Eye on China World

Sea of Thorns

A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, the Asian summit season begins as the South China Sea remains a thorny issue, and there are rumbling in the Pacific.

1. Competing Visions

The Asian summit season is upon us again. The focus this year is on the East Asia and ASEAN summits in Singapore, where Premier Li Keqiang is in attendance, and then the APEC meetings in Papua New Guinea, with President Xi Jinping in attendance. Of course, US President Donald Trump has skipped the meetings, with Vice President Mike Pence leading the American delegation.

Some of the other key issues discussed during the EAS include terrorism, cyber security, nuclear issues, etc. However, what’s commanded much of the focus are the competing visions being put forward by the US and China. In Singapore, Li delivered an important speech. Here’s a snapshot of the big points he made:

  • “The international political and economic landscape has been undergoing profound adjustments.”
  • China “will strive to be a vigorous facilitator of peace and stability in East Asia, leading contributor to economic prosperity, and powerful locomotive for regional cooperation.”
  • Asia needs to uphold multilateralism and free trade; advance regional economic integration, pursue sustainable development and conduct dialogue on security issues. One of the key outcomes that the Chinese are banking on is the RCEP trade deal, which appears to have been further delayed. (More on this in Section 4.)
  • Li outlined a vision for a single draft negotiating text for the South China Sea Code of Conduct by 2019, with the final document being agreed upon in three years.

The South China Sea issue remains a thorny one, with Pence making a firm statement by passing within 50 miles of Chinese outposts in the contested Spratly Islands on his way to Singapore on Tuesday. Later in the week, he would explicitly state that the South China Sea “doesn’t belong to any one nation.” During the summit, Pence was emphatic in stating that “empire and aggression have no place in the Indo-Pacific,” adding that US commitment remains “steadfast and enduring.”

The key actors in all of this, of course, are the ASEAN states, which continue to perform a careful balancing act. For instance, Malaysia’s Mahathir doesn’t want warships in the sea, but is open to US patrolling. In contrast, Philippines’ Rodrigo Duterte believes that the US should realise that “China is already in possession” of the South China Sea. Meanwhile, Singapore’s Prime Minister Lee Hsien Loong is wary of the fact that there might come a time when ASEAN states would have to choose between the US and China.

The Quad is an important and developing component of the Indo-Pacific vision. In Singapore, diplomats from India, US, Japan and Australia met to discuss cooperation in areas such as connectivity, sustainable development, counter-terrorism, non-proliferation and maritime and cyber security. According to the Indian MEA’s statement after the meeting, all sides “reaffirmed the ASEAN centrality as the cornerstone of a free, open and inclusive Indo-Pacific, and “agreed to partner with other countries and forums in the region to promote a free, open, rules-based and inclusive order in the Indo-Pacific that fosters trust and confidence. They committed to strengthening connectivity and quality infrastructure based on sovereignty, equality and territorial integrity of all nations, as well as transparency, economic viability and financial responsibility.”

2. Xi in Papua New Guinea

Papua New Guinea’s capital Port Moresby is buzzing with diplomatic activity, as APEC leaders arrive for their annual summit. President Xi Jinping landed on Thursday for a state visit to the island nation ahead of the APEC meetings. Apart from that, Xi is also scheduled to meet with leaders of eight Pacific island countries which have diplomatic ties with China, reports Xinhua. These AFP and Bloomberg reports capture the pageantry around Xi’s visit to the country, adding that Xi is expected to open a new road in Port Moresby. It also says that the total trade between China and the Pacific islands reached $7.25 billion in 2017, plus another $3 billion in investment, according to official data from Beijing. Prior to landing in PNG, a signed editorial by Xi was published in the local press. In the article, Xi emphasized that PNG is “China’s largest trading partner in the region, while China is the biggest foreign investor and project contractor in this country.” He further added that “relations between China and Pacific island countries are now better than ever.”

But there are important caveats to keep in mind, as this AP report points out. First, key high-profile Chinese projects in PNG, such as a promised fish cannery which hasn’t materialised, have run into problems. Also two Chinese state companies working in the country were until recently blacklisted from World Bank-financed projects because of fraud or corruption. Second, for the numbers touted by Beijing, its economic clout is dwarfed by ExxonMobil’s $19 billion natural gas extraction and processing facility in PNG. Third, Australia commands significant influence in the region, being the largest donor of conventional aid to PNG. Earlier this month, Australian Prime Minister Scott Morrison announced a $1.46 billion infrastructure fund for the region, stating: “This is our patch. This is our part of the world.” Following that announcement, Australian Foreign Minister Marise Payne met with her Chinese counterpart Wang Yi. Payne says that after the talks in Beijing Australia and China had agreed to work more closely on bilateral, regional and global issues and had agreed on a “respectful relationship.”

Another key aspect of China’s Pacific Islands diplomacy is Taiwan. Six of the 16 Pacific island states still have diplomatic relations with Taiwan. These are Kiribati, the Marshall Islands, Nauru, Palau, the Solomon Islands and Tuvalu.

3. Trade Talks Resume

Reuters reports that China has sent a written response to the US to address its demands for reforms as part of the ongoing trade war. The details of the Chinese proposal are unclear, but Bloomberg reports, citing unidentified sources, that the “commitments for now fall short of the type of major structural reforms that President Donald Trump has been demanding.” The report adds:

Most of the document appeared to be a rehash of previous changes already made by Beijing, such as raising equity caps on foreign investment in certain industries, according to one person. It did not contain the sort of commitment to change industrial policies such as Xi’s “Made in China 2025” that Washington has been seeking, according to one person familiar with the discussions.

CNN reports that China’s offer “falls short of many of the core demands the White House has repeatedly detailed as must-haves in trade talks with Beijing, including addressing technology transfers and intellectual property theft.” This is significant given the recent report by the US-China Economic and Security Review Commission, which warns that China’s technology-manufacturing strength threatens U.S. national security.

Meanwhile, WSJ reports that talks between Vice Premier Liu He and Treasury Secretary Steven Mnuchin have resumed ahead of the anticipated Trump-Xi meeting in Argentina. China’s Commerce Ministry has also confirmed that high-level talks have resumed between the two sides, with working groups on both sides keeping in close contact. However, there are few expectations of the Trump-Xi meeting achieving a breakthrough to end the trade war. Reuters quotes an unidentified US official as saying that “a best-case scenario could be that the two leaders agreed to keep talking and declare the issue is moving in a better direction.”

4. Compete Without Conflict

Indian Defense Minister Nirmala Sitharaman offered insight into the Modi government’s approach towards China this week. Speaking in Guwahati, she said that “we need to compete but it should never end up in conflict.” She added: “Today, we both cannot deny each other’s significance and dominance, especially in Asia and Southeast Asia. The need of the hour is to cooperate with each other, resolve all issues through dialogue and progress together as because of us both the 21st century is regarded as the Age of Asia.” Former Foreign Secretary S Jaishankar, meanwhile, believes that India and China must not allow outside powers to “play them off” against each other. He, however, believes that the onus is on China to assure “everybody on its street” that it poses no threat to the current world order.

As part of that effort to maintain cooperation, Indian and Chinese officials held the ninth Annual Defence and Security Dialogue this week. The talks in Beijing were headed by Defence Secretary Sanjay Mitra and Deputy Chief of Joint Staff Department of Central Military Commission Shao Yuanming. Mitra was accompanied by senior officials of the Ministry of Defence and Indian Army, Navy and Air Forces, according to the Indian embassy in Beijing. The statement added that “both sides agreed to enhance exchanges and interactions through reciprocal high-level visits between the two Ministries of Defence as well as between military commands, Joint training exercises, mutual visits by defence personnel…” The two states will also be holding the 21st round of border talks between the Special Representatives in Dujiangyan on November 23-24.

Another key area of cooperation is trade and investments. For instance, ICBC has reportedly set up a $200 million fund for investing in the promising Indian micro, small and medium enterprises and ventures. India’s Commerce Ministry says that Chinese venture capital funds are likely to invest around $30 million in eight Indian start-ups, after the 2nd Startup India Investment Seminar in Beijing this week. Some of the sectors in which these investments are likely are internet-based businesses, artificial intelligence, big data, robotics and automation, fintech, health, environment, e-learning, agri-tech, consumer goods and entertainment.

But trade is also a tricky component of the bilateral relationship, particularly when it comes to deals like the RCEP. While Indian Commerce Minister Suresh Prabhu recently stated that “the future lies in RCEP.” This is a complicated deal for india, with opinions divided and political imperatives playing a role. During Modi’s visit to Singapore, Prime Minister Lee Hsien Loong called on India to back the conclusion of the RCEP by next year. Modi, for his part, has stated that India is committed to the early conclusion of a “high-quality, comprehensive and balanced regional economic partnership agreement.” One aspect of a balanced deal involves a deal on services, which account for about 55% of India’s GDP. The other is worries over the influx of Chinese manufacturing goods and access to non-FTA partners like Australia and New Zealand. Finally, there is a domestic political component to this, with Nikkei Asian Review reporting that Indian officials desired delaying an announcement on the RCEP deal until after the 2019 general elections.

Here are two competing Indian views on the RCEP:

Anniversary Exhibition

China is marking the 40th anniversary of the beginning of the Reform and Opening Up era. This week a massive exhibition opened at the National Museum of China in Beijing. The displays there offer a glimpse at the political wrangling underway in Beijing along with the economic vision of the Xi administration. For instance, SCMP reports that the exhibition “devotes half of a display about Chinese leaders to the achievements of Xi, who took office in 2012 yet receives more emphasis than former paramount leader Deng – under whom China began its economic transformation in 1978 – and his successors.”

The report further adds: “The economic contribution of the private sector – which accounted for nearly two-thirds of the country’s growth and nearly 90 percent of its new urban jobs in 2017 – was acknowledged at the show, but the number of displays about private firms was dwarfed by that for state-owned enterprises (SOEs).” View this in conjunction with the fact that Chinese “nonstate companies have lost at least $992 billion in market value since mid-June, according to data compiled by Bloomberg and WisdomTree Investments Inc…Local corporate borrowers, almost all of them privately owned, defaulted on a record $6.6 billion of debt in the third quarter. At least 57 non-state businesses have accepted government bailouts in 2018.”

In addition to the exhibition, commemorating the anniversary of the reform era, Xi chaired the fifth meeting of central committee for deepening overall reform. Xinhua reports that a range of documents were signed off at the meeting, with the opening up of Hainan taking centerstage. Finally, earlier this week, Xi held a closed-door meeting with top officials and more than 200 business and political leaders from Hong Kong and Macau, lauding the regions for their role in China’s reform. He said that the “one country, two systems” policy was Hong Kong and Macau’s “greatest advantage.”

6. Letters on Xinjiang

Reuters reports that 15 Western ambassadors in Beijing, spearheaded by Canada, have written a letter to Chen Quanguo, the Party Secretary of Xinjiang, seeking a meeting. It’s unclear if the letter has been sent already, with an unnamed official quoted in the report saying that it was being passed around for more countries to potentially sign. Meanwhile, NYT reports that six UN officials and rights experts have sent a letter to the Chinese government this week, criticizing regulations that justify the internment camps in Xinjiang as a violation of international law, amounting to criminalizing the legitimate exercise of basic rights.

Responding to the reports of the letter by Western diplomats, China’s foreign ministry said: “We welcome well-intentioned attempts to understand the situation. Xinjiang is an open region. But we will firmly oppose ill-intentioned and biased attempts to interfere in the affairs of our local governments, or rashly criticize China over its internal affairs.”

On Thursday, then, State Council Information ­Office issued a document titled “Cultural protection and development in Xinjiang.” The document doesn’t discuss the re-education centers. Rather it stresses on efforts at protecting local language, culture and religion. In addition, it talks about the multiple ethnic groups of Xinjiang, which it claims “influence, assimilate and integrate with each other.” This SCMP report on the document quotes Michael Clark, a Xinjiang expert at the Australian National University in Canberra, as saying that this “narrative was consistent with Beijing’s ‘long-standing attempts to justify and to dilute the cultural history of the Uygur as the predominant ethnic group in the region’.”

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About the author

Manoj Kewalramani

Manoj Kewalramani is a multimedia journalist based in New Delhi. Over the past 11 years, he has worked with prominent news networks in India and China. His news and editorial work includes field reporting, commissioning and managing assignments and producing shows and documentaries along with formulating and executing digital news strategies. Manoj is an alumnus of Takshashila’s Graduate Certificate in Public Policy. At Takshashila, he curates a weekly brief, Eye on China, which tracks developments in China from an Indian perspective.