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Xi Jinping’s first public visit to Shanghai in three years signals a new effort to boost China’s private sector. Yet even more important, Xi’s team in Beijing chose this week’s occasion to unveil a series of reforms that are a bigger deal than might meet the eye.
The stocks of Shanghai-centered tech companies like Semiconductor Manufacturing International Corp, Hua Hong Semiconductor Ltd. and Will Semiconductor Co. rallied on the news Monday.
The visit, coupled with new policies to level playing fields and increase private companies’ access to capital, is seen by some as Xi following through on vows made in California earlier this month to make life easier for China’s beleaguered entrepreneurs.
To date, Xi’s attempts to restore investor confidence amid struggles to move past Covid-19 fallout have fallen short. More than US$1 trillion of foreign capital fled mainland share markets since Xi clamped down on Big Tech in late 2020. More recent fears about deflation haven’t helped.
In recent weeks, Xi restarted China’s stimulus machine amid calls for greater government action amid a property crisis and stalling economic recovery. In particular, the People’s Bank of China, China’s central bank, has channeled more liquidity to troubled property developers.
Analyst Zerlina Zeng at CreditSights speaks for many when she says “we expect China’s softening external stance and warming relationship with the US and other developed markets to set a more conducive geopolitical backdrop for China credit.”
But the reforms being outlined this week could be a game-changer. The PBOC and seven other government bodies have unveiled 25 steps to increase the role of the private sector.
They will apply to a broad range of private sector industries, including the ailing property market. Gavekal Research analyst Xiaoxi Zhang isn’t exaggerating when she warns that “debt strains from property developers and local government financing vehicles are spreading across China’s economy.”
There are concerns, too, that Beijing’s criminal probe into the wealth management unit of Zhongzhi Enterprise Group, one of China’s largest “shadow banks,” could soon spook Asian markets the same way China Evergrande Group’s default did in 2021.
Broader initiatives include setting clear and transparent targets for widening access to financial services for private enterprises.
With an emphasis on regular performance assessments and financial support, the plan is to increase the proportion of loans to private enterprises while improving organizational structures to increase efficiency.
Areas of particular focus include: supporting technological innovation amongst small and medium-sized enterprises, entrepreneurs in the green and low-carbon space and innovators keen to disrupt China from the ground up.
This will include a greater tolerance for risk-taking and the non-performing loans that startups can rack up. Beijing seeks to recalibrate lending and borrowing practices to increase private sector development while limiting risks.
This also includes increased support for first-time loans and unsecured loans. Financial institutions will be encouraged to develop a wider range of credit-financing products suitable for private enterprises.
Most important of all, Xi’s reform team is eying a great leap forward for China’s corporate bond market. This has long been a stumbling block for smaller, less established corporate credits. In particular, China plans to expand the range of bond financing options — and the scale — to private enterprises.
Under a series of “innovation bills” under the National Association of Financial Market Institutional Investors and China Securities Regulatory Commission, new structures will be welcomed for stock-bond hybrid products, green bonds, carbon neutrality bonds, transition bonds, infrastructure bonds and other financing tools.
Support programs will seek to incentivize private enterprises to issue asset-backed securities to restructure and revitalize existing assets. Registration mechanisms will be streamlined.
And Beijing will prod state-owned entities like China Bond Insurance Co and China Securities Finance Corporation, and even non-government institutions, to adhere to global standards and raise their credit market games.
That means building world-class systems for credit guarantees, credit risk mitigation tools, credit analysis and ratings and expanding China’s universe of bond financing support tools for private enterprises.
At long last, the Communist Party finally seems serious about facilitating increased bond investment in private enterprises. In years past, Beijing worried about a “crowding out” effect if private issuers lured capital from the national and local governments.
Now, Beijing will encourage banks, insurance companies, pension funds, public funds, and other institutional investors to allocate capital to private enterprises. Regulators will be charged with internationalizing trading mechanisms, market pricing, compliance and disclosure procedures.
Xi’s team also is stepping up efforts to develop a high-yield bond market. Few steps might be more impactful for private sector development – especially tech-oriented SMEs – than creating a dedicated high-yield debt platform empowered by world-class trading systems. It would supersize capital-raising options and pull in new generations of overseas investors.
In June, local media reported that the PBOC and CSRC sought advice from market participants on setting up a high-yield marketplace. As of then, only four high-yield debt issues with coupons exceeding 8% had priced in 2023.
Authorities sought input from fixed-income players, investment bankers, legal experts, rating companies and accountants. This would channel greater financing to tech enterprises, startups and riskier borrowers.
The key, though, is implementation. The disconnect between Xi’s rhetoric since 2012 and execution helps explain why investors tend to be skeptical of China’s past efforts to reboot the reform process.
“Time will tell whether President Xi’s words will first stem the current large foreign direct investment outflows and eventually lead to a resumption of the net FDI inflows that China has enjoyed for more than four decades,” says Nicholas Lardy, senior researcher at the Peterson Institute for International Economics. “A safe assumption is that it will take more than words to accomplish this objective.”
It helps that the news dropped days after Xi’s government drafted a list of property developers eligible for large-scale support, including the troubled Country Garden Holdings. The property crisis remains a major turnoff for overseas investors.
New data, Lardy notes, “imply that foreign firms operating in China are not only declining to reinvest their earnings but – for the first time ever – they are large net sellers of their existing investments to Chinese companies and repatriating the funds.”
The outflows in question exceeded $100 billion in the first three quarters of 2023 and, as Lardy predicts, “are likely to grow further based on trends to date.”
Among the factors Lardy cites as repelling overseas investors and chieftains: tense Sino-US tensions; recent news of Beijing cracking down on foreign consultancy and due-diligence firms vital to evaluating investments; Beijing’s increasingly stringent regulatory environment; new national security laws; and restrictions on cross-border data flows.
Michael Hart, president of the American Chamber of Commerce in China, notes that “foreign business executives here are eager to continue in China. But boards back in the US are wary.”
Hence the importance of Xi and Li ensuring that these new private enterprise policies are implemented in credible and transparent ways. The good news is that Li, party secretary for Shanghai City from 2017 to 2022, has close ties with, and deep understanding of, China’s tech sector.
Veteran banker Zhu Hexin seems a solid choice as new party chief of the State Administration of Foreign Exchange (SAFE). He will assume management of China’s foreign exchange stockpile from PBOC Governor Pan Gongsheng. Zhu also was appointed as a member of the central bank’s party committee.
Prior to SAFE, Zhu helmed state-run financial conglomerate CITIC Group, meaning he comes to the job with deep market knowledge and industry contacts. Also, Vice Premier He Lifeng has been tapped to oversee economic and financial policy and trade talks with the US and Europe as head of the Central Financial Commission.
It now falls to Li, Zhu and He to ensure that President Xi’s recent pledges to top Western chieftains in San Francisco don’t fall by the wayside.
CEOs on hand to hear Xi speak included Apple’s Tim Cook, Bridgewater Associates’ Ray Dalio, Citadel Securities’ Peng Zhao, ExxonMobil’s Darren Woods, JPMorgan Chase’s Jamie Dimon, Microsoft’s Satya Nadella, Pfizer CEO Albert Bourla and Tesla’s Elon Musk.
There, Xi claimed that “China doesn’t seek spheres of influence, and will not fight a cold war or a hot war with anyone.” Xi also seemed to preview the next phase of reform, stating that “we should remain committed to open regionalism, and steadfastly advance the building of a free trade area of the Asia-Pacific. We should make our economies more interconnected and build an open Asia-Pacific economy featuring win-win cooperation.”
Xi added that “we should promote transitions to digital, smart and green development. We should boost innovation and market application of scientific and technological advances and push forward the full integration of digital and physical economies. We should jointly improve global governance of science and technology, and build an open, fair, just and non-discriminatory environment for the development of science and technology.”
Earlier this month, Xi presided over a private sector symposium in Beijing to highlight its central role in a more innovative and productive Chinese future. There, Xi stressed that private enterprises contribute more than 60% of gross domestic product, 50% of tax revenue, 80% of urban employment, 90% of new jobs and 70% of tech innovation.
“Over the past 40 years, the private sector of the economy has become an indispensable force behind China’s development,” Xi acknowledged.
Yet private enterprise has had a rough few years, from Covid-19 to Xi’s tech crackdown. A major concern now is that China falls into a Japan-like lost decade, so-called “Japanification.”
Economist Takatoshi Ito, a former Japanese deputy vice minister of finance, notes that the Chinese property sector’s “travails echo Japan’s experience” with bad loans and deflation.
But, Ito adds, “perhaps the greatest threat to China’s economic growth and development is Xi himself. Xi has spent the last few years tightening government control over all aspects of life in the country, including the economy. The regulatory crackdown on large tech companies like Alibaba, which began in late 2020, is a case in point.”
Though regulators “have since backed off somewhat, and China’s government is actively supporting high-tech industries like electric vehicles, Xi’s obsession with control continues to pose a serious threat to China’s prospects. Not only does it hamper innovation by domestic firms; it also discourages foreign investment.”
The good news is that the private sector reforms detailed in recent days suggest Xi is serious about bold economic disruption and recalibrating growth engines away from state-owned enterprises and public investment toward private sector innovation.
As long as implementation is swift and credible, 2024 could be a markedly better year for China than many investors now pulling their investments from Asia’s largest economy expect.
Follow William Pesek on X, formerly Twitter, at @WilliamPesek
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Quantum advantage is the milestone the field of quantum computing is fervently working toward, where a quantum computer can solve problems that are beyond the reach of the most powerful non-quantum, or classical, computers.
Quantum refers to the scale of atoms and molecules where the laws of physics as we experience them break down and a different, counterintuitive set of laws apply. Quantum computers take advantage of these strange behaviors to solve problems.
There are some types of problems that are impractical for classical computers to solve, such as cracking state-of-the-art encryption algorithms. Research in recent decades has shown that quantum computers have the potential to solve some of these problems.
If a quantum computer can be built that actually does solve one of these problems, it will have demonstrated quantum advantage.
This frontier of scientific and technological innovation not only promises groundbreaking advances in computation but also represents a broader surge in quantum technology, including significant advancements in quantum cryptography and quantum sensing.
Central to quantum computing is the quantum bit, or qubit. Unlike classical bits, which can only be in states of 0 or 1, a qubit can be in any state that is some combination of 0 and 1. This state of neither just 1 or just 0 is known as a quantum superposition. With every additional qubit, the number of states that can be represented by the qubits doubles.
This property is often mistaken for the source of the power of quantum computing. Instead, it comes down to an intricate interplay of superposition, interference and entanglement.
Interference involves manipulating qubits so that their states combine constructively during computations to amplify correct solutions and destructively to suppress the wrong answers. Constructive interference is what happens when the peaks of two waves – like sound waves or ocean waves – combine to create a higher peak.
Destructive interference is what happens when a wave peak and a wave trough combine and cancel each other out. Quantum algorithms, which are few and difficult to devise, set up a sequence of interference patterns that yield the correct answer to a problem.
Entanglement establishes a uniquely quantum correlation between qubits: The state of one cannot be described independently of the others, no matter how far apart the qubits are. This is what Albert Einstein famously dismissed as “spooky action at a distance.”
Entanglement’s collective behavior, orchestrated through a quantum computer, enables computational speed-ups that are beyond the reach of classical computers.
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Quantum computing has a range of potential uses where it can outperform classical computers. In cryptography, quantum computers pose both an opportunity and a challenge. Most famously, they have the potential to decipher current encryption algorithms, such as the widely used RSA scheme.
One consequence of this is that today’s encryption protocols need to be re-engineered to be resistant to future quantum attacks. This recognition has led to the burgeoning field of post-quantum cryptography.
After a long process, the National Institute of Standards and Technology recently selected four quantum-resistant algorithms and has begun the process of readying them so that organizations around the world can use them in their encryption technology.
In addition, quantum computing can dramatically speed up quantum simulation: the ability to predict the outcome of experiments operating in the quantum realm. Famed physicist Richard Feynman envisioned this possibility more than 40 years ago.
Quantum simulation offers the potential for considerable advancements in chemistry and materials science, aiding in areas such as the intricate modeling of molecular structures for drug discovery and enabling the discovery or creation of materials with novel properties.
Another use of quantum information technology is quantum sensing: detecting and measuring physical properties like electromagnetic energy, gravity, pressure and temperature with greater sensitivity and precision than non-quantum instruments. Quantum sensing has myriad applications in fields such as environmental monitoring, geological exploration, medical imaging and surveillance.
Initiatives such as the development of a quantum internet that interconnects quantum computers are crucial steps toward bridging the quantum and classical computing worlds. This network could be secured using quantum cryptographic protocols such as quantum key distribution, which enables ultra-secure communication channels that are protected against computational attacks – including those using quantum computers.
Despite a growing application suite for quantum computing, developing new algorithms that make full use of the quantum advantage – in particular in machine learning – remains a critical area of ongoing research.
The quantum computing field faces significant hurdles in hardware and software development. Quantum computers are highly sensitive to any unintentional interactions with their environments. This leads to the phenomenon of decoherence, where qubits rapidly degrade to the 0 or 1 states of classical bits.
Building large-scale quantum computing systems capable of delivering on the promise of quantum speed-ups requires overcoming decoherence. The key is developing effective methods of suppressing and correcting quantum errors, an area my own research is focused on.
In navigating these challenges, numerous quantum hardware and software startups have emerged alongside well-established technology industry players like Google and IBM. This industry interest, combined with significant investment from governments worldwide, underscores a collective recognition of quantum technology’s transformative potential.
These initiatives foster a rich ecosystem where academia and industry collaborate, accelerating progress in the field.
Quantum computing may one day be as disruptive as the arrival of generative AI. Currently, the development of quantum computing technology is at a crucial juncture. On the one hand, the field has already shown early signs of having achieved a narrowly specialized quantum advantage.
Researchers at Google and later a team of researchers in China demonstrated quantum advantage for generating a list of random numbers with certain properties. My research team demonstrated a quantum speed-up for a random number guessing game.
On the other hand, there is a tangible risk of entering a “quantum winter,” a period of reduced investment if practical results fail to materialize in the near term.
While the technology industry is working to deliver quantum advantage in products and services in the near term, academic research remains focused on investigating the fundamental principles underpinning this new science and technology.
This ongoing basic research, fueled by enthusiastic cadres of new and bright students of the type I encounter almost every day, ensures that the field will continue to progress.
Daniel Lidar, Professor of Electrical Engineering, Chemistry, and Physics & Astronomy, University of Southern California
This article is republished from The Conversation under a Creative Commons license. Read the original article.
STOCKHOLM – The Nobel Sustainability Trust, with the support of the Instittue of Advanced Study of the Technical University of Munich, has presented medals recognizing outstanding contributions in sustainabity to John Kerry, the US Special presidential envoy for climate, and Robin Yuqun Zeng, Chairman of CATL, the world-leading battery company.
NST and TUM IAS also presented an award for outstanding research and development in the field of energy to Elena Bou of the European Institute of Innovation and Technology and an award in leadership and implementation to Nicholas Stern of the London School of Economics and Political Science. This is the first year these two awards have been presented.
The recipients of the sustainability awards were selected by an independent committee managed by the Technical University of Munich. This committee includes professors appointed by various institutes and universities from around the world. The sustainability awards will be presented annually to individuals or institutions that have facilitated significant developments in or made outstanding contributions to the implementation of sustainable solutions for communities.
In 2022, TUM became NST’s academic partner. The TUM Institute for Advanced Study is responsible for selecting the academic award winners. The awards were handed over at the Nobel Sustainability Trust summit at the Bavarian Academy of Sciences and Humanities in Munich on November 9.
Nobel Sustainability Trust Chairman Peter Nobel remarks:
It is with great joy and pride that we jointly announce, here in Munich, the awardees for the first sustainability awards in energy and leadership and the medals, presented for the second time this year, for outstanding contribution in sustainability. The future of humanity and its survival largely hinge on our abilities to use the Earth’s resources and leverage technological innovations in a sustainable manner. We believe the sustainability awards and medals will play a pivotal role and become a powerful symbol within the sustainable field. Our objective is to inspire and mobilize individuals and organizations worldwide to develop sustainable technologies in key resource areas such as energy, water, and agriculture. Such efforts require substantial intellectual engagement and financial support.
President of the Technical University of Munich Thomas Hofmann says:
TUM’s core strategy is to promote the concept of sustainability and its implementation via promising and marketable technologies. I am pleased that we at TUM are helping to push sustainability even further with the sustainability awards and to demonstrate that science and technology are the keys to sustainability.
John Kerry, a US politician, served in the Senate (1985–2013) and later was secretary of state (2013–2017) in the administration of President Barack Obama. Kerry is one of the world’s most effective climate champions. As secretary of state in 2015, he helped negotiate the Paris Agreement on climate change. In 2019 Kerry was a key figure in the creation of World War Zero, an organization dedicated to fighting climate change. In 2020 he was named special presidential envoy for climate in the administration of President Biden. Kerry has been crisscrossing the globe rallying foreign allies and adversaries to make bolder commitments to fight climate change, urging governments and industries to bring concrete plans to boost renewable energy and cut greenhouse emissions by 2030.
Robin Zeng established CATL in 1999 and built it the world’s leading company in the field of lithium-ion batteries for consumer electronics. In a new endeavor in 2011 he established CATL, a world leading power battery provider and a global leader of new energy innovative technologies. The company has made continuous breakthroughs in key technologies of EV and energy storage batteries, providing premier solutions and services for new energy applications worldwide. CATL’s global market share of power battery ranks first in the world for six consecutive years. It also ranks first in the global market share of energy storage battery production.
Elena Bou co-founded EIT InnoEnergy in 2010 and, since 2011, has served as innovation director and member of its executive board. In her position, she leads the development of major InnoEnergy efforts in creating and accelerating startups and scaleups in the energy field, including the investment process in such ventures. EIT InnoEnergy is a knowledge and innovation community supported by the European Institute of Technology, which has supported since its foundation around 450 companies in the sustainable energy field, focusing on energy storage, sustainable buildings and cities, renewable energies, smart electric grid, energy efficiency, energy for circular economy and energy for transport and mobility.
As an associate professor in the Department of Operations, Innovation, and Data Sciences at the Spanish business school Escuela Superior de Administración y Dirección de Empresas (ESADE), Elena Bou is active in researching and teaching in the field of knowledge and innovation management. She holds a PhD in management sciences from ESADE and is the author of several publications in the fields of knowledge management, collaborative innovation, and entrepreneurship.
Lord Nicholas Stern is an expert in the economics of climate change. He has been chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science since its foundation in 2008.
Over the past 20 years, he has made an outstanding contribution to international climate policy, and to promoting the transition to sustainable, inclusive, and resilient economic development and growth. His report “The Economics of Climate Change: The Stern Review,” published in 2006 and commissioned by the British Government, had a broad impact nationally and worldwide on decision-makers and business leaders.
Through his advisory role at the United Nations, the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development and the World Economic Forum he improved the understanding of the costs of inaction on global climate change.
In his research activities, Nicholas Stern focuses on the topics of economic development and growth, economic theory, tax reform, public policy and the role of the state and economies in transition. His many honorary degrees, prizes, citations and publications in the most renowned journals testify to a high level of recognition from his peers.
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