A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, the APEC meeting, the terror attack on the Chinese consulate in Karachi and India-China border talks dominated the headlines.
1. Summit Conflict
If you read the Chinese press, Xi Jinping’s trip to Papua New Guinea was not much different from most of his other diplomatic travels. Xi arrived for a state visit ahead of the APEC summit, amid brewing “China passion.”
This Guardian report captures the fanfare around the visit: Xi was “met by a military band and traditional dancers dressed in parrot feathers, possum pelts and seashell necklaces. Across the capital, images of Xi beamed down from massive billboards and the streets were lined with high school students, some waving Chinese flags.” Tangibly, there was a handover ceremony of a road, Independence Boulevard, which he attended with Prime Minister Peter O’Neill and the announcement of a comprehensive strategic partnership. There was also some ping pong diplomacy and the opening of a school backed by Beijing. There was, however, one glitch, when Chinese officials barred journalists from Xi’s Friday meeting with forum with leaders of eight island countries. Speaking to Reuters, Jonathan Pryke of the Lowy Institute aptly described this as an “own goal.”
Come the weekend, however, things were to get even more difficult. Speeches by Xi and US Vice President Mike Pence offered two contrasting views of the future of the world order. While Xi warned that “protectionism and unilateralism are resurfacing. The multilateral trading system is under assault,” Pence criticized the building of a “constricting belt or a one-way road.” He also said that the US would support infrastructure projects in the region and to do this, it “has more than doubled” its financing capacity to $60 billion. The Chinese foreign ministry was quick to be cheeky about this, raising questions over the US’ ability to deliver on its promises.
The acrimony then spilled over as the delegates worked to finalize a joint communique. Reports suggest that the wrangling was so intense that at one point Chinese delegates “tried to barge into” PNG Foreign Minister Rimbink Pato’s office to influence a summit draft communique. They were denied entry. In the end, the meeting ended without a communique being issued for the first time in the history of the institution.
Reuters reports that at one point Wang Yi had objected to two paragraphs in a draft document. It adds, “One mentioned opposing ‘unfair trade practices’ and reforming the WTO, while another concerned sustainable development.” Josh Rogin’s Washington Post piece offers a fairly comprehensive account of the events, which he argues were a product of China’s “tantrum diplomacy.” Wang Yi’s description is that the failure to agree on a document was a result of certain parties “excusing protectionism and unilateralism, and not accepting reasonable revisions from the Chinese and other parties.”
2. CPEC Under Fire
Xinhua reports at least seven people, including two policemen, two civilians and three terrorists, were killed in an attack on the Chinese consulate in Karachi on Friday. According to AFP, the Balochistan Liberation Army has claimed responsibility for the attack. The group says that it sees “the Chinese as an oppressor, along with Pakistani forces.” Chinese and Pakistani officials have reportedly confirmed that Chinese staff at the consulate are safe. Reuters reports citing Karachi Police Chief Amir Shaikh that there were three attackers who sought to get inside the heavily fortified compound but failed and were killed. The Reuters report also quotes Jiand Baloch, a BLA spokesperson, as saying that “China is exploiting our resources.” NDTV reports that the Chinese foreign ministry and the Indian Ministry of External Affairs have both condemned the attack.
Friday’s attack comes after Pakistan Prime Minister Imran Khan’s recent visit to China. Khan is reported to have claimed that this was the most successful visit by a Pakistani Prime Minister to China. Geo News reports during an interaction with journalists at the PM House, Khan said that Pakistan had received “a big package from China” but he didn’t want to announce the details. Apparently, President Xi had asked him not to do so, given that other countries will start demanding more money from China. There’s no acknowledgement of any such aid from the Chinese side, as far as I am aware.
Meanwhile, an IMF mission led by Harald Finger ended its recent rounds of talks in Pakistan. The mission says that “there has been broad agreement on the need for a comprehensive agenda of reforms and policy actions aimed at reducing the fiscal and current account deficits, bolstering international reserves, strengthening social protection, enhancing governance and transparency, and laying the foundations for a sustainable job-creating growth path.” However, there still isn’t a clear deal on a package for Pakistan. The News reports that a package of $6 billion is under discussion, with the sticking points being the IMF’s demands on “jacking up tax revenues, tightening of monetary and fiscal policies and sharing full details of the China Pakistan Economic Corridor.”
Finally, there was intense social media chatter this week following a video of a beatdown on a Chinese street went viral. There were claims that the video showed a Pakistani student in China being beaten to death. Soon, officials from both countries issued statements stating that the video was fake. The Pakistani Foreign Office issued a statement saying that Usama Ahmad Khan — a Pakistani student at Shenyang Jianzhu University – had committed suicide. China’s deputy head of mission in Islamabad, Lijian Zhao, stated “that it is our collective responsibility to counter fake and concocted stories.”
3. Truce Unlikely
The stage is being set for the Donald Trump-Xi Jinping meeting in Argentina next week. On Thursday, Trump told reporters that China “very badly” wants to get a deal with the US. Beijing, on the other hand, says that talks must be “on the basis of equal consultations, mutual benefits and trust.” There’s much speculation ahead of the talks. Teams from China and the US were first expected to hold a round of talks in Washington before heading to the Buenos Aires meeting. That plan was later dropped, SCMP reports, after “work-level discussions” between Beijing and Washington. Then there’s the issue of who will be at the dinner table during the Trump-Xi meeting. Again SCMP reports that trade advisor and China hawk Peter Navarro will not be by Trump’s side. While that might lead some think that there is a softening that’s taking place, it’s too early to think of a breakthrough.
Earlier this week, U.S. Trade Representative Robert Lighthizer issued an update of its Section 301 probe into China, saying that “China has not fundamentally altered its unfair, unreasonable, and market-distorting practices.” According to Reuters, he also claimed that China had failed to take any substantive actions to address U.S. concerns and had made clear it would not change its policies in response to the initial investigation. The USTR report also claims that Chinese computer hacking attacks aimed at stealing American technology have increased this year. Beijing, however, has dismissed that charge.
Even if you see this as mere posturing ahead of the meeting with Xi, there are systemic actions that the US is taking, which suggest that the friction over trade and technology isn’t going away anytime soon. For instance, on Monday, the Trump administration put out a document for public comment. The Commerce Department says it is seeking public comment by December 19 on whether there are certain emerging technologies that are essential to the national security of the US. The list includes technologies related to AI, genomics, quantum computing and so on. Bloomberg reports that as per Deutsche Bank AG, placing such controls would have a “profound and long lasting adverse impact” on relations between the US and China. Paul Triolo, head of global technology policy, Eurasia Group, explains that “the combination of investment restrictions under revamped rules governing CFIUS and the new export control regime designed to capture so-called emerging technologies is all bad news for Beijing, because it enshrines in law a new system that gives the U.S. government the ability to deny China access to U.S. technology across a much broader range than previously.” The interdependencies between American and Chinese companies in the tech sector are evident from the latest deals with between Nvidia Corp and Chinese electric vehicle startups XPeng Motors, Singulato Motors and SF Motors to develop autonomous driving technology.
In addition to all this, SCMP reports that the US embassy in Beijing has revoked 10-year multiple-entry visas issued to some researchers specialising in China-US relations. The report says that this is the second visa policy change after in June this year, the US launched a restrictive visa policy, cutting visas for Chinese graduate students in robotics, aviation and advanced manufacturing from a maximum of five years to 12 months.
Given all this, I’d go with the view of Bo Zhuang, chief economist and director of China research at TS Lombard, who expects a “photo op” and a probable “mock deal” from the meeting.
4. ‘Great Wall of Trust’
Earlier this week the Chinese embassy in New Delhi organised the China-India Youth Dialogue 2018. Prime Minister Modi’s comments to the delegates there called for “Great Wall of Trust and Cooperation” between the two countries. Ambassador Luo Zhaohui, meanwhile, reportedly said that the bilateral relationship was at its best presently. Despite all this bonhomie, little is expected in terms of outcomes at the upcoming special representatives talks over the weekend.
India’s National Security Advisor Ajit Doval landed in China on Friday for the next round of border talks with Chinese Foreign Minister Wang Yi. This is the 21st such interaction between the special representatives, but it’s Wang’s first time in this role after taking over from Yang Jiechi. The two men will meet on Saturday in Dujiangyan in southwestern China’s Sichuan province. Ahead of the talks, the Chinese foreign ministry provided a positive spin, saying that the two sides had “properly managed the differences.” However, the fact is that no one is expecting anything substantial out of the meeting.
PTI reports, “Officials maintain that this round of talks may focus more on reviewing the progress of dialogue being held on trade and maintenance of peace at borders than movement towards solution to the dispute as India headed for general elections early next year.” The Hindu’s Atul Aneja reports that there are likely to also be some preparatory talks ahead of a possible Narendra Modi-Xi Jinping meeting on the sidelines of the G20 in Argentina. The other possible areas of discussion could be the regional security situation, with potentially new cooperation projects in Afghanistan. PTI reports India’s Deputy Ambassador in Beijing, Acquino Vimal, as saying that “We are hopeful that in the months to come we will be able to identify more specific projects which can be jointly done by the government of India and government of China for the benefit of Afghanistan as desired by the government and people of Afghanistan.”
While on the boundary issue, IANS reports the Cabinet Committee on Security is likely to clear the construction of 19 roads, 29 permanent integrated buildings along the Indo-China border in Arunachal Pradesh and Sikkim as part of a critical infrastructure project worth Rs 25,000 crore. So far, even analysts quoted in The Global Times don’t seem too alarmed by any of this talk, despite the customary warnings. Meanwhile, the dates have finally been announced. Indian and Chinese troops will be participating in the two-week Hand in Hand bilateral military drills from December 10 in Kunming.
From land to the sea, Indian Navy chief Admiral Sunil Lanba’s interview with India Today offered some rather interesting insights. I’d urge you to read the interview, but here are three bits that I found interesting: First, as the interview reads, he was the one who first mentioned India’s interests in the South China Sea and that too without being prompted. Second, his responses emphasize India’s role as the net security provider in the IOR. And third and perhaps the most significant bit, the interview highlights the increasing cooperation between the Indian and US forces.
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5. Two Presidents, Two Directions
In his inaugural address, Maldives’ new president, Ibrahim Mohamed Solih outlined a new path for his country. A few crucial points in his speech are likely to stick out like sore thumbs for Beijing. First, Solih’s remarks about reckless mega development projects undertaken purely for political gain which resulted in large-scale embezzlement and corruption. Second, the statement about fortifying ties with India. And third, the broader goal of formulating foreign policy on the basis of human rights, democracy and climate diplomacy. Also noteworthy for Beijing will be Solih’s joint statement with Narendra Modi, who attended the ceremony. The two important bits in this were that “both leaders agreed on the importance of maintaining peace and security in the Indian Ocean and being mindful of each other’s concerns and aspirations for the stability of the region.” And second: “President Solih also briefed Prime Minister Modi on the dire economic situation facing the country as he takes office.”
From China, Culture and Tourism Minister Luo Shugang attended the ceremony as President Xi’s special envoy. And while Solih’s talks with Luo appeared to have been fairly routine, the relationship appears to be on a downward spiral. Former Maldivian President Mohamed Nasheed, who is key to the new ruling coalition, says that Maldives will pull out of the FTA signed with China last year. Nasheed also says that Chinese ambassador to the Maldives, Zhang Lizhong, handed the new government an invoice for $3.2 billion.
Zhang refuted those claims, saying that Nasheed had been misinformed. He says Maldives’ total external debt is $1.2 billion off which it owes some $600 million to China. He further added that: “This 600 million U.S. dollars is part of preferential (sovereign) loans which were used to fund the bridge, airport expansion and some housing projects.” Most of it had been issued with a 2 percent interest and a five year grace period. However, this lengthy defense (which includes an argument about the income Chinese tourism brings to Maldives) against charges of “debt diplomacy” in Chinese state media suggests that this narrative is seriously hurting Beijing. Maldives’ new foreign minister, Abdulla Shahid, is reportedly likely to visit Beijing sometime later this year.
Unlike Solih, in the Philippines Rodrigo Duterte has sought to expand his embrace of China, i.e., the proverbial rainbow after the rain as Xi describes it. During Xi’s visit to Manila this week, the first by a Chinese president in 13 years, the two leaders signed 29 cooperation documents and announced a Comprehensive Strategic Cooperation. One of the deals is an MoU on Cooperation on Oil and Gas Development, which could reportedly lead to a deal on oil and gas exploration in the South China Sea by November next year. SCMP reports that such a deal, however, has serious domestic political implications in the Philippines, as evident in the protests and discussion over the need for a possible constitutional amendment. Also there are serious questions about what the Philippines has got in return for its embrace of China. Apart from the development projects that haven’t materialised, there are increasing reports like these of harassment of Filipinos on the South China Sea.
6. Tech & AI Watch
Chinese tech stocks suffered a terrible slide on Friday after reports emerged that the US government was trying to persuade wireless and internet providers in allied countries to avoid dealing with Huawei Technologies.
There has been fresh focus on a tech dominated trading venue to be established in Shanghai. Bloomberg reports that Shanghai Mayor Ying Yong has called for the project, backed by Xi, to be up and running soon. Reports suggest that a first batch of 20 companies could list as early as the first quarter of 2019.
Baidu chief executive Robin Li Yanhong has credited the Chinese government’s supportive policies for the development of AI and his company’s success. Of course, as Elsa Kania points out in this thread, Baidu prioritized AI way before the Chinese government did. So this statement perhaps tells you more about the political environment in China.
Staying with AI, ZDNet, citing a Sina News report, says that “China’s Ministry of Industry and Information Technology has identified 17 key areas as priority for artificial intelligence development through inviting private enterprises and research institutions to lead key projects and set up near-term targets for 2020. These include intelligent vehicles, intelligent service robots, intelligent drones, neural network chips, and intelligent manufacturing among others.
Finally, state media reports that AI algorithms developed by Chinese researchers bagged the top five spots in the Face Recognition Vendor Test (FRVT), held by the National Institute of Standards and Technology (NIST) under the U.S. Department of Commerce. The algorithms were designed by YITU, Sensetime and the Shenzhen Institutes of Advanced Technology of the Chinese Academy of Sciences.
7. BRI Tales
Indian President Ramnath Kovind was in Vietnam this week, where he told the National Assembly that “India offers a cooperation model that does not require its to make choices but rather expands choices and expands opportunities for all, that opens not one but many roads.” There are, however, complexities with each road, as evident from the fact that the two sides have yet not been able to operationalise the Indian offer of a $500 million LC for Vietnam’s defence sector.
One country that’s gotten on the BRI bandwagon is Tonga. However, do note that inking the MoU came as Tonga’s debt burden became problematic. Reuters reports that Tonga’s financial reliance on China dates back just over a decade after deadly riots destroyed large parts of the capital Nuku’alofa. It adds that “The government rebuilt the city with Chinese financing, and the roughly $65 million in China’s initial loans to the island now exceeds $115 million due to interest and additional borrowings. This represents almost one-third of Tonga’s annual gross domestic product, budget papers show.” Signing the BRI MoU has led to loan repayments being deferred for five years.
For states participating in BRI, opportunities, constant negotiation and adjustments appear to be the norm. For instance, this FT piece discusses China’s increasing investments in Nigeria and concerns over debt. However, do note this remark by Jonathan Coker, a former Nigerian ambassador to China: “From agriculture to transportation, China has helped rebuild rail lines, roads and bridges that Nigeria could not do itself. The cost came out so much cheaper for us than going to the traditional friends such as France, the UK, Canada.” It’s important to keep in mind the agency of other states in the conversation about BRI and Chinese strategy.
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