A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, pancake diplomacy, India’s ‘wily’ diplomacy and treatment of ethnic Uighurs dominated headlines.
Xi Jinping traveled to Vladivostok this week for the Eastern Economic Forum, with Japan’s Shinzo Abe in attendance along with representatives from a host of other states. Vladimir Putin had proposed the EEF format in 2015, but this is the first time that a Chinese head of State has attended the event. Xi has traveled to Russia seven times since 2013 and this is his and Putin’s third meeting this year, underscoring the deepening nature of Sino-Russian ties. And nothing says strategic partners like flipping pancakes together, perhaps reciprocity is also a protocol for batter-based diplomacy.
But why did it take Xi three years to get to the EEF? Shannon Tiezzi explores this question in this Diplomat piece, telling us that it has a lot to do with changes in China’s and Russia’s individual relationships with the US. This also reflected in the statements issued by the two leaders following their bilateral meeting. In addition, sample these statements by Putin and Xi, respectively:
Basic principles of trade — competition and mutual economic benefit — are depreciated and unfortunately undermined, they’re becoming hostages of ideological and fleeting political situations.
Together with our Russian colleagues, we will increase fruitful cooperation in international affairs and intensify co-ordination…to oppose the policy of unilateral actions and trade protectionism.
According to Russian officials, the EEF this year led to 175 deals worth $42.07 billion. From a Chinese perspective, Alibaba announced a strategic partnership with Russian firms to establish a new e-commerce platform and utilize Russia’s own payments system. CNBC reports that the deal “includes the sovereign wealth fund of Russia, the Russian Direct Investment Fund, alongside mobile operator MegaFon and internet group Mail.ru.” There’s also been a lot of talk about increasing linkages in terms of agriculture, with soybeans being at the center of this given Trump’s tariffs. This Global Times report tells us that, at present, only 1% of China’s food imports come from Russia.
However, the more significant announcement was Putin’s statement that Russia and China plan on “using national currencies more actively in reciprocal payments.” This suggests a greater desire to move away from dependence on the US dollar, given that Putin believes this would, “improve the stability of banking services during export and import transactions under the risky conditions on the global markets.” Both sides expect bilateral trade to hit $100 billion by this year. Xinhua has a quick breakdown of the trade numbers, with it being clear that energy dominates the relationship. Also an important component of Xi’s diplomatic effort was to deepen China’s linkages across Northeast Asia, where he wants to see the AIIB and the Silk Road Fund playing a greater role. However, if you look at Foreign Minister and State Councillor Wang Yi’s assessment of the visit, what you’ll find is that the primary focus is on deepening all-round ties with Russia, including sub-national cooperation.
Amidst this bonhomie — which also includes a historic first Chinese participation in the Vostok military drills — it is important to note that in the Chinese media’s coverage of the bilateral meeting between Xi and Putin, multilateralism was strongly emphasized. For instance, the report says that Xi called on the two sides to, “firmly uphold the purposes and principles of the UN Charter, jointly oppose unilateralism and trade protectionism, and forge ahead with the construction of a new type of international relations and a community with a shared future for mankind.” Now you could view this from a view that it targets what is described as US unilateralism. But there’s also a message in there for Moscow, which can be gleaned from this analysis by Alexander Cooley in a recent China Power podcast.
Five Apples & the Economy
China’s fixed asset investment has slowed to a record low of 5.3% in the first eight months of this year, official data showed this week. Infrastructure investment slowed to 4.2% during the same period, the slowest since the data series started in 2014, reports Bloomberg. In addition, growth in Chinese exports also to under 10% in August, down from more than 12% the previous month. While these are sources of concern, Reuters reports that industrial output grew by 6.1% year-on-year in August and retail sales rose 9.0% year-on-year, both beating expectations. AFP reports that “China’s cabinet has indicated it will step up support for the economy and quicken infrastructure project approval in coming months, but experts do not expect the measures to kick in until next year.” Announcing the numbers, Mao Shengyong, spokesperson for the National Bureau of Statistics, acknowledged that the trade war with the US had “certainly had an impact” — albeit a limited one.
Perhaps where the impact of the trade war is most visible is on China’s stock markets. Bloomberg reports that from its peak market cap of $10 trillion in 2015, China’s stock market has fallen to a market cap of $5.7 trillion. That’s essentially five times the valuation of Apple Inc, as the report tells us. Some $2.66 trillion have been wiped off the value of Chinese equities since January, estimates KGI Securities Co analyst Ken Chen. For a more detailed breakdown of the kind of impact that the trade war is having on China’s equity markets, do check out this Reuters report. Amidst all this, SCMP reports that a major conference is being planned by the end of this month, during which Beijing will reaffirm its support for state-owned enterprises. The report is based on inputs by two unnamed sources, one of which says that, “China has no intention of reducing the ‘backbone’ role of state-owned enterprises in its economy and will instead seek to build on Xi’s vision of creating a ‘bigger and stronger’ state sector.” The report also states that during the conference, Vice Premier Liu He is expected to call on SOEs to make breakthroughs in key aspects of cutting-edge technologies and take a leading role at the front of the country’s drive to make technological progress.
If this is what indeed plays out, there are two important bits to note. First, support for SOEs does not imply a carte blanche. For instance, this week the government issued guidelines demanding that the average debt-to-asset ratio of SOEs be reduced by 2 percentage points by the end of 2020, as compared with that at the end of 2017. Thereafter, this must be “kept at the average level of companies in the same industry with the same scale.” Secondly, the bit about SOEs leading technological advancements suggests more frictions with the US and complaints over China’s industrial policy.
Tentative Trade Talks
The US Treasury Secretary has reportedly invited Liu He for a new round of trade talks, reported the Wall Street Journal this week. China’s Ministry of Commerce confirmed that an invitation had indeed been received. The WSJ report adds that Trump administration officials “sense a new vulnerability and possibly more flexibility from Chinese officials” now. In addition, the story also argues that the invitation comes amid growing domestic pressure in the US. That’s something that President Donald Trump was quick to take exception to, as he tweeted,
We are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet.
That’s not entirely the case. There is, of course, pressure on the Trump administration to balance the demands of the business community with political priorities.
For instance, this week, than 80 American trade associations launched a new coalition called Americans for Free Trade to lobby the Trump administration. They will be joining with agriculture groups to launch a multimillion-dollar campaign against tariffs called ‘Tariffs Hurt the Heartland’. The Washington Post reports that a new survey by AmCham China and AmCham Shanghai found that nearly two-thirds of more than 430 US firms in China say the duties Trump placed on billions of dollars of Chinese imports this summer have hurt their businesses. What these firms have encountered are “more inspections, delayed customs clearance and other forms of heightened regulatory scrutiny,” adds the report. Despite that, only 6% of the respondents suggested that they’d consider moving their factories to the US. That’s good news for Beijing, which as WSJ tells us, is working on a new charm offensive with multinational firms. Liu He, the report says, met with American business executives last month, promising that “We won’t allow retribution against foreign companies.” The report also adds that, “Vice President Wang Qishan is set to meet with a group of senior Wall Street executives from JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group . His message, according to a Chinese official, will be it’s business as usual.”
Meanwhile, in China, state media has emphasized that the US “should not be mistaken that China will surrender” to its demands. But behind the bravado, there are serious concerns owing to lingering economic issues (discussed in section 2). In addition, CNBC reports that many Chinese businesses are acknowledging that the trade war is and will have a serious impact on them. Meanwhile, AFP reports that “Chinese factories making everything from bikes to tyres, plastics and textiles are moving assembly lines abroad (to Vietnam, Mexico and even Serbia) to skirt higher customs taxes on their exports to the United States and elsewhere, according to public filings.” Add to this, the backlash against Chinese tech investments across the industrialised West and the potential for coordinated policy action by the G7.
Clearly, therefore, both sides have a tricky task of balancing economic and broader political and strategic interests. For now, Reuters reports that the time and venue of the meeting is yet to be decided. And given the mistrust following past talks and uncertainty with regard to Trump, it remains to be seen if these talks even take place.
India’s ‘Wily’ Policy
The Indo-US 2+2 dialogue, including the signing of COMCASA, has left a lingering conversation in the media in India and China. PTI reports that Alice Wells, the Principal Deputy Assistant Secretary of State for South and Central Asia, confirmed that China’s reference came up during the 2+2 talks. This was “most in the context of the vision the two nations (India and US) have for the Indo-Pacific region, which excludes no nation.” Wells also said that the two sides discussed trilateral cooperation with Japan and quadrilateral cooperation with Australia. The Indian Express’ Shubhajit Roy tells us that India, however, is cautious about such broader engagement. The report says:
Sources told The Indian Express that the United States wanted to upgrade the level of engagement between the quadrilateral grouping to the level of foreign secretary, but the Indian side politely told them to keep it to the joint-secretary level — which is at least two steps lower than the proposed engagement.
It also adds that the “Indian side conveyed to the US that the quadrilateral grouping should not be conflated with the Indo-Pacific issue, but should be kept separate.” It’s this Indian approach – deepening the relationship with the US and allies while holding informal summits with Chinese and Russian leaders – that analyst Liu Zongyi calls “wily” or “tactical adjustment rather than a strategic one.”
Meanwhile, in New Delhi, the Parliamentary Standing Committee on External Affairs called on the government to maintain “healthy scepticism” while dealing with China. The panel also reportedly noted that the government had maintained an “an ambivalent view” while confirming PLA activities for other areas along the Doklam plateau. The panel’s report on the Doklam standoff has been submitted to the Lok Sabha Speaker. The Tribune reports that as per the panel, “Chinese infrastructure built uncomfortably close to the tri-junction has not yet been dismantled.” The panel’s assessment, as per The Statesman, is also critical of the Narendra Modi government for being “overtly cautious” about China’s sensitivities while dealing with Taiwan and Tibet. In contrast, Beijing does not exhibit the same deference while dealing with India’s sovereignty concerns, as underscored by CPEC. The panel is also said to be advising that:
Dealing with a country like China essentially requires a flexible approach. The committee strongly believes that the government should contemplate using all options, including its relations with Taiwan, as part of such an approach.
Finally, Chinese Consul General in Kolkata Ma Zhanwu is reported to have said, that Beijing is planning a bullet train service between Kunming and Kolkata, which will pass through other neighbouring countries like Myanmar and Bangladesh. It’s still not clear if this is a tangible proposal on the table or an idea that’s being floated to test waters on BRI and China’s growing presence in the Indian sub-continent.
Speaking of which, China and Nepal inked a deal last Friday, whereby the latter would be permitted access to four ports at Tianjin, Shenzhen Lianyungang and Zhanjiang. China also reportedly agreed to allow Nepal use its dry (land) port ports at Lanzhou, Lhasa and Xigatse, as well as roads to these facilities. All of this, of course, is being reported from the point of view of New Delhi’s loss of influence in Kathmandu. But when doing so, it’s important to keep in mind the following assessment by Kamal Dev Bhattarai in The Diplomat:
Chinese ports are not feasible for Nepal to use in terms of cost and distance. There is a reason two-thirds of Nepal’s trade is with India: geographical proximity and a well-connected border. Even with this agreement in place, overcoming those Indian advantages will be a steep climb for China.
Despite that, the fact that there is a shift in Nepal’s approach, evident in its decision to stay away from the BIMSTEC military drills in Pune while going ahead with bilateral drills with China. As Geja Sharma Wagle writes in this SCMP piece, Nepal is barring China-tempered steel.
Pakistani cabinet member Abdul Razak Dawood set the cat among the CPEC pigeons this week. In an interview to the Financial Times, he said that the previous government “did a bad job negotiating with China on CPEC,” suggesting that the new government would look to re-negotiate deals. The report says that Pakistan Prime Minister Imran Khan has established a nine-member committee to evaluate CPEC projects, with Dawood suggesting that “we (Pakistan) should put everything on hold for a year so we can get our act together.” However, the report adds that both Dawood and Asad Umar, Pakistan’s new finance minister, are careful not to offend Beijing even as it takes a closer look at CPEC agreements, with Umar saying that Pakistan would not go down the Malaysia route.
The governments of both China and Pakistan reacted strongly, criticizing the FT report. Dawood said that he was “misquoted”; Pakistan’s commerce ministry said the report was premised on premised on “out of context” statements; and China’s foreign ministry said the “remarks cited by Financial Times were out of context and distorted its original meaning.”
All of this was taking place in the backdrop of Chinese Foreign Minister Wang Yi’s visit to Pakistan. During the visit, Wang met with the country’s top civilian and military leadership, including Imran Khan, President Atif Alvi and COAS Qamar Javed Bajwa. The readout of the meeting with Bajwa put out by China’s foreign ministry is intriguing. It suggests that Wang’s priorities were ensuring the military’s support for CPEC and with regard to Afghanistan, while it was Bajwa who raised terrorism and ETIM. Perhaps, I am reading too much into this, but it seems like a play on Beijing’s insecurities – a gentle reminder of why you need us. Xinhua’s report on the Khan-Wang meeting emphasizes the new Pakistani government’s pledge to promote CPEC construction. Wang also took the time to tackle concerns about debt, arguing that out of the 22 CPEC projects being implemented, only 4 are based on concessional loans, adding that only $19 billion had been invested in the CPEC so far.
WSJ reports that Islamabad’s attempt is to realign the goals of CPEC. What this means is a shift away from big ticket infrastructure projects to establishing factories and focussing on poverty-alleviation initiatives. The report quotes Information Minister Chaudhry Fawad Hussain as saying that: “We’re not limiting CPEC, we’re expanding it. Our government’s priorities are not infrastructure, but industrialization and human skills development.” One indication of such a process being in motion is the decision this to stop energy projects based on imported coal, which was taken with the Chinese ambassador being present during the progress review meeting on CPEC projects this week. WSJ reports that CPEC has built three power plants, for around $6 billion, that run on imported coal, and more are planned.
Two final points to note are that Wang Yi extended an invitation to Imran Khan to visit China, with Khan suggesting that this would take place in November to coincide with the China International Import Expo. But that is not likely to be Khan’s first foreign visit as PM, with speculation rife that he’ll travel to Saudi Arabia soon. Second, reports suggest that Pakistan and China have reached an agreement to open CPEC to third-country investors, which perhaps is in line with the progress review meeting’s call for exploring “new mode of financing” for future projects.
Xinjiang’s Global Echo
China’s treatment of ethnic Uighurs in Xinjiang is gradually attracting international attention, with criticism beginning to pour in from different quarters. Last month, the United Nations Committee on the Elimination of Racial Discrimination took up the issue. This week Human Rights Watch published a new report titled: Eradicating Ideological Viruses: China’s Campaign of Repression Against Xinjiang’s Muslims. The report is primarily based on interviews with 58 former residents of Xinjiang, including 5 former detainees and 38 relatives of detainees. It discusses the impact of the Strike Hard Campaign against Violent Terrorism, which was launched in May 2014. The campaign has involved arbitrary arrests, physical and psychological abuse, establishment and detention of people in re-education camps, coercive political re-education and the increasing use of technology for surveillance.
The Chinese foreign ministry dismissed the report, calling it “full of prejudice” and a distortion of facts. Spokesperson Geng Shuang added that “Xinjiang is enjoying overall social stability, sound economic development and harmonious coexistence of different ethnic groups…The series of measures implemented in Xinjiang are meant to improve stability, development, solidarity and people’s livelihood, crack down on ethnic separatist activities and violent and terrorist crimes, safeguard national security, and protect people’s life and property.”
A day later, Geng was responding to Michelle Bachelet, the United Nations High Commissioner for Human Rights. Reuters reports that in her maiden speech to the UN Human Rights Council, Bachelet raised the issue of detention camps in Xinjiang, terming the reports “deeply disturbing” and called on China to permit access to UN staff. In response, Geng said that Bachelet must “respect China’s sovereignty, fairly and objectively carry out its duties, and not listen to one-sided information.”
At the same time, the US State Department also took note of the HRW report, saying that it was “deeply troubled by the worsening crackdown, not just on Uighurs (but also) Kazakhs, other Muslims in that region of China.” Reuters reports that the department had recently received a letter from a bipartisan group of US lawmakers asking Secretary of State Mike Pompeo to impose sanctions on a number of Chinese officials including Chen Quanguo, the Party chief in Xinjiang. US Assistant Secretary of State Manisha Singh also hinted at potential use of the Global Magnitsky Act during a congressional hearing this week.
Beijing’s response to this has been three-fold. First, deny that there exists a problem. Second, frame it as China’s internal affair, with foreign powers engaging in cynical geopolitics. Third, point fingers at the West for its failure to tackle radicalism and terrorism and its surveillance infrastructure, while arguing that China’s method was the “necessary way” to deal with the problem. Sample this quote by Li Xiaojun, director for publicity at the Bureau of Human Rights Affairs of the State Council Information Office:
It’s like vocational training … like your children go to vocational-training schools to get better skills and better jobs after graduation. But these kind of training and education centers only accept people for a short period of time – some people five days, some seven days, 10 days, one month, two months.
But it remains to be seen if this works, given that the Xinjiang issue is gaining global traction. This week, the man in line to be the next prime minister of Malaysia, Anwar Ibrahim, discussed the issue publicly. “This has gone out into the mainstream media as an issue, and I believe we should use a proper forum to start highlighting these issues and seek this understanding from the Chinese authorities,” he told Bloomberg, adding that the reason other Muslim countries weren’t saying much was because “they’re scared.”
Philippines & Japan
The Washington Post carried a decent round-up of three recent stories related to the South China Sea. It covers the deployment of the AG600 Kunlong, which is China’s largest amphibious aircraft currently in use. The jet is capable of transporting large numbers of troops and military equipment. The next report is about UK-China frictions over the passage of British warship HMS Albion through the South China Sea in late August. The third covers the Philippines’ extrication of a grounded warship around the Half Moon Shoal and its rejection of Chinese offer of assistance. SCMP has But what the round-up misses out on is this WSJ report, which claims that the two sides are in talks to ink a deal to “share oil and natural-gas resources in the disputed waters of the South China Sea.” Such a deal could become a template for similar engagements with other countries in the region, potentially impinging on interests of companies from states outside the region. Chinese Foreign Minister Wang Yi is set to visit the Philippines from September 16 to 18 for talks, with speculation rife that a deal likely to be signed during Xi’s visit to the country later this year.
Meanwhile, Sino-Japanese ties received a major boost this week, with Xi and Abe meeting in Vladivostok. Following a bilateral conversation, Xi said that Sino-Japanese ties “are facing an important opportunity for improvement,” calling on the two countries to “meet each other halfway.” Xinhua reports Abe as saying that Japan-China relations are returning to the right track, with increasing space for bilateral cooperation. Meanwhile, Premier Li Keqiang met with a visiting Japanese business delegation, calling on both sides to “consolidate the momentum of improvement” in ties. A lot of this warming of relations is a product of the Trump effect, as per this WSJ report. But there’s much more to the China-Japan dynamic. CGTN’s Asia Today discussed warming Sino-Japanese ties this week, with analysis indicating that common interests range from trade, protectionism, managing territorial disputes, denuclearisation of the Korean peninsula and enhanced cooperation in terms of overseas investments. Reuters reports that Abe has confirmed an invitation from Beijing for a visit, with Japanese media speculating the date to be around 23 October.