The number of Chinese property developers going out of business has gone up by half. So far this year, 274 builders have filed for bankruptcy, a rise of 50% from a year ago, according to the website of the People’s Court Daily. A recent high-profile example was Yinyi Group, a developer in the Chinese port city of Ningbo, which filed for bankruptcy reorganization in June after it failed to pay back CNY300 million in debt issued three years ago. Although the numbers are only a tiny fraction of the estimated 100,000 developers in China, concern is growing that defaults and bankruptcies will only increase.

“Everyone, from home buyers to savvy investors, is worried about developers’ cash flow,” said Yan Yuejin, Research Director with Shanghai-based property services firm E-House China R&D Institute. Home builders have found it harder and harder to access their traditional sources of credit as the authorities clamp down on high debt levels. In May, the China Banking and Insurance Regulatory Commission (CBIRC) banned direct financing to developers who have not yet secured all the approvals necessary to start building or who have not secured all the funding they need for a project. The ban was later expanded to include indirect financing through equity investments and bond subscriptions. Additionally, the National Development and Reform Commission (NDRC) said that any new offshore bonds issued by real estate firms must be used only to replace medium- and long-term offshore debt maturing in the next year. Previously, developers could use offshore debt issuance proceeds to refinance existing debt, both onshore and offshore, and for general corporate purposes.

“The government is determined to reduce risks in the financial system, and maintaining stability amid a deteriorating economy is the key mission,” said Joe Zhou, Executive Director of CBRE. He said that if highly leveraged developers were allowed to continue borrowing money, bidding for land and selling homes, they would soon be unable to pay their debts. That would soon leave them unable to finish or hand over vast numbers of homes that have already been sold, causing a public outcry. “That is the last thing the government would like to see now,” said Zhou. Yan at E-House added that credit control policies in the sector have been tightened 15 times this year alone, with more to come, leaving China’s builders little room to obtain fresh loans in the second half of the year to refinance the debt they borrowed earlier.

More than 500 domestic bonds worth a total of CNY530 billion raised by Chinese home builders will mature this year, up 30% from 2018, the South China Morning Post reports.

Mr Jon France of GSMA (left) and Mr Zhong Hong, ZTE’s Chief Security Officer (right)

Following Huawei, which opened its cybersecurity center in Brussels four months ago, its Chinese competitor ZTE is following suit. In a show of commitment to security in the ICT sector, ZTE launched its Cybersecurity Lab Europe in Brussels on July 10. The company said the lab “will provide a much wider range of access to the external security verification of ZTE’s products, services and processes, and will facilitate the external cooperation in the security field with stakeholders”. As part of its transparency initiative, ZTE had already set up two cybersecurity labs, in Nanjing, China, and in Rome, Italy, in May. The three centers will be connected in real time to create a unified platform.

According to a ZTE press release, “the lab provides four essential functions, including source code review, document review, black box testing and penetration testing. In addition, ZTE will conduct in-depth researches of the security field in the lab, in partnerships with industry-leading security organizations. Moreover, the lab will play a significant role in guaranteeing the security of the company’s 5G solutions in the 5G era.” Representatives of the European Commission and of the European Council, as well as telecoms operators, GSMA and other industry associations, have attended the opening ceremony.

“ZTE’s original intention of the Cybersecurity Lab Europe is to provide global customers, regulators and other stakeholders with great transparency by means of verification and communication,” said Zhong Hong, ZTE’s Chief Security Officer. “The security for the ICT industry cannot be guarded by one sole vendor, or by one sole telecoms operator. ZTE is willing to play an important role in contributing to the industry’s security along with its customers and all other stakeholders.”

China’s Minister of Commerce Zhong Shan

According to the latest developments, it seems China is in no hurry to end the trade war with the U.S. and might be waiting for the U.S. presidential elections next year to see who will be the next U.S. President. The U.S. expects China to announce significant purchases of American agriculture products for the negotiations to resume. China must uphold “the spirit of struggle” in defending national interests in its current trade war with the U.S., Commerce Minister Zhong Shan said. He made clear that the U.S. side should be held solely accountable for the trade conflict that has become a drag on the global economy. Zhong Shan recently joined China’s negotiating team led by Vice Premier Liu He. Zhang Lifan, a Beijing-based commentator, said that Zhong’s comments indicated China was preparing for a protracted trade war with the U.S. The remarks were made as officials from the two nations prepared for further face-to-face talks next week. As both parties agreed to restart the negotiations they have yet to agree on which version of the text will be used.

Scott Kennedy, Economist with Washington-based think tank the Center for Strategic and International Studies, said Zhong’s greater prominence meant China had lost interest in addressing U.S. concerns in the talks. “Those hoping for a deal that stabilizes the relationship should give up such illusions. It won’t be coming any time soon.” “As for the so-called claims by the U.S. that China is eager to reach an agreement with the U.S. because of the economic slowdown, this is completely misleading,” Foreign Ministry Spokesman Geng Shuang said. “The conclusion of an economic and trade agreement is by no means of unilateral appeal to the Chinese side. The U.S. side also has this demand,” given that people from “all walks of life” in the U.S. are opposed to paying for U.S. tariffs on Chinese imports. “I would like to once again call on the U.S. to work together with China, to move in the same direction, and to reach a mutually beneficial and win-win agreement on the basis of mutual respect and equal treatment.”

The trade war has also dented the friendship between Presidents Trump and Xi. “I used to say he was a good friend of mine,” Trump said at a White House event. “We’re probably not quite as close now. But I have to be for our country. He’s for China and I’m for USA, and that’s the way it’s got to be.”

The Global Times newspaper accused U.S. President Trump of exaggerating China’s economic plight after GDP growth fell to 6.2% in the second quarter. It said Washington was increasing psychological pressure on China to force it to agree to a trade deal and end the trade war on Washington’s terms. The Global Times pointed out that China’s second quarter growth rate was more than twice that of the United States.

U.S. data shows that tariff-hit exports to China plunged by 38% after three rounds of tariffs. U.S. farmers were hit the hardest, with soybean exports to China grinding to a halt last year. The other victim of the trade war is the U.S. consumer. According to recent research by the Federal Reserve Bank of New York, the tariffs imposed last year had reduced U.S. household incomes at a rate of USD1.4 billion per month. An updated analysis predicts that the latest tariff hike on USD200 billion of Chinese goods would cost the average U.S. family an extra USD831 annually due to higher prices and loss of economic efficiency.

The United states did not comply with a World Trade Organization (WTO) ruling and could face Chinese sanctions if it does not remove certain tariffs that break WTO rules, the WTO’s appeals judges said in a ruling. China went to the WTO in 2012 to challenge U.S. anti-subsidy tariffs on Chinese exports including solar panels, wind towers, steel cylinders and aluminum extrusions, exports valued at USD7.3 billion at the time. The ruling said the United States must accept Chinese prices to measure subsidies. China’s Commerce Ministry said the WTO appellate report proves the U.S. “repeatedly abused trade remedy measures, which seriously damaged the fairness and impartiality of the international trade environment.” Under President Donald Trump, the U.S. has been blocking the process to appoint or reappoint members of the WTO’s Appellate Body, which is effectively the top court for world trade. The Appellate Body normally has seven members and needs three to consider each case, but from December 11 it will have only one judge left, causing at least a temporary suspension.

As part of its goal to make the economy more efficient, Chinese authorities unveiled a new reform plan to make it easier for companies, including zombie state-owned enterprises, to be closed down. The intention is to better allocate resources to unleash the economy’s growth potential, which is under pressure from the trade war with the United States, by lowering the cost of closing down insolvent firms. The government “must fully employ the decisive role of the market in resource allocation, standardize market competition, reduce market distortions and promote the flow of components and resources to the most efficient market entities,” the joint circular from 13 major ministries said. The plan specifically forbids central government agencies and local governments from providing subsidies or loans to prop up the operation of state-owned enterprises (SOEs) that would not be financially viable without such help, which are known as zombie enterprises. However, the final decision on whether a firm is solvent or not is usually in the hands of local officials, who often are reluctant to act given the importance of such firms to the local economy.

The battle over 5G smartphones has intensified in China, with the first batch of eight 5G phone models having obtained the quality certificate needed to hit the market. Huawei’s four 5G models, including Mate 20X 5G and Mate X 5G, have obtained China Compulsory Certification, according to the website of the China Quality Certification Center. Oppo, Vivo, ZTE and One Plus also each have one 5G model that secured the certificate. Xiaomi, Samsung and Lenovo failed to make their way into the first batch. Xiaomi said that it will apply to conduct quality tests this week in accordance with its product launch schedule.

Smartphones in China need to acquire three licenses before they are allowed to be sold to the public. The licenses include China Compulsory Certification, a license to allow smartphones to get connected to the 5G network, and the Radio Type Approval Certification. Oppo said that its Oppo Reno 5G model has already secured all three licenses and the phone will be available in the China market in the third quarter of this year. Oppo’s Reno 5G has already been available in Switzerland since May. Huawei announced in June that its Mate 20X 5G had obtained the country’s first license to allow terminal telecommunication equipment to enter the 5G network in China. The company is scheduled to release the phone in the domestic market on July 26. Qin Fei, General Manager of Vivo’s telecom research institute, said the company’s 5G smartphone will hit the streets in August and the testing speed of its model has reached one gigabit per second.

Xiang Ligang, Director General of the Information Consumption Alliance, said this year will only see a very small number of 5G smartphones sold, but companies are all trying to have the first-mover advantage to appeal to consumers. According to a report by market research company Counterpoint, global 5G smartphone shipments are expected to reach 108.2 million units in 2021, up an estimated 255% year-on-year.

Huawei is still struggling to be allowed to participate in the building of 5G networks in Europe. A British parliamentary committee has told the government there are “no technical grounds” for banning the use of its equipment in Britain’s 5G network. Member of Parliament Norman Lamb said a ban on Huawei’s 5G equipment “would not constitute a proportionate response to the potential security threat posed by foreign suppliers”. He added that “banning Huawei would also reduce market competition, giving network operators less leverage on equipment vendors to demand high security standards.” But U.S. President Donald Trump’s administration has warned that a failure to restrict Huawei could jeopardize the UK’s chances of cutting a favorable trade deal after Britain leaves the European Union, the China Daily reports. The UK government plans to publish a telecom supply chain review by August, clarifying whether Huawei’s equipment is to be allowed. As things stand, all four major UK operators plan to limit Huawei’s involvement to “non-core” infrastructure, such as radio access networks.

Huawei said 28 of 50 commercial contracts for 5G that it signed globally are with operators in Europe. Finland’s Nokia and Sweden’s Ericsson had secured 43 contracts and 22 contracts as of the end June, respectively. Huawei’s Chinese rival, ZTE, has publicly announced 25 commercial deals. Huawei CEO Ren Zhengfei predicted a 30% gain in global handset shipments of 270 million in 2019 despite being on the U.S. trade blacklist. Huawei’s China smartphone market share increased to 46.1% in the second quarter, according to Kantar Worlpanel ComTech.

According to a Washington Post report, Huawei is now also suspected of violating U.S. export controls to furnish equipment to North Korea to build the country’s wireless network. Separately, Agence France-Presse reported that an investigation conducted by Czech public radio found that the Czech unit of Huawei “secretly collected personal data of customers, officials and business partners”. In response to the dual reports, Huawei denied having violated any rules imposed by the EU or the United Nations.

The Shanghai Stock Exchange’s new Star Market (or Sci-Tech Innovation Board) got off to an auspicious start on July 22 with all 25 debutants soaring. The firms, spanning industries from microchips and biotechnology to artificial intelligence (AI), were greeted by an immediate buying spree as trading opened at 9.30 am. They all went on to record gains of at least 100% by the end of the morning session, but settled back slightly in the afternoon to close at least 84% higher.

Anji Microelectronics (Shanghai), a semiconductor manufacturer, saw its shares opening 287% higher than the initial public offering (IPO) price. Trading of Anji had to be suspended for 10 minutes at 10.20 am after the stock soared by 404% to CNY197.6 from its offering price of CNY39.19. By the close of trading, the shares were at CNY196.01, 400% higher than their IPO price. Harbin Xinguang Optic-Electronics Technology posted the smallest gain among the debutants, closing at CNY70.17, up 84.2% from the offer price. The early gains were huge across the board. By 10 am, trading in eight companies had to be suspended for 10 minutes after they surged 30% from their opening prices.

To curb over-speculation in the new market, the Shanghai exchange will halt trading for 10 minutes if a company’s stock jumps or falls 30% from its opening price during the first five days of trade. Another 10-minute suspension will be imposed if the rise or fall hits 60% during intraday trading. The new Nasdaq-style board underscores a profound shift in China’s securities sector. But for many retail investors who have lost years of savings on the stock market, the board also represents an opportunity to recoup some of their money.

Hailed as a milestone in the transformation of China’s capital markets, Star Market is expected to draw strong buying interest. The 25 companies that debuted are perceived as highly profitable and their shares were expected to soar. But the forecasted gains fell well short of the actual increases. Everbright Securities had forecast the 25 companies would see their shares surge 29% on average on the first day of trading. About four million qualified retail investors with no less than CNY500,000 in investment capital have registered to trade shares on the new market, compared to more than 100 million individual stock traders who buy and sell on the regular Shanghai and Shenzhen bourses, the South China Morning Post reports.

In total, the first trading day saw the creation of around CNY305 billion in new market capitalization on top of an initial market cap of around CNY225 billion. The average price-to-earnings (PE) ratio of the 25 firms was 53 times their 2018 earnings. By comparison, the PE ratios of previous IPOs on the mainstream Chinese boards were no greater than 23. Wild share price swings had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors. The Star Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44% on debut on other boards in China. In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20% in a day, double the 10% daily limit on other boards. Trade volume of the 25 firms reached CNY48.5 billion, the Shanghai Daily adds.