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THIS WEEK:

Agreement on U.S.-China science and technology cooperation, private pensions face obstacles, Shanghai and Taipei City officials meet, China commits to combatting desertification, and Xi warns of political decay.

1. China Expresses Unease Over Lai’s Inauguration Address

What Happened: On May 20, 2024, Taiwan inaugurated Democratic Progressive Party (DPP) members Lai Ching-te and Hsiao Bi-khim as president and vice president, respectively. Lai gave his much-anticipated inaugural address, laying out his vision for governing Taiwan, Taiwan’s role in the world, and his thinking on cross-Strait relations.

What Lai Said: Lai’s address included new language regarding the status of Taiwan. He conveyed to the international community that “the Republic of China is a sovereign, independent nation in which sovereignty lies in the hands of the people.” While calling for peace and stability in the Taiwan Strait, to include maintenance of the status quo, Lai also said that Taiwan and China “are not subordinate to each other.”

What China Said: China’s Ministry of Foreign Affairs came out forcefully against Lai’s address, saying that the DPP “continues to pursue ‘independence’” and expand its “so-called international space.” Beijing also said the DPP’s actions are “completely contrary to the mainstream public opinion on the island.”

Why It Matters: Taiwanese presidential inaugurations are regarded as important declarations of the policies and priorities that will form the basis for cross-Strait interactions. Lai did not shy away from clearly stating that Taiwan is an independent country and that equality is the precondition for cross-Strait issues. As a result, Beijing will likely brand Lai a supporter of “Taiwanese independence” and freeze political dialogue with the DPP administration. 

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

Learn More: Watch a panel discussion with Lyle, Rorry Daniels, and Simona Grano on Lai's inauguration speech.

2. Former Finance Minister Calls for Urgent Structural Reforms

What Happened: Outspoken former finance minister Lou Jiwei called for dismantling the household registration system and transferability of rural land that perpetuate the rural-urban divide in a recent speech at the China Europe International Business School.

The Context: Despite recent signs of recovery, the economy still suffers from insufficient domestic demand, a lack of private investment, and overcapacity. Lou said the downturn of the real estate market can only be fundamentally resolved by these comprehensive structural reforms. 

Politics and Economics Intertwined: While these reforms may appear economic in nature, the obstacles are fundamentally political. Powerful vested groups, including central bureaucrats, urban officials, and residents, stand to lose if rural residents are given more market power and their resources are assigned greater market value. 

Why It Matters: Aside from being discriminatory against rural residents, the divides are also structural barriers to sustained growth because rural land and other resources are not allowed to achieve their full market potential.

By Lynette H. Ong, Senior Fellow on Chinese Society, Center for Chinese Analysis

Learn More: In a ChinaFile Conversation, a number of experts, including CCA fellows, discussed at length the real estate problem and how it affects China’s economy.

3. Beijing’s Boldest Property Rescue Yet

What Happened: Beijing launched a bold stimulus package to breathe life into the ailing property sector, featuring relaxed mortgage rules and incentives for local governments and state-owned enterprises to snap up unsold homes. The plan earmarks RMB 300 billion ($41.5 billion) in “relending” funds to convert excess inventory into affordable housing.
 
Market Buzz: Chinese property stocks responded positively, with Longfor Group Holdings soaring 11% and China Overseas Land and Investment up 4.4%. The CSI 300 Real Estate Index climbed 9.1%, while the Hang Seng Mainland Properties Index rose 5.3%. Despite the initial market rally, analysts remain skeptical about the long-term impact of the new measures.
 
Word of Caution: China’s unsold property inventory stands at $3.9 trillion, making the new funding plan a mere drop in the ocean (less than 2%). Already weighed down by $5.7 trillion in debt, local governments face major challenges in absorbing the unsold properties. The expected RMB 500 billion in additional bank credit, while helpful, is far from sufficient.
 
Why It Matters: The property sector is key to China’s broader economic recovery. These drastic measures underscore the central government’s determination to stabilize the property market, with more support likely if the current policies don’t halt the price slide. Restoring consumer confidence is key, but current economic jitters and anticipated property price drops are dampening enthusiasm. While the package is a step in the right direction, more substantial, systemic reforms are necessary to tackle the deep-rooted issues in China’s housing market.

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

Learn More: Guonan Ma, CCA Senior Fellow on Chinese Economy, penned a summary report on China’s property sector following a CCA and Stanford Center on China's Economy and Institutions closed-door roundtable.

4. United States Raises Tariffs on China’s Electric Vehicles to 100%

What Happened: Last week, U.S. President Joe Biden announced a series of tariff increases on a number of Chinese imports, including electric vehicles (EVs), solar cells, batteries, computer chips, and medical products designed to protect U.S. industry.
 
The Rationale: Tariffs on EVs imported from China will increase from 25% to 100%, a move meant to negate market saturation from China amid growing concerns of non-market practices and overcapacity.
 
“A Most Typical Case”: Foreign Minister Wang Yi noted the announcement was “a most typical case of hegemonism and bullying,” and the Commerce Ministry stated that “this action will seriously impact the atmosphere of bilateral cooperation.” Foreign Ministry Spokesperson Wang Wenbin said, “We urge the U.S. to earnestly observe WTO rules and immediately cancel the additional tariffs on China. China will take all measures necessary to defend our rights and interests.”
 
Why It Matters: Biden’s latest measures highlight the significance of the trade-security-climate nexus. These measures, while seemingly protecting U.S. industry, hamper efforts to benefit from the cheaper production of clean energy technologies, in which China has a competitive advantage. The economic tensions and possible retaliation from this decision will likely have significant impacts on the advancement of the international climate agenda, specifically decarbonization efforts.

By Taylah Bland, Fellow on Climate and the Environment, Center for China Analysis
 
Learn More: Read a Diplomat excerpt, “Why the United States Must Rethink its Strategy to Compete with China in the EV Market,” by Lizzi C. Lee, CCA Fellow on Chinese Economy.

5. Xi Fires Another Minister

What Happened: On May 18, the Communist Party announced that Tang Renjian, who was serving as minister of agriculture and rural affairs, was under investigation for “serious violations of discipline and law,” a euphemism for corruption.

Third Time Unlucky: Tang is the third minister fired since Xi began his third term in October 2022, after former foreign minister Qin Gang and defense minister Li Shangfu. However, Tang was lower ranked than both Qin and Li, who both held deputy national-level positions as state councilors.

Technocrat: Tang is a technocrat and worked for many years with Xi's former economic czar, Liu He, in the Party’s top economic office. Tang's fate could reflect Liu's waning influence after being replaced by He Lifeng, another Xi crony, or it could have more to do with actual corruption. Like Qin and Li, Tang himself does not have close personal or professional ties with Xi from earlier in his career, though he was a senior policymaker working on Xi’s poverty elimination and rural revitalization campaigns.

Why It Matters: Xi's purge of recently promoted leaders like Qin, Li, and Tang suggests strength rather than weakness because it shows that he has the political capital necessary to punish corruption and demand improved cadre performance.

By Neil Thomas, Fellow on Chinese Politics, Center for China Analysis

Learn More: Stay up-to-date with the people, institutions, and networks that matter in Chinese policymaking with CCA’s flagship Decoding Chinese Politics product.