a MERICS publication on social services in China.</span></span></span></strong></span></span></span></span></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2018-12/181203_Boy_in_wheelchair_pbu748681_15.jpg?itok=aAcfxEZ- 325w, /sites/default/files/styles/max_650x650/public/2018-12/181203_Boy_in_wheelchair_pbu748681_15.jpg?itok=_g_6AKcK 650w, /sites/default/files/styles/max_1300x1300/public/2018-12/181203_Boy_in_wheelchair_pbu748681_15.jpg?itok=8hsz57dQ 1300w, /sites/default/files/styles/max_2600x2600/public/2018-12/181203_Boy_in_wheelchair_pbu748681_15.jpg?itok=D9CY1iNq 2600w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2018-12/181203_Boy_in_wheelchair_pbu748681_15.jpg?itok=aAcfxEZ-" alt="China&#039;s digital economy creates new employment opportunities for disabled people – with the government’s active support. Image by ImagineChina " title="China&#039;s digital economy creates new employment opportunities for disabled people – with the government’s active support. Image by ImagineChina " typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span>In China, as in other countries</span><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU">, disabled people struggle to find </span><span>employment. This is changing as the digital economy creates new </span><span><span>employment and entrepreneurial opportunities – with the government’s active support.</span></span></span></span></p> <p><span><span><span>China has 85 million disabled people according to official statistics, 6.21 percent of the total population. The actual number is probably much higher, since the WHO estimate is closer to 15 percent in most countries. Nearly 54 percent (9.42 million) of working-age disabled people (16-60 years old) are in paid employment. </span></span></span></p> <p><span><span><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU"><span>The digital economy not only removes physical and geographical access barriers, it also levels the playing field for people without paid work experience. </span></span><span><span><span>China’s disability and internet policies require civic organizations and private companies to employ disabled people and encourage them to build accessible platforms to enable entrepreneurialism.</span></span></span></span></span></p> <p><span><span><strong><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU"><span>Disabled people set up personal online stores</span></span></strong></span></span></p> <p><span><span><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU"><span>Supported by these policies, disabled people in China are earning income, sometimes for the first time, in three ways:</span></span></span></span></p> <p><span><span><span>First, new jobs have emerged in the ICT (information and communication technologies) sector in urban and rural areas. These jobs range from developing and selling ICT software and hardware<span> to working in call centres. Many of these jobs are not location-specific and some only require on-the-job training. Both these job characteristics mean that some disabled people who are excluded from the labor market by physical access, location or education now have regular work. Some ICT companies are also targeting jobs to disabled staff because of lower costs, especially if they live outside the wealthier locations. It also means the company can meet the employer disability quota. </span></span></span></span></p> <p><span><span><span>The second type of jobs is in personal online stores. The extent of this type of business is a China-specific phenomenon. Major platforms in China include Taobao and Weidian (retail shops based on WeChat). Individuals can easily and cheaply set up online stores from their own smartphone or computer. Disabled people are overrepresented as Taobao operators according to Alibaba, one of the largest IT companies. </span></span></span></p> <p><span><span><span lang="EN-AU" xml:lang="EN-AU" xml:lang="EN-AU"><span><span>The disabled Taobao operators often sell local produce or disability-related products. A case that has attracted publicity is a physically disabled young woman in rural China who uses WeChat to sell the fruit produced by her family and village. Another is a successful businessman who manufactures and sells clothes online (via Taobao and WeChat), employing hundreds of staff, including other disabled people.</span></span></span></span></span></p> <p><span><span><strong><span><span>China’s policies connect citizens, markets and government actors</span></span></strong></span></span></p> <p><span><span><span><span>The third use of digital platforms by disabled people is social enterprises, which can have flow-on effects for social inclusion in other areas, as well as economic benefits such as skill learning and upgrading. Interesting examples include national and local job networks and information sites that link disabled people with each other or to employers and other social opportunities. Some successful social enterprises leverage their market power for disability advocacy. </span></span></span></span></p> <p><span><span><span><span><span>The changing pattern of disabled people’s employment in China’s digital economy can also be of international interest. As a global leader in the development of digital online platforms and cashless financial transactions, China is in a good starting position to actively engage with the new digital corporate market at the same time as it develops its social welfare systems.</span></span></span></span></span></p> <p><span><span><span><span><span>Social inclusion and equality for all (including disabled people) remains an elusive goal in all countries. The response of the Chinese government to unemployment of disabled people is an interesting model for sharing responsibilities between the private and public sectors. The explicit policy connection between citizen agency, market opportunities and government responsibility is a unique Chinese approach.</span></span></span></span></span></p> <p><span><span><strong><span><span>This article is based on a chapter in the MERICS Paper on China:</span></span></strong><strong> </strong><span><span><strong><span><span><a href=""><span>"Serve the people. Innovation and IT in China’s social development agenda."</span></a></span></span></strong></span></span><strong> </strong></span></span></p> <p><strong>Karen R. Fisher</strong> is a Professor at the Social Policy Research Centre, UNSW Sydney. Her research interests are the organization of social services in Australia and China, particularly disability and mental health services, policy process and inclusive research.</p> <p><strong>Haiqing Yu</strong> is Associate Professor and Vice-Chancellor’s Principal Research Fellow in the School of Media and Communication, RMIT University, Australia. She researches the sociopolitical and economic impact of China’s digital media, communication, and culture on China, Australia and the Asia Pacific.</p> <p>The views expressed in this article represent the views of the author and not necessarily those of the Mercator Institute for China Studies.</p></div> </div> </div> Mon, 03 Dec 2018 11:24:00 +0000 h.seidl 8521 at Alicia García Herrero: What the Sino-American trade war is really about <span>Alicia García Herrero: What the Sino-American trade war is really about</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Thu, 11/29/2018 - 10:48</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2018-11-29T12:00:00Z">2018-11-29</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p>Podcast with Alicia García Herrero</p> <p><strong><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">The meeting between US President Trump and the Chinese leader Xi Jinping on the sidelines of the G20 summit in Argentina did not lead to an end to the Sino-American trade war, but only to a truce between the two super powers. According to the Hong Kong-based economist Alicia García Herrero the truce gives both sides more time to disentangle their economies from each other.</span> </strong></p></div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span lang="EN-US" xml:lang="EN-US" xml:lang="EN-US">What the trade war is really about, she argues, is a battle for hegemony, a kind of economic Cold War. Europe is caught in the middle between its two largest trading partners. Some industrial sectors could benefit from increased trade with China, García Herrero says, but the EU also has to be aware that the Sino-American trade dispute carries huge risks for Europe. Listen to Alicia García Herrero in the new MERICS Experts podcast.</span></p> <p>Questions: <a href="/team/ruth-kirchner">Ruth Kirchner</a></p></div> <div class="field field--name-field-podca field--type-file field--label-hidden field--items"> <div class="field--item"><span class="file file--mime-audio-mpeg file--audio icon-before"><span class="file-icon"><span class="icon glyphicon glyphicon-headphones text-primary" aria-hidden="true"></span></span><span class="file-link"><a href="" type="audio/mpeg; length=33469632" title="Open audio file in new window" target="_blank">Merics Experts 67 - Alicia Garcia Herrero.MP3</a></span><span class="file-size">31.92 MB</span></span></div> </div> </div> </div> Thu, 29 Nov 2018 09:48:33 +0000 komprakti 8506 at "The CCP sets the criteria for China's credit rating 'plus'" <span>&quot;The CCP sets the criteria for China&#039;s credit rating &#039;plus&#039;&quot;</span> <span><span lang="" about="/en/user/301" typeof="schema:Person" property="schema:name" datatype="">smuscat</span></span> <span>Fri, 11/02/2018 - 16:05</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2018-11-02T12:00:00Z">2018-11-02</time> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong>Interview with Mareike Ohlberg (via <a href="">Young China Watchers</a>)</strong></p> <p><strong>The collection of citizens' personal data is a global issue, but China's social credit system is unique in its ambitions. Its uses range from assessing individual credit risks to forcing companies to comply with environmental standards, but also to discouraging dissenting political opinions. In this interview MERICS researcher Mareike Ohlberg describes China's struggle to define the standards for a nationwide system.</strong></p></div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><img alt="Mareike Ohlberg" data-entity-type="file" data-entity-uuid="257e8e26-8e4f-49c5-8167-86129f5c9c0b" height="179" src="/sites/default/files/inline-images/Mareike_Ohlberg_press_klein.jpg" width="268" class="align-left" /></p> <p> </p> <p> </p> <p> </p> <p> </p> <p> </p> <p><strong>YCW: In your report “<a href="">Central Planning, Local Experiments: The Complex Implementation of China’s Social Credit System</a>,“ you refer to China’s system as “Credit Rating ‘Plus’.” How is China’s social credit system, both in its current state and in its projected scale, unique from systems in other countries? </strong></p> <p><strong>MO:</strong> China’s social credit system is unique in some ways but also overlaps with what’s happening in other countries. In the present stage, much of what is going on at the central level with setting up the social credit system really is about collecting data from a broad variety of sources. China certainly is not the only nation that wants to aggregate data on citizens and compare that data in areas such as tax departments and banks. There are experiments going on elsewhere: In India, the Aadhaar Card is an attempt to tie data from different sources to a single identity; in the Netherlands, the System Risk Indication of the Ministry of Social Affairs and Employment is used to identify citizens who might be abusing the social system.</p> <p>Even though China might be unique in terms of its ambitions for the social credit system, data collection and using data to rate people is more of a global issue.Take financial credit ratings: Germany has the <em>Schufa</em>, a private company that assesses the credit risk of individuals and certain sectors. The algorithm for how your <em>Schufa</em> score is calculated is not transparent, and that is problematic in and of itself.</p> <p>At the national level in China, there is no comprehensive citizen score, so it’s hard to say what the nationwide social credit system will look like in the end. But what can be safely said is that the social credit system in China isn’t just about assessing credit risk, even though that’s where part of the initial thinking behind the system comes from. But the way it has evolved now it has become more a tool to enforce potentially all laws, regulations and targets more effectively. Presently, it’s used to try to force companies to comply with environmental laws or production safety standards and to make debt defaulters repay the money they owe, but it can and has also been used to threaten those who don’t use Beijing’s preferred nomenclature on Taiwan. Hence the idea of credit rating “plus” or rather “plus plus plus.”</p> <p><strong>YCW: Can you talk about the positive and negative implications of China’s social credit system on parts of society, such as the economy and institutions like schools and hospitals? </strong></p> <p><strong>MO:</strong> At the most basic level, the idea of the social credit system is to enforce laws or regulations or any other target that the government wants to set. It can have a positive effect in, for example, creating strong incentives for companies not to violate environmental regulations, or ensuring protective measures against food scandals like China has faced in the past. But the problem is that you are trusting the government with setting the criteria. It’s hard to preclude political criteria—it can be used against those who “endanger national security,” those “picking quarrels and stirring up trouble” or those “violating national unity.” It places a lot of trust in the Communist Party of China (CPC).</p> <p>In terms of citizen affirmation, all you need is people not to be up in arms about it. At present there is not a lot of backlash, probably because there are no visible negative effects outside of a small number of people who are affected, such as being blacklisted for defaulting on debt. So long as the CPC succeeds in keeping the number of people severely affected relatively low, there’s a good chance there won’t be a lot of backlash.</p> <p>Here in Germany, there might be some vague sense that Facebook is doing stuff with our data that we may not be fully comfortable with, since that’s been in the news, but in the end, the convenience of connecting with friends wins out, and most people will keep their Facebook account.</p> <p>As well, it’s very hard to organize in China. Part of the reason Europe has a fairly good track record with data protection is that people can organize. Even if the majority of people aren’t willing to take action, NGOs, watch groups or lawyers push for certain laws, whereas there’s more limited space for that in China. Pushing for a law to curb data use and abuse by the central government, for example, would be very hard to achieve. There is a data protection discourse in China and a legal regime around data protection forming, in part inspired by and based on the EU General Data Protection Regulation (GDPR), but we will have to see how it is implemented, and in any case, that offers no protection from the government itself.</p> <p><strong>YCW: You note that the central government presents the social credit system as a “cure-all” for many of China’s current and future problems, including issues from food security to intellectual property rights. How does the state go about purporting that image, and to what extent is the Chinese public aware of the social credit system in its current form? </strong></p> <p><strong>MO:</strong> There is some media reporting on the system in China, which usually is either very positive or addresses issues that need to be overcome, like implementation hurdles. <a href="">Credit China</a> is the main system to look up official information about it. There are great cartoons on there that explain how it’s going to solve all problems with dishonesty, some of them quite disturbing in their unabashed support for public shaming. There is also some advertising the system in public spaces, especially in experimental zones where it is already being implemented.</p> <p>When I first started researching this, most people I spoke to in China didn’t know about it, whereas now it seems that almost everybody has heard of it and knows there’s something going on, whether from domestic coverage or reading international news.</p> <p><strong>YCW: Your research focuses on the gap between central government leadership and provincial government actors, who in many cases are the people charged with implementing the system. Are those disparities coming from ideological disagreements, differing understanding of what the system seeks to achieve, or merely the wide range of interpretations individuals might have of their role? How might this lack of unity complicate or threaten the social credit system? </strong></p> <p><strong>MO:</strong> The idea behind our study was not necessarily to point towards the discrepancies between the center and localities, but rather to give a more nuanced overview of the current state of social credit implementation in China. You have certain initiatives at the center, focused on centralizing data and making sure data is accessible to the central government. Then you have pilots. For instance, at the beginning of this year, the center picked 12 cities out of a list of cities that were in other kinds of pilot groups before, and promoted them as model cities for setting up the social credit system.</p> <p>Then there are a number of other initiatives being tested. It’s a complex undertaking, but at least in initial media reporting on the issue, the social credit system as a whole was often conflated with 芝麻 (<em>zhima</em> “Sesame”) credit, a commercial pilot run by Alibaba’s Ant Financial Services. It’s an interesting program and Alibaba is obviously a big player in big data, but use of Sesame Credit is not mandatory and government-led. In fact, the PBOC has refused to give Ant Financial Services a license. So my co-authors and I wanted to talk about these complexities in the implementation process. Government-led citizen rating, in those pilot cities where it does exist, is being carried out differently in different places. Some focus more on digital behavior, some are transparent with a catalog of behavior, and in other places people have no idea what might be impacting their score.</p> <p>This is not unusual for China, where experimental zones are a key part of how policy is made. Different models are tried in different places; they’re testing what works and what causes backlash; and if something is seen as successful, it’s rolled out more widely. In the paper, we’re not trying to make a statement that there’s a huge discrepancy between the central and local governments, but rather emphasize that it’s a long process.</p> <p><strong>Interview by Johanna M. Costigan</strong></p></div> </div> </div> Fri, 02 Nov 2018 15:05:13 +0000 smuscat 8411 at China’s battery industry is powering up for global competition <span>China’s battery industry is powering up for global competition</span> <span><span lang="" about="/en/user/306" typeof="schema:Person" property="schema:name" datatype="">komprakti</span></span> <span>Tue, 10/23/2018 - 14:39</span> <div class="layout layout--onecol"> <div class="layout__region layout__region--content"> <div class="field field--name-field-blog-date field--type-datetime field--label-hidden field--item"><time datetime="2018-10-24T12:00:00Z">2018-10-24</time> </div> <div class="field field--name-field-authors field--type-entity-reference field--label-hidden field--items"> <a href="/en/team/anna-holzmann" hreflang="en">Anna Holzmann</a> </div> <div class="field field--name-field-announcement-text field--type-text-long field--label-hidden field--item"><p><strong><span><span><span><span><span>China’s electric vehicle (EV) battery industry is well positioned to be competitive in global markets. The industry’s strong performance results from state support of domestic manufacturers. As China’s EV battery manufacturers expand abroad, manufactures in free market economies are up against Chinese state-backed competitors.</span></span></span></span></span></strong></p></div> <div class="field field--name-field-main-image field--type-image field--label-hidden field--item"> <img srcset="/sites/default/files/styles/max_325x325/public/2018-10/181024_Electric%20vehicles_Focus_Battery%20Industry.jpg?itok=CVATkfWh 325w, /sites/default/files/styles/max_650x650/public/2018-10/181024_Electric%20vehicles_Focus_Battery%20Industry.jpg?itok=l-HId8ly 650w, /sites/default/files/styles/max_1300x1300/public/2018-10/181024_Electric%20vehicles_Focus_Battery%20Industry.jpg?itok=6cWy2NkR 1300w, /sites/default/files/styles/max_2600x2600/public/2018-10/181024_Electric%20vehicles_Focus_Battery%20Industry.jpg?itok=3Oq9CmJv 2500w" sizes="(min-width: 1290px) 1290px, 100vw" src="/sites/default/files/styles/max_325x325/public/2018-10/181024_Electric%20vehicles_Focus_Battery%20Industry.jpg?itok=CVATkfWh" alt="Battery Industry" title="Chinese producers of electric vehicles&#039; batteries are holding a front-row position as suppliers. Source: ImagineChina" typeof="foaf:Image" class="img-responsive" /> </div> <div class="field field--name-body field--type-text-with-summary field--label-hidden field--item"><p><span><span><span><span><span><span><span><span><span><span><span><span>Until recently, Tesla’s and Panasonic’s joint gigafactory in Nevada was the global benchmark for producers of lithium-ion batteries – the most common type of battery for electric vehicles (EVs). The US plant is currently capable of producing 20 gigawatt-hours (GWh) per year. In June, Tesla announced to further increase its production by setting-up a combined automobile-and-battery factory in Shanghai.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>Chinese producers are rapidly catching up. China’s leading battery producers, Contemporary Amperex Technology (CATL) and Build Your Dreams (BYD), are planning to compete with their own gigafactories. If China’s expansion plans materialize, its battery manufacturing capacity would be more than triple than that of the rest of the world.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span><a href=""><img alt="China is building up massive battery manufacturing capacity" data-entity-type="file" data-entity-uuid="5fe93897-7f26-4166-8052-fc9eef7e1b7f" src="/sites/default/files/inline-images/181012_Economic-Indicators_Battery-Industry_Infographics_Q3-2018_finalfinal1_1.jpg" /></a></span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span>The development of the battery market is closely linked to the booming EV industry. Global sales reached a peak last year and are expected to further increase in the next decade. The race is on: for car makers to secure preferential supply with batteries, and for battery manufacturers to assume global leadership. With the aid of state support, Chinese companies have made a head start.</span></span></span></span></span></p> <p><span><span><span><span><span><span><a href=""><img alt="The global EV battery market is dominated by Chinese companies" data-entity-type="file" data-entity-uuid="049706e7-dbc1-49b0-a6dc-4a6e91fd7ff2" src="/sites/default/files/inline-images/181012_Economic-Indicators_Battery-Industry_Infographics_Q3-2018_finalfinal2_0.jpg" /></a></span></span></span></span></span></span></p> <p><span><span><strong><span><span><span>State intervention benefits Chinese manufacturers</span></span></span></strong></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>Given the market size, a strong foothold in the Chinese battery industry translates into a front-row position in the global field. State intervention, however, has also benefitted Chinese manufacturers. The market is increasingly concentrated in the hands of a few Chinese companies. By June, the combined market share of the two EV battery behemoths CATL and BYD reached 64 percent – a considerable portion, given that China’s top ten battery manufacturers together hold a domestic market share of about 87 percent.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span>Last year, only six out of 98 battery (component) companies operating in China were foreign. One of the main reasons for this is China’s certification scheme. Since 2015, the Ministry of Industry and Information Technology has cleared 57 general EV battery manufacturers for business in China. They are virtually all Chinese. Many foreign companies were reportedly denied inclusion in the official list of certified battery producers on dubious grounds, suggesting that foreign companies had to adhere to different standards..</span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>Despite this, foreign battery producers have started to break into the Chinese market– often in form of joint ventures – ownership restrictions were abolished last year. Yet, industry regulations and governmental support have long shielded the domestic industry from foreign competition.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>In 2016, for example, Beijing issued draft regulations that did not explicitly discriminate against foreign companies. But the regulations nevertheless created a competitive advantage for Chinese producers. The regulations call for the construction of annual output capacity of eight Gigawatt hours (GWh) for lithium-ion battery manufacturers active in China. At first, only CATL and BYD could meet this criterion. Demand for their products was further artificially boosted, since EV subsidies would only be granted for cars using batteries from companies that met the stipulated requirements.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>Changes in the regulatory scheme also drained demand for batteries from LG Chem. The Korean company was put in a predicament that allegedly led to the sale of the company’s Nanjing battery plant – including the rights to use its manufacturing technology – to Chinese auto manufacturer Geely in April last year. LG Chem, however, has already announced plans to establish a new factory in Nanjing.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><strong><span><span><span>Plans for battery industry are in line with Made in China 2025</span></span></span></strong></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>Allegations of preferential treatment are substantiated by the state-set goals for China’s battery industry. Already back in 2012, the Chinese government stated that two to three leading battery companies with a capacity of ten Gigawatt hours should be brought about by 2020. These ambitions were revised upward to 40 GWh for “leading companies of international competitiveness” in the EV battery industry action plan released last year. These ambitions tie in neatly with the Made in China 2025 industrial policy, which seeks to boost domestic capabilities at the expense of foreign actors and lists EVs as a core industry. The strategy also regards batteries as a key domain for accelerated development. A minimum of 18 EV battery-related smart manufacturing pilot projects were set up since the release of the policy three years ago. Unsurprisingly, they are almost exclusively carried out by Chinese companies.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>To cement their supremacy, Chinese battery manufacturers also count on fellow Chinese companies’ support. Last year, for instance, CATL formed two joint ventures with automobile company SAIC Motor. It also entertains strategic relations with other firms such as Dongfeng Motor. The Optimum Nano Innovation Alliance represents another type of initiative that ties together key domestic (read “Chinese”) players across the value chain of EV battery production. Acquisitions of foreign companies and inbound transfer of technology to build up a strong Chinese industry have become relatively scarce. The recent business activities of China’s top five battery manufacturers conform to an expansionist strategy of self-confident actors that started out to conquer the world battery markets.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><span><span><span><span><span><span><span><span><span><span><span><span>The case of China’s battery industry shows how government supported demand for EVs and protectionist policies led to a thriving domestic market that has produced national, and increasingly global champions. It serves as a model case of China’s state-led approach to emerging industries that puts free market economies to the test. CATL’s plan to open </span></span></span></span></span></span></span></span></span></span></span></span><span><span><span><span><span><span><span><span><span><span><span><span>its first battery plant overseas in Germany in 2022 is a case in point. This time, a Chinese company will be introducing key technology to Europe, and not the other way around. More and more Chinese battery manufacturers are set to follow suit with their own plans to venture into Europe.</span></span></span></span></span></span></span></span></span></span></span></span></p> <p><strong><span><span><span><span><span>The article is part of<a href=""> the latest issue of the MERICS Economic Indicators, </a>a project monitoring China's economic development.</span></span></span></span></span></strong></p></div> </div> </div> Tue, 23 Oct 2018 12:39:24 +0000 komprakti 8371 at