Dialogue China BriefingAbout China TodayNovember 1st, 2023 – Issue 142Topics in This IssueThe articles translated here do not necessarily reflect the views of Dialogue China Briefing or Dialogue China. Feature StoryThe Political Situation in China Is Strange and Unpredictable; Outsiders Should be PreparedChina’s 11th Golden Week No Longer Contains “Gold” Policy/Politics (Public Opinion within the Great Firewall)Cold Reflections on “Huawei Mate 60 Fever”; The Future of China’s Semiconductor Industry Beginning With the Return of Huawei’s Kirin Chip Finance and Business (Public Opinion within the Great Firewall)Real Estate in China Is a Real Problem These DaysEvergrande Real Estate President Xu Jiayin: Leaving a ¥2.3 Billion Yuan Trust for his Son and a ¥2 Trillion Yuan Debt for SocietyWill China’s Housing Prices Return to 2007 Levels by 2050? An Intriguing Long-Term StudyThis Year, Members of China’s New Middle Class Are Eager to Dip into their Savings for Overseas Travel Feature Story The Political Situation in China Is Strange and Unpredictable; Outsiders Should be Prepared”Wang Dan – Radio Free Asia – September 25, 2023 On July 31, 2023, the Central Military Commission of the Chinese Communist Party held a ceremony to promote generals. Li Shangfu, second from right in the front row. Xi Jinping presents orders to the newly promoted officers and poses for a group photo (Associated Press/Image)After Xi Jinping came to power in 2012, the purges by the Chinese Communist Part have continued non-stop. But the recent removal of two members of the State Council–former Foreign Minister Qin Gang and former Defense Minister Li Shangfu–have set a new record for political chicanery in the party. What is both puzzling and different this time is the four-step process in terms of the official attitude toward this purge. Both Qin and Li suddenly and without warning disappeared from the public eye. The Beijing leadership then privately explained to the international community (e.g., the United States) that it was due to “health reasons.” But eventually, in a press briefing with international reporters, spokesperson for the Ministry of Foreign Affairs Mao Ning insisted on not providing any explanation, no matter how insistent the media pressed her for a comment.  Finally, two months after their disappearance, state media reported that they had been formally dismissed. This is very unusual. For the other personnel changes during the Xi Jinping era, it has been common to tell the public in a dignified manner that a certain person is “under investigation for corruption.” Such a statement only shows that the Communist Party is continuing with its anti-corruption campaign, and it does not do any harm to the image of the party. Media on the purge of Li Shangfu reported that it was due to corruption in the military. If this is the case, why did the Communist Party not admit it in a dignified manner? If the party was unwilling to admit that both Qin Gang’s and Li Shangfu’s dismissals were due to corruption, or that there were other reasons for their demise that are not known to the outside world, then, judging from the party’s historical record, using “health reasons” as an explanation, even though the outside world may have its doubts, is a “reasonable” excuse for their disappearance. Why was such a simple and convenient way of handling the matter not adopted at the Ministry of Foreign Affairs press conference? It has been two to three months since the two high-ranking state councilors suddenly lost power and evaporated into thin air. But no real explanation was given until the end of October, not even a false and fabricated reason, and the Ministry of Foreign Affairs spokesperson initially said she is “not clear on the matter.” With the exception of the special period during the Cultural Revolution, this is a very rare situation in the history of power struggles within the party. It is both abnormal and unnecessary, which is why I say that the political situation in China is strange and unpredictable. Of course, we do not have any direct evidence to explain why the situation has occurred, but a few details are certain: First, from 2012 until today, Xi Jinping’s purges of senior military officers have continued without stop. From the purge of Vice Chairman of the Central Military Commission Guo Boxiong in 2012 and his subsequent sentencing to life in prison, to Minister of Defense Li Shangfu’s present fall, high-ranking military officers have clearly been unable to ensure their own safety. In fact, the frequent replacement of high-ranking military officers is not conducive to stable national security. But Xi Jinping has been relentless in continuing his purges. This shows that Xi Jinping, who has been chairman of the Central Military Commission for more than ten years now, is still not at ease with the military. Such a tense relationship between Xi and the military has added a lot of uncertainties to future political developments in China. Second, the strange, sudden, and unexplained fall of the two state councilors proves once again that power struggles still exist within the Communist Party, and that Xi Jinping’s power, even after the 20th Party Congress, is not yet consolidated or as secure as outside observers once thought. Although on the surface it seems that Xi Jinping has placed his own people in almost all important positions, if even someone like Qin Gang, who has long been regarded as Xi Jinping’s loyal subordinate, can so suddenly disappear, then the very existence of a so-called “Xi Jinping Family Army,” never mind any cohesiveness in this faction, should be questioned by outsiders. If it is said that Xi Jinping has not been able to establish a stable and loyal ruling team after last year’s 20th Party Congress and if he is not completely at ease with his “own people,” this high-level leadership structure is not only unstable but also another major variable in China’s future political development. Based on the above, my judgment is that China’s political situation is now undergoing unprecedented internal turmoil, with a high degree of instability. It is impossible to predict what will happen in the future and no possibility can be ruled out. The outside world, be it the West or Taiwan, including also the opposition forces in China, should be psychologically prepared for this.Feature Story China’s 11th Golden Week No Longer Contains “Gold”Jo – Dialogue China Briefing Original – November 1, 2023 On October 3, 2023, Chinese tourists walk through Macau’s Senado Square during the week-long holiday (Agence France-Presse/Image)In October 2023, 1.4 billion Chinese people took a long vacation. The government ruled that the Mid-Autumn Festival, National Day, as well as the two weekends before and after these holidays, be celebrated together, creating a rare record of eight consecutive days of vacation. Although this resulted in this year’s “golden week” being one day longer than usual, it was not as golden as in earlier years. Figures show that 826 million people traveled and RMB 753.4 billion in tourism revenue was generated during the eight-day holiday.  But both these figures are lower than the government’s previous estimates. Compared with the seven-day holiday in 2019 before the outbreak of COVID-19, even though the number of travelers increased by 4.1 percent, spending increased by only 1.5 percent–indicating that per capita spending decreased. As for outbound travel, which is more expensive, the number of people traveling recovered to only about 80 percent of the 2019 pre-epidemic figure. Shanghai Securities News reported that China’s tourist arrivals recovered more rapidly after the epidemic, but the rebound in per capita unit spending still lagged. In addition to holiday travel, exchanging mooncakes during the Mid-Autumn Festival has always been a popular custom among Chinese citizens. Sales of mooncakes were on the rise every year prior to the epidemic, almost doubling from 13.1 billion yuan in sales in 2015 to 24.4 billion yuan in sales in 2022. In the past, before the Mid-Autumn Festival, mooncake gift boxes priced at 2,000 yuan were often snapped up in the market; in some cities, there were even sky-high priced mooncake gift boxes, valued at about 100,000 yuan, that contained pure gold shaped mooncakes. The “Golden Mooncake” is made from a thousand taels of pure gold, and comes with a hefty price tag (CNS/Image)Gold mooncakes have long been yesterday’s smoke. Data from the Jingdong platform show that sales of mooncakes on the platform in mid-August of this year amounted to 5.5 million yuan, down 55 percent compared to the same period of last year. The 2023 TikTok E-commerce Mooncake Quick Overview Report shows that this year’s mooncake sales were mainly concentrated in the low-price range, with mooncakes costing below 50 yuan having the highest sales volume. A mooncake enterprise in Suzhou, Jiangsu province, which receives mooncake orders from Internet companies in the vicinity of Shanghai during previous years, reported that this year’s orders have been reduced by 3–4 percent, and customers placing orders have asked for price reductions. In addition, entertainment spending also hit a multi-year low. Data from Maoyan Entertainment, an online ticketing platform backed by Tencent, shows that national sales of movie tickets during Golden Week amounted to a mere 2.7 billion yuan, down 39 percent from 2019 prior to the epidemic. A single falling leaf can signify the arrival of autumn. In fact, the sluggishness of consumption has already spread to various industries and the “downgrading of consumption” has become a new way of life for an increasing number of Chinese people. According to data from the National Bureau of Statistics, total retail sales of consumer goods in the first nine months of this year amounted to 32 trillion yuan, which is only a slight increase of 0.7 percent over 2022 during the strict lockdown. Among these sales, there was a significant increase in retail sales in supermarkets and convenience stores, but sales in department stores fell by 6.3 percent compared to the previous year. This suggests that consumers are more willing to choose convenience stores with lower-priced goods and they no longer favor the more expensive department stores. More people are also now buying their daily food at convenience stores, which means that food and beverage companies are beginning to struggle. According to figures from the National Bureau of Statistics, sales of food and beverages from January to September of this year totaled 3.1 trillion yuan, a year-on-year drop of 4.6 percent.  It is not difficult to find some examples: the high-end malls no longer feature Japanese cream puff shops and Korean coffee shops. They have been replaced by stalls selling rabbit heads, duck necks, and chicken feet; Lucky Coffee’s 9.9 yuan coffee has become a bestseller; a 35 yuan extra-large pizza has emerged; mid- to high-end hotpot restaurants like Haidilao are now operating as street stalls, breaking down the tables sharing the hotpots into individual plates of meat and skewers; since the pandemic, Chinese dessert stars such as Xueliushan and Xianhezhuang have gradually been closed their stores, and now only a few remain; the popular Internet-famous restaurant, Niujiaocun, has also closed down and gone bankrupt In August 2023, the downgrading of consumer preferences has resulted in the success of Hai Di Lao night market street stalls, outperforming 90 percent of the vendors (Weibo/Image)Consumer industries are shrinking, and the real estate industry, a source of one of the most popular investments, has not been immune. Autumn is supposed to be the most active time for real estate transactions, known as “September (is) golden, October (is) silver” to refer to real estate transactions, but despite successive stimulus policies launched by the Chinese government, the sharp decline in real estate transactions could not be reversed. Statistics from the China Index Research Institute show that the area of new housing transactions fell 20 percent year on year in September, and the average number of daily transactions in 35 representative cities during the golden week of the Mid-Autumn Festival and the National Day fell 17 percent year on year and 24 percent compared to that in 2019, the year before the epidemic. In addition, real estate–related industries have also been negatively affected, with total national retail sales of home furnishings falling 8.4 percent year on year in the first nine months of this year and sales of construction and decoration materials dropping by nearly 5 percent. From houses to cars, from luxury goods to everyday food and clothing, Chinese per capita consumption has been decreasing, so where is the money that is being saved? While Western countries are facing inflation pressures and rising interest rates, China’s economy is moving forward on an opposite path. Just this past September, six major state-owned banks and eleven commercial banks again lowered their deposit rates, and now China’s main bank deposit rates are below 3 percent.  But this does not stop people from putting their money in the bank. In August 2023, new deposits in China totaled $1.26 trillion and in September they reached $1.3 trillion. Associate Professor of Economics Shi Huling at Monash University in Australia has pointed out that it is not that Chinese residents are reluctant to spend but rather that they dare not spend. During the three years of the pandemic, the Chinese government did not issue one penny in subsidies, with the result that the people have very little cash in hand. People are once again doubting the overall state of the country’s assets and are worried that their future lives may not be secure. Therefore, they save money, which will lead to a more sluggish consumer market.  According to Li Hengqing, an economist at the Informatics and Strategies Institute, signs that China’s economy is heading in the direction of deflation include the steady or slightly declining prices, the lack of new jobs, the inactivity of the market, and the reduced desire to consume. Chinese people are not optimistic about their future income or about the country’s economic situation, so they do only one thing: cut back on their spending and save money. This is similar to how in the animal kingdom, many animals store large quantities of food before the winter. In addition to saving money, young people are becoming enthusiastic about spending their money on small-scale entertainment-related items, such as concerts, music festivals, video streaming service subscriptions, and so forth. A briefing on the national performance market in the first half of 2023 reveals that in the first six months of 2023, the number of national commercial performances reached 193,300, four times the number in the previous year; box office revenue from performances was 167.8 billion yuan, 6.7 times the number in the previous year; and the number of spectators was 62.24 million, 10 times the number in the previous year. According to academic Li Hengqing, the increase in entertainment-oriented consumption reflects a change in consumer mentality. Originally, when young people saved up to buy cars and houses, they were responsible consumers because they had expectations and plans for the future. But nowadays, young people are switching to small, instant-pleasure spending because they cannot afford big purchases.  They no longer plan for the future and they can only find comfort in small-scale spending.  But what is even more chilling is that more money is being spent on the lottery. Figures from China’s Ministry of Finance show that lottery sales soared to a record high of RMB 53 billion in August, up 54 percent year on year. During the first eight months of 2023, the country sold a total of RMB 375.8 billion in lottery tickets, up 52 percent year on year. This figure has already increased by 14 percent and 12 percent from 2022 and 2021, respectively. In addition, those purchasing lottery ticket are no longer only the elderly; more young people are also joining the lottery army. A small lottery ticket has become a kind of spiritual medicine for young people (Zhihu/Image)According to Wang He, a current affairs commentator, young people in China used to expect to get rich through hard work and entrepreneurship, but now they have turned to “dreaming of wealth,” and buying lottery tickets gives them the comfort of dreaming. If the sale of lottery tickets is good, it means that the national social situation is very bad. Since people cannot find any hope in their daily lives, they can only pin their hope on buying lottery tickets, thinking that pies will fall from the sky. This shows that the mentality of the entire society is quite bad and there is no longer any confidence about the economy. In terms of policy recommendations, scholar Li Hengqing believes that the current U.S. policy toward China has been very successful and it has achieved remarkable containment results. However, he also has pointed out that if the Hamas attack on Israel turns into a large-scale war, the West may need to approach China and Russia, in which case China might seek an opportunity to break free from its current situation. Li Hengqing reminds us that the post–World War II world order is undergoing change and the U.S. must continue to adhere to its current policy toward China and not to fall short of its goals.Policy/Politics (Public Opinion within the Great Firewall) Cold Reflections on “Huawei Mate 60 Fever”; The Future of China’s Semiconductor Industry Beginning With the Return of Huawei’s Kirin ChipLiu Bo – Chaoyang Gate Finance and Business Observer – September 8, 2023 Huawei launches its Mate 60 series of cell phones on August 29, 2023, prompting speculation about whether China’s cell phone chips have broken through the U.S. technology blockade (Getty Images/Image)Summary: This article provides an in-depth look at the development, challenges, and future of China’s semiconductor industry. First, it points out the complexity of the global semiconductor industry and the technological, talent, and capital challenges that China currently faces in this area. Chinese scientists have made significant contributions to the global semiconductor industry, but China’s own semiconductor industry still faces a shortage of technology and talent. The article emphasizes that although China has developed a competitive advantage in the electronic information terminal industry and the electric smart car industry, development of the semiconductor industry still must face the technological blockade by the West as well as international political pressures. The article suggests that China’s semiconductor industry is expected to become an important pole in the global semiconductor industry during the next 10–20 years through reform and opening up, utilizing the scale advantages of a large market in a large country, and strengthening collaborative R&D and open innovation in both upstream and downstream segments. At the same time, the article emphasizes the importance of maintaining an open and innovative learning mindset in terms of global semiconductor competition and cooperation. Huawei’s Kirin chip is an example of the determination and innovation of China’s semiconductor industry in the face of “bottleneck” problems. The launch of Huawei’s Mate 60 is a symbol of how Chinese companies can achieve technological breakthroughs and maintain their competitive position in the global semiconductor industry through independent innovation and R&D, even in the face of technological blockades.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall) Real Estate in China Is a Real Problem These DaysGuan Buyu – Guan Pang Ben Pang – September 22, 2023 A residential area under construction in Nantong, China, developed by the previously embattled Country Garden (New York Times/Image)Summary: This article looks at the issue of Chinese real estate tax legislation and the fiscal needs of the real estate market. The article points out that the news of “a five-year moratorium on real estate tax legislation” is inaccurate because “five years” is not a strict commitment, and the legislative plan does not necessarily mean it cannot be implemented earlier. In fact, whether or not the real estate tax legislation goes forward is more based on the current domestic economic situation and policy needs rather than on a strict timetable. The article stresses that the core problem of the real estate market is in fact “financial rigidity” rather than “housing rigidity,” and the entire Chinese economy revolves around “financial rigidity.” The article illustrates the direct killing effect of a property tax on asset valuation through the example of Japan, and it emphasizes that it is risky to implement a property tax before a certain level of economic development and national affluence is reached. Finally, the article points out that although the current “temporary property tax moratorium” is meant to bail out the housing market and land finance, it is uncertain whether this will be a “temporary moratorium” if fiscal pressures continue to increase in the future.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall) Evergrande Real Estate President Xu Jiayin: Leaving a ¥2.3 Billion Yuan Trust for his Son and a ¥2 Trillion Yuan Debt for SocietyNi Ming – Cool Business Insights – September 29, 2023 Evergrande President Xu Jiayin ran away from reporters during the meeting of the Chinese National People’s Political Conference. This has become a classic photo of him, with his Hermes belt the center of attention (Xinhua News Agency/Image)Summary: The article focuses on the series of actions and plans by Xu Jiayin, founder of Evergrande Group, after the outbreak of the company crisis. Xu Jiayin displayed a defiant image in public, claiming that he was willing to sell his personal assets to protect the company’s operations and the investors’ interests, but behind the scenes, he went through a series of tactics and plans to protect himself and his family. These include purchasing an irrevocable, immutable, and irrecoverable trust fund worth $2.3 billion for his son as well as agreeing to a divorce from his wife and dividing up their assets. The article mentions that his wife, Ding Yumei, left China after the crisis and her current whereabouts are unknown. The article further analyzes the possible future direction of Evergrande, including intervention by an official working group, liquidation of its assets and liabilities, and a possible bankruptcy reorganization plan. During this process, the true personal assets of Xu Jiayin and whether he has concealed other larger issues will become key issues.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall) Will China’s Housing Prices Return to 2007 Levels by 2050? An Intriguing Long-Term StudyShao Yu, Zhao Yu, Chen Dafei – Jin Yang Journal – September 27, 2023 According to China’s seventh national population census in 2020, there was a total of 494.16 million households in China, implying that there is a need to reallocate total assets valuing approximately 117.12 trillion yuan (South China Morning Post/Image)Summary: Recently, there have been a number of favorable real estate policies, and some people believe that “the property market will welcome a structural rebound.” However, in an analysis of the real estate characteristics in the U.S., Japan, Korea, Germany, the UK, and France, this article examines the relationship between the long-term cycle of the real estate market and the structural adjustment of the labor force. Based on long-term observations over a period of one hundred years, the rapid rise in real estate prices mainly occurs during a period of a rising demographic dividend, and thereafter the prices often adjust and fluctuate. Currently, the proportion of domestic households allocated to real estate has declined, while the proportion of the labor force is also declining, meaning that households will need to reallocate their total assets. It is estimated that households will need to reinvest 20.71 percent of their total assets (approximately RMB 23.7 trillion) away from real estate. The authors estimate that a decline in national producers/consumers will result in a 20.1 percent decline of real estate prices by 2050. This means that true real estate prices will return to pre- and post-2007 levels by 2050. It will be a race against time between the demographic transition, which will force a change in economic growth to drive per capita GDP growth upwards, and the accelerated downward trend of aging, which will determine not only the price of housing but also the state of the Chinese economy during the next thirty years.（Read The Original Text）Finance and Business (Public Opinion within the Great Firewall) This Year, Members of China’s New Middle Class Are Eager to Dip into their Savings for Overseas TravelWang Yidan – New Weekly – October 2, 2023 After all, it is a world we have been missing for a long time (Associated Press)Summary: The policy of “recognizing homes but not loans” has been implemented in first-tier cities, aiming to free up demand for home improvements that has been suppressed by the policy of “recognizing homes but not loans.” The policy allows people who have a loan history but do not own a local home to be treated as first-time home buyers to enjoy lower downpayments and interest rates, thus providing more opportunities for people in tier-one cities who have a need to upgrade their homes. However, whether this policy will change the downward trend in the property market is highly uncertain. Reduced downpayments means higher monthly repayments, thus increasing the financial burden on home buyers. Against the backdrop of the current downturn in the economy and the real estate market, highly leveraged home purchases have become riskier, and home buyers may face the risks of negative equity in the event of a fall in property prices. Also, for those with a need to upgrade their homes, liquidating smaller properties can  be a major challenge. The economic downturn has reduced the demand for smaller properties at the lower end of the market,  which, in turn, affects the entire chain of property upgrades.  In addition, implementation of this policy may trigger a series of market reactions, which will affect the future direction of the property market. All in all, although the policy of “Recognizing Homes, Not Loans” may have a certain stimulating effect, its long-term impact on the property market is still unknown due to the various uncertainties and challenges. The future direction of the market is still filled with variables and uncertainties, requiring further observation and analysis.（Read The Original Text）

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