A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, the US tries to spin the Trump-Kim talks, Xi stresses the ‘Shanghai Spirit’, and the Chinese engine of growth stutters.
1. The Trump-Kim Summit
US Secretary of State Mike Pompeo visited Beijing on Thursday to discuss the outcomes of the June 12 summit between US President Donald Trump and DPRK leader Kim Jong Un. This was Pompeo’s first visit to Beijing since taking charge at the State Department. He met with Foreign Minister Wang Yi, Foreign Affairs Commission Director Yang Jiechi and President Xi Jinping.
Addressing a joint presser with Wang, Pompeo said Beijing had “acknowledged that it is important that the sanctions regime that is in place today remain in place until such time as that denuclearization is in fact complete.” It’s unclear if the Chinese side agrees with that formulation. None of the Chinese media reports have echoed such a line and the Chinese foreign ministry’s view has been that “sanctions per se are not the end.”
Prior to landing in Beijing, Pompeo met with his South Korean and Japanese counterparts in Seoul. There too, he said that there would be no sanctions relief for North Korea before “complete, verifiable and irreversible” denuclearisation takes place.
That, however, is not the language of the Trump-Kim agreement signed in Singapore this week. And neither does it appear to be the understanding in Pyongyang. Pompeo’s change of tone comes as the Trump administration has had a tough time defending the agreement at home, with US media reports suggesting that China has emerged as the winner from the Singapore summit.
Undoubtedly, Beijing appears to be rather pleased with the events that transpired in Singapore. (Here’s my take on how China has gained from the Trump-Kim summit.) The Foreign Ministry in Beijing describes the Trump-Kim meeting as being “momentous” and having “positive significance in history.” Another indication of Beijing’s delight is this Global Times editorial, which seeks to defend the US administration from media critics at home. What a world we live in!
Also as an aside, the North Korean side has published a 42-minute video documenting Kim’s Singapore visit. Watch it not just just to understand the propaganda value of the summit for Kim but also for the unintentionally hilarious YouTube auto-translations.
2. A PR Coup at SCO
Members of the Shanghai Cooperation Organisation met in Qingdao over the weekend for the group’s 18th summit. This was the first summit meeting with India and Pakistan having joined as full members. Xi rolled out the red carpet with a grand banquet and fireworks display.
He stressed on the importance of the “Shanghai Spirit,” which as per state media refers to a set of values including mutual trust, mutual benefit, equality, consultation, respect for diversity of civilizations and pursuit of common development. He also announced a 30-billion-yuan ($4.7 billion) special lending facility within the framework of the Inter-Bank Consortium of the SCO.
The outcome document, the Qingdao Declaration, from the event talks about member states agreeing on a number of issues, including combating terrorism, supporting the Iran nuclear deal, consolidating and developing the multilateral trade mechanism and building an open trading system and mediation in the context conflicts in Afghanistan, Syria, the Middle East and the Korean Peninsula in accordance with international law. There is also a reference to the Belt and Road Initiative. (I’ll be elaborating on that below.)
Xi also held multiple bilateral meetings over the course of the weekend, including with Afghan President Ashraf Ghani and Iran’s Hassan Rouhani. Chief among these was with Russian President Vladimir Putin, upon whom he conferred China’s first ever Friendship Medal. The two countries issued a detailed joint statement indicating deeper security cooperation. They also signed a raft of deals, including nuclear cooperation projects totalling $3.13 billion and a $1 billion industrial investment fund, SCMP reports.
From a Chinese perspective, the SCO summit being held at the same time as the contentious G7 meeting in Canada offered the perfect PR coup. The People’s Daily seized on the opportunity, terming the G7 disarray and SCO camaraderie as examples of the contrasting approaches of the “pursuit of common development” vs “unilateralism.”
3. Modi in Qingdao
Xi also met with Indian Prime Minister Narendra Modi in Qingdao. Prior to the meeting, India’s ambassador to China Gautam Bambawale spoke to China Daily, discussing India’s view of its role in the SCO. Two specific deals emerged from the Modi-Xi conversation, the first focussed on expanding Indian rice exports to China, including non-basmati rice. The second was on the sharing of hydrological data regarding the Brahmaputra. Alas, The Print reports that satellite imagery indicates the presence of a new dam along the river within Chinese territory, which is potentially diverting water. Modi also invited Xi for a reciprocal “informal summit” in India next year.
There was also talk of setting a new bilateral trade target of $100 billion by 2020. The $100 billion target was earlier set for 2015. Unlike the last time, the target now could become more viable with the opening of the Chinese market for Indian pharma goods. In this context, Press Trust of India reports that China has agreed to conduct specific training programmes for India pharmaceutical companies to understand their regulatory system. Also, Reuters reports that Indian cotton exporters have already signed advance contracts to ship 500,000 bales (85,000 tonnes) of their new season harvest to China. Discussions have also reportedly progressed on India and China joining hands to set up an “oil buyers club” in order to strengthen their hand in negotiations with OPEC, although this isn’t the first time that such a project has been discussed.
During the Qingdao summit, Modi spoke about India’s conceptualisation of security, coining a new acronym SECURE. He also discussed connectivity as a goal, adding that India supports “new connectivity projects that are inclusive, sustainable, transparent and those that respect sovereignty and territorial integrity of nations.” This is in line with India’s earlier stated position. Therefore, the Qingdao Declaration mentions support for BRI mentioning the names of all member states, excluding India. This was also the formulation used in the press release issued after the SCO foreign ministers’ meeting in April. However, there was confusion with regard to the language of this clause in the English version of the Qingdao Declaration that was uploaded on the SCO website. The document was later withdrawn from the website.
India and China also discussed the joint project in Afghanistan that was first brought up during the Xi-Modi meeting in Wuhan in April. Foreign Secretary Vijay Gokhale said that the two countries are now moving forward in identifying a specific project initially in the area of capacity building.
Another interesting aspect to note is a change in New Delhi’s tone on terrorism at SCO. This Hindu article quotes an unidentified Indian official as saying: “Pakistan is not the only country responsible for terrorism.” When pressed further in the context of the September 2017 BRICS declaration, which had named Pakistan-based terror groups, the official is quoted as saying “the SCO format was very different from BRICS, of which India was a founding member.” In the Chinese press, there has been focus on how the SCO could help improve Sino-Indian and Indo-Pak ties. Foreign Minister Wang Yi also believes the organisation could act as a “great vehicle” to improve the India-Pakistan relationship. Reports in the Pakistani press indicate the Islamabad is “thrilled” at the prospect of China playing a role in the India-Pakistan dynamic.
4. Angst and Acquiescence
There’s anger on the streets in Vietnam with regard to the country’s proposed new SEZ policy. The plan calls for setting up three new SEZs, allowing 99-year-lease options. SCMP reports that at least 100 people have been arrested so for, but many are still joining the protests, which have turned violent on occasion. The protests began on Saturday at Taiwanese-owned shoe factory in Ho Chi Minh City and have spread to a number of cities. Voting on the new law has been put off for now, the BBC reports.
Although the government hasn’t specified who would be investing in the new SEZs, the public anger is primarily targeted at China. An example is this quote: “The links between the Vietnamese and Chinese authorities are becoming more and more conspicuous each day, and make citizens frustrated and angry,” said Do Thi Minh Hanh, president of the Viet Labour Movement, a labour rights organisation.
The Chinese embassy in Hanoi, meanwhile, has issued a warning for Chinese citizens in the Vietnam, while Chinese travel agencies are also altering routes for tourist groups in order to ensure safety. Also interesting to note is this Global Times piece, which defends the policy of 99-year leases, terms the protests a “proxy conflict” fanned by “outside forces” and claims that weak network management and poor technical capabilities have allowed radicals to leverage social media to instigate nationalistic sentiments. The underlying message is that Vietnamese communists must learn from their Chinese counterparts, something that seems to be happening via the country’s new and contested cyber law.
Across the shores in the Philippines, the Rodrigo Duterte administration doesn’t seem to be walking the momentary tough talk it had put out. Over the past week or so, GMA news put out cellphone videos showing members of the Chinese coast guard harassing Filipino fisherman near the Scarborough Shoal, taking their catch. The footage is said to have been shot in May. The frustration of the fishermen is evident, with one of them screaming “Are we slaves of China?” All of this is leading to a public outcry, with Duterte being heckled during his televised Independence Day speech.
The Philippines government initially said that such actions were unacceptable but didn’t amount to “harassment.” It also said that it had raised this issue with the Chinese side. Presidential spokesperson Harry Roque also paraded Filipino fisherman on television in order to defend the government’s policy with regard to China. Foreign Secretary Alan Peter Cayetano, meanwhile, claimed that it is possible that the fishermen were bartering their best catch at sea.
Beijing, meanwhile, has leveraged to situation to assert its position. China’s ambassador to the Philippines, Zhao Jianhua, says that if the facts of the incident are proven, the individuals in question “will be disciplined in accordance with our own regulation.” Meanwhile, China’s foreign ministry says that while the incident will be examined, it must be noted that “China has made appropriate arrangement for the Philippine fishermen to fish in relevant waters out of goodwill.”
5. The Engine Stutters
Data released by China’s National Bureau of Statistics show that the Chinese economy slowed down significantly in May. For the year so far, fixed-asset investment – a metric for infrastructure investment – increased by 6.1% year-on-year. This is the slowest rise of any period since records began in 1998. Industrial production also slowed to a 22-year low, growing by 6.8% the year to May. Retail sales also fell from almost 10% growth in April to 8.5% in May, its slowest pace in around 15 years.
Caixin reports that the “slowdown in infrastructure investment comes as the central government has tightened control over public-private partnership projects, which were designed to attract private capital to fund construction projects like roads, bridges and hospitals to take financial pressure off local authorities. Beijing’s crackdown on lenders’ off-balance-sheet activities such as shadow banking and wealth management products has also limited local government financing vehicles’ access to debt.”
Reuters reports that loans extended by Chinese banks in May also fell month-on-month to 1.15 trillion yuan from April’s 1.18 trillion yuan. But one shouldn’t read much into that at the moment. Already in the first five months of this year, Chinese banks have lent 7.19 trillion yuan. A record 13.53 trillion yuan in new loans were issued last year. So the 2018 number is on track for a new record for now, despite the minor May blip. But what should be of concern is the change in the loan–to-deposit ratio, as this Christopher Balding piece in Bloomberg argues. The figure has steadily climbed from 65.8% in June 2015 to 71.2% at the end of March. Last year, new loans amounted to 100.1% of new deposits. Through the first five months of this year, they were running at 104%.
6. ‘China Could be a Little Bit Upset’
On his way back from Singapore, US President Donald Trump turned his attention to the trade war with China. In an interview with Fox News while on board Air Force One, Trump said that “China could be a little bit upset about trade because we are very strongly clamping down on trade.” On Thursday, Trump met key trade advisors to discuss the imposition of tariffs on Chinese imports. Bloomberg reports that following the meeting, Trump has decided to impose tariffs on about $50 billion in Chinese imports.
An updated list of goods to be targeted is expected later on Friday. The White House has said the duties will be implemented “shortly” after the release of the list, though no date has been set. From a timeline point of view, it is important to note that any additions to the list of 1300 goods published in April will imply a new period of time to be allocated for public comment, which would delay the date of imposition of tariffs.
So far, there have been three rounds of talks between the two sides to avert a trade war. After the last round, the Chinese side said that it will expand imports and address certain IP issues, adding that if the US imposes sanctions or tariffs all economic and trade outcomes of the talks will not take effect. This was reiterated on Thursday.
Moreover, there has been no deal regarding emerging sectors identified in the Made in China 2025 plan. In fact, this week China’s top planner, the NDRC announced that it is partnering with China Construction Bank to start a $47 billion fund to invest in up and coming industries including new materials, biotechnology and new-energy vehicles. China aims to expand the contribution of emerging industries to its economy from 8% in 2015 to 15% by 2020.
Meanwhile, Trump’s ZTE deal is facing stiff resistance in Congress, sending the company’s shares in a downward spiral. Also the new building for the American Institute in Taiwan was opened this week. AIT is the de-facto US embassy in Taiwan, and as expected, there was an angry reaction from Beijing. However, it must be noted that the US did not send a cabinet-level functionary at the opening.
7. Debt Tales
Thongloun Sisoulith, the Prime Minister of Laos, is not concerned about debt issues when it comes to Chinese investment. This is the case despite the fact that the Chinese high-speed railway project in Laos costs $5.8 billion, nearly half the value of the country’s GDP.
Unlike Sisoulith, the new Malaysian Prime Minister, Mahathir Mohammed, is very concerned about Chinese debt. Mahathir traveled to Japan this week – his first foreign visit since the election. He met with his Japanese counterpart Shinzo Abe and requested for yen-denominated loans to help Kuala Lumpur deal with its debt burden. Nikkei reports that as per the Malaysian government, the country’s debt has ballooned to $272 billion, nearly 80% of GDP, substantially higher than the 50.8% claimed by the previous government of Najib Razak, which was seen as close to Beijing. Mahathir is also quoted as saying that it was important to keep the South China Sea free for navigation for all countries.
Discussing China specifically, Mahathir called for countries in the region to work as a group to deal with China, adding that he wants to be friendly and not indebted to Beijing. Abe and Mahathir are said to have also discussed the possibility of cooperation in railways. That, at the moment, is emerging as a prickly issue in ties between Malaysia and China, given that Mahathir has put on hold the high-speed railway project with China approved by the previous government.
Malaysia isn’t the only country where Chinese infrastructure projects have come under the spotlight this week. China’s state-owned China Merchants Port Holdings is reportedly locked in difficult talks with Sri Lanka Ports Authority over the use of facilities at Hambantota. The Chinese firm wants to use a man-made island there for entertainment purposes. The Sri Lankan side is objecting to that. This has resulted in the final tranche of $585 million being withheld. Also in Sri Lanka, the new Mattala International airport is now officially deserted, with Flydubai – the only remaining airline using the facilities – pulling out. AFP reports that the airport, which cost an initial $210 million and employs some 550 workers, has failed to generate enough business to pay staff, let alone make a profit.
- China and Japan open hotline to prevent military clash
- BRI projects to figure high during Nepal PM Oli’s China visit
- Coal-rich Chinese city fails to pay civil servants as Xi Jinping’s reforms hit hard
- China puts missiles back on contested South China Sea island
- Breaking the grip of Western newswires
- ‘CPEC is not a gift’: Professor Jia Yu at the CPEC 2018 Summit
- EU must resist Chinese attempts to divide it: Maas
- China’s ‘Magic Island Maker’ completes sea trials
- China to launch broader environmental inspections this month
- Chinese truck drivers, activists warn of more protests over fuel, fines and cutthroat rates
- PLA told to end all commercial ventures by year-end