MEDIA COMMENT ON CHINA ISSUE #504

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#1  CHINA’S PRODUCTIVE FORCES ARE THE KEY

#2  LUXURY GOODS GROW IN CHINA

#3  CHINA-AUSTRALIA RELATIONS CHANGE

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#1    CHINA’S PRODUCTIVE FORCES

        CHINA DAILY, BEIJING

Marx put forward the theory of productive forces, a view called historical materialism. He predicted that although capitalism had created enormous material wealth for society, internal crises would lead to self-destruction in the future, and capitalism would be replaced by a new system called socialism.

The productive forces relationship between labour and nature reflects the ability of humans to conquer nature with absolute power. That power is generalized into productive forces.

“In China’s [recent] annual parliamentary meetings, developing “new quality productive forces” topped the agenda. A twist on Marxist theorisation, new quality productive forces simply mean new drivers of economic – and defence – growth, powered by frontier technologies.

Such new forces can span from infotech, biotech, artificial intelligence (AI), quantum computing, new energy and new materials, to deep space, deep ocean and deep mind. The strategy appears to have three objectives: first, foreign technology substitution; second, rapid industrial adoption and, third, strategic defence empowerment.

Investing in frontier technologies is not new; neither is China’s use of industrial policies. Some may dismiss the jargon as an attempt to camouflage the government’s desperation to rescue the troubled economy. They would be wrong.

Year Zero of China’s electric vehicle (EV) industry coincided with the announcement of “Made in China 2025”, a full-scale decade-long industrial strategy for China to become a global leader in high-end manufacturing. China’s three EV champions, Nio, Xpeng and Li Auto, began around 2015, when Made in China 2025 was introduced. Over the next nine years, China’s EV industry grew, from non-existence to world domination.

It is no surprise that Made in China 2025 was grossly underestimated by the West early on. It also began on a modest industrial foundation.

Pan Jiaofeng, President of the Institutes of Science and Development, which is part of the Chinese Academy of Sciences, said, "The development of new quality productive forces is an important focus of promoting high-quality development; these forces are playing a prominent role in the construction of a modern industrial system."

He emphasized the significance of nurturing new quality productive forces as they can bolster industrial upgrade, foster strategic emerging industries and future-oriented industries, and facilitate the development of the digital economy.

The strategic emerging industries and future-oriented industries mainly include new-generation information technology, new energy, high-end equipment, biotechnology, artificial intelligence and quantum computing.

This year's Government Work Report stated that China will give top priority to modernizing its industrial system and developing new quality productive forces at a faster pace.

The country will also give full rein to the leading role of innovation, spur industrial innovation by making innovations in science and technology and press ahead with new industrialization, in order to promote a new leap forward in the productive forces, the work report stated.

Noting that China is now in a critical period of innovation-driven development path, Pan said there is an urgent need to develop new technologies, new industries and new models to inject new momentum into its economic growth amid downward pressure.

Through the development of new quality productive forces, the country can seize the historic opportunities of a new round of global technological revolution and industrial transformation, achieve a qualitative leap in economic development, and promote industrial innovation through sci-tech innovation so as to gain a competitive edge in global competition, he said.

"The new quality productive forces are mainly driven by revolutionary technological breakthroughs, innovative allocation of production factors, and deep industrial transformation and upgrade," said Qu Yongyi, Party secretary and deputy director of the Institute of Industrial Economics, which is part of the Chinese Academy of Social Sciences. He is also a member of the 14th National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body.

GRAHAM PERRY COMMENTS;-

Productive forces are the key to taking China to a higher level of economic performance and this topic topped the agenda at the recent Two Sessions Meetings in Beijing. Standing back from present issues relating to the drag on the economy caused by speculation in the property sector, the Two Sessions laid a path for China to follow as it focuses its economy on the years leading up to 2049 – the 100th anniversary of the People’s Republic of China.

There are people who still view China’s economy as being based on the widespread production of light industrial products – shoes, deckchairs, televisions and other consumer goods. But time has moved on and the Made in China ambition has catapulted the Chinese economy to be within reach of being the largest economy in the world.

For many years the US/UK and other leading countries failed to see the dynamic at work in China. They were asleep at the wheel. Their eyes were closed. They were prisoners of their own fundamentally flawed mind sets. Bearing in mind the many millions of US Dollars spent an reviewing and re-analysing history at famous well-established Universities – with Harvard and Yale leading the way – it is quite surprising that collectively US academia and the political elite missed the development that was there for all to see.

The US and their allies committed one significant error – they could not view developments from the perspective of Beijing. They were all so overwhelmed with their own issues, they lacked the intelligence, the political instinct and the straightforward need “to know thine enemy”

In due course, the US will conduct a searching examination of their failure. Watching the PBS series on the Vietnam War which focuses on the failure of Washington to know and understand the mind set of the North Vietnamese and the National Liberation Front that led to the panic stricken US Air Force helicopter flights from the roof of the US Embassy in Saigon with Vietnamese clutching at the launch pads, it is surprising to see the US again so soon after its Vietnam debacle to fail to understand the mind set of China. “There are none so blind as those that will not see.”

The Two Sessions point China’s way forward. They will prioritise the ongoing modernisation of its industrial system and the development of new productive forces. They will give full rein to promoting innovations in science and technology with new industrialisation. They will inject new momentum into its economic growth amid downward pressure.

The goal? - a new round of global technological revolution and industrial transformation, that will achieve a qualitative leap in economic development, and  achieve a competitive edge in global competition. The US knows now that China is on the move and the lights will be burning long into the night as US analysts try to comprehend the political dynamic that is China. They have to start all over again.

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#2   LUXURY GOODS SURGE IN CHINA

       FINANCIAL TIMES

“There are cracks showing in the most important market for global luxury. Gucci’s slump in sales, with parent Kering’s warning this week of a slowdown in Asia, prompted investor concerns about demand for the wares of Europe’s luxury groups. Tastes in Asia — and its largest market China — are certainly changing.

But a closer look at those trends suggests they won’t hit luxury groups equally. There will be winners, both among Europe’s high-end houses and a growing crop of local rivals.

China’s second-hand luxury market is booming. Rapid growth in this market, estimated to be worth over $8bn in China, is starting to be replicated in other parts of the region, notably in south-east Asia. That means resale values are becoming increasingly important to shoppers, with consumers showing a preference for brands whose products retain their value.

Hermès, Louis Vuitton and Chanel tend to top that list, not just thanks to high demand but also because of regular price increases. Shopper preferences are shifting away from affordable, mass market luxury to less frequent but higher-end purchases. With that comes a tendency to favour classic products, meaning a smaller number of brands are getting more demand. As share prices of European luxury companies fell this week after Kering’s warning, LVMH and Hermès fared best.

Another challenge to European brands is the rise of homegrown luxury alternatives. Rising geopolitical tensions in recent years have created a more patriotic group of Chinese shoppers. The tendency to turn to local producers has been evident in everything from electronics to electric cars,

Chinese fashion and luxury brands have been growing rapidly in recent years, with premium brands such as Shang Xia — a Chinese luxury fashion brand backed by Hermès — gaining popularity among locals. Peer Icicle has grown to over 270 stores in China. Others, like Chinese outerwear brand Bosideng, have made progress in shifting upmarket to a more premium customer. Shares of Bosideng are up a fifth this year, reflecting improving operating margins of 17 per cent on sales of $2.3bn in the year to March.

Even as luxury spending from the ultra-wealthy segment remains resilient, middle-class Chinese shoppers have been the real force behind the growth of the past decade. As long as the economic slowdown in China persists, consumers will get more choosy and more focused on resale values. Investors need to get more picky too.

GRAHAM PERRY COMMENTS

The fashion sector in China is another big area in which the West has been caught on the back foot. And again it is a big surprise. Strategists and policy planners at the highest level of the world’s luxury sector has been caught out by a reaction in China they did not anticipate. The international brands have been taken aback by the growing tendency of Chinese shoppers to support domestic brands – is this just an example of “flying the flag”. Perhaps there is always a patriotic streak running through the mindset of China’s consumers.

Again, this is something quite difficult for non-Chinese to understand. A dress is a dress is a dress. Well not quite. There is running through the make-up of the Chinese people a strong patriotic instinct. This is not related just to clothes. This is back to the make up of Chinese society – its history, its politics and its day-to-day behavioural instincts. China has come a long way since the Century of Humiliation 1842 to 1949. Their people are proud of what has been achieved; they are much less carping and critical of its central and local government. The people have a voice and they have strongly patriotic instincts. But, as with the US failure to feel and understand the pulse of China generally, the world fashion industry has been slow to appreciate the rise of the Chinese fashion market – in China and abroad.

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#3      CHINA-AUSTRALIA RELATIONS IMPROVE 

          SOUTH CHINA MORNING POST

Australia surpassed Russia as China’s largest supplier of coal at the start of the year as bilateral relations continued to improve between Beijing and Canberra.

China’s imports increased by 3,188 per cent year on year to US$1.34 billion in January and February, according to Chinese customs data released on Wednesday, with shipments having stood at zero in January 2023. Overall, Australian shipments made up 24 per cent of China’s total coal imports in the first two months of the year, up from 0.9 per cent a year earlier.

But Russia’s share fell from nearly half to 22 per cent during the same period, as shipments from its northern neighbour fell by 41 per cent to US$1.25 billion.

Relations between China and Australia deteriorated in 2020 when Canberra called for an investigation into the origins of the coronavirus.

But ties have since slowly improved, and Australian Prime Minister Anthony Albanese visited China in November.

And during his first visit to Australia in seven years this week, Minister of Foreign Affairs Wang Yi said that the two countries should deepen cooperation on all fronts amid ongoing differences over strategic and security issues.

Exports of Australian coal, cotton and barley, which were previously under official or unofficial bans, have gradually resumed since last year.

“China and Australia both want to ensure the opening of markets now,” said Wang Yong, a professor at the School of International Studies at Peking University in Beijing.

Australia was once the leading supplier of coal to China, accounting for nearly 60 per cent of its total imports in 2019. But by 2022, Australia’s market share had dropped to 1.5 per cent, with Russia becoming the top supplier with a 40 per cent share.

Beijing, though, lifted restrictions and resumed coal imports in February last year, and the share of Australian shipments has risen rapidly to 18 per cent.

China’s lithium battery shipments to Australia also soared by 90 per cent to 1.76 million units in the first two months of 2024 compared to a year earlier, topping US$95.8 million.

China has also increased wine imports from Australia, with the share rebounding to 0.6 per cent in the first two months of the year, but still far from the 37 per cent seen in 2019. Beijing imposed tariffs of up to 218 per cent on Australian wine in March 2021, although they are also expected to be removed amid the improving relations.

GRAHAM PERRY COMMENTS;-

Ebb and Flow. Ups and Downs. Competition and Confrontation. China’s relations with Australia have been unsettled for some time. The Australian Government, under pressure from Washington, pushed a policy of discord rather than concord, and called for an international investigation into the outbreak of Covid 19. China, quick to see a change in policy coming out of Canberra, responded in kind and retaliated with trade cutbacks, in wine and coal and raised the temperature with firm diplomatic rebukes.

And then Australia announced a three way co-operation between the US, the UK and Australia to produce Australian owned nuclear submarines – AUKUS. China’s displeasure was quite apparent and a war of words ensued between Beijing and Canberra.

China knows how to look after itself. It is experienced in dealing with deteriorating relations whether it is the US or the UK or the EU or India et al. It knows how to handle the decline and the confrontation and the consequences for trade and investment. It is also quick to notice the change for the better and the steps that follow as confrontation eases and dialogue returns. But Chinese eyes are wide open. They are aware of the macro and the micro – the overall world political impact on the one hand and the coal and the wine on the other hand.

China is aware that the key international arena is the Far East. It is the focus of growth and change. Taiwan remains a major unresolved issues. The US does have 800 bases in the world – 500 of them in the Far East. China knows that the US Joint Chiefs of Staff are always reviewing their options of war with China. AUKUS submarines are vessels of aggression not peace and are built to prowl around the South China Sea.

It is within this context that China interprets and implements its policy of improving relations with Australia. Eternal vigilance is the order of the day as China views the changing world balance of power. There is no vacuum. There is only context and China will encourage better relations with Australia so long as Australia resists the bidding of US and pursues a policy of co-operation and not confrontation.

GRAHAM PERRY