China still has room to further cut RRR: central bank governor

China's leading digital economy with its large-scale data resources, diverse data types and rich application scenarios have provided advantages for the country's artificial intelligence (AI) sector, Qi Xiangdong, chairman of Qi An Xin Technology Group, who is also a member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), told the Global Times on Friday.

Qi said that AI depends on data, and China's rapidly developing digital economy provides a large source of data. He added that the total scale of China's digital economy reached 50.2 trillion yuan ($6.97 trillion) in 2022, and the breadth and depth of digital integration in the real economy has expanded.

Qi An Xin launched China's first industrial-grade large-model security AI product - Q-GPT a cybersecurity robot - which has numerous practical applications, Qi said.

Qi noted that he looks forward to the country accelerating the integration of cybersecurity and AI technology, promoting the application of innovative products in the field of "AI + security," and continuously improving China's ability to cope with cybersecurity risks and uncertainties.

China has seen no “exodus” of foreign enterprises. Against the backdrop of the global decline in cross-border investment, foreign investors’ enthusiasm for investing in China has not waned, and they remain largely optimistic about the country’s future growth prospects, Chinese Ambassador to Japan Wu Jianghao said in a recent interview with Japanese media.

China, a market-oriented economy, experiences the normal phenomenon of foreign companies entering and exiting the market, Wu said. Adding that while some foreign companies choose to withdraw from the market, there has not been a large-scale “fleeing” of foreign-invested companies, Wu said, according to a statement the Chinese embassy published on its website on Friday.

In recent years, a variety of factors including the COVID-19 pandemic, the churning geopolitical tensions as well as rising trade protectionism have contributed to a general decline in global cross-border investment, Wu said.

Citing statistics from the United Nations Conference on Trade and Development, Wu said that global cross-border direct investment plunged by 18 percent in 2023. The main destinations for foreign direct investment (FDI) also experienced significant declines, with India’s FDI decreasing by 47 percent and the Association of Southeast Asian Nations (ASEAN) by 16 percent. 

In contrast, China saw the launch of 53,766 new foreign-invested enterprises in 2023, up 39.7 percent year-on-year. The actual use of foreign capital amounted to 1.13 trillion yuan ($158 billion), the third highest year in history after 2021 and 2022. Additionally, China’s investment structure has kept on improving, with the proportion of foreign investment in high-tech industrial sectors reaching 37.4 percent, the ambassador said.

Given China’s ongoing economic transformation and upgrade, the rapid rise of domestic enterprises, and the increasingly competitive market environment, the exit of some foreign enterprises due to their lack of competitiveness is a result of market mechanisms, he said. 

It is also understandable if foreign enterprises adjust their business presence in China based on market rules. In fact, Chinese enterprises are also transferring some of their production capacity overseas. “If foreign enterprises have any feedback on China’s business environment, we are willing to listen carefully and actively address their reasonable concerns,” Wu said.

In 2023, Japanese investors established 888 new enterprises in China, a year-on-year increase of 7.3 percent, making it the third largest source of foreign investment in China, according to Wu.

A survey by the Japan External Trade Organization showed that 90 percent of Japanese companies hope to expand their business in China or maintain their current status. And a survey conducted by the Japan Chamber of Commerce and Industry in China among its 1,700 member companies indicated that 88 percent of Japanese companies still consider China an important market. 

The rate of return on investment for foreign investors in China has been around 9 percent in the past five years, while Japanese companies achieved a return of 18 percent in 2022. For Japanese companies, the return on investment in the Chinese market remains higher than other markets, Wu said.

Since the normalization of diplomatic ties of the two countries half a century ago, the economic and trade cooperation between China and Japan has made great leaps in both quantity and quality. Bilateral trade has exceeded $300 billion for several consecutive years, and Japanese enterprises have accumulated investments in China exceeding $130 billion, demonstrating strong resilience and enormous potential, Wu said.

“Meanwhile, it should be noted that both the economic and trade volume and investment growth between China and Japan dropped in 2023, which requires high attention and efforts to address at an early date,” Wu said. He suggested that the two countries adhere to their partnership position, broaden their cooperation fields, and jointly build an open regional and global economy. The two should work together to maintain the stability and smooth operation of the global supply chains and promote continuous recovery and development of the world economy, he said.

Chinese tech giant Baidu Inc on Wednesday reported better-than-expected financial results for the 2023 fiscal year, with a rise in total revenue and non-GAAP (generally accepted accounting principles) net income.

For the 2023 fiscal year, Baidu generated total revenue of 134.6 billion yuan ($18.96 billion), an increase of 9 percent year-on-year, and non-GAAP net income totaled 28.7 billion yuan ($4.04 billion), up 39 percent year-on-year.

Both revenue and non-GAAP net income beat market expectations, according to the Securities Times.

For the final quarter of 2023, Baidu generated revenue of about 35 billion yuan, up 6 percent year-on-year. Non-GAAP net income during the period reached about 7.76 billion yuan, representing a year-on-year increase of 44 percent.

The company said ERNIE, Baidu's generative artificial intelligence (Gen-AI) product, has already started to contribute to Baidu's revenues. In 2024, incremental revenue will increase to billions of yuan, mainly from AI applications and a growing advertising business.

The remarks came after figures showed that AI has become a new growth driver for Baidu. Baidu AI Cloud's total revenue in the fourth quarter was 8.4 billion yuan, and AI large language models brought in approximately 660 million yuan in incremental revenue to the cloud business, Robin Li Yanhong, co-founder and CEO of Baidu, said during a conference call on Wednesday.

According to Li, the company has made great strides in advancing ERNIE and ERNIE Bot, reinventing its products and services, and achieving breakthroughs in monetization. "Meanwhile, our core business has maintained its resilience and realized a healthy growth momentum," he said.

"Looking ahead, our commitment to generative AI and foundation models remains unwavering, paving the way for the gradual creation of a new growth engine," said Li.

Baidu Core also reported another solid quarter, with revenue growing 7 percent year-on-year to 27.5 billion yuan, boosted by the AI cloud business. Online marketing revenue reached 19.2 billion, up 6 percent year-on-year.

After the financial results were released, Morgan Stanley called Baidu the "best AI player in China," saying the company's generative AI will become a mid-term growth driver. China Merchants Bank predicted that the operating margin of its cloud business could continue to expand in 2024.

The allegation of "forced labor" in Northwest China's Xinjiang Uygur Autonomous Region is a huge lie, the Chinese Foreign Ministry said on Tuesday, urging the US to immediately stop smearing China, stop intervening in China's internal affairs, and stop politicizing and weaponizing trade issues.

Chinese Foreign Ministry spokesperson Mao Ning made the remarks at a regular press briefing in Beijing, responding to media reports saying that the US Department of Homeland Security is intensifying scrutiny of supply chains of American solar companies as the Biden administration mulls to tighten a ban on products assembled in Xinjiang.

The Chinese side has repeatedly pointed out that the allegation of "forced labor" in Xinjiang is a huge lie. The US uses the so-called "forced labor" issue, which does not exist in Xinjiang, which often results in "forced unemployment" in Xinjiang, Mao said.

US' move has severely undermined the basic human rights of the people of all ethnic groups in Xinjiang, violated international trade rules and disrupted international industrial and supply chains, the spokesperson said.

Mao said the US must immediately stop smearing China, stop intervening in China's internal affairs under the pretext of human rights, and stop politicizing and weaponizing trade issues.

The consumption made during China's traditional Lantern Festival, which is seen as a conclusion to the two-week celebration of the Chinese Lunar New Year, extended the buying fever seen in the Spring Festival holidays, data from various Chinese platforms showed.

The holiday spending fever together with a stock market rally mark a strong start of the country's economic growth for the year. The robust data is expected to strengthen expectations, boost market confidence, and further support China's economic growth for the year, experts said.

Consumption fever

The Lantern Festival which falls on Saturday this year saw people from all over the country enthusiastically engaged in attending lantern fairs, enjoying night tours, having short-distance travel, continuing the strong consumption momentum that has been seen during the Chinese New Year holidays.

As of Friday, the booking volume of hotels nationwide during the Lantern Festival period has increased by 2.6 times compared to 2023, and the sales volume of tickets for national scenic spots also increased by 90 percent, according to domestic travel platform Qunar.com.

Data on Trip.com showed that over the weekend the booking for domestic travel increased by over 140 percent compared to last year, with bookings for nearby trips seeing growth of over 200 percent.

The search for yuanxiao, a festive sweet-favored glutinous rice ball to celebrate the Lantern Festival, has soared more than 425.6 percent from a year ago, according to online retail platform Meituan. Innovative items such as chocolate-filled yuanxiao and coffee-flavored yuanxiao are particularly trendy this year.

Apart from yuanxiao, the search for lantern fairs has grown by 720 percent compared to a year ago, according to Meituan.

The rising cultural and tourism consumption and demand for innovative products showed an increasing trend in China's consumption market, Cong Yi, a professor at the Tianjin University of Finance and Economics, told the Global Times on Sunday.

It is expected that this trend will lead to an increase in China's consumption volume and quality in 2024, Cong said.

The spending fever during the Lantern Festival extended the momentum of the Chinese New Year holidays which saw record travel data and holiday spending.

During the eight-day Chinese Lunar New Year holidays, 474 million domestic trips were made, up 34.3 percent year-on-year, and total domestic tourism spending jumped by 47.3 percent year-on-year to about 632.69 billion yuan ($87.95 billion), according to data released by the Ministry of Culture and Tourism.

The spokesperson for China's Ministry of Commerce (MOFCOM) He Yadong said at a regular press conference held on Thursday that China has seen a boom in consumption during the Spring Festival holidays, making a good start to 2024.

During this year's Spring Festival holidays, the sales of key retail and catering enterprises nationwide increased by 8.5 percent year-on-year on a comparable basis. It is expected that the consumption market will maintain a stable growth trend in the first quarter, He said.

The consumption boom during the Spring Festival period showcases the vitality unleashed by the Chinese economy and also serves as a rebuttal to some foreign media's negative portrayal of the Chinese economy, experts said.

The surge in consumer spending during Chinese New Year holidays and the Lantern Festival signifies a growing optimism among consumers about the future economy, leading to an increase in their willingness to spend, Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, told the Global Times on Sunday.

China's stock market also witnessed a strong rally during the period, boosted by warming consumption and regulatory measures aimed at reviving the market.

The Shanghai Composite Index rose for eight consecutive days as of Friday closing, recovering all losses in the year 2024 and surpassing the 3000-point mark. Around 300 stocks saw gains of over 30 percent last week, the Securities Times reported.

"The sustained upward trend in the stock market will attract more capital inflows, which will support corporate financing and facilitate expansion of production capacities, further stimulating economic growth in the coming months,'' Wang said.

Bright outlook

The surge in consumption during the Spring Festival is expected to have a significant impact on China's GDP growth in the first quarter of 2024, setting the stage for a strong economic recovery throughout the year and beyond.

The consumption is expected to grow by 6 percent in the first quarter, leading the nation's GDP to grow at above 5 percent in the first quarter, Tian Yun, a veteran economist based in Beijing, told the Global Times.

In order to further spur economic growth, Chinese officials have convened meetings and rolled out various pro-growth measures days after the Spring Festival, with the focus on issues such as boosting market confidence and improving efficiency.

Right after the Chinese New Year holidays, China's central bank on Tuesday cut its five-year-plus loan prime rate by 25 basis points, the largest one-time rate reduction in years, adding fuel to the hot consumer spending during the holiday and injecting sustainable momentum into the consumer market.

Chinese Premier Li Qiang on Friday chaired a State Council executive meeting and called for greater efforts to attract and utilize foreign investment.

On the same day, the MOFCOM said that in January, foreign investors set up 4,588 new foreign-funded enterprises, a year-on-year increase of 74.4 percent against the backdrop of last year's sustained growth.

More measures to stabilize economic growth, including increasing infrastructure investment, creating jobs, improving the business environment, and promoting industrial innovation could be expected, Wang said.

While a national GDP growth target will not be released until the national two sessions scheduled to be held in early March, major provincial-level economic powerhouses, including Shanghai and South China's Guangdong, eye a growth rate of about 5 percent or higher.

Anchoring the goal of building a financial powerhouse, China on Tuesday reiterated its determination to strengthen financial regulation with “teeth and thorns” and enhance the “regulation of the regulators.”

In an article published on the People’s Daily on Tuesday, the Office of the Central Financial Commission and the Central Financial Work Commission, two crucial bodies in China’s financial policymaking, jointly emphasized the need to ensure financial stability through stringent and solid regulation and to enhance regulatory capabilities.

It is crucial to strengthen regulation with “teeth and thorns”, push for strict enforcement of laws, and to establish a sound regulatory accountability mechanism, enhancing the “regulation of the regulators.”

The article emphasizes the need to safeguard financial security through prudent and effective risk prevention and control. It advocates adhering to the principle of “maintaining overall stability, coordinating policies, implementing targeted measures, and precisely defusing risks.”

This approach involves handling existing risks prudently, strictly preventing new risks, and effectively preventing and defusing financial risks in key areas in a powerful, orderly, and effective manner.

Enhancing regulation with “teeth and thorns” is of great significance. Through continuous supervision of financial institutions and markets, potential risks can be detected and resolved in a timely manner, thus preventing the occurrence of financial crises, Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, told the Global Times on Tuesday.

It is also beneficial for maintaining market order and protecting consumer rights, Wang said.

Currently, it is imperative to enhance financial regulation. On the one hand, with the continuous emergence of financial technology and innovative products, traditional regulatory measures may be difficult to cope with new risks; while on the other hand, some financial institutions may exploit regulatory loopholes or differences between different regulatory systems to engage in arbitrage, thus circumventing regulatory requirements, Wang noted.

Additionally, as global financial markets become more interconnected, China needs to strengthen regulatory measures to enhance the stability and international competitiveness of its financial system, Wang said.

Over recent months, China’s financial regulatory authorities have repeatedly mentioned the need to focus on strong and strict supervision, and resolutely aiming for regulation with “teeth and thorns.”

The National Financial Regulatory Administration held a work conference on January 30, vowing to enhance regulation, firmly safeguard the bottom line of preventing systemic financial risks, solidly promote high-quality financial development, and steadfastly follow the path of financial development with Chinese characteristics.

The article on Tuesday also noted that it is essential to deeply understand that the fundamental purpose of building a financial powerhouse is to serve the goal of achieving Chinese modernization. 

China called on cities to implement and adjust policy tools in real estate sector based on local conditions, China's Ministry of Housing and Urban-Rural Development (MOHURD) announced on Friday, in order to achieve positive results effectively and a steady development of the sector.

Officials from the ministry made the remarks during a meeting held on Friday, which aimed to deploy a coordination mechanism targeting urban real estate financing, a move to promote the collaboration between developers and financial firms, according to a report by China Construction News.

The meeting was held following the National Financial Regulatory Administration (NFRA) announcing on Thursday plans to step up efforts to support the real estate sector and meet the reasonable financing demand of developer companies.

During the meeting, officials from MOHURD flagged granting cities autonomy to adjust local real estate sector, and implement different policies that are suitable to local market condition, according to the report.

In addition, the meeting also vowed to support real estate developing programs by the coordination mechanism, treat developers in various ownerships equally by approving their reasonable financing demand.

China's policymakers have been making efforts in addressing financing issues among real estate developers, which was mentioned during a central economic work conference held last December.

Xiao Yuanqi, a deputy director of the NFRA, said during the press conference on Thursday that the financial sector has an undeniable responsibility to provide support to the real estate industry, which has a long supply chain and wide-ranging implications for the national economy, as well as being intertwined with people's lives.

MOHURD vowed to accelerate the issuance of loan to developers and enhance supervision to ensure the utility of the loan, adding that a first issuance of real estate programs will be finalized by the end of January.

The reported visit to China by a delegation of senior Japanese business leaders, led by Shindo Kosei, head of the Japan-China Economic Association, comes in time to strengthen communication and coordination in order to stabilize bilateral economic relations. According to Japanese media outlets, this is Japanese business leaders' first visit to China in approximately four years.

Given the complex geopolitical situation where the "decoupling from China" theory continues to cloud regional supply chains, especially regarding cooperation in high-tech industries like semiconductors and electric vehicle batteries, enhanced communication itself is a positive sign for bilateral cooperation.

As a restructuring of the Asian industry chain seems to have accelerated amid global economic uncertainty, some challenges constrain the development of bilateral trade and investment. China's overall exports to Japan dropped 8.4 percent year-on-year in 2023 while imports from Japan declined 12.9 percent. 

The Japanese Chamber of Commerce and Industry in China recently published figures showing 48 percent of Japanese companies surveyed in China said that they had reduced their investment in China in 2023 compared to the previous year, or had not invested any further.

It is necessary to analyze the potential problems facing bilateral economic cooperation and maintain high-level exchanges, dialogue and communication between China and Japan. Hopefully, the delegation led by Shindo Kosei could help stabilize bilateral economic relations.

China and Japan have recently encountered some setbacks in their economic relationship, and the Japanese side should be held responsible. For instance, it is reasonable for China to suspend imports of aquatic products originating from Japan to prevent risks from Japan's dumping of nuclear-contaminated wastewater. Some Japanese people may want to turn China's ban on aquatic product imports into an issue of geopolitics and pressure China to resume imports, but it's impossible to solve problems by politicizing economic issues.

In another example, Japanese restrictions on exports of advanced chipmaking equipment reportedly took effect in July, 2023, in line with US-led efforts to stymie China's ability to develop high-end semiconductors. Clearly, this has a negative impact on Japan's exports to China. Japan should shoulder more responsibility in stabilizing trade, investment and economic cooperation with China.

Chinese officials have repeatedly stressed that China will always welcome foreign companies, including Japanese firms, to invest and operate in China. However, it seems that some Japanese companies are still skeptical about China's sincerity in attracting foreign investment. China's revised counter-espionage law took effect in July to safeguard national security, but some media reports raised unnecessary concerns about "arbitrary enforcement." 

In the face of domestic and external uncertainties, it is normal that China's plan to make itself a better investment destination is unlikely to be realized as smoothly as we imagined. Japan and China should make a concerted effort to manage bilateral economic relations with great care, strengthen communication and eliminate misunderstandings.

Economic complementarity between China and Japan is likely to be enhanced as China steps up efforts in technological innovation and moves up the value chain. With China's technological advancement, there is great potential for China-Japan economic cooperation in high-end manufacturing industries such as semiconductors and electric vehicle batteries. Hopefully, such cooperation won't be affected by geopolitical issues and unnecessary concerns about China's counter-espionage law.

Undoubtedly, efforts to stabilize China-Japan economic relations are in line with the interests of Japanese enterprises. The report by the Japanese Chamber of Commerce and Industry in China showed that about half of the companies surveyed still thought China was the most important market globally or among the top three most important in 2024. 

China is Japan's largest trading partner, and one of the biggest investment destinations for Japanese companies. China and Japan could complement one another in economic modernization despite their differences. Hopefully, the Japanese business delegation led by Shindo Kosei could give a boost to economic cooperation.

Spring Festival consumption to boom amid historical high travel rush GraphicAnalysis: GT