It’s Official: Beijing Is Panicking Now | Chinese Economy | Japan-China Tensions

It’s Official: Beijing Is Panicking Now | Chinese Economy | Japan-China Tensions

Happy Tuesday everybody. Welcome to another episode of China Update where we discuss leading political, economic, and geostrategic analysis on the world’s number two economy. My name is Tony. Let’s jump in. And first up, it’s official. China’s brutal housing crisis situation has gotten so dire and its effect on the widest system so painful that Beijing has turned to its usual only pull in case of fire option, its nuclear option, hide all the data, and go full blackout. Reports published over the last 24 hours by US-based Bloomberg and Chinese financial media outlet say, citing unnamed sources, that China’s two major private data providers have abruptly withheld monthly home sales figures at the government’s request. This is the first time this has ever happened in the history of these reports being published. China Real Estate Information Corp. and China Index Academy, long relied upon by investors for early signals of market health, did not publish the November sales totals for the country’s top 100 developers, breaking a pattern of regular end of month releases. The housing regulator instructed both agencies to suspend public disclosure, quote, until further notice end quote. The people said financial institutions that purchase the data will continue receiving it, though under strict confidentiality requirements. The pause comes at a delicate moment. Vancur, once viewed as one of China’s most resilient developers, shocked markets last week by seeking to delay repayment on a local bond for the first time. Move amplified concerns following years of plunging sales, down over 80% from its 2021 high and the high-profile failures of giants such as Everrand and Country Garden. Now, it is worth noting that this 80% drop is in sales volume, not in the price of homes. There has been some confusion in the past as we’ve discussed these areas and regardless an 80% collapse in sales is devastating. Analysts warned that withholding key market indicators risks deepening doubt at a time when confidence is already scarce. Kirsty Hung of Bloomberg Intelligence said November’s private data likely showed even sharper declines, perhaps pushing the sales crash closer to 90% from its 2021 high. An incredible number. These early indicators are closely watched because they precede official government statistics by 2 to 3 weeks and are often considered much more reliable. The broader outlook remains grim. UBS forecasts home prices will keep falling for at least two more years. Other commentators say 3 to 5 years, while Fit Ratings predicts new home sales by area could drop another 15 to 20% before stabilizing, leaving banks property related bad debt elevated well into next year. Next up, the diplomatic crisis triggered by Beijing’s sharp response to Prime Minister Tonight, Takayichi’s November 7th remarks on Taiwan shows little sign of easing with repercussions now rippling through tourism, cultural exchanges, and the entertainment industry. Yesterday, Monday, China’s foreign ministry once again demanded that Dai quote simply retract the erroneous remarks end quote a political impossibility in Tokyo that leaves both sides locked in a stalemate. Beijing has escalated symbolic pressure by cancelling additional cultural performances and amplifying its rhetoric over the status of Japan’s Ryuku Islands. An issue that in practice touches directly on Okinawa and the continued presence of US forces there. A highly sensitive space linked directly to core national security and sovereignty for Japan. While the questioning of historical narratives is not new, the renewed intensity signals how the current diplomatic chill is expanding beyond the original spark of Takayati’s comments. Still, Beijing has so far refrained from deploying heavier economic tools such as reinstating rare earth export restrictions, which could put its recent trade deal with the US at stake. As long as the counter measures remain confined to tourism, seafood, cultural events, and people-to-people exchanges, Japanese policy makers privately hope the crisis can be contained until Beijing identifies an off-ramp in the coming months. Fortunately, too, the direct war threats we saw about a week ago seem to have cooled for now. Recent incidents highlight how quickly tensions are spilling into public life in Shanghai. In recent days, Japanese singer Maki Atuki was forced off stage mid- performance when organizers abruptly cut the sound and ordered her to leave. An episode that went viral on Chinese social media and drew domestic criticism for excessive zeal by local authorities. And we note this didn’t happen in some low-level provincial town, but in Shanghai, the mainland’s most cosmopolitan center. Meanwhile, major entertainment events including Bandai Namco’s fan gatherings and a scheduled appearance by Moira Clover Z have been cancelled. The most immediate economic impact is now visible in air travel. Chinese airlines have canceled more than 900 flights to Japan in December after government guidance to reduce Japan-bound routes. Kansai International Airport has been hit hardest, losing 626 arrivals. By contrast, Haneeda has suffered minimal disruption due to intense competition for landing slots. Cancellations come at a sensitive moment as Chinese tourism to Japan had been rebounding. 8.2 million visitors arrived from January through October, up 40% from last year. Endless warned that the further reductions could weigh on Japan’s regional economies and aviation sector. Yet, Beijing appears careful not to alienate Japanese businesses. Senior diplomat Leo Tinong recently visited a major Japanese manufacturer in Talian in the northeast to offer reassurances and Kanan leadership met with China’s ambassador at Beijing’s request to reaffirm the importance of economic ties. Then, as of preparing today’s video, more concerning news emerged. China and Japan issued conflicting accounts at a confrontation near the disputed Senkaku Dau Islands today, Tuesday. China said it had expelled the Japanese fishing boat from quote Chinese territory end quote while Japan said it drove off two Chinese coast guard ships. For now, both governments seem intent on preventing political tensions from triggering deeper economic damage. Even though, frankly, China has inflicted a lot of economic damage on the Japanese side. And with flights cut, cultural exchanges suspended, and nationalist sentiment running highline, the path to deescalation remains uncertain. Next up, we have two more developments to cover, but just quickly, if you’re getting some value from today’s episode of China Update, it’s a huge help if you can just hit that like button. It’s one click of the mouse, but it’s a big help for the algorithm. And if you want to continue to be on top of analysis like this on the world’s second largest economy, consider subscribing to China Update. Hit the bell notification icon and you will be. And finally, if you’d like to go the extra mile and help keep China Update financially sustainable as we move into the holiday season, this is uh all done for me. It’s a oneman band and I rely primarily on financial support from the audience to keep going. Patreon and buy me a coffee links are also in the description below. To everyone who supports the channel and part of the wider China update community, thank you so much. Next up, and it’s no surprise that local governments are seeking to calm Japanese factories in the country. China’s manufacturing activity contracted in November across both official and private surveys showcasing the deepening slowdown in the world’s second largest economy even as export demand improved following a temporary trade truce with the United States. The private ratings dog manufacturing PMI published today fell unexpectedly to 49.9 slipping below the 50point threshold that separates growth from contraction for the first time in four months. The decline came despite a sharp rise in new export orders. Yesterday, Monday, China’s official PMI remained in contraction for an eighth consecutive month, its longest stretch on record, though it edged up slightly with the new export order sub index posting the strongest improvement. Economists say the divergence between stronger foreign demand and weak domestic conditions highlights the economy’s core challenge. While exports have begun to recover, China continues to grapple with sluggish household spending, a deep property downturn, and falling investment. The non-manufacturing PMI, which tracks construction and services, also slipped into contraction for the first time in nearly 3 years. Barclay’s economists wrote in a note today, quote, the contradictory prints point to weak domestic demand. End quote, noting that geopolitics remain a wild card despite the recent easing of US China tensions. The synchronized contraction across both PMIs is notable. The private survey, which focuses on smaller and export oriented firms, has generally been more upbeat this year. The slowdown raises questions about the economy’s momentum heading into year end. Consumer spending remained subdued. Retail sales slowed for a fifth straight month in October, and manufacturers cut staff as new orders stalled. Rising input prices and falling output prices suggest profit margins are tightening across the sector. And indeed, as we’ve seen in previous episodes, firms in the red, that is no profit margins at all, is nearing a high of between 25 and 30%. And finally for today, German car manufacturer Volkswagen has signaled a new major strategic shift in its global operations, revealing that recent investments now allow it to develop new vehicles outside Germany for the first time. Europe’s largest car maker said it plans to launch around 30 electric models in China over the next 5 years, underlying its bet on localizing R&D to regain competitiveness in the world’s biggest EV market. The company said production costs for some EV models in China are now up to 50% lower than comparable models built in Germany in 2023 thanks to supply chain efficiencies and faster development cycles. And of course, subsidies are a big part of the wider supply chain that exists in China. China’s become the global benchmark for rapid EV innovation, and foreign automakers have struggled to keep pace. VW, once China’s dominant car maker, has seen its market share eroded by domestic champions such as BYD and a wave of nimble software-driven EV brands. While it still holds roughly 20% of the internal combustion market, it no longer ranks among China’s top 10 producers of battery electric and plug-in hybrid cars. Executives say VUB is now exploring increased exports of Chinaade models and plans to apply Chinese technological breakthroughs across its global lineup. Since late 2022, the group has invested nearly€4 billion euros in China, including its innovation hub, a major stake in autonomous driving specialist Horizon Robotics, and a partnership with EV Challenger XP. VW and Horizon last month announced plans to co-develop an AI chip for autonomous driving in China. The China push stands in contrast to sweeping job cuts at VW’s German factories where high costs and weak European demand have forced the company to target a 35,000 person reduction by 2030. Okay, that is today’s episode of China Update. Thank you so much everybody for watching. Have a good Tuesday and I hope to see you for the next episode which will either be tomorrow or on Thursday.

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00:00 Introduction
00:11 Chinese Economy I: Housing Data Pulled
02:38 Japan-China Tensions Update
07:00 Chinese Economy II: Factory Numbers
09:04 VW Goes Full Made In China

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