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THIS WEEK:

Xi Jinping appealed to foreign business leaders, Premier Li Qiang called for action on local government debt, and China fired water cannon on a Philippine vessel in the South China Sea.

1. Xi Signals Greater Opening to the Outside World

What Happened: At the China Development Forum (CDF) on March 24-25, senior Chinese officials met with foreign business leaders for discussions on the theme of “The Continuous Development of China.” President Xi Jinping and Premier Li Qiang both made appearances.

The Leaders Speak: Xi’s meeting with American business leaders looks to be a sequel to his November 2023 meeting with "Friendly Organizations" in San Francisco, which many of the same executives attended. Xi emphasized the importance of these exchanges and talked about his view of the future of U.S.-China relations. Li’s address at the CDF stressed that inflation remained low and central government debt was manageable, leaving room for more expansionary policies.

Going Steady: China has stepped up its outreach to foreign companies since the 20th Party Congress; the leadership held nearly 80 meetings with top executives of foreign firms in the past 18 months, compared to only 59 in the five years between 19th and 20th Party Congresses.

Why It Matters: A host of challenges — trade disputes, regulatory uncertainty, a slowing economy — have dented China’s reputation with global businesses and investors. More regular meetings between Xi and foreign business leaders might help break through the “echo chamber” and improve decision making on both sides.

By: Lizzie C. Lee, Affiliated Researcher on Chinese Economy, and Jing Qian, Co-Founder and Managing Director, Center for China Analysis.

Learn More: Read China 2024: What to Watch for more on the Chinese leadership’s plans for the year ahead.

2. Cadres Urged to Tackle Local Government Debt

What Happened: On March 22, Premier Li Qiang told officials from the People's Bank of China, Ministry of Finance, and local governments via video conference that more needed to be done to reduce the risks from massive local government debt and clear outstanding payments owed to banks.

Gray Rhinos: Implicit local government debt, mostly held by Local Government Financing Vehicles (LGFVs), is almost as large as official central and local government debt combined. In 2017, the Central Leading Group for Finance and Economic Affairs called local government debt a “gray rhino.”

Housing Market Support Flagged: LGFVs sell land to real estate developers, who then pay the land transaction fees to local governments. This mechanism is a major source of cash for localities, filling a major fiscal gap. In comments at a State Council executive meeting the same day as the video conference, Li called for new policies to stimulate home buying, signaling more government support for the property sector.

Why It Matters: Repeated attempts to rein in local debt have not been successful. The severe decline of the property market means many LGFVs will face liquidity risks and borrow even more to ensure continued public services and pay interest on existing loans.

By: Yifan Zhang, Affiliated Researcher, Center for China Analysis

Learn More: Read about Purges in the Provinces as Local Liabilities Rise in China 2024: What to Watch.

3. Tensions Rise in the South China Sea

What Happened: China was accused of two provocations over the weekend against Philippine vessels and personnel near disputed features in the South China Sea within the Philippines’ exclusive economic zone.

Dual Incidents: The Philippines said the China Coast Guard blocked a supply vessel and damaged it with water cannon near Second Thomas Shoal (known as Ayungin Shoal in the Philippines), and a Chinese navy helicopter performed hazardous low-flying maneuvers over Sandy Cay 3 (called Tiexian Reef in Chinese), causing minor injuries to Filipino marine researchers working below.

Water Cannons: The incidents are the latest in a string of stand-offs between China and the Philippines in the South China Sea and marked the third time this year that the China Coast Guard used water cannon to repel Philippine ships attempting to resupplying troops stationed on Second Thomas Shoal.

Why It Matters: China’s coercive use of water cannon has raised concerns in the region over the increasing use of “grey zone” tactics and their potential to contribute to escalation.

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

Learn More: Read Future Crises in the Indo-Pacific: The Shadow of Chinese Public Opinion.

4. China’s Solar Supply Soars

What Happened: China’s Longi Green Energy Technology, one of the world’s largest solar panel manufacturers, is expected to cut 5 percent of its 80,000-strong workforce amid growing concerns about oversupply in the industry.

A Solar Giant: Longi has overseas factories in Vietnam and Malaysia, a joint venture with Invenergy in Ohio, and sales offices in the U.S., Australia, Japan, India, and the UAE. Its annual revenues surged from $7.5 billion in 2020 to nearly $18 billion in 2022.

Overcapacity Concerns Mount: Chinese companies account for 80 percent of global solar panel production and their growing presence overseas has sparked a backlash, with calls for increased tariffs and other measures to protect manufacturers in the U.S. and Europe.

Why It Matters: Managing domestic capacity and identifying stable overseas markets will be crucial for the success of China’s pivot toward the “new three” industries: renewable solar energy, electric vehicles, and lithium batteries.

By: Taylah Bland, Affiliated Fellow on Climate and the Environment, Center for China Analysis

Learn More: Read Two Sessions: China’s Latest Climate Directives by Taylah and the Asia Society Policy Institute’s China Climate Hub Director Li Shuo.

5. Upper Yangtse Dam Protesters Released

What Happened: More than a hundred people involved in a February 14 protest against the construction of a hydropower station in Western Sichuan were released from detention. Two alleged ringleaders — a monk and a local village official — reportedly remain in custody.

The Dam: The Gangtuo Hydropower Plant, under construction in Dege County, is part of an immense system of 25 dams that China is building on the Upper Yangtze. Thousands of Dege locals — mostly ethnic Tibetans — will have to relocate.

Upstream, Downstream: The headwaters of all of Asia’s major river systems are in China, which is expanding its hydropower capacity to help meet ambitious targets for non-fossil energy generation. As dams have proliferated upstream, countries in South and Southeast Asia have expressed serious concerns about the downstream consequences for water supplies and livelihoods.

Why It Matters: The Dege protests are a reminder that China’s efforts to harness its water resources can spark domestic conflict as well, even in heavily-policed minority regions where social unrest is a major concern for Beijing.

By: G.A. Donovan, Fellow for Chinese Political Economy and Society, Center for China Analysis

Learn More: Watch this video with Li Shuo in a discussion on the Politics of Water in the Himalayan Region as part of the Asia Society’s COAL + ICE exhibition and programs running through August 11.