AddressingEconomic Chanllenges

Chen Ke

Despite facing uncertainties both athome and abroad， China has effectivelycoordinated pandemic control witheconomic and social development， andits economy is expected to recover in the second half of the year

At a July 15 press conference， Chinas National Bureau of Statistics （NBS） released data on the countrys economic performance in the first half of this year showing that Chinas gross domestic product （GDP） expanded 2.5 percent year on year to 56.26 trillion yuan （US$8.65 trillion）. GDP growth in Q2 was 29.25 trillion yuan （US$4.50 trillion）， up 0.4 percent year on year. The Chinese economy secured positive growth in Q1 and Q2 despite downward pressure.

NBS spokesperson Fu Linghui said at the press conference that in general， a slew of supportive policies have enabled the Chinese economy to overcome the impact of unexpected domestic and overseas factors. It stabilized and rebounded for positive growth in Q2， which contributed to overall economic stability. “The economic growth didnt come easily，” said Fu.

Experts said in interviews that Chinas economic growth in the first half of the year was basically within the expected range. Driven by policy incentives， some positive changes have taken place with the economic situation. The most difficult period might already be over. The Chinese economy is expected to rebound more dramatically in Q3 and Q4.

Economic Resilience in Q2

The latest data showed that the Chinese economy grew by 4.8 percent in Q1. In Q2， however， the growth rate fell to 0.4 percent. Fu said that since the beginning of this year， the international environment has become more complicated and challenging with the evolving crisis in Ukraine and sporadic outbreaks of COVID-19 around China， evenmore than what had been expected. Downward pressure on the economy increased significantly in Q2.

“The economic performancein January and February was eye-catching，”said Lian Ping， chiefeconomist with Zhixin Investment，president of Zhixin InvestmentResearch Institute， and president of the China Chief Economist Forum. “In March and April， it was obviously under pressure. In May it began torebound. Therefore， Q2 might havebeen the most difficult period of theChinese economy is resilient with great potential，”he said.

“I think investment， especially investment in infrastructure and manufacturing， is playing a key role in stabilizing the macroeconomy，” said Xu Hongcai， deputy director of economic policy at the China Association of Policy Science. Investment in manufacturing has been growing rapidly since last year， and investment in infrastructure has been rising since the beginning of this year. The Purchasing Managers Index （PMI）， for example， has been climbing continuously in the past two months， to more than 50 percent in June.

Its also noteworthy that investment in both high-tech industries and high-tech manufacturing grew by more than 20 percent in the first half of the year. The jump reflected optimization of the economic structure and manufacturing structure and evidenced investment growth momentum in relevant sectors.

Xu Hongcai agreed with Lian Ping that policy implementation put the resilience of the Chinese economy front and center. Lian suggested that in the next phase， policy should be used to promote economic growth to ensure the economy resumes its original development momentum. Xu predicted that the economy would maintain growth momentum in Q3 of more than 5 percent. Then， the growth rate in Q4 should be even higher. The average annual economic growth rate will probably exceed 4 percent.

Increasing Pressure on Foreign Trade

NBS data showed that Chinas imports and exports of goods increased 9.4 percent year on year in the first half of the year， with exports up 13.2 percent. The trade surplus in June reached a record high of US$97.9 billion.

Today， the global economy faces the risk of stagnation. According to Xu Hongcai， Germany， an established manufacturing power， has suffered from trade deficits for the first time in nearly 30 years alongside Japan， UK， and France. “However， Chinas trade surplus has expanded， demonstrating the high competitiveness of its manufacturing industry， the strength of its exports， and the resilience of its industrial chain，” said Xu. “It has also been a big contributor to the international community.”

It should be noted that Chinasimports and exports in the second half of the year may face some uncertainties. “The current weakness in imports reflects a lack of domestic demand，” said Xu. “Both the Federal Reserve and the European Central Bank will raise interest rates further in July， so Chinas exports are likely to fall. One reason for the remarkable export data in May and June was an accumulation of orders. Therefore， we should not be too optimistic about the situation for foreign trade in Q3 and Q4.”

Lian Ping cautions that conversely， interest rate hikes may affect the world economy more in Q4. The global economic slowdown is bound to lead to a decline in trade growth. “As a major exporter， China is going to face more pressure on its foreign trade in Q4 than in Q3.”

In terms of consumption， the sporadic outbreaks of the pandemic have continued to restrict peoplestravel and consumption. Data showed that total retail sales of consumer goods fell 0.7 percent year on year. The growth curve showed that the rate in the first two months of the year was 6.7 percent， negative from March to May， and bouncing back from the bottom to 3.1 percent in June.

Lian Ping sees favorable external conditions for consumption growth in the second half of the year with production and business activities resuming slowly and incentive policies rolling out. He predicts that in the second half of the year， especially in Q3， more stimulus packages will be available including consumption vouchers and incentives for automobile consumption.

“In the second half of the year， we will see more scenarios like festivals and various activities to facilitate consumption，” said Lian Ping.

“Consumption is expected to return to positive growth in Q3 and grow further in Q4.” However， Lian also admitted that it would be impossible for consumption to reach the prepandemic level because the pandemic will continue to curb consumer behavior periodically.

In the first half of this year， the floor space and volume of commercial housing sales fell by 22.2 percent and 28.9 percent， respectively. Lian believes that alongside the negative impact of the pandemic on consumption， the real estate downturn is also exerting downward pressure on the economy.

Recently， homeowners in several localities announced refusal to make mortgage payments because deliveryof their properties had been delayed， which has caused concern. The China Banking and Insurance Regulatory Commission （CBIRC） responded that it would guide financial institutions to strengthen market-based participation in risk management. All interviewed experts agreed that the phenomenon is currently local and that the risk is still controllable. However， avoiding problems doesnt solve anything. Effective measures should be taken to prevent the risk from spreading to banks and the entire financial system.

Responding to External Risk

At the press conference， Fu Linghui looked ahead to Chinas economic situation in the second half of the year. With the pandemic coming under control and incentive policies effectively implemented， the Chinese economys advantages such as its sheer size， enormous market， resilient development， reform dividends， and strong governance capacity will be leveraged. The Chinese economy is expected to continue to recover. Meanwhile， Fu also recognizes many lingering external uncertainties coupled with the triple pressure of demand contractions， supply shock， and weakening internal expectations.

Xu Hongcai predicted some challenges and risks in the second half of the year. First， inflation imported from the international community should not be taken lightly. “At present， the prices of grain， oil， natural gas， coal and other commodities are rising， with some of the factors out of our control，” said Xu.

The US just released its Consumer Price Index （CPI） for June： After rising more than 8 percent for three consecutive months， it increased 9.1 percent in June， pushing the index to the highest level in 41 years. Analysts believed that the continued high inflation rate would reinforce market expectations for the Federal Reserve to raise interest rates significantly. “Federal Reserve interest rate hikes will cause depreciation pressure on Chinese currency，” said Xu. “When the global financial system fluctuates， we have to be vigilant about imported financial risk.”

Lian Ping is also concerned that global inflation will create imported inflation for China. The Federal Reserve interest rate hikes will impact the exchange rate and capital flow of Chinese currency. The decline of world economic growth in the second half of the year will more likely have a big impact on Chinese exports.

In terms of the supply chain， both external and internal disruptions have occurred. Xu Hongcai cited examples of the Russia-Ukraine conflict and the US attempt to restructure the global supply chain， both of which have to some extent poisoned the external environment. Internally， rigid pandemic control and prevention measures in some severely affected regions have obstructed the smooth flow of the supply chain.

“We must continue to stabilize the supply chain and industrial chain because they are associated with the real economy，” said Xu， noting the recent outbound transfer of some foreign-invested enterprises from the Guangdong-Hong Kong-Macao region and the Yangtze River Delta region. “Although this is not yet a wave， we have to pay attention to the trend before it becomes one.”

Alongside the above challenges， other adverse internal factors were also mentioned by the experts. Examples included the climbing youth unemployment rate， stabilization of 160 million market entities， and more.

In response to a question on the possibility of achieving GDP growth target of 5.5 percent this year， Fu Linghui said that in the second half， with effective pandemic control and economic and social development， as well as the implementation of various stabilization policies， Chinese economy will continue to recover， running within an appropriate range.

Lian Ping once predicted that accelerated implementation of proactive fiscal policies， prudent monetary policies， and various incentive policies would ensure Chinas GDP grows by around 4.8 percent annually. With strong support from incentive policies， growth can exceed 5 percent and near or reach the target to maintain faster growth compared to other major economies.

Xu Hongcai thinks that all the necessary incentive policies are in place for economic recovery in all sectors. But maintaining consisten

Pragmatic Crypto in Singapore

By Xiao Xin

The crypto-leading city-stateof Singapore remains firmlypositioned as a digital asset hub even after the distressing fallout in the cryptocurrency worldover the past few months.

But global media has beenincreasingly noticing theregulatory tightening in the Asian crypto epicenter as a pragmatic approach tobuilding a tokenized republic.

Toughening rhetoric may havesmashed some Singaporean cryptodreams， but the citys retailers have been overwhelmingly grateful.

Broadening Crypto Purview

In a fresh sign ofgrowing publicwariness with crypto， Ravi Menon，managing director of the MonetaryAuthority of Singapore （MAS）， thecentral bank， signaled a move to broadenSingapores crypto purview while releasing the MAS annual report onJuly 19.

“The focus of crypto regulation to-date in Singapore， as well as in mostmajor jurisdictions， has been oncontaining money laundering andterrorist financing risks，”according to a transcript of his remarks published on the MAS website.

Still absent in most regulatoryregimes， according to Menon， are“consumer protection， market conduct， and reserve backing for stablecoins，” among other areas.

Regulatory strengthening isunderway in these areas. MAS willbe seeking“to consult on proposedmeasures in the next few months.”

The tightening was no surprise in the wake of a crypto tsunami that resultedin snowballing market evaporation.Many cryptocurrency outfits have beenpushed to the brink of bankruptcy.

As ofJuly 19， market capitalization of Bitcoin totaled US$446.69 billion， roughly one-third of its market caplogged in November when Bitcoinscaled to an all-time high of slightlyshort of US$69，000， according toCoinMarketCap， a price-tracking website for crypto assets.

The plunge shed nearly 70 percentof the value of the best-knowncryptocurrency， mirroring industry-wide decimation.

The gruesome tumble sinceNovember has been mostly in lockstepwith a downtrend in the tech-heavyNASDAQ exchange amid U.S.-ledmonetary tightening. NASDAQ closedat 11，713.15 points on July 19， down more than 27 percent from its all-time high of 16，212.23 on November 22.

The stinging inflation prompteddrastic tightening at the Federal Reserve， which began tapering the monthly paceof its asset purchases in November.

In addition to a faster pace oftapering， the U.S. central bank hasannounced four rate hikes so far thisyear. Most recently， the Fed opted to liftthe federal funds rate by 75 basis points（bps） in July， the first time that the Fedhas hiked rates by 75 bps twice in a row. Two previous hikes werea 50 bps decision in May and a 25 bps increase in March.

Some have theorized thatBitcoin， with a hard cap of 21million coins， should be ableto function as a hedge againstinflation. But all the data so farpaints cryptocurrency as a highly risky asset thats easily vulnerable to inflation.

The crypto meltdown becameeven more alarming for globalfinancial watchdogs fearing wider market collapse in May， whenthe TerraUSDstablecoin failed tomaintain its intended peg to theU.S. dollar.

Terras collapse broughtmany eyes to Singapore， where Terraform Labs and its affiliate Luna Foundation Guard， theentities behind TerraUSD， areincorporated.

The algorithmic stablecoinwas theoretically pegged one-to-one against the dollar， butthe stablecoin built on the Terra blockchain collapsed and hasremained de-pegged from thedollar since May 9.

The failure of TerraUSD andits paired token Luna resultedin hefty losses for Three ArrowsCapital， a fund manager firmregistered in Singapore that hasmajor holdings in the crypto space spanning Bitcoin and Luna. Three Arrows has filed for cessation inSingapore， pending regulatorysubmission， according to a noticeon the MAS website.

Embattled crypto lender Vauld， reportedly in merger talks afterhalting withdrawals， trading， and deposits in early July， is also based in Singapore.

In a matter of months， thesame factors that launchedSingapore to the forefront of the crypto world now appear to bepinning the country on its back feet.

But the crypto avant-garde，famed for its licensing andregulatory framework， was by no means caught off guard by thegrisly selloff.

During his remarks onJuly 19，Menon drew a line of demarcationbetween crypto firms widelyknown as Singapore-based andthose licensed or regulated by MAS.

TerraForm Labs and LunaFoundation Guard have nothingto do with the city-states crypto- related regulation. They haventapplied for any licensing or filedfor exemptions from holding any license.

Three Arrows had been up andrunning under the registered fund management mechanism buthad ceased to manage funds inthe country before the problemsleading to its insolvency.

The fund management firmwas not regulated under thePayment Services Act， legislationpassed in January 2019 to bringcrypto dealing and exchangeservices under MAS purview. The Act， which came into effect inJanuary 2020， was designed toenable crypto businesses fromanywhere in the world to applyfor a license to be listed on MAS regulatory roster.

Vauld did submit a licenseapplication which remains under review.

Out of almost 200 firmsseeking licensing in Singapore， only 14 have purportedly been approved for such licenses.

The harsh vetting process has smashed the dreams of somecrypto celebrities who had placed big bets on Singapore.

A representative figure was1，500Zhao Changpeng， a Chinese-Canadian business executive who founded Binance， the worlds topcryptocurrency exchange in terms of trading volume.

In August 2021， 45-year-oldZhao was ranked 22nd on Forbes Singapore 50 Richest 2021 list. Hewas ranked fifth on ForbesCrypto Rich 2021 list.

Not long after， Binance wasflagged by MAS as a memberof the Investor Alert List. Theaddition of Binance to the listof unregulated entities in earlySeptember served as a warning to investors who may have wrongly considered such entities asMAS-licensed or regulated andprecluded Binances tumble inSingapore.

In mid-December， BinanceAsia Services， the firms Singapore affiliate， revealed that itsapplication to run a regulatedexchange in Singapore had beenrevoked， essentially ending itsdrive since 2020 to win approvalin Singapore.

Its trading platformBinance.sg was scheduled to wind down operations andclose by mid-February.

The decision was arguably amonumental setback for Binance. The company had hinged majorhope on a settlement in Singapore after failing to gain accreditationfrom financial authorities incountries such as Japan， the UK，and Canada.

Zhao resided in Singaporebefore his crypto exchange largely relocated to Dubai in recentmonths.

The kick in the teethhas apparently prompteda recalibrated approach tomapping out a tokenized futurein Singapore， especially afterMASfresh avowal of broadening regulation to insulate Singapores crypto leadership vision fromhighly volatile and speculativeinvestment.

Striking Balance

While Singapore has stayedahead of the curve in buildingblockchain and cryptocurrencyprowess， especially in Asia， it has largely been on the alert to fixloopholes in the newly regulated area.

In a sign of the countrys fastrise to prominence in the cryptosphere， Singapore posted recordlevels of crypto and blockchaininvestment with 82 dealsamounting to US$1.48 billionin transactions last year， morethan 10 times the 2020 number： US$109.75 million over 26 deals，KPMG disclosed in a widely-cited February report.

In another ranking， 6 percent of crypto hedge fund managers were located in Singapore， a global third place shared with Chinas HongKong and Switzerland， accordingto an annual PwC report on global crypto hedge funds.

The U.S. topped the rankingwith 30 percent while the UK was second with 10 percent， per thereport.

Such figures evidently speak volumes about the allure ofSingapore as a crypto-favoring destination.

In contrast to the city-statesprimarily open and welcomingposture， other major jurisdictions in Asia have been moreconservative about crypto-backed trading.

Bitcoin mining and thefacilitation of crypto asset trading were entirely banned on theChinese mainland in the secondhalf of 2021 after cryptocurrencytransactions were barred in thefirst half.

In India， a bill wasintroduced that would prohibitcryptocurrencies from beingtapped as a method of payment in addition to related activities.

The availability of a vetting regime， albeit very discerningin its selection of eligiblecandidates， has remainedsufficient for Singapore tocontinue its wary expansion of offerings for crypto businesses aspiring for a foothold in theAsian promised land.

“In Singapore and in MAS， we are excited about the potentialto build a crypto or tokenizedeconomy，”said MAS chief Menonwhile addressing an IMF seminar on Money at a Crossroads in April.

That said， the Singaporeancentral bank will continue to hone its regulations to focus on majorrisks， according to Menon.

Understandably， threemonths later， Menon weighted his remarks more toward therisk side， factoring in the Maystablecoin collapse.

Investing in cryptocurrencies is highly risky， which is the keylesson Menon has recapped from the upheaval.

“This is what MAS has been warning the public about forthe past five years，”he insisted， citing the financial watchdogsrepeated admonitionsagainst retail investment incryptocurrency.

With an open but sobermind， Singapore， an avowedpractitioner of pragmatism， isstubbornly continuing efforts tostrike the right balance betweeninnovation-friendliness and risk- watchfulness. Such concerns have reverberated resoundingly acrossregulators worldwide fearful ofcrypto risk spilling over into thewider financial system.

While crypto businessesalways want regulatory easingand the media continues carefully scanning for tweaks to regulatory positioning， financial regulatorslike MAS are calculating theoptimal formulas to fit local path charting.

At a seminar scheduled forAugust to detail its position oncryptocurrencies， stablecoins，and other crypto assets， MAS“will set out how our developmentaland regulatory approaches willwork in harmony to achievethe vision of Singapore as aninnovative and responsible digital asset hub，”according to the MASchief， illustrating a risk-adjustedapproach to the contentious newera of opportunity.

cy and strengthening supervision of implementation must continue.