Eye on China World

Decoding the Strategic Churn

A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, ties between China and countries like Australia, India and in ASEAN are on the mend.

1. The Sea & Oceans

The annual dialogue between top diplomats from China and ASEAN states last week began with the announcement that both parties had agreed “on an initial draft” of a Code of Conduct for the South China Sea. Singapore Foreign Minister Vivian Balakrishnan termed this as a “milestone,” while Wang Yi called it a “breakthrough.”Wang also termed the draft as, one of two positive trends that have emerged in the region.

Associated Press reports that negotiations on the Code of Conduct (COC) could start in Cambodia as early as this month. The report also adds that for the moment the draft is being kept confidential in order to prevent “outside parties like the U.S. and Japan from intervening.” Despite that, this Carl Thayer piece in The Diplomat provides a peek into the document, which the author claims is 19 A4-sized pages long.

Here’s a quick summary:

  • Thayer reports the draft comprises three sections – preambular provisions, general provisions, and final clauses — and it is clarified that it is “not an instrument to settle territorial disputes or maritime delimitation issues.”
  • The draft is viewed as a “living document,” which touches on a number of contentious issues without adopting a definite position at the moment. For instance, would a COC have the weight of an international treaty? What are the implications for third parties? What would be the geographic scope of application of a COC?
  • The document, he explains, essentially eyes building practical maritime cooperation. This entails cooperation in marine environmental protection, marine scientific research, safety of navigation and communication at sea and combating transnational crime.
  • To this list, China has added a few more areas, while also proposing that companies from companies outside the region should not be involved in such cooperation.
  • Similarly on military cooperation, the Chinese side wants that the “Parties shall not hold joint military exercises with countries from outside the region, unless the parties concerned are notified beforehand and express no objection.” It also wants “sovereign immunity” for military aircraft and vessels.

The draft is an important step forward for the region, but as Thayer’s piece shows, there are significant areas of differences between the different parties. Bridging these will not be easy or quick. Moreover, the nature of a final deal will not only depend on the parties themselves but also the interests and actions of other actors. For instance, EU foreign policy chief Federica Mogherini has been rather blunt about the bloc’s economic and political interests in these negotiations. The US is also likely to stress on protection of third party rights in the COC. This is also important from an Indian perspective, given ONGC’s partnership with Vietnam and the fact that roughly 55% of India’s trade passes through South China Sea and Malacca Straits.

Importantly, as this piece in Foreign Affairs by Bonnie Glaser and Gregory Poling suggests, a more assertive and consistent US policy could strengthen the hand of ASEAN states. On the other hand, reduced US engagement and diminished authority will result in ASEAN states seeing “little value in a US presence that cannot advance their interests or preserve international law, which will in turn make them less supportive of Washington’s efforts and more likely to cut deals—even inequitable ones—with Beijing in the absence of better options.” Moreover, ASEAN states appear to be concerned about the implications of the US’s Indo-Pacific strategy in terms of how this new paradigm will impact ASEAN’s interests. A discussion on these issues is expected in early September in Jakarta.

US Secretary of State Mike Pompeo’s visit to Singapore indicates that Washington is perhaps recognizing that it needs to assuage concerns and display greater commitment and predictability in its approach. Pompeo had earlier pledged $113 million for investment in technology, energy and infrastructure in the Indo-Pacific. In Singapore, he announced $300 million of new funding to reinforce security cooperation throughout the entire region. The figures aren’t comparable in scale to Chinese BRI investments, but don’t let Wang Yi’s “superpower” quip sway you. There’s much for Beijing to be concerned, as evident by these two pieces.

  1. Taming Intellectuals

The CPC has launched a new campaign to promote “the spirit of patriotic striving” among intellectuals in China. The campaign was announced on 31 July, with more details emerging thereafter. Xinhua reports that the campaign “aims to rally outstanding intellectuals for ‘the pursuing of the great endeavor of the Party and the people’.”

In other words, as Radio Free Asia reports, the aim is to “enhance the ideological identity, emotional identity, and value identification” of intellectuals in Xi’s “new era of socialism with Chinese characteristics.” Or as Steve Tsang, director of the SOAS China Institute, tells SCMP, “It is about indoctrinating academics, teachers and ‘intellectuals’ to ensure they all support the party as led by Xi Jinping under the banner of promoting patriotism. The party document makes this clear. No one will be considered patriotic or loving China or acting in the interest of China unless [they] support the party line as laid down by President Xi.”

This piece in The Diplomat by Charlotte Gao breaks down the key points of the “Carrying forward the spirit of patriotic striving and building up establishment in the new era” campaign. Gao reports that the means of conducting the campaign include, “mass propaganda in various media, holding special symposiums to study Xi’s remarks, organizing special trainings mainly for young and middle-aged intellectuals, establishing role models for others to follow, and mobilizing intellectuals to conduct activities in poor and remote areas.”

It’s unlikely that this announcement is the product of a single event such as the Xu Zhangrun piece, which I covered last week. Sincocism’s Bill Bishop points out that the notice for the campaign actually dates back to 29 June. Nevertheless, the campaign is a response to overall discontent with the constitutional changes and growing cult of Xi (for instance, this tweet thread by AFP’s Benjamin Carlson), the direction of foreign policy, the management of the economy amid the trade war and the enhanced focus on political loyalty

  1. Strategy and Endgame

The next tariff salvos in the Sino-US trade war are set to be fired on 23 August. That is when both parties will be imposing 25% tariffs on goods worth $16 billion. If these come into effect, both parties would have imposed duties on goods worth $50 billion each. Apart from this, there’s another round of tariffs that’s being discussed. Trump has threatened to impose possibly 25% tariff on Chinese imports worth $200 billion. In response, Beijing is saying that it will hit US imports worth $60 billion. LNG imports from the US is among the goods worth $60 billion. While this has implications for the US, since China is the world’s second-largest LNG importer, it also can potentially dampen Xi’s anti-pollution campaign.

However, from a broader perspective, given that China imports approximately $150 billion worth of US goods, if Trump announces the tariffs on goods worth $200 billion, Beijing’s overall response will likely move beyond quantitative reciprocity to more qualitative action. What that could mean is indicated in this People’s Daily piece, which hints at the possibility of US companies like Apple Inc being used as “bargaining chips.” The US tech giant hit a trillion dollar market cap this week, and noting that the Communist Party’s flagship daily said:

China is by far the most important overseas market for the US-based Apple, leaving it exposed if Chinese people make it a target of anger and nationalist sentiment. China doesn’t want to close its doors to Apple despite the trade conflict, but if the US company wants to earn good money in China, its needs to share its development dividends with the Chinese people.”

CNBC’s Jim Cramer, however, believes that hitting Apple would be tantamount to “playing with fire.” So where’s all this heading? If Politico’s latest report on Trump’s conversation with American CEOs is anything to go by, he remains as unpredictable as ever. Here’s an excerpt from the report,

Trump told the executives that Chinese President Xi Jinping’s ‘One Belt One Road Initiative,’ China’s economic plan that has the potential to disrupt trade worldwide, was ‘insulting’ and that he didn’t want it, according to a person in the room. Trump said he had told Xi as much to his face.

Moreover, research by John Seungmin Kuk, Deborah Seligsohn and Jiakun Jack Zhang suggests that Trump is likely to enjoy party and base support on issues related to China. Summarising their study in this Washington Post piece, the authors argue that anti-China economic nationalism in the US has been built over time, with Trump inheriting this position. They add, “Even if the GOP leadership and major Republican donors were not ready for Trump’s trade war with China, rank-and-file congressional representatives had already sowed the seeds of economic nationalism among their constituents. On this issue, Trump seems to be following the Republican caucus rather than the other way around.” In addition, this Global Times piece acknowledges that Trump’s tough China stance enjoys bipartisan support. It appears that for the moment, Trump has sufficient political incentive to maintain pressure than to ease off.

In China, there are glimpses of the churn that is underway. For instance, the People’s Daily is engaging in tough talk, lashing out at the US for showing “zero sincerity” by seeking dialogue while pointing “gun and artillery.” Another commentary argues that some people “are loath to see a lion awaken or a dragon take-off,” and are thus resorting to unilateralism, protectionism, and trade bullying. But Reuters reports that there are rifts within the party’s top brass. Key leaders are currently meeting in Beidaihe for the annual resort conclave, with the report suggesting that there’s a backlash against aggressive nationalistic rhetoric. However, this People’s Daily commentary says that such criticism of the Xi administration for having abandoned Deng’s hide and bide approach is unwarranted, “Such a large size, such a heavy thing, can’t be hidden by ‘being low-key’, just like an elephant can’t hide behind a sapling,”

Meanwhile, Keith Bradsher’s NYT piece quotes former Chinese Commerce Ministry official He Weiwen as saying that “The red line is China’s right to develop, not the concrete industrial policies and measures regarding Made in China 2025.” This is a subtle shift from the earlier argument that Made in China 2025 is not negotiable. In addition, SCMP reports that the threat of an escalation in the trade war has led to a delay in the announcement of an “ambitious plan to transform 11 cities in the Greater Bay Area into the Chinese version of the Silicon Valley.”

All of this, from my perspective, leads to two central political questions with regard to an endgame: What’s the Party’s view on US resolve? And how much can Beijing give? The second question has two parts to it: How far can Xi bend without weakening his position in the Party and what demands can the Party accommodate while preserving its integrity at home?

  1. Tibet and Influence

Over the past year, there has been increasing debate over Chinese influence in other countries. An example of this in India was evident last week when the Indian Express published a spread on Tibet’s experience of the reform and opening-up policy, which was sponsored by the Chinese embassy. While the page was clearly marked as an advertorial, what alarmed me was that one story on the page refers to the Dalai Lama as a “separatist.” In contrast, a piece on the People’s Daily’s website written by a visiting Indian journalist was taken down because it referred to Arunachal Pradesh as an Indian state.

Staying on the subject of Tibet, the Nikkei Asian Review put out a rather controversial piece this week, claiming that Indian Prime Minister Narendra Modi, “apprised President Xi of the Dalai Lama’s health and the Indian position on Tibet after his death” during their meeting in Wuhan. It adds that the two leaders have over the past few years “informally discussed a proposal for India to stop accepting new Tibetan exiles after the death of the Dalai Lama in return for China withdrawing its territorial claim on some parts of northern India.”

This deal sounds like a non-starter to me. It’s very unlikely that the Chinese side will cede territory in return for India not accepting exiles, particularly since the article itself claims that Tibet’s “strategic value” for India is waning. Then there is this Jyoti Malhotra piece in The Print, which claims that a deal is in the works to get the Karmapa Lama Ogyen Trinley Dorje to return to India. Malhotra claims, citing sources, “The government has finally decided to reach out to the Karmapa and is ready to offer it five acres of land in Delhi’s Dwarka area, near the international airport, so he can build his headquarters.” Based on the report, November 2018 is likely to be tentative time frame for the Karmapa Lama’s return.

  1. New Opportunities

India’s Minister of State of External Affairs VK Singh told Parliament this week that New Delhi had asked Beijing to cease construction activities in Pakistan Occupied Kashmir. This he indicated had been discussed during the Wuhan meeting between Xi and Narendra Modi. Singh also clarified that there had been no Chinese mining activity in Arunachal Pradesh. Chinese Defense Minister General Wei Fenghe is set to visit India on 21 August, and it remains to be seen if the two sides can finally establish a military hotline. The proposal of a hotline, which was first proposed in 2013, was revived in Wuhan but has been stuck owing to technical and protocol related issues. Discussing Wei’s upcoming visit, The Statesman reports that the two sides are “expected to devise ‘foolproof’ ways to prevent another Doklam-like situation on their common border.” I wonder how?

Another post-Wuhan agenda item is India and China joint cooperation in Afghanistan. A new piece in The Diplomat by M. Ashraf Haidari, the Director-General of Policy & Strategy of the Ministry of Foreign Affairs of Afghanistan, argues that there is much that the two countries can do bilaterally and in multilateral forums to support Afghanistan. He argues that,

Afghans expect China and India to support the implementation of Afghanistan’s mutually reinforcing peace and counterterrorism and counternarcotics strategies, while investing in the natural resources sector and connectivity infrastructure of Afghanistan…Success in this endeavor will help China and India achieve their own goals of helping stabilize their surrounding region for increased ‘physical and digital connectivity’.

Another area where the two sides are and can continue to work together is global trade. Economic Times reports that in a joint WTO proposal, China and India have called for “developed economies including the US, the EU and Canada do away with $160 billion of trade-distorting farm subsidies that they give to products including cotton, wool and tobacco.”

Meanwhile, the Sino-US trade war and China’s developmental goals are leading to new opportunities for Indian businesses and people. For instance, China Daily reports that the government plans to permit international students at Chinese universities nationwide to take part-time jobs. This is an important change for many Indians, given that China today attracts more Indian students than the UK. Sina Tech reports that mobile phone manufacturing industry is gradually shifting from China to India. Reuters reports that with the trade war intensifying, the potential disruption of US oil trade with China and American sanctions on trade with Iran, India’s intake of US oil is expanding giving it greater potential bargaining power.

  1. Turnbull’s Reset

For over a year, reports of Chinese influence in Australia and a political backlash against such activities have led to a steady souring of Sino-Australian ties. If you’d like a primer on what’s been happening, then I’d recommend this SupChina podcast episode on the subject. This week Prime Minister Malcolm Turnbull indicated that Canberra would like to alter the narrative and mend fences. In a speech at the University of New South Wales, with China’s ambassador to Australia Cheng Jingye in attendance, Turnbull sought to identify misperceptions and propose “clearer thinking.” He argued that while the world was witnessing unprecedented changes, the Cold War and containment narratives with regard to China were misplaced.

He then went on to indicate a softer and more agreeable tone with regard to Beijing’s rise and interests, while seek to partner in the Belt and Road Initiative.

Now, will a stronger, richer China have a more confident and assertive voice in world affairs? Of course it will. Will it seek to persuade other countries that its point of view is correct? Will it try to get the best deal it can in trade? Of course it will, like everybody else does. But of course when it comes to trade, we should never forget that protectionism is self defeating, ‘not a ladder to get you out of the low growth trap, but a shovel to dig it deeper’, as I described it. And at the same meeting in Hangzhou, equivalent to ‘locking yourself in a darkened room’ as President Xi said; both metaphors seeking to convey the same message.

By and large, the Australian media responded to the speech positively, terming it a reset, smoothing of tensions and the “right.” The Chinese foreign ministry said that it “appreciates” Turnbull’s positive remarks. Former Prime Minister Kevin Rudd, a keen China-watcher, was less charitable, calling the speech a “grovelling mea culpa.”

So what is the Australian reset all about? John Garnaut, journalist and former advisor to the Australian government, argues that it is about “sustaining the enormous benefits of engagement while managing the risks.” However, his piece also suggests that such a reset is bound to be riddled with frictions, owing to structural factors which drive the Communist Party’s engagement with Chinese-origin diaspora and Chinese student community in countries like Australia. As he puts it, “security measures conceived as being ‘defensive’ in Beijing can quickly become invasive and offensive when given extraterritorial reach.”

  1. Two Protests in Beijing

Two sets of protests hit Beijing this week, highlighting socio-economic fault lines. The first is a case of regional and ethnic discrimination. A minor traffic incident on 02 August between a person from Liaoning Province, in northeast China, and a Beijinger grew into a viral phenomenon on social media. That led people first identifying the northeasterner and then reportedly locating his residence. The man then apparently turned himself in to the police, with chaos ensuing outside the police station. This What’s on Weibo report captures the entire sequence of events well well.

The second set of protests took place on Monday, resulting in the authorities to essentially lock down the capital’s financial district. The Financial Times reports that, “Teams of police and security guards were gathered at every corner of the intersections near the offices of banking and securities regulators, as well as at the entrance to the underground train stop for the financial district. They checked the identity cards of everyone entering the square kilometre that is home to Beijing’s domestic and international banks.” The precautionary measures were adopted amid growing frustration among people after the collapse of a number of peer-to-peer lending platforms. The scenario poses a tricky conundrum for Beijing i.e. support such funds and reinforce moral hazard or let market forces run their course and dwindle trust in government, leading to stability issues.

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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.