Xi meets Putin, other leaders; Tibet outbreak; National security; Drought

Summary of the Essential Eight:

1. Outbreaks; Tibet sounds bad - Hainan has lifted its lockdowns, Chengdu is opening up and Shenzhen is allowing sone kids to return to school. But there are awful reports filtering out of Tibet about the state of the outbreak there. That is a harsh reminder that while we have decent visibility into outbreaks and control measures in major cities like Shanghai, Beijing and Shenzhen there are many places in the PRC where we have very little idea what is really going on.

2. Xi meets with Putin - The readouts of meeting make the relationship look unbalanced, in Xi and the PRC’s favor. In the Russian readout Putin says “We appreciate our Chinese friends’ balanced position in connection with the Ukraine crisis. We understand your questions and your concerns in this regard”, which is intriguing. And while Xi does mention that “China will work with Russia to extend strong mutual support on issues concerning each other’s core interests”, the PRC readout does not mention Ukraine or anything specific, while Putin genuflects about Taiwan and the “one-China principle”.

3. Xi’s busy day in Uzbekistan - In addition to meeting with Putin he met with the leaders of Uzbekistan, Azerbaijan, Belarus, Turkmenistan, Tajikistan and Kyrgyzstan and attended a meeting the heads of state of Russia and Mongolia, at which they agreed to move forward with a “feasibility study on the upgrading and development of the central-route railway of the China-Mongolia-Russia Economic Corridor, and agreed to actively move forward the project on the Mongolian section of the China-Russia natural gas pipeline”. Xi appears to have skipped the SCO Summit dinner.

4. Drought - The droughts in Yunnan and Hunan are not getting better, and are having impacts on aluminum production in Yunnan and the rice harvests in Hunan.

5. Real Estate relaxations - If all cities but Beijing, Shanghai, Guangzhou and Shenzhen are allowed to relaxing housing purchase restrictions, as the excellent REDD reports, then that is quite the policy backtrack and a sign of how desperate the situation is becoming for developers and local governments that need land sales revenue. In previous cycles these moves would have been enough to generate a rebound.

6. An MSS officer in US jail - This is a fascinating story from Bloomberg about the case of MSS officer Xu Yanjun, who recruited sources with aerospace expertise in the US and Europe and then was lured to Belgium and arrested, and after a conviction in a US court is facing decades in prison. Xu documented much of his activities, and his frustrations, in his icloud account, used gmail, and US agencies accessed much of it. I imagine the MSS has had a refresher course in information security as a result of this case. As the MSS has expanded significantly under Xi will there be more opportunities for foreign intelligence services to find sloppy officers who are also disgruntled?

7. National Security - A useful report from MERICs is another reminder that in Xi's China everything is national security. The PRC has gone through previous cycles of tightening and relaxing (fang-shou 放收) but Xi has institutionalized things around national security in ways that none of his predecessors did, and that I think makes it unlikely we have a relaxation cycle any time soon under the current leadership structure.

8. EU investment into the PRC - Rhodium is out with a new report on the shifting pattern of European FDI into the PRC, and finds Germany, the Netherlands, the UK and France make up the bulk of investment, with Germany in the lead, and, unsurprisingly, the auto sector leading the German investments.

Thanks for reading, and I hope to see many of you in tomorrow’s weekly discussion.