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THIS WEEK:

Filipino sailor injured in SCS incident, Xi emphasizes modern corporate governance, China-Australia relations steadily stabilizing, leading economist hints at major policy shifts, and exodus of high-net-worth individuals from China.

1. China-Australia Relations Steadily Stabilizing

What Happened: Premier Li Qiang just finished his four-day tour of Australia — the first by a Chinese premier in seven years.
 
A Busy Itinerary: Li visited three Australian cities, inspected China-Australia cooperative research on giant pandas at the Adelaide Zoo, and co-chaired the Ninth China-Australia Annual Leaders’ Meeting with Australian prime minister Anthony Albanese. Li and Albanese spoke at length on economics and trade, climate change in energy and mining, and military-to-military communication.
 
A New Agreement: During the visit, Albanese and Li discussed the importance of people-to-people exchanges. As a result, China has included Australia on its list of unilateral visa-free countries. Additionally, both leaders welcomed additional measures, including reciprocal access to multi-entry visas of up to five years’ duration for business, tourism, and visiting family members.
 
Why It Matters: Relations between the two countries have been unstable since 2020, when Prime Minister Scott Morrison called for an inquiry into COVID-19’s Chinese origins. Li’s visit helps stabilize Australia-China ties. Both countries play an important role in the Asia-Pacific, and cooperation would be mutually beneficial.
 
By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis
 
Learn More: Read how Australia struggles to influence great-power competition but has agency closer to home by CCA’s Neil Thomas.

2. Filipino Sailor Injured in South China Sea Incident

What Happened: A Philippine Navy sailor suffered severe injuries on Monday when a China Coast Guard (CCG) vessel blocked an Armed Forces of the Philippines (AFP) resupply mission in the South China Sea. An unknown number of Philippine vessels also reported damage.
 
The Details: An AFP spokesperson confirmed that a Philippine Navy sailor had his thumb severed, while a number of other naval personnel sustained minor injuries after a ramming incident between CCG and Filipino boats during a resupply mission to the BRP Sierra Madre. The CCG reportedly boarded the AFP’s rigid inflatable boat and confiscated the crew’s firearms.
 
What China Said: China’s Ministry of Foreign Affairs confirmed the incident but justified the response as “professional, restrained, and lawful.” It claimed that the Philippine Navy vessels, without permission from the Chinese government, “intruded into waters near Ren’ai Jiao in China’s Nansha Qundao in an attempt to send construction materials to the military vessel [BRP Sierra Madre] illegally grounded at Ren’ai Jiao.”
 
Why It Matters: This is the third instance of Philippine military personnel sustaining injuries by CCG ships attempting to thwart the Philippines from resupplying its outpost at Second Thomas Shoal. Numerous incidents between China and the Philippines have occurred at the feature over the last six months. An AFP personnel death would likely prompt a U.S. response under the terms of the U.S.-Philippine mutual defense treaty.

By Lyle J. Morris, Senior Fellow on Foreign Policy and National Security, Center for China Analysis

Learn More: For more analysis on the South China Sea, see The South China Sea: Realities and Responses in Southeast Asia.

3. Xi Emphasizes Modern Corporate Governance at Central Commission Meeting

What Happened: At a Central Commission for Comprehensively Deepening Reform meeting on June 11, Xi emphasized the need to establish a modern corporate governance structure to transform more SOEs into world-class companies. The agenda included discussions on improving China’s corporate governance system and fostering a globally competitive environment for scientific and technological innovations.

Modern Corporate Governance: The comments mark the second time in three weeks that Xi has mentioned “modern corporate governance.” The party committees within SOEs have often overshadowed the role of a firm’s board of directors or overstepped in day-to-day operations in recent years. It is likely that new rules will be introduced at the Third Plenum to accelerate the corporate governance overhaul among SOEs and to strengthen the supervision and management of state-owned capital.

Scientific and Technological Innovation: The meeting also stressed the importance of expanding global scientific and technological exchanges. Scientists within China still face hurdles in overcoming biases in research, where current grant evaluation assesses talent based on publication quantity, titles, qualifications, and awards, forming a “cycle that keeps resources circulating among a small group of people.”

Why It Matters: Xi’s comments signal a concerted effort to modernize China’s corporate governance, aligning SOEs more closely with global standards while retaining party oversight. This could lead to significant regulatory changes at the upcoming Third Plenum. Enhancing scientific and technological innovation is crucial for China’s long-term economic competitiveness.

By Yifan Zhang, Affiliated Researcher, Center for China Analysis

Learn More: China’s scientific and technological innovations have a direct impact on the U.S.-China biotechnology competition, covered by CCA Research Associate Patrick Beyrer.

4. Leading Economist Hints at Major Policy Shifts ahead of Third Plenum

What Happened: The Chinese Communist Party’s upcoming Third Plenum in July is poised for major policy announcements. At a Center for China and Globalization luncheon, David Daokui Li, renowned economist and former member of China’s central bank Monetary Policy Committee, highlighted a potential strategic pivot from investment to consumption.

Consumption Conundrum: Li suggested that China’s reliance on investment will pivot to focus on stimulating growth through consumption. Any hesitation on Beijing’s part stems from fears that welfare could reduce work incentives, but economic slowdown and social pressures have prompted a re-evaluation. Recognizing that modest welfare improvements will not undermine work ethic, Beijing is lifting housing purchase restrictions and financially supporting developers.

From Concrete to Cash Flow: Local governments have historically focused on production, emphasizing industrial output and infrastructure. Besides a shift to consumption-focused strategies that encourage spending and improve living standards, allowing regions to retain more tax revenue from local consumption could stimulate local economies. Restructuring local debt through sovereign debt issuances by the central government could also alleviate financial pressures and restore economic vitality.

Why It Matters: Given his access to decision-makers, Li’s insights are critical for understanding Beijing’s economic direction. The shift, moderate though it may be, signals a willingness to adapt to current realities, easing global investors’ concerns about policy rigidity during the Xi era.

By Lizzi C. Lee, Fellow on Chinese Economy, Center for China Analysis

Learn More: Earlier this year, Lizzi was one of many experts in a ChinaFile conversation that provided predictions for China’s economy.

5. Exodus of High-Net-Worth Individuals from China

What Happened: China is experiencing a significant outflow of high-net-worth individuals (HNWIs), with an anticipated record 15,200 expected to leave the country in 2024, up from 13,800 in 2023.

The Perfect Storm: Economic uncertainty and geopolitical tensions are the primary drivers of this exodus, as is the ongoing property crisis. The departure of HNWIs, who possess wealth ranging from $30 million to $1 billion, exacerbates China’s economic strain by not only draining financial resources but also reducing entrepreneurial talent that could stimulate economic growth.

Global Wealth Shift: The United Arab Emirates continues to attract the highest number of millionaires, followed by the United States and Singapore. Other significant destinations include Canada, Australia, and various European countries. These HNWIs often bring substantial financial inflows and entrepreneurial activities to their new resident countries.

Why It Matters: The departure of HNWIs highlights deeper economic and political issues in China. With Xi Jinping’s tight control over the economy, the Party’s “common prosperity” policy, and continuing economic slowdown, the outflow of millionaires from China will likely continue.

By Jennifer Choo, Director of Research and Strategy, Center for China Analysis

Learn More: CCA Honorary Senior Fellow Bert Hofman covered some of China’s economic headwinds in an article on the potential end of its economic miracle.