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The day's top China business headlines

*🔴 Daily News Update*

Today's briefs

TRADE WAR

📌1. US spreads confusion over upcoming China trade visit

The White House has rejected an offer by two Chinese lower-level ministers to visit Washington later this week for preliminary talks, claiming that negotiations are still failing to progress on two key issues, the Financial Times reports.

The two vice-ministers, Wang Shouwen and Liao Min, planned to attend a series of talks in preparation for the more important visit by Liu He, who is heading the Chinese negotiation team, on January 30.

According to sources talking to the FT, a lack of progress on forced technology transfers and deeper structural reforms to the Chinese economy compelled US officials to shelve the meeting. Chief economic adviser to the president, Larry Kudlow, later clarified that the meeting with Liu was still going ahead.

Trade tensions also featured in Secretary of State Mike Pompeo’s address to the World Economic Forum in Davos. After criticising “China’s state-centred economic model, its belligerence towards neighbours and its embrace of a totalitarian state at home,” Pompeo said the future of the bilateral relationship “will be determined by the principles that America stands by – free and open seas…fair and reciprocal trade arrangements where every entity has the opportunity to compete on a fair, transparent and open basis.”

HUAWEI AFFAIR



📌2. US confirms it will pursue Meng Wanzhou extradition

The US Justice Department will move ahead with plans to seek extradition of Huawei Chief Financial Officer Meng Wanzhou from Canada, Reuters reports, after her arrest at an airport in December.

Lawmakers claim that Meng deliberately misrepresented Huawei’s ties to a company with operations in Iran, in an effort to circumvent US sanctions on the Tehran government.

“We will continue to pursue the extradition of defendant Ms. Meng Wanzhou, and will meet all deadlines set by the US/Canada Extradition Treaty,” said Marc Raimondi, spokesman for the Justice Department. “We greatly appreciate Canada’s continuing support of our mutual efforts to enforce the rule of law.”

Relations between Beijing and Ottawa have darkened since the start of the affair, with China arresting and holding several Canadian citizens on various charges. Canadian officials have also expressed greater reluctance to adopt Huawei-led 5G networks on national security concerns.

ECONOMICS & POLICY



📌3. Made in China 2025 ploughs on behind the scenes

A report by two influential US business groups has provided evidence that China is persisting with its Made in China 2025 plan to overhaul the country’s industrial capacity, the Wall Street Journal reports, a topic which has been particularly sensitive during trade war negotiations.

The report, co-authored by the US Chamber of Commerce and the American Chamber of Commerce in China, gave a list of state-led policies currently being implemented to help achieve Beijing’s goal of global technology leadership, despite recent signs from Chinese officials of reduced support for the initiative.

There remains “a deep, concerted and continuing effort” among provincial governments to pursue the plan, such as Guangdong officials liaising with local robotics companies or tax exemptions in high-tech manufacturing regions.

The report has been seen by the US Trade Representative’s office, and can be expected to carry weight in informing ongoing trade talks. As consistent advocates of closer US-China business ties, the two chambers did not mention other aspects of the trade war including the size of the bilateral trade imbalance.

GROWTH FIGURES

📌4. Slowdown in services and agriculture drag on China’s economic growth

Slower growth in the services and farming sectors dragged down China’s economic growth during the last quarter of 2018, countering the boost from a government-led uptick in construction activity, Reuters reports.

Growth in services fell to 7.4% from 7.9% in the previous quarter, while agriculture grew 3.5%, down from 3.6%, according to data from the National Bureau of Statistics.

Services accounts for nearly 50% of China’s economy, as Beijing attempts to transition away from its export-led growth model toward one based on domestic consumption. However service industries from real estate to technology are being affected by a weakening in consumer spending and bearish investor sentiment.

Real estate services suffered a sharp slowdown, with growth falling to 2% from 4.1% a quarter earlier.

BANKING & FINANCE

📌5. Chinese companies are buying own bonds to inflate demand, says Bloomberg

Some Chinese firms facing tighter financing conditions have turned to indirectly buying their own bond offerings, Bloomberg reports, helping to raise issuance sizes and push down coupons.

The practice, called structured issuance, involves purchasing bonds through primary buyers to create an image of greater access to capital than what the balance sheet shows.

“The motive of using the structured financing method is to boost market demand for bonds the issuer is selling – and it will benefit future issuance as well,” said Li Chang, an analyst at S&P Global Ratings.

According to Bloomberg, structured issuance picked up late last year as default pressures mounted. The Chinese government waged its anti-leveraging campaign earlier last year, stepping back from its previous commitment of continually funding troubled companies.

China’s bond market, the world’s third largest, is expected to face more problems in 2019. S&P said earlier this week that it forecasts corporate defaults “will continue to increase modestly,” and that debt servicing will become more difficult.

Other stories:

Hong Kong keeps top spot as world’s most expensive housing market [FT]

The special administrative territory has been named the least affordable place to buy a house for the ninth year in a row despite a drop in prices during the second half of last year.

Chinese stars face “cold winter” following tax scandal [Reuters]

Authorities have taken in over $1.6 billion in unpaid taxes from Chinese celebrities and showbiz companies after high-profile scandals sparked an industry crackdown.

China aims to transform P2P industry [Caixin]

Chinese authorities are seeking to gain better control of peer-to-peer lending platforms by converting those that comply with regulations into licensed micro lenders and guiding those that don’t meet set standards out of the industry.

Chinese consumers make up half of mobile app downloads [CNBC]

Despite a slump in China’s smartphone market, the country’s users accounted for half of all apps downloaded in 2018, showing that the red-hot demand for games and social media has not weakened.

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