Xi Jinping Looks to Expand Redistribution of Wealth

Almost every economic structure in the world today takes a mixed approach. That means a balance of capitalism and socialism is incorporated into our daily decisions.

The United States leans more toward the capitalism side of the equation. Although wealth redistribution isn’t a formal policy, communities charge taxes for things like public schools and infrastructure that everyone uses.

In China, the pendulum swings more to the socialism side of a mixed economy. That’s because communism is the primary emphasis in most areas, although some special districts have different rules that get followed. 

President Xi Jinping put the country on notice in 2021 that wealth redistribution for common prosperity was on the table. It seems that effort is getting a new push today. 

The Ruling Party Wants to Eliminate Poverty

China has often led the world in economic growth because of its emphasis on socialism in its mixed economy. That’s because most workers don’t earn competitive wages compared to the rest of the industrialized world.

In 2021, the wealthiest 20% of Chinese citizens earned more than ten times the poorest 20%. That figure hasn’t moved since 2015. 

The ruling party wants to reduce poverty in China’s most rural areas. Although some programs have helped achieve that goal, Jinping wants the wealthy to do more. By cracking down on the technology industry and reducing the emphasis on celebrity culture, several billionaires are on notice that the government wants what is in their accounts. 

Although no idea is off the table, the two primary efforts to create wealth redistribution are through property and inheritance taxes. In a nation already stressed by COVID concerns, these economics stresses must seem insurmountable. You can track this redistribution effort through your favorite news sites.

How Hong Kong Changed After China Took Control

When China received Hong Kong from the British government in 1997, the Communist government agreed to let the city have considerable political autonomy. 

It was called “one country, two systems.” Beijing said this structure would last for 50 years.

A new national security law was imposed in 2020 that gave the Chinese government broad powers to silence dissenters and punish critics. It’s a change that will alter life for those who live in the city for good unless those freedoms are restored. 

The Concept Hasn’t Worked as Expected

When China adopted the idea of “one country, two systems,” the goal was to bring the territories it lost over the years back into the country’s fold. Portugal returned Macau, Great Britain sent back Hong Kong, and there was an internal hope that Taiwan would also return.

Since Taiwan continues to be independent with global support to stay that way, China looks to change the dynamics of its promises. By stamping out capitalism, the argument that a more mixed economy is better can potentially disappear.

Beijing maintains the authority to interpret Hong Kong’s Basic Law, which is a power the government rarely used until recent years. Although Communist officials don’t preside over the city as they do the other municipalities and mainland provinces, the shift in attitude is profound. 

Since the handover, there have been no free votes for the chief executive that leads Hong Kong’s government. In 2017, only candidates vetted by a Beijing nominating committee were allowed to run.

The risks that Hong Kong faces are many right now. China seems committed to a path of bringing the city into Beijing’s governing structure. Only time will tell what that means for its residents.

Chinese Investments Drop By 61% in Australia

After the events of COVID-19 affected China’s economy at the start of 2020, the economic giant decided to keep things local for the year.

That fact, along with a growing diplomatic rift between them and Australia, showed an investment drop of 61% between the two countries. It’s the lowest level of monetary transfer since 2015.

The Australian Database CHIIA found that about $1 billion in Australian dollars was received, equivalent to about $780 million in US funds.

Only 20 investments were recorded for the year, which is significantly lower than the 111 that occurred in 2016. This drop is on top of another 47% reduction that happened from 2019.

Why Did Australia Lose So Much Money?

The issue of foreign direct investment (FDI) goes beyond whatever rifts China and Australia have with each other. Data from the United Nations shows that total FDI levels dropped by 42% globally in 2020.

Although Australia’s outcomes were above average because of their relationship with China, the issue is more profound because their FDI receipts are in only three sections: mining, real estate, and manufacturing.

Australia is also partially to blame for this outcome. The government announced in March that every proposed investment would receive additional scrutiny from a review board. In the past, only non-sensitive transactions applied for assets worth $930 million or more.

That switch stopped a $600 million sale of Lion Dairy, a wholly-owned subsidiary of a Japanese company, to the China Mengniu Dairy.

If that one transaction were allowed, the figures would have been similar despite the fewer total numbers.

China continues to treat the countries that are calling for COVID-19 investigations with restrictions or tariffs. Some products have totaled more than 200%, causing a lot of alarm since about 40% of exports head there from Australia.

Why Is China Cracking Down on Tech Firms?

China recently changed its rules regarding digital payment and Internet services. The global community sees this regulatory shift as a problem for tech firms, although the government calls it a “tightening” of the local anti-monopoly guidelines.

The news rules essentially block a company from forcing sellers to choose between the leading online providers for specific needs. Before the regulatory change, this process was considered a common practice in the country.

Experts see the guidelines aimed at Alipay, WeChat Pay, Taobao, and Alibaba.

Isn’t It a Good Thing to Stop Monopolies?

When we think about monopolies, we’re looking at the business structure from a capitalist viewpoint. If one organization can set the prices, market conditions, and access for goods or services because they’re the only provider, it limits competition and innovation.

The socialist, communist government in China uses the opposite end of a mixed economy. Although there are capitalist elements to the business world, the government holds a stake in virtually all significant businesses

China sees itself in the same battle against tech companies that some conservative and liberal groups feel is happening in the United States. The only difference is that the Chinese government has the authority for immediate intervention, like when it ordered Jack Ma to scale back his expansion plans for an Alibaba subsidiary.

What set off this issue in the first place? For many outside observers, it was the criticism that Ma leveled against the Chinese government.

What Does This Effort Mean to Everyone Else?

At the moment, the rules and regulatory changes are designed to create pressure on Chinese tech firms to comply with government wishes.

The issue could come to a head in the next few months as business leaders come into conflict with political desires.

With as much control as the tech giants have in China, their information assets could trigger the government’s mood changes. Political leaders recognize this, and they are moving to stop it.

These firms aren’t backing down. With more hiring happening in legal and compliance areas, expect battlelines to be drawn soon.

Mount Everest Grows by 13 Feet

China and Nepal like to argue about numerous things, but Mount Everest’s height always inspired the greatest passions.

With the world’s tallest mountain serving as a tourism magnet, both nations took individualized measurements of Everest’s height.

China’s measurements have always been consistently lower than Nepal’s by approximately 11 feet.

In December 2020, the two countries released a joint announcement declaring that they’ve agreed upon an actual height. Mount Everest is now officially 29,032 feet high, or 8,848.6m. That means the official measurement is now 13 feet taller than China’s previous measures and about three feet taller than Nepal’s.

How Did This New Measurement Happen?

China and Nepal sent survey groups up Mount Everest from their respective sides of the mountain over the past two years. When the announcement of the height occurred, both sides pressed buttons to display the agreed-upon measurements.

Mount Everest lies on the border of China and Nepal in the Himalayas. Although the governments say that it represents their friendship, it has always been at the center of most disputes between the countries.

Some officials had concerns that the world’s tallest mountain had shrunk after the Nepal earthquake in 2015. After that event, which damaged one million structures and killed 9,000 people, it was decided that new surveys were necessary.

This research project is the culmination of one of Nepal’s and China’s most outstanding cooperative efforts. Nepal is also home to seven more of the world’s tallest 14 peaks, making it a bucket list destination for many.

When researchers first estimated Mount Everest’s height in 1856, they came to a number of 29,002 feet. That result stood until the Survey of India listed the mountain at 29,028 feet in 1954.

China’s figures were ten feet lower than Nepal’s because the government didn’t include the snow cap it felt was at the mountain’s summit.

Why the Giant Ant Group IPO Was Ended

Financial technology giant Ant Group was gearing up to become the largest IPO (initial public offering) in history. The Chinese government recently proposed new micro-lending regulations that would require the company to hold more capital while making changes to its business model, lowering its potential evaluation by over $150 billion.

The regulatory changes would also make Ant Group look more like a bank instead of a financial technology company.

Alibaba owns one-third of the company, and it is under the control of founder Jack Ma. The initial public listing was expected to raise about $34.5 billion, which would have created a world-record valuation of $313 billion.

The Shanghai Stock Exchange suspended the IPO 48 hours before the listings, reporting that Ant Group was experiencing significant issues.

Were the Regulations a Targeted Effort to Stop Ant Group?

Ending the Ant Group IPO was a shocking move for the financial world. It also came only a day after Jack Ma appeared to criticize Chinese regulators for the move coming from Beijing.

The draft rules released for micro-lending could directly impact Ant Group’s operations. Its most significant revenue driver is something the company calls CreditTech.

Offered loans get independently underwritten by approximately 100 partner financial institutions. Approximately 98% of the credit balance came from this process, allowing Ant Group to consider itself a light capital operation.

The change considered by Beijing would require Ant Group to fund a minimum of 30% of each loan instead of the process followed today.

That’s why the company would need to hold more capital. Instead of being asset light, it would need to function more like a bank. That’s why the evaluation got cut by more than 50%.

Another IPO is likely to happen soon once the regulations get sorted out. Ant Group offers a unique model, a strong payments base, and access to credible e-commerce opportunities. All the company needs is more certainty.

Why China is Buying Record Amounts of Oil

The cost of oil dipped so low during the COVID pandemic that some prices were negative. That meant distributors would have to pay someone to take barrels off of their hands.

China took advantage of these low prices to stock up. They bought so much foreign oil since March 2020 that a traffic jam of tankers is waiting at sea to offload.

At the end of June, over 73 million barrels of oil was floating at sea along the northern coast. Since May, the amount considered to be in floating storage has quadrupled, making it seven times higher than the monthly average from Q1 2020.

Is it smart to go bargain-hunting for oil when the markets are experiencing extreme stress?

China’s Purchases Propped Up the Oil Market

The swing in oil prices was about $80 during Q2 2020, going from negative $40 to positive $40 per barrel. That swing happened because of China’s strong demand while combined with supply cuts from Russia and OPEC.

China relies on foreign crude to meet its economic needs. When global prices reach record lows, it makes sense to stockpile oil for future use. That’s why imports surged almost 20% during the pandemic, with much of it coming from the Latin America region.

Most of the oil purchased at record lows came from Brazil. It takes about 45 days to ship crude from South America to China, which is why offshore storage levels are so high right now. Nigeria, Saudi Arabia, and Iraq also sent significant quantities.

China Wasn’t the Only Major Buyer

Any country that uses significant oil quantities for its economy found itself in an unexpected position to buy. Even if the costs weren’t budgeted, it made sense to start importing crude to meet future needs.

The United States supported domestic oil producers by purchasing 30 million barrels to reinforce the national reserve. Several countries in Europe and Asia made similar buys.

Weak prices caused two-handed purchasing, but not at the extent that China was operating.

Experts expect China to use the crude oil as an arbitrage opportunity. Investors are more willing to pay for the commodity in the future than they are today, which means those who store the product for a few months could sell it at a significant profit.

COVID continues to present unique energy and economic challenges for the world. China is betting big that oil prices will recover soon. If they don’t, they can still use the crude domestically, creating a win-win situation.