A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, the US pushes back against China’s “state-sponsored repression, surveillance, indoctrination and brutality.”
1. Xinjiang’s Camps
The local government of China’s Xinjiang Uygur Autonomous Region amended its Regulation on Anti-Extremism to add a clause, ostensibly to legalize the policy of detention of people for “re-education.” SCMP’s Nectar Gan reports that the new clause states that: “Governments at the county level and above can set up education and transformation organisations and supervising departments such as vocational training centres, to educate and transform people who have been influenced by extremism.”
Experts like Donald Clarke, Maya Wang and Jeremy Daum , however, argue that this attempt to “legalize” such detention has no basis even in Chinese law. For instance, Clarke writes: “Under both Article 37 of China’s Constitution and Articles 9 and 10 of its Law on Legislation, the physical restriction of personal liberty is permitted only pursuant to statutes passed by the National People’s Congress or its Standing Committee.” Given this scenario, Daum concludes that “This will require further legislation. That said, it is not likely these regulations were put forward without consent from central authorities, and further legal basis may be forthcoming.”
The Xinjiang government’s decision raises a few other interesting questions: why do this in the first place, and why now? If you were to believe Global Times’ Hu Xijin, then the detentions were “in line with the spirit of law” in Xinjiang to begin with. Then why do this? The answer lies in the expanding global conversation that is critical of the Chinese government’s policies in Xinjiang. (Covered here and here).
Much of the pushback is being led by the US. This week, the Congressional-Executive Commission on China published its annual report. The report recommends deploying the Magnitsky Act “to levy financial sanctions or deny US entry visas” on Chinese officials involved in detentions and abuses. Senator Marco Rubio, who chairs the commission, also wrote for a scathing WSJ piece arguing that US “optimism” on China “was misplaced,” adding that the Communist Party “unflinchingly continues to preserve its monopoly on domestic political power through state-sponsored repression, surveillance, indoctrination and brutality.” Rubio, along with senator Christopher Smith, the CECC co-chair, are likely to introduce a new Xinjiang Uyghur Human Rights Act of 2018 in Congress this week. The CECC has also indicated that it will be recommending Uyghur academic Ilham Tohti for the Nobel Peace Prize.
But it’s not just the US. Malaysia reportedly freed 11 ethnic Uighur Muslims who had fled to the country after a jailbreak in Thailand last year. The individuals were sent to Turkey, despite Beijing’s request for extradition.
2. Trump-Xi Meeting?
The Wall Street Journal reported this week that talks are underway for a possible Trump-Xi meeting at the G20 summit in Argentina. The report says that pushing for the meeting are Treasury Secretary Steven Mnuchin and National Economic Council Director Larry Kudlow. Another interesting point to note is that Christopher Nixon Cox, grandson of former President Nixon, is reportedly involved in planning for the meeting.
What’s likely to ease some stress in the lead-up to a possible Trump-Xi meeting are reports that the Treasury Department’s semiannual foreign exchange practices report is likely to refrain from labelling China as a currency manipulator. That, however, doesn’t imply that the RMB’s rate is not an issue for the US administration. Mnuchin met with PBOC Governor Yi Gang in Bali this week. Prior to that meeting, he told the Financial Times that “We are going to absolutely want to make sure that as part of any trade understanding we come to that currency has to be part of that.”
So, what can you expect from a Trump-Xi meeting? This quote from an unnamed source in the WSJ report is interesting: “The plan is to get Trump in a room with Xi, get a small win and declare an end to the whole thing.”
But that’s the thing. No single meeting is likely to “end the whole thing.” The US-China rivalry is increasingly becoming structural, at least in terms of the American response to China’s rise. Here’s how:
- The frosty meeting between Chinese Foreign Minister Wang Yi and US Secretary of State Mike Pompeo in Beijing this week. Xi, of course, did not meet Pompeo during this visit. NYT reports that Wang chided the US for “carelessly” “casting a shadow” over bilateral relations. Pompeo responded saying that the United States had a “fundamental disagreement” on the issues that China raised.
- Reactions to US Vice President Mike Pence’s speech at the Hudson Institute indicate that a “new cold war” has been kindled. In China, there were a string of nationalistic and indignant pieces published by state media, attacking the US administration’s policies and Pence personally. Although as Chen Dingding notes in this piece in The Diplomat, there’s a spectrum of reactions in China ranging from pessimistic, concerned to relatively calm.
- WSJ reports that new rules by the US Treasury now “require foreign investors to alert it to all deals giving them access to critical technology across 27 industries—including semiconductors, telecommunications and defense—that the committee believes could threaten U.S. national security and technological superiority.” This is predominantly in response to concerns over Chinese investment and concerns over transfer of technology, espionage and so on.
- Speaking of espionage, the US Justice Department this week confirmed that a Chinese intelligence agent, charged with attempting to steal American trade secrets from multiple US aviation and aerospace companies, had been extradited from Belgium. Xu Yanjun was said to be the deputy division director with the Jiangsu Province Ministry of State Security, a provincial arm of the Ministry of State Security. Similar concerns of industrial espionage are growing across Europe too.
- Finally, consider the so-called “poison pill” clauses of the recent United States-Mexico-Canada agreement. The deal effectively lends the US a significant say in any Canadian or Mexican trade negotiations with a non-market country. And such clauses are replicated in trade deals with other partners, as US Commerce Secretary Wilbur Ross seems to desire, then it fundamentally alters global trade alignment.
3. Stimulus & SOEs
An economic analysis put out by the IMF this week argued that if the US slaps tariffs on all Chinese imports, the US and China’s economic output for 2019 would dip by 0.9% and 1.6% respectively. This, I believe, would worsen the already slowing growth rate, adding greater pressure on the Chinese government. Already there are concerns within China that things are worse than they appear to be. Bloomberg reports that the CKGSB Business Conditions Index, compiled by the Cheung Kong Graduate School of Business, dropped to the lowest level in its seven-year history in September. The report quotes Li Wei, the economics professor at CKGSB as saying that “Most surveyed companies are now experiencing unprecedented difficulties and have become increasingly pessimistic about business prospects for the next six months.” In addition, China’s stock markets have been plummeting, hitting multi-year lows.
A more tangible sign of such concern is the People’s Bank’s decision this week to cut the reserve requirement ratio (RRR) by 100 basis points. This is the fourth such cut this year. Reuters reports that the “central bank will pump out a net 750 billion yuan ($109.2 billion) in cash via the cut, which will release a total 1.2 trillion yuan in liquidity, with 450 billion yuan for offsetting maturing medium-term lending facility (MLF) loans.” Apart from these monetary policy moves, The Economist reports that on October 8, the State Council “announced that it would give exporters bigger tax rebates and also called on municipal officials to accelerate their investment plans, an important signal in China’s governance system.” Such steps it concludes indicates that the government is inching towards a stimulus. Other analysts also seem to agree with that assessment.
Meanwhile, tensions over Beijing’s support for state-owned enterprises boiled over this week. SCMP reports that in a recent communique, Business 20, an advisory group that represents the views of the private sector, had called for an end end to state-related competitive distortions. Following that, “the China Council for the Promotion of International Trade, a semi-governmental trade advocacy group, insisted that the B20 proposal should not be submitted to G20 leaders at their next summit and demanded revisions to the sections covering state-owned enterprises (SOEs).”
Thereafter, on Tuesday, the Chinese government issued fresh guidelines for SOEs, advising them to operate like “normal business entities,” according to this report. The report adds that the “new guidelines do not directly challenge Beijing’s view that SOEs must play a vital role in the national economy and answer to the Communist Party. However, new directives for SOEs governing their corporate governance structure, the protection of minority shareholder rights and management philosophy marked a shift by the government away from a policy of insisting that the Communist Party have a bigger role in running SOEs and that party loyalty be put ahead of profitability in SOE-related decision-making.”
4. India’s Trade Strategy
Speaking at a panel discussion over the weekend, former Indian Foreign Secretary S Jaishankar said that he saw “great strategic sense” in India improving its relationship with China. He further added that “in a much more multi-polar world where everybody is playing everybody, it is not in India’s interest that our relationship with one big pole of the world is particularly bad.” From the Chinese perspective, the recent shift in ties with India is deeply linked to the developing schism in the relationship with the US and the potential of being isolated by say deepening Indo-Japanese or Indo-Australian engagement – although the concept of the Quad still requires some soul searching by all parties.
This was evident in remarks this week by Ji Rong, spokesperson of the Chinese Embassy in India. Ji has been quoted as saying: “Under the current circumstances, China and India need to deepen their cooperation to fight trade protectionism…Facing unilateralism and bullying activities, China and India have more reasons to join efforts to build a more just and reasonable international order.” Brookings’ Tanvi Madan rightly points out that this is another example of the Chinese embassy talking about India’s relations with a third party. In the Indian media, the remarks were picked up as a reflection of Beijing’s need to get New Delhi “on its side.”
CNBCTV18 reports that the Indian Commerce Ministry is eyeing opportunities amid the US-China trade war to expand Indian exports to China. It says that 61 agricultural and industrial products have been identified for exports. The goal is to boost Indian exports by 25%, along with doubling the number of Indian companies working in China and Chinese companies working in India.
However, the Hindu BusinessLine, citing a Commerce Ministry study, reports that India can only enjoy limited gains from the Sino-US trade war. The study reportedly argues that there is an increased need for both the US and China to have India as a reliable partner in keeping global trade and investment flows open. This effectively provides India with a new leverage in negotiating the terms of economic engagement with both economies.
The limited gains bit comes from the estimate that “out of the over 600 items on which the Chinese government has imposed higher tariffs for the US, India at present exports just 44 items and there is scope for increasing sales in China of items such as fresh grapes and steel alloy… For future engagements, the study proposed easing of non-tariff barriers in items like pharmaceuticals, fruits and meat and harnessing potential in services like IT.”
Meanwhile, on a lighter note, the world’s two most populous countries are set to clash on the football field this weekend – the first such encounter since 1997.
Also check out:
How India can crack open the Chinese fortune cookie – Good piece by G Parthasarthy
India needs China’s help in economic catch-up – Global Times
5. Debt & Drones
After weeks of ifs and buts, the Pakistani government has finally approached the IMF for what will be its 13th bailout package. The amounts that are being talked about range from $10 billion to $12 billion. What will be interesting to watch, however, are the conditions that are placed before Pakistan. Early on, IMF chief Christine Lagarde has insisted that the fund will require “absolute transparency” on Pakistan’s debts, including those owed to China. For many analysts, Pakistan’s decision to go to the IMF indicates flaws in China’s approach to BRI.
In addition, reports over the weekend suggested that the new Pakistan government led by Prime Minister Imran Khan was reviewing CPEC projects, promising to address Balochistan’s reservations. Thereafter on Monday, Khan is reported to have chaired a high-level meeting to review CPEC projects in preparation for his visit to China in November. On Tuesday, the Chinese Foreign Ministry reiterated that the new Pakistani government backed CPEC and that Pakistan’s debt woes were not China’s creation. On Wednesday, China’s Ambassador to Pakistan Yao Jing visited the Quetta Press Club, where he said that China welcomed Saudi investment in CPEC, adding that the next stage of CPEC will focus on joint ventures and the social sector, with more resources given to the western provinces. Following that, on Thursday, the Pakistani Foreign Office claimed that Khan’s statement on CPEC projects being under review had been misconstrued and that there was no such review.
Despite the frictions in economic cooperation, the military component of the Sino-Pakistan relationship received a boost this week. Reports suggest that the Aviation Industry Corporation of China (AVIC) and Pakistan Aeronautical Complex (PAC) have agreed to co-produce 48 Wing Loong II unmanned aerial vehicles. This was revealed in a social media post on Saturday by the Pakistan Air Force’s Sherdils aerobatic team. Neither AVIC nor PAC have so far publicly confirmed the deal. The Wing-Loong II drone can perform reconnaissance, surveillance and ground strike missions. For more on its specifications and capabilities, do check out this ET piece.
6. Missing & Expelled
On October 5, it was reported that the chief of the Interpol, Meng Hongwei, was missing. Meng had been untraceable since late September after having traveled from France to China. After two days of speculation and amazement, Chinese authorities announced that Meng had been detained as part of the Communist Party’s anti-corruption campaign on charges of taking bribes. The same day, Interpol put out a statement that Meng had resigned from his post and that his resignation had been accepted.
There are a few interesting strands to this story:
- First, why was he detained? Meng, a vice minister for public security in the Chinese apparatus, was chosen as the first Chinese president of the Interpol in 2016. According to analysts quoted in this SCMP piece, this suggests that Meng didn’t necessarily belong to the Zhou Yongkang clique, despite much speculation given that Zhou was once his boss. Therefore, the factional rivalry component of this remains unclear.
- Second, Meng’s wife Grace Meng has argued that her husband is a victim of political persecution and also claimed that she has been threatened too. Grace Meng now has received French police protection.
- Finally, this case has grave implications for the Chinese government’s efforts to project itself as a responsible stakeholder shaping global governance norms. As Bethany Allen-Ebrahimian argues in this piece for The Atlantic, Meng’s case shows that “China’s participation in and even its leadership of international institutions will be openly subordinate to the diktat of the Communist Party… and raises serious questions about the fitness of any member of the Chinese Communist Party to serve in a leadership position in international organizations.”
While Meng’s being investigated, Financial Times journalist Victor Mallet is leaving Hong Kong, after his the government refused to renew his visa. Mallet had reportedly chaired a discussion involving an independence activist at the Foreign Correspondents’ Club. The individual in question was Andy Chan, the leader of the Hong Kong National Party, which the government later banned for threatening national security. The FCC put out a strong statement against the government’s decision, calling it “extraordinary… if not unprecedented.” The statement added that this decision also had implications for Hong Kong’s reputation “as a place where the rule of law applies and where freedom of speech is protected by law.” Several Hong Kong media and legal groups have also demanded an explanation from the government.
Meanwhile, China Daily argues that criticism of the Hong Kong government’s decision is nothing more than a “smear” campaign against the “one country, two systems” policy. This part of the editorial is worth paying attention to: “There is also the allegation that the central government is trying to “mainlandize” the SAR. In fact, should “mainlandization” mean the SAR further integrates into the country’s overall development strategy, it is something good and what the SAR should continue to do.”
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