With rising domestic risks and a faltering economy, even Chinese residents in Japan avoid sending families back, calling China unsafe amid economic risks. 
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Arrival lobby of Beijing Capital International Airport (©Kyodo)

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China has lifted its visa requirement for certain short-term stays. Visitors can now stay in the country without a visa for up to 30 days. 

This author's acquaintance recently mentioned plans to travel to China over the New Year holidays to a Chinese resident in Japan. "Japanese people are so easily deceived," the Chinese person replied in disbelief. "Even we Chinese consider China too dangerous right now, and we're avoiding sending our families back."

A Schoolchildren attending Japanese schools in China was attacked by knife-wielding men in Suzhou in June and Shenzhen in September. Furthermore, a recent public opinion poll revealed that over 87% of respondents in China hold an unfavorable view of Japan.

What must not be overlooked is that even Chinese nationals living in Japan recognize the dangers in their homeland. In China, strict media control ensures that any information unfavorable to the authorities, such as protests or riots, is entirely suppressed.

Other remarks this author has heard describe how public security monitors online interactions between citizens 24/7. Chinese people never know when the police might summon them. Fearing repercussions, another Chinese individual published their modern Chinese history book in Japan rather than in China. 

This oppressive atmosphere in Chinese society has only deepened amid the economic downturn following the collapse of the real estate bubble.

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Another Blow from Trump

The second Trump administration is likely to intensify Chinese concerns. President-elect Donald Trump has proposed raising tariffs on China up to a total of 60%. The first wave, set to take effect on January 20 next year, will impose an additional 10% tariff on Chinese imports. 

China's total exports account for 19% of its GDP (2023), with exports to the US making up just 2.8%. Beijing may believe that, by circumventing direct exports to the US, it can limit the impact.

However, high tariffs would severely disrupt the Chinese economy. This is due to China's unique financial structure, which relies on foreign currency for issuing renminbi (RMB) through the People's Bank of China (PBC). China's account surplus is a key source of China's foreign currency inflows. Its trade surplus with the United States is primarily what sustains this.

China's current account surplus for the year through September stood at just under $300 billion. Meanwhile, its trade surplus with the US alone exceeded $340 billion. Trump's tariffs threaten to significantly reduce that US trade surplus. Moreover, they will also target exports rerouted through countries like Mexico and Canada, directly hitting China's overall current account surplus. 

On top of this, foreign investment and loans to China have sharply declined due to the growing risks of doing business there. As a result, the flow of foreign currency into the country has further tightened.

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A Critical Threshold

For years, the Communist Party Central Committee and the PBC have feared printing money without foreign currency reserves would lead to a loss of confidence in the RMB. Even so, the ratio of foreign currency reserves to yuan (units of RMB) issued by the PBC has dropped. Over the past decade, it has fallen from over 100% to around 60%.

The graph illustrates the trends in both the ratio and the trade surplus with the US. As the trade surplus with the US declines, the foreign currency reserve ratio also drops. The PBC appears to view the 60% level as a critical threshold, leading it to issue yuan cautiously. 

Xi Jinping's administration has been unable to pursue large-scale government bond issuance and fiscal stimulus because they would require an expansion of the money supply. Mr Trump's high tariffs will certainly not make this any easier.

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Author: Hideo Tamura

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