A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, Xi and Kim cosy up, China fights back in the trade war with the USA, and the Chinese ambassador lays out a road map for relations with India.
1. Kim Visits Again
North Korea’s Kim Jong Un made his third visit to China in the past 100 days this week. The visit punctures the narrative that Beijing feels threatened by the developing Trump-Kim dynamic.
Xinhua put out two reports on the visit and talks between Kim and Chinese President Xi Jinping. One of them details Beijing’s approval of the outcomes of the June 12 Singapore summit. The other talks about the bilateral relationship, highlighting Xi’s offer of deep “affectionate care and support for the DPRK people.”
On the nuclear issue, Xinhua says that the two leaders had a “candid…exchange of views” on the situation on the Korean Peninsula. Xi reportedly told Kim that “China speaks highly of the summit.” And why would that not be the case, given that reports suggest it was Xi who urged Kim to ask Trump to end military drills with South Korea? KCNA, meanwhile, reported that Kim promised Xi that he’d cooperate with Chinese officials to secure “true peace” in the process of “opening a new future” on the Korean peninsula. The Korean Central News Agency also said that the two leaders had decided to boost “strategic and tactical” cooperation.
Interestingly, Chinese state media also informs us that the conversation between the two sides involved economic issues. For instance, Xi spoke about the 40th anniversary of China’s reform and opening up, adding: “We are happy to see that the DPRK made a major decision to shift the focus to economic construction, and the development of the DPRK’s socialist cause has entered a new stage in history.” This is significant. China is already North Korea’s biggest economic partner and now it could offer a developmental model for Kim to follow.
2. Game of Chicken
After last week’s announcement of tit-for-tat tariffs on goods worth $50 billion imported from China, Beijing was quick to announce reciprocal duties. In response, Donald Trump upped the ante, promising additional tariffs on goods worth $200 billion in case China imposes its announced tariffs on July 6. The White House also released a new report on China’s “economic aggression” focussed on its industrial policy and intellectual property issues.
Citing silence from Treasury chief Steven Mnuchin, Bloomberg reports that not everyone in the administration is on board with the president’s approach. The US administration, meanwhile, is also expected to release details of new restrictions on Chinese investments in American companies. These restrictions are likely to target companies in the high-tech sector, such as robotics, aerospace, artificial intelligence, etc.
Chinese State media has been sharply critical of Trump. The People’s Daily termed his administration “rude,” “unreasonable” and “selfish,” while Xinhua remarked that “the wise build bridges and the foolish build walls.” This NYT piece captures the strong state media reaction across the board.
The Chinese government’s reaction to these threats, particularly potential tariffs on goods worth $200 billion, has been to indicate a substantial shift in its position. The Ministry of Commerce said that if the Trump administration goes ahead with the new tariffs, “China will have no choice but to take comprehensive measures combining quantitative and qualitative ones to resolutely strike back.”
This is significantly different from the reciprocal response posture and implies that Beijing will adopt a broad range of actions to fight back if a trade war escalates. One example of what such action could be is the cancellation of China Energy Investment Corporation executives to West Virginia to discuss a planned $83.7 billion investment in the state. The Global Times says that China could also target the 30 companies that make up the Dow Jones average.
The immediate fallout of the trade war talk for Beijing this week has been the nervousness on display at the Shanghai Stock Exchange. China’s benchmark Shanghai Composite slid below the 3000 level mark for the first time since September 2016. Falling stock prices have evoked concern, as evident in repeated reassurances issued in the Chinese media. New PBOC Governor Yi Gang also called on investors to remain calm and rational. The stock market slide has continued through the week, nevertheless. The People’s Bank also pumped in additional liquidity of 200 billion Yuan via its medium-term lending facility, promising greater “stimulative” action going forward.
A worsening of the US-China trade spat would have ripple effects around the world. Reuters reports that many southeast Asian economies, which export intermediate goods to China which are assembled there and exported to the US, are likely to face knock-on effects. According to The Economist, 30% of the value of the goods China exports to America is added elsewhere. Additionally, countries like India and EU member states have announced retaliatory tariffs against the US. Canada and Mexico have also announced actions.
3. Luo’s Proposal
Luo Zhaohui, the Chinese ambassador in New Delhi, took center stage this week at a day-long forum organised by the embassy. In his keynote speech at the event, Luo laid out a vision for Sino-India ties building on the Wuhan meeting between Narendra Modi and Xi.
- Diplomatic exchanges: In the coming months, the Chinese Defense Minister and Minister for Public Security will visit India. The Special Representatives’ Meeting on Boundary Question will also be held in Beijing this year. The two foreign ministers will soon co-chair the first meeting of high-level people-to-people and cultural exchange mechanism this year.
- China India Plus: This is a new cooperation framework under which both parties will launch a joint training program for Afghan civil servants.
- The 5Cs formula: Luo’s roadmap for the future Sino-Indian ties was expressed through 5Cs – communication, cooperation, contacts, coordination and control.
- Trilateral Talks: The Chinese envoy also floated the possibility of an India-China-Pakistan trilateral conversation under the SCO framework. This proposal was not echoed by the foreign ministry in Beijing. And India’s MEA was also quick to dismiss it, saying that “India-Pakistan relations are purely bilateral in nature and have no scope for involvement of any third country.”
On the economic front, there has been movement forward between the two countries. For instance, Chinese investors are eyeing deals in India, OYO Rooms has announced its entry in the Chinese market and India’s Commerce Ministry along with the Indian embassy in Beijing has commissioned a study on ways to boost the export of pharmaceutical products to China. However, the potential of coming together to create an oil buyers alliance appears unlikely for now. Here’s how a Chinese expert has characterised the possibility of such an alliance: “Without a doubt, the forming of an alliance, even if it’s just in the energy sector, is intertwined with the complex political relationship between China and India.”
As an aside, it’s important to note that the Chinese side is carefully watching the ebb and flow of events as India heads into its next general election. This week an Indian Express report highlighted how training material for BJP cadres points out China as a major security threat. The BJP material touches on the boundary dispute with China, cyber threats, apparent Chinese support to Maoist terrorism in India and the Sino-Pakistan relationship. The report was rebutted in the Global Times, which cautioned the BJP to “not to lose sight of the forest for the trees.”
4. Human Rights Debate
After threatening to do so for a while, the US government finally decided that it’d had enough and withdrew from the United Nations Human Rights Council. Announcing the withdrawal, Ambassador Nikki Haley termed the UNHRC as “hypocritical and self-serving,” criticising the body of having a chronic bias against Israel and lacking reform. She also lashed out at Russia, China, Cuba and Egypt for thwarting US efforts to reform the council.
China’s foreign ministry was quick to react to the US withdrawal, saying that it was “disappointed” with the Trump administration’s decision. Geng Shuang then went on to position the decision within the framework of China’s support for the multilateral order, saying that the UNHRC was an “important platform for different parties to enhance dialogue, cooperation, mutual learning, and joint promotion of human rights.”
State media has also latched on to the US withdrawal, taking the aid of US news outlets and analyses, to further the narrative of an America that was retreating from the world and disrupting the rules-based order. Human Rights activists believe that the US’s withdrawal from the UNHRC strengthens China’s hand, as it seeks to outline a new human rights vision. It is important to recall that in December 2017 China held the first South-South Human Rights Forum, issuing a document called the Beijing Declaration. The crux of the document is that “Each State should adhere to the principle of combining the universality and specificity of human rights and choose a human rights development path or guarantee model that suits its specific conditions.”
What does such a concoction permit? Well, it permits intense intrusive surveillance, denial of access to UN’s human rights staff, internment camps or re-education centers in Xinjiang and a policy that rejects taking in refugees.
5. Terror and Taxes
It’s been a week of debates on legal revisions and new guidelines. First, China’s Supreme People’s Procuratorate, Supreme People’s Court, Ministry of Public Security and the Ministry of Justice issued a new guideline on counter-terrorism. (Link in Chinese; here’s a GT English story on it.) The document outlines legal procedures and standards for identifying and handling terrorism related cases. The guideline is extremely broad and covers a whole host of transactions that could potentially land people in trouble. It identifies crimes of aiding terrorist activities like fundraising for terror training, sale of assets to aid terrorism, provision of means of transport to even wearing clothes or symbols which advocate terrorism and extremism. This, invariably, leaves immense room for misuse.
Meanwhile, the NPC Standing Committee also met this week to consider a range of legal changes. Chief among these is the revision of the Individual Income Tax Law to raise the minimum threshold for personal income tax from 3,500 yuan to 5,000 yuan per month and add certain special expense deductions. SCMP reports that the changes come as consumer spending is under serious pressure, with Chinese households feeling the pinch of rising mortgage bills and falling wages. The other two major changes considered were in laws pertaining to curtaining interference in judicial affairs and regulating the e-commerce sector.
6. Naval Modernisation
Xi Jinping carried out a naval inspection in Shandong Province this week. The forces inspected fall under the Northern Theater Command of the Chinese People’s Liberation Army. During the visit, state media tells us that Xi hopped on board two submarines, interacted with officers, tested some of them and delivered a speech. He called for improving “battle planning, capacity building and command system building.” He also said that the navy should “accelerate the work to improve elite combat forces” and development of naval air force.
Xi’s inspection came just as reports surfaced that Sun Bo, general manager of China Shipbuilding Industry Corporation, is being investigated by the National Supervisory Commission on corruption charges. CSIC is among China’s two big shipbuilding firms. It is currently working on China’s first domestically designed carrier – the Type 001, which has reportedly completed “all sea trials successfully.”
CSIC was also in the news this week for publishing a photograph showing three aircraft carriers, sparking much speculation. It is speculated that China is building its third aircraft carrier in Shanghai. Based on the image, Chinese analysts are speculating that the third carrier will be conventionally powered and equipped with an electromagnetic aircraft launch system.
7. Influence and Investment
Just before Nepal’s Prime Minister KP Oli traveled to China, the Global Times put out a piece warning India from pursuing “zero-sum mentality.” Oli’s visit in contrast has indicated that the partnership between Beijing and Kathmandu is growing deeper. In terms of deals, the two sides signed a total of 14 bilateral agreements/MoUs/LoEs. Li Keqiang has also called for FTA talks between the two sides to begin soon. Oli, meanwhile, said that he “appreciates China’s neighborhood diplomacy of amity, sincerity, mutual benefit and inclusiveness” and supports Xi’s vision of building a community of shared future for mankind and BRI. The meat of the matter, however, will be in the hydropower projects planned in Nepal – keep an eye out for what happens with the $1.6 billion West Seti deal after Oli’s visit. Despite the rhetorical bonhomie, it’s not all smooth sailing for the Chinese side.
For instance, in Cambodia, government to government relations are strong. Chinese defence minister Wei Fenghe visited the country this week, promising more than $100 million in military aid, future joint military drills and naval cooperation. Cambodia is set for elections next month, but no one’s expecting a change of guard. Analysts believe that support for the Hun Sen government is part of China’s long term strategy to protect its investments in the country. But that’s a tricky proposition, given the backlash in places like Sihanoukville, where clashes have been reported between locals and new Chinese arrivals. Do read this excellent Sydney Morning Herald report by Lindsay Murdoch & Kate Geraghty on what’s been happening in Sihanoukville and its potential impact on China’s long-term vision in Cambodia.
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