Debating China’s Syria

A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, Xinjiang, Pakistan and Doklam dominated the news.

  1. China’s ‘No Rights Zone’

The Chinese government’s PR effort in building a positive narrative on human rights was dealt with a serious blow this week. The United Nations Committee on the Elimination of Racial Discrimination conducted a two-day review of China’s policies. The panel said that it had received many credible reports that 1 million ethnic Uighurs in China are held in what resembles a “massive internment camp that is shrouded in secrecy.”

Committee members acknowledged China’s advances in terms of economic development and poverty alleviation. The bulk of their questions and criticisms, therefore, came in the context of the lack of institutional mechanisms to protect human rights, systemic discrimination against Muslims, ethnic Uyghurs and Tibetans in the name of security and stability, crackdowns on protesters in the name of development, policies related to the work of non-governmental organisations and erosion of minority languages, etc.

The Chinese delegation’s (roughly 50-member strong and led by Yu Jianhua) response ranged from evasion to denial. For instance, the delegation was questioned about China’s domestic legislation not being in line with the International Convention on the Elimination of All Forms of Racial Discrimination in terms of defining racial discrimination. The response was as follows: “Though there was no definition of ‘racial discrimination’, the understanding and interpretation of ‘racial discrimination’ by the legislature, judicial authority and the administrative departments was consistent with the Convention.”

On the other hand, when addressing questions of excessive use of force, torture, arbitrary detention and disappearance of ethnic minorities, the delegation called such charges “against the fact.” It also denied the presence of any “re-education centres” or “counter-terrorism training centres” in Xinjiang. This contradicts the information put out by a large number of Chinese sources, as this study conduction by Adrian Zenz and this HRW report show. Huffington Post has a good piece detailing the reportage and work that has gone into revealing facts about the Chinese government’s policies in Xinjiang.

The UN panel review began last Friday and later continued on Monday. This, in effect, ensured that discussions on Xinjiang remained an important part of the news cycle over a number of days through the week. And all of this evoked a sharp response from state media and the Chinese foreign ministry. The Global Times argued that Chinese government policies had averted a “great tragedy,” preventing Xinjiang becoming “China’s Syria” or “China’s Libya.” It added, “the current peace and stability in Xinjiang is partly due to the high intensity of regulations. Police and security posts can be seen everywhere in Xinjiang. But it’s a phase that Xinjiang has to go through in rebuilding peace and prosperity and it will transition to normal governance.” The foreign ministry, meanwhile, hit out at what it called were the “ulterior motives” of anti-China forces, which were behind the “unfounded” slandering of the country’s anti-terrorism measures.

While the narrative shift is important, what matters at the end of the day is whether the Chinese government will face any tangible consequences. So far, the leaders of the broader Muslim world appear unmoved. The opprobrium at the moment is coming from international institutions and the West. For instance, Florida Senator Marco Rubio who is the chair of the bipartisan Congressional-Executive Commission on China, has been a consistent critic of China’s policies in Xinjiang. This week he penned a piece for the Wall Street Journal this week, arguing that the US should apply Global Magnitsky Act sanctions against Xinjiang Party Secretary Chen Quanguo.

  1. Investment and Money

The Chinese government appears to be going back to an old tool with economic pressure piling up. The government announced new plans to build urban railway networks in Changchun ($11.5 billion) and Suzhou ($14 billion). Also revealed this week was the fact that China gave the green light to 17 fixed-asset investment projects (valued at $11.24 billion) last month. The comparative figure for June was $3.02 billion. This comes as data showed that fixed-asset investment growth fell to record lows, expanding by a 5.5% in January-July. Reuters reports that China’s industrial output has also undershot expectations. Much of this is owing to the deleveraging campaign along with pollution curbs and an uncertain trade outlook. All of this, of course, is leading to speculation of the government announcing a comprehensive stimulus package sooner or later.

However, is the shortage of money supply really the core issue? Data released over the weekend show that new yuan loans rose more than expected to 1.45 trillion yuan ($210 billion) in July. Bloomberg reports that despite the People’s Bank of China turning on the liquidity taps such that the cost for banks to borrow from one another is now lower than the cost to borrow from the PBOC, a large chunk of those funds is sitting idle. This is because of policy uncertainty and reduced risk appetite owing to the deleveraging campaign and trade war. In terms of the deleveraging campaign, the government has hinted at going easy. But this doesn’t necessarily imply a return to the old ways. Xie Yaxuan from China Merchants Securities argues in this Bloomberg piece that “policy makers are sticking to the direction of cracking down on shadow banking, and moving loans on to balance sheets.” This is evident as the shadow banking sector reportedly continued to shrink, falling by about 489 billion yuan in July after a 691.7 billion yuan drop in June.

The above suggests two broad goals. The first is to expand formal, on the books credit. The second to direct the money available in the financial system towards productive work rather than speculative activities. Writing for The Financial TimesHe Wei suggests that one should watch out for the government’s responses to maturing medium-term lending facilities to assess its appetite for low market rates and loose conditions. This is particularly significant given that low market rates could impact the value of the Yuan.

He argues, “Low Chinese market rates also risk fuelling capital outflows, a threat brought into sharp relief by Turkey’s currency crisis. Falling Chinese rates could make holding dollar assets relatively more attractive than holding renminbi assets, resulting in a drain of funding from the system as money leaves the country.” A glimpse of this was evident this week as the RMB fell to 20-month low to only to recover marginally on Friday.

The current situation presents Chinese policymakers with a peculiar dilemma argues Ruchir Sharma in his NYT piece. “The strengthening dollar threatens to provoke more capital flight out of China, but any effort to shore up the renminbi in response could further slow the Chinese economy,” he writes.

  1. Pakistan’s Security & Debt

A suicide attack targeted a bus ferrying Chinese workers in Balochistan’s Chagai district on Saturday. The attacker exploded a small truck near the bus carrying Chinese workers from Saindak copper-gold mines, reported Xinhua. The Saindak copper-gold project, which is not part of CPEC, is operated and partly owned by the Metallurgical Corporation of China. Reuters reports that the Baloch Liberation Army has claimed responsibility for the attack. Six people, including three Chinese citizens, were wounded in the attack. The Chinese embassy in Pakistan was quick to condemn the attack and called on the Pakistan government to “investigate the incident, bring the perpetrators to justice and take further effective measures to ensure the security of the Chinese institutions and citizens in Pakistan.” Recall that in mid-July after a major attack on an election rally in Balochistan, the Global Times had hinted at possibly a greater security role for China in Pakistan. The attack on Saindak workers could further lend support to that argument.

Chinese Ambassador in Pakistan Yao Jing, meanwhile, met with PTI leader Imran Khan on Thursday. Yao said that China is keen to work with the new Pakistani government, likely to be led by Khan. However, issues such as security and debt are likely to be contentious, and this current meeting appears to be part of a long-drawn negotiation. The chorus is growing around concerns over debt and transparent negotiation of CPEC projects. The Express Tribune notes that Pakistan’s business community wants the new government to renegotiate certain CPEC terms and agreements, while Pakistani-American economist Atif Mian argues that the two countries can gain from each other only if deals are transparent and well-structured. These, however, are long-term measures.

In the short-term Pakistan is burdened by a widening trade deficit with just enough foreign currency to pay for two months’ of imports. Therefore, a bailout is the immediate need. The question is to whom will Khan turn for this: the IMF or China? Writing for The Diplomat, Yigal Chazan assesses Khan’s options, arguing that either choice is likely to have serious implications on Khan’s electoral promises.

He argues that an IMF bailout “will put a damper on one of Khan’s main election commitments – an Islamic welfare state – as the Fund will likely insist on cuts to public expenditure among its conditions.” In contrast, while Khan has in the past expressed concern regarding CPEC projects and is promising greater transparency, he won’t be negotiating with Beijing from a position of strength “if he is simultaneously attempting to secure new Chinese financing.”

While that point is well taken, it doesn’t mean that Khan does not have significant leverage with China. James Schwemlein argues in this Foreign Policy piece, Pakistan going to the IMF will lead to three specific obstacles for China, “domestic political demands for anti-corruption investigations into the previous government; IMF restrictions on Pakistan’s ability to authorize new sovereign guarantees, which are typically critical to underwriting large projects; and IMF fiscal austerity requirements, particularly related to Pakistan’s derelict state-owned enterprises.”

My view is that the current negotiation is a high-stakes one for all parties, China, Pakistan and the US. For China, an IMF bailout would further hit CPEC and BRI’s credibility when it comes to the debt-trap narrative. But to believe that this could lead to a fundamental change in the direction of Sino-Pak ties is to misunderstand the strategic nature of that relationship. Pakistan is not Malaysia. Alternatively, a further Chinese bailout could create a moral hazard. In addition, Beijing will also have to address the question of how strongly does it want to embrace Pakistan? Going how far down the rabbit hole is in its interests? The same question is hopefully also being deliberated in Islamabad and Washington.

  1. Revisiting Doklam

We’re soon closing in on the anniversary of the end of the 2017 Doklam standoff, with the Indian media awash with reportage based on material being recorded by the Parliamentary Committee on External Affairs, which is looking into the Doklam standoff. This is part of a new report, Sino-India Relations including Doklam, Border Situation and Cooperation in International Organisations, that the committee is drafting. The report will become public once it is tabled in Parliament. The Print has a detailed breakdown of what to expect from the report. If you are interested in an exhaustive look at the events of last year, I’d recommend this piece by Devirupa Mitra in The Wire.

  • If the Chinese side had built the road that was planned, it would create “serious security vulnerability for the Siliguri corridor.”
  • PLA troops entered Doklam on 16 June 2017 and were initially, confronted by a Bhutanese patrol. Indian troops engaged only after watching the inability of the Bhutanese to stop the Chinese advance.
  • The Chinese have been conducting road-building activity in the region for 20 years. They’ve also frequently transgressed in Doklam. But this time they came with the intention of building a road on the Jampheri ridge, which would have brought them to the Siliguri corridor area.
  • It took 13 rounds of diplomatic discussions over 6 weeks to defuse the military stand-off, with India making seven lines of argument. Of these, I see point three and four are extremely nuanced arguments to dismiss the Chinese position on the 1890 convention.

Meanwhile, Prime Minister Narendra Modi spoke to The Hindustan Times, praising India and China for the “maturity” displayed in handling the border dispute over the past four decades. One of the outcomes of the Wuhan meeting was a decision to offer strategic guidance to militaries of the two countries. This week ET reported that four-member Indian Army delegation headed by Eastern Army Commander Lt Gen. Abhay Krishna is visiting China this week. Dokalam falls under the Eastern Command, and this will be the first such visit after the 2017 standoff. The delegation will be visiting four cities in China- Beijing, Shanghai, Chengdu and Lhasa. Also the two armies held a Border Personnel Meeting at Chushul-Moldo and Daulat Beg Oldie to mark India’s Independence Day. The Hindu reports that not far from the venues, a stand-off has been going on in Demchok since early July when Chinese troops, in the garb of nomads, intruded 300 metres into the Indian territory and pitched five tents. So far, four of these have been removed, while one tent remains.

Former Foreign Secretary S. Jaishankar, who was in the thick of things during the Doklam standoff, argues in the Economic Times that for India, “Chinese power is a fact of life.” India is experiencing this in its neighborhood, from Nepal to the Maldives, with the Chinese media providing reminders. Jaishankar argues that New Delhi, therefore, must be “open minded and imaginative.” Essentially, this implies domestic capacity building, engagement and leveraging the global environment to maintain a better balance. One could argue that this is what’s being attempted by balancing the Indo-Pacific strategy with the Wuhan spirit. How effectively that’s being done is another debate.

Amidst all this, China’s ambassador to India Luo Zhaohui traveled to Punjab, where he visited the Golden Temple, discussed the possibility of an acupuncture hospital in the state and potential new Chinese investments by 800 Chinese entrepreneurs who are waiting to invest in India. Chinese state broadcaster CGTN has also published a lengthy report on late Indian prime minister Atal Bihari Vajpayee’s contribution towards building Sino-Indian ties. And the Indian government has been fighting back social media outrage after an SCMP report claimed that the state-run China Banknote Printing and Minting Corporation had been printing a number of international currencies, including the Indian rupee.

  1. New Trade Talks

Both China and the US confirmed the resumption of trade talks this week. From the Chinese side, the Commerce Ministry said that a delegation, invited by the US, will travel for talks later month. From the US side, the confirmation came via White House economic advisor Larry Kudlow, who further urged that Beijing “must not underestimate President Trump’s toughness and willingness to continue this battle to eliminate tariffs and nontariff barriers and quotas, to stop the theft of intellectual property and to stop the forced transfer of technology.”

The delegation will be led by Vice Minister of Commerce Wang Shouwen and not Liu He. The American delegation will likely be led by David Malpass, the US Treasury Department’s under secretary for international affairs, and not Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross. This indicates that an immediate breakthrough is unlikely – a view shared by Louis Kuijs, head of Asia economics at research firm Oxford Economics, according to this CNNMoney report. He’s not alone in this view. In fact, an entire segment of experts quoted in this SCMP piece believes that this round is likely yield nothing substantive.

Chinese media commentaries this week turned back the clock to the 18th and 19th centuries to argue that protectionism and mercantilism are what got the US to superpower status. The People’s Daily also lashed out against Trump’s America First policy, arguing that the focus on trade deficits was disregarding the pain that was being caused to ordinary Americans. Such pieces are in line with Beijing’s altered propaganda approach of downplaying the portrayal of China as a global power that is challenging the West, which I’ve discussed in earlier newsletters. This Washington Post piece this week offers a good overview of how that approach is shaping up.

  1. Anger and Coercion

Despite Chinese objections, Taiwanese president Tsai Ing-wen landed in the US this week enroute to Latin America. Tsai landed on LA on Sunday for a two-day stopover – her first such visit since the passage of the Taiwan Travel Act. A day before the visit the two sides had inked a 25-year, $25 billion deal for Taiwan to purchase LNG from the US, reported Reuters. On Monday, Tsai told supporters and US officials at the Ronald Reagan Presidential Library that “everything is negotiable except two things: our freedom and our future.” This is the first time in 15 years that a Taiwanese leader has been allowed to speak publicly in the US. During her visit, Tsai also engaged with key US lawmakers on Congressional foreign affairs sub-committees.

SCMP reportsthat Beijing had lodged an official protest with the US over Tsai’s speech, at which point the Trump administration denied that there has been any change to its “One China” policy. Beyond diplomatic protests, there were also coercive actions. SCMP reportsthat the PLA conducted at least three naval drills in different sea areas over the past week. The report adds that “military experts said that the PLA drills were intended as a show of strength to both the United States and pro-independence forces in Taiwan.” In addition, a concerted nationalistic social media campaign supported by state media targeted 85C, a global Taiwanese bakery chain which Tsai visited in LA. 85C has over 600 outlets in the mainland; so the campaign would clearly hurt its bottom line. In the end, the company lost out in terms of share value and perception at home. The 85C case is another example of orchestrated Chinese economic coercion targeting private companies to toe its line on Taiwan. But such an incident is likely to be terribly counterproductive in Beijing’s attempts to win hearts and minds across the Strait.

  1. The Tides of East Asia

It’s been a week of odd rhetoric form Mahathir Mohamad and Rodrigo Duterte. First, while saying that he did not want to quarrel with China, the Philippines president called on Beijing to temper its behaviour in the South China Sea. “You cannot create an island. It’s man-made and you say that the air above this artificial island is yours,” he reportedly said. In response, the Chinese foreign ministry argued that “China has a right to take necessary steps to respond to foreign aircraft and ships that deliberately get close to or make incursions into the air and waters near China’s relevant islands.” And then later in the week, Washington chimed in via Randall Schriver, assistant secretary of defence for Asian and Pacific security affairs. Schriver says that the US will “be a good ally” to the Philippines in case of territorial conflicts or threats, and that “there should be no misunderstanding or lack of clarity on the spirit and the nature of our commitment.” All of this is happening while it appears that the two sides are nearing a (60-40) joint resource sharing deal in the South China Sea, which is likely to be finalised before Xi’s visit to the country later this year.

Meanwhile, Malaysian Prime Minister Mahathir Mohamad begins his five-day visit to China today. Heading out, he said that, “We’re looking at the agreements entered into by the previous government (estimated at some $20 billion). Where we can drop we will drop, where we can modify we will do that – but the most important thing is for us to save money.” The Wall Street Journal reports that another issue on the agenda will be the extradition of fugitive financier Low Taek Jho, who Malaysia believes is living in China. Low is a central figure in the 1MDB scandal. However, all of this is likely to be couched in high-level pleasantries, as evident from Mahathir’s interview to Xinhua before the visit. In that, he describes the relationship with China as “very important;” terms China’s development as “something of a miracle”; talks about how Malaysia has gained from China’s development; and refers to China as a “powerful country” that is needed to “help maintain peace in this region.”

Finally, Li Keqiang and Shinzo Abe exchanged congratulatory messages on Sunday to mark the 40th anniversary of the China-Japan peace and friendship treaty, reported SCMP. The improvement in bilateral ties is not merely rhetorical, as evidenced by Toyota’s fresh commitment to manufacturing capacity upgrades in Tianjin and reports that Chinese fishermen have been asked to stay clear of the Senkaku/Diaoyu islands. Discussing the recent thaw in ties, Zhou Yongsheng, a Sino-Japanese relations expert from China Foreign Affairs University, makes a prescient observation when he says that, “Beijing should not expect Tokyo to join it and oppose Washington on trade … but they can push for economic cooperation in East Asia and an early deal on the Regional Comprehensive Economic Partnership.” Historical issues persist between China and Japan. For instance, this week as both sides marked the anniversary of the end of the Second World War, Prime Minister Shinzo Abe sent a ritual donation to the war-linked Yasukuni Shrine and Beijing urged Tokyo to “face up to and reflect on its invasion history.” This CGTN piece is an interesting read in that it captures the shifting dynamics of Sino-Japanese ties.

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