The number of babies born in China last year was the smallest in six decades. It looks like there will be even fewer this year.

That forecast, based on statistics for the first half, was made by officials this week as they unveiled a slew of new initiatives aimed at encouraging the country to have more children. While many crucial details have yet to be released, the breadth of the measures shows how serious Beijing believes its
demographic troubles to be.

No Baby Boom

Number of births in China in 2020 fell to lowest since 1961

Source: National Bureau of Statistics, data compiled by demographer He Yafu

Based on current trends, Bloomberg Economics estimates that China’s population could begin to shrink before 2025, creating substantial headwinds for future economic growth. Indeed, if fertility stays low, the country’s working-age population could decline by
more than 260 million over the coming three decades.

Among the actions promised this week to tackle that looming threat are an effort to
reduce childcare costs by making such expenses tax deductible. Authorities also pledged a crackdown on workplace
discrimination against women, a long-running issue that’s suppressed births.

Policy makers are also getting rid of all penalties associated with violating China’s
family-planning rules. So even though Beijing officially still limits families to three children, authorities will no longer punish anyone for having four or more.

And finally, to show they mean business, the authorities set a goal of increasing the country’s birth rate by 2025. With that target in place, China’s leaders will find it very hard to back down. They’re much more likely instead to progressively intensify the measures deployed until China can spark a baby boom.

U.S.-China Talks

U.S. Deputy Secretary of State Wendy Sherman will be traveling to the Chinese port city of Tianjin this weekend
to meet with Chinese officials including Foreign Minister Wang Yi. Those meetings, the most senior face-to-face discussions in many months, almost didn’t happen.

The Financial Times reported earlier this week that America’s second-highest ranking diplomat had suspended her travel plans after Beijing offered only a meeting with a deputy foreign minister. As late as Wednesday morning, when asked by reporters in Tokyo if she would visit China during her Asia trip, Sherman would only say that she had no updates to provide. It wasn’t until late that evening that the U.S. confirmed Sherman would be meeting Chinese officials in Tianjin on July 25 and 26.

It seems that compromise is possible. That’s good news, especially with ties between the world’s foremost powers seeming to degrade by the week. Most recently, America formally laid 
blame for the Microsoft Exchange hack on China — that’s on top of
long-running tensions over Taiwan, Hong Kong and Xinjiang.

The gathering of G-20 leaders at the end of October in Italy could be an ideal occasion for a meeting between Presidents Joe Biden and Xi Jinping. With Sherman on her way to Tianjin, it seems 
such a confab remains a very real possibility.

Evergrande’s Troubles

When Hui Ka Yan, the founder of China Evergrande Group, met with Chinese regulators a few weeks ago, they urged him to solve his company’s debt woes
as quickly as possible. Acting fast has indeed become paramount. As the events of this week showed, time is not on Evergrande’s side.

It began on Monday, when Evergrande’s shares plunged 16% after a Chinese court
froze 132 million yuan of its bank deposits at the behest of one of its creditors. China Guangfa Bank had asked Evergrande for an early repayment of a loan, and then asked the court to freeze the money when the developer refused. It was not long afterward that Evergrande agreed to repay the loan.

In another example of escalating troubles, it was revealed on Wednesday that four of Hong Kong’s top banks have 
stopped providing mortgages for those wanting to buy unfinished apartments at Evergrande’s Hong Kong projects. The unusual move underscored how quickly and dramatically perceptions about
Evergrande have deteriorated.

The company, of course, is also trying to shore up its finances. For example, it has started exploring potential public listings for both its
tourism assets and 
bottled-water unit. The questions, however, will be
how quickly it can get those deals done.

Evergrande Listing Candidates

Source: Bloomberg, company filings

Virus Origins

China this week gave its most full-throated response yet to American-led calls for a more in-depth World Health Organization investigation into whether the coronavirus might have escaped from a Wuhan laboratory. In short,
Beijing’s position appears to be that WHO experts will not be allowed into the country if their mandate includes exploring the possibility of a lab leak.

A group of top Chinese science officials argued Thursday that the pathogen
most likely arose in an animal, which transmitted it to humans via an intermediate host. That was the conclusion drawn by an earlier WHO investigation into the virus’s origins, which also concluded that it was highly unlikely it came from a lab.

In the U.S., there has been much suspicion of those findings. It was why Biden in May ordered American intelligence agencies to redouble efforts at investigating where the virus came from. If those agencies come back with an assessment that suggests a lab leak to be more likely than previously thought, the origins of Covid-19 could quickly become the most explosive issue between the U.S. and China.

Extreme Weather

Over a three-day period this week, the city of Zhengzhou, capital of Henan province, got as much rain as it would normally get in a year. The resulting
floods have killed dozens and caused more than 1 billion yuan of damage. Video captured by passengers inside a submerged subway system, where 12 died, along with scenes of automobiles being washed away by raging torrents and children trapped in thick mud have left the country stunned.

While Beijing’s attention has been rightly focused on the immediate rescue and relief efforts, the unprecedented downpour will bring more attention to the threat China faces from climate change. Indeed, this summer has seen extreme weather conditions around the world, be it flooding in Germany or wildfires in America. The province of Henan was actually suffering through an unusually
severe heatwave just before the torrential rains this week.

Whether this experience results in Beijing becoming
more aggressive in its climate initiatives, however, is far from certain.

What We’re Reading

And finally, a few other things that caught our attention:

 

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