CRG Weekly: Chinese economic slowdown and Pacific Islands Forum
The stories driving the week
China's economy records slowest growth since the start of 2020
Chinese GDP growth flattened out at 0.4% in Q2 on a year-on-year basis, down from 4.8% in Q1, as COVID-19 lockdowns in major cities hit factory output and consumer activity.
Youth unemployment rose to a record 19.3% as Nikkei Asia reported that China’s college grads face the worst prospects in the job market in decades.
Uncertainty in real estate markets also grew as hundreds of thousands of homebuyers across 22 cities refused to pay mortgages. Regulators’ are exploring a response that could involve greater stimulus and guidance for banks to support unfinished projects.
Protests continued in Henan province after four small local banks suspended online cash withdrawals in April. Authorities say they will start releasing money to customers who have had their funds frozen.
Leaders commit to regional unity at Pacific Islands Forum
With the 51st Pacific Island Forum (PIF) taking place in Suva this week, Kiribati caused initial controversy by withdrawing at the last minute. Tessie Lambourne, a former top diplomat who was elected to Kiribati’s parliament in 2020, cited Chinese attempts to disrupt unity within the Pacific islands as the driver behind this decision.
US Vice-president Kamala Harris attended the PIF virtually and announced measures including the opening of embassies in Kiribati and Tonga and $60million a year in new aid, fishing agreements and development measures.
The prime ministers of Australia and the Solomon Islands also met to discuss regional security and climate change. The meeting resulted in assurances that a controversial security deal signed with China would not result in a Chinese military base in the region.
China hosted its own virtual talks with senior political figures from Pacific island nations, focusing on Belt and Road projects and climate cooperation. Two Chinese defence attaches - sitting with the media contingent - were removed from a session of the forum’s fisheries agency.
Despite jockeying for influence between the US and China, Derek Grossman, a researcher on Indo-Pacific security at Rand Corporation, highlighted that Pacific nations do not want to become part of a geopolitical game between two big powers.
US-China tech competition
Reports indicate that a preliminary vote on a scaled-down version of the US-China competition bill (USICA) is likely next week.
The landmark bill is intended to bolster the US’ ability to compete with China technologically. The revised version will likely focus on semiconductors, with the US government set to provide $52 billion in subsidies for the industry.
The Washington Post reported that the White House will also publicly support congressional efforts to push through legislation screening outbound investment. This legislation would require US companies to notify the government before investing in critical sectors, such as semiconductors, AI and critical minerals, in ‘countries of concern’.
Meanwhile, the Dutch foreign minister confirmed that discussions are taking place between the Netherlands and the US about blocking ASML Holding NV from selling lithography technology crucial to semiconductor manufacturing to China.
COVID continues to cause uncertainty in Mainland China and Hong Kong
A number of Chinese cities reintroduce curbs to tackle the spread of COVID variant BA.5 in China. Nomura analysts report different levels of restrictions in 31 cities up to this Monday, up from 11 last week.
The Guardian reported that Hong Kong is set to implement a China-style health code and contact-tracing app. Under new real-name registration requirements, Hongkongers will use a tricolour health code system similar to that of Mainland China. This has sparked fears of privacy and integration of databases of Hong Kong and the Mainland.
Meanwhile, authorities in the northeastern city of Huludao raised concerns about the strain of COVID measures on local health systems amid a rapid rise in local government debts.
Aside from COVID, heatwaves are also pressuring public health services. Parts of Sichuan and Shaanxi provinces reached over 40 degrees Celsius this week.
China surpasses the EU as biggest foreign market for UK universities
UCAS reported a 60% increase in applications from China to 31400 between 2019 and 2022 in the latest figures published on Thursday. This is in contrast to a 54% fall in EU applications over the same period.
This comes as EU students now have to pay international fees in British universities, while the UK remains an attractive option for Chinese students.
The incoming head of Universities UK warned of a greater threat in souring relations with China than Russia as there is a greater dependence on the China market.
Vivienne Stern stressed that universities should not be afraid of collaborating with their Chinese counterparts and that it was simplistic to see partnerships as dangerous.
Weekend reads
How China Wants to Replace the US Global Order. Michael Schumann unpacks Xi Jinping’s Global Security Initiative and whether it represents a challenge to the current international order.
Beijing to Britain breaks down the current Conservative Party leadership candidates’ positions on the UK-China relationship.
Cindy Yu and former MI6 director of operations and intelligence, Nigel Inkster, discuss US-China semiconductor competition on The Spectator’s Chinese Whispers podcast.