Let the Legislation Begin

A weekly bulletin offering news and analysis related to the Middle Kingdom.

The Lead

  1. The Two Sessions: China’s annual National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC) sessions kicked off this week. Here’s your cheat-sheet on the key happenings so far.

Work Report: Premier Li Keqiang presented his annual government work report. The document outlined economic achievements of the past five years and set out a plan for the future. Overcapacity, debt reduction, pollution, poverty alleviation, shift to high-quality growth, reform of government services and increase ease of doing business and better welfare policies were the focus of the speech.

Some key data points:

  • China’s GDP is at $13.1 trillion; 2018 growth target is 6.5%
  • Consumption contributes 58.8% to growth
  • China’s urbanisation rate is at 58.5%
  • Armed forces must be built on political loyalty; reform via technology and run as per law. PLA strength reduced by 300,000.
  • Government must push high quality development & respect “objective economic law.”
  • New growth drivers: industrial clusters, big data, AI research and application and Internet Plus model.
  • Key omissions in references to HK and Macau; were dismissed by HK Chief Executive Carrie Lam
  • Li emphasised the 1992 Consensus and reiterated that China “will never tolerate any separatist schemes or activities for Taiwan independence.”
  • He said that China will work to build a “new type of international relations,” getting “actively involved in reforming and improving global governance.”
  • Xi Jinping’s name was referred to 14 times in the speech.

Budgetary pointers: The annual budget was also presented at the NPC session. Some key pointers to note are the 8.1% increase in China’s defense spending, taking it to roughly $175 billion. This piece offers a good round-up of the arguments for the hikes and this ChinaFile piece is an excellent read for various expert perspectives. Also important to note is that the annual budget shows that China’s spending on domestic security (public security) last year was 6.1% of government spending. That translates into 1.24 trillion yuan ($196 billion), explains this WSJ piece. Lastly, China’s budget for diplomacy also received prominence this time around, with a 15.6% increase, taking it to $9.45 billion.

Constitutional amendment & Government shake-up: NPC delegates are expected to vote on the proposed constitutional amendments on Sunday. During the session, sycophancy and murmurs of dissent have both been reported. Ahead of that, the CPC put out a version of how the amendment process came to be. This NYT piece captures the entire story very well. In terms of the structural changes that are expected in government, a Bloomberg exclusive suggests that over a dozen state agencies are likely to be merged. From the merging of banking and insurance regulators to mergers of media entities and publicity regulators and even the merging of institutions dealing with HK, Macau and Taiwan. The final outcomes are likely to be announced on March 17.

  1. Sino-US ties: There were two key developments in terms of the broader US-China relationship this week that are worth noting. The first is Donald Trump pushing ahead with import tariffs (25% on steel and 10% on aluminum), while promising exemptions for Canada, Mexico and potentially other allies. Trump’s announcement of tariffs had earlier in the week resulted in sharp criticism from European and Asian allies along with the Chinese. If the trade skirmishes expand further, agriculture would be a crucial tool for Beijing to use. The second is Trump’s acceptance of the offer of face-to-face talks with North Korea’s Kim Jong Un. While Beijing will welcome talks, analysts argue that being sidelined is not something that it will find acceptable.

Other Reads:

  1. New Chinese agency could undercut other anti-corruption efforts
  2.  More on potential resource-sharing deal + concerns over debt-trap diplomacy
  3. China’s long arm reaches into American campuses + Peter Mattis’ excellent War on the Rocks piece on influence activities
  4. Angela Merkel eyes Chinese influence as her legacy challenge
  5. Tibet groups report latest self-immolation of man in protest
  6. Can China’s latest military blockbuster Operation Red Sea strike a chord with the West?
  7. Japan to invite Chinese Premier Li Keqiang for three-day visit in May

Indian Interest

Rapprochement and Tibet: Chinese foreign minister Wang Yi’s spoke about ties with India during his press conference on the sidelines of the NPC meeting. Wang’s rhetoric was that of rapprochement, building on Indian foreign secretary Vijay Gokhale’s visit to Beijing a few days ago.

Here’s a snippet: “The Chinese dragon and Indian elephant must not fight each other but dance with each other. If China and India are united, one plus one is not equal to two but eleven,” Wang said, adding that “despite some tests and difficulties, the China-India relationship continues to grow.”

This, of course, isn’t new rhetoric; similar thoughts were also expressed during Wang’s end of the year presser in December. What was new was his rather poetic dismissal of the conceptualisations of the Indo-Pacific and the Quad.

Meanwhile, New Delhi’s recent moves with regard to events to mark the 60th anniversary of the Dalai Lama’s flight to India appear to be a step towards easing bilateral tensions. The Tibetan government in exile spokesperson has downplayed the issue; Chinese media has welcomed India’s apparent shift; while the MEA has said that there is no change in India’s position on the Dalai Lama.

So is there a policy rethink on Tibet that is part of a broader strategic shift in Indian foreign policy or are all these tactical moves to arrest the slide and reset the bilateral relationship? Brookings’ Tanvi Madan takes a pragmatic and tactical view of the Indian position on Tibet, while former diplomat MK Bhadrakumar views the recent reset attempts by New Delhi as a strategic shift. This FirstPost piece by Sreemoy Talukdar also offers a good analytical take on recent events. Worth nothing also is this Dawn piece by Khurram Husain with regard to Pakistani anxieties of an Indo-China rapprochement.

Other Stories:

  1. China-US rivalry in Indo-Pacific: An excellent graphics-based report by Bloomberg
  2. India-China bilateral trade hits 85 billion
  3. China, India flex muscles over tiny Maldives + India closely monitoring situation in the Maldives and in touch with “key partners”
  4. China building helipads, other infrastructure in Doklam area: Nirmala Sitharaman + MEA says “no new developments at the face-off site and its vicinity”
  5. Nepal’s West Seti hydropower project in limbo as Chinese partner ups demands
  6. China asks Sri Lanka govt to ensure security of its nationals amid emergency
  7. China’s NewsDog app on the prowl for expansion in India

III. Belt & Road

  1. BRI debt analysis: A new study, by the Center for Global Development, released this week highlighted the debt complications emerging from China’s Belt and Road Initiative.

Key points:

  • The study estimates overall BRI investments at nearly $8 trillion.
  • Out of all listed BRI countries, the study found 23 at risk of debt distress.
  • 8 of these, however, are facing debt distress linked to BRI projects financing.
  • The 8 countries are: Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan.
  • The writers argue: “In all 8 highest risk countries, the proportion of external debt that is owed to China and its banks will rise, sometimes dramatically, under the Belt and Road Initiative.”
  • But it also acknowledges that on the whole BRI is “unlikely to cause a systemic debt problem,” although it “significantly increased (the) risk of a sovereign debt default” in a number of smaller and poorer countries.
  • The study’s primary suggestion is for China to “multilateralize” BRI by working with MDBs like the World Bank and Asian Development Bank and address specific issues in its lending practices.
  • China’s foreign ministry has rejected the report.

Other Reads:

  1. ‘No back-room deals, everything is transparent’: China defends belt and road investments
  2. Africa should avoid forfeiting sovereignty to China over loans: Tillerson
  3. Will China’s Belt and Road Initiative outdo the Marshall Plan?
  4. As Western banks leave, China adds Brunei to new silk road
  5. People of Balochistan to be real beneficiaries of CPEC: president + Over 39,000 Chinese nationals visited Pakistan since CPEC launch + First container service commences at Gwadar port under CPEC

Military Matters

  1. PLA’s image makeover: An intriguing PLA daily report this week shed light on the thinking with regard to armed forces’ public image. The article says that the “Chinese military must strive to enhance its discourse power and shape a sound international image,” calling on the PLA to “establish four images in the international community.”
  • Loyalty — to the party primarily
  • Strength — inclusive of hard and soft power
  • Openness — a display of confidence and desire to draw on others’ strengths
  • Responsibility — playing the role of a major military power

It then concludes with a rather candid admission: “the external opinion of the PLA’s image doesn’t exactly match the Chinese military’s expectation. China should act quickly to solve these problems.”

Other reads:

  1. Swifter mobilization, more drills among proposals for PLA
  2. Chinese army has right to build at Chinese-Indian border
  3. China refutes Japan’s China Security Report as irresponsible
  4. PLA wants its border troops to be multilingual
  5. U.S. general disturbed over China’s military influence in Djibouti
  6. PLA non-battle personnel downsized as part of military reform: report

Beijing’s Take

Protectionism vs Innovation: A few recent developments have renewed the focus on Chinese internet giants and their growing clout in the country.

Bloomberg reports that among the new CPPCC delegates are the country’s rising tech stars, who enjoy a close relationship with the government. China’s cyberspace is heavily fortified via the Great Firewall, which performs the dual function of censorship (not just limited to Chinese apps) and protectionism.

The report adds: “China’s tech companies have used the protection to great benefit. Alibaba and Tencent have invested billions in a new generation of startups, from ride-hailing leader Didi Chuxing to food-delivery giant Meituan Dianping. At the end of 2017, China had 124 unicorns worth a collective $615.5 billion — almost 1 in 2 of the world’s billion-dollar startups — according to the Chinese brokerage CICC.”

However, in saying so, it is also important to acknowledge that China’s tech giants are also thriving owing to innovation, as this piece argues. WeChat, for example, has just hit the 1 billion active users mark.

The Chinese government is keenly aware of the growth potential of home-grown tech giants and is reportedly planning on a new process permitting these companies to list in mainland stock exchanges via a structure called Chinese Depository Receipts.

This article first appeared on the Indian National Interest.