A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, Canada puts an ankle monitor on Meng Wanzhou, and China kicks back. Also, the Politburo meets.
1. Oh Canada!
On Tuesday, Huawei CFO Meng Wanzhou was granted bail by a Canadian court. Reuters reports that “among conditions of her bail, the 46-year-old executive must wear an ankle monitor and stay at home from 11 pm to 6 am. Five friends pledged equity in their homes and other money as a guarantee she will not flee.” In the interim, hearings regarding her potential extradition to the US will continue. Last weekend, Chinese vice foreign minister Le Yucheng had warned John McCallum, the Canadian Ambassador in Beijing, of potentially “grave consequences” if Meng wasn’t released. The tabloid Global Times, in the meantime, called for “revenge.” But then, GT has always been quick to pounce on nationalistic sentiment for reach and influence. Over the course of the next few days, we’ve seen what that implies.
Two Canadians, former diplomat Michael Kovrig and businessman Michael Spavor have been detained in China for allegedly harming China’s security. Korvig is associated with the International Crisis Group, while Spavor is the head of Paektu Cultural Exchange, a non-profit social enterprise, which is “dedicated to facilitating sustainable cooperation, cross-cultural exchanges, activities, trade, and investment” with North Korea. The Chinese foreign ministry has confirmed both the detentions, adding that the “two cases are in the process of being investigated separately.” But there could be more to come. “Canada is in a tricky spot, boxed in the middle between its two largest trading partners, and worried about having to choose sides,” argues this NYT piece. The piece also quotes Canadian ambassador to China, Guy Saint-Jacques as saying: “They will start to increase pressure, canceling contracts maybe stopping shipments to China of key exports like canola, pork and beef.”
White House trade advisor Peter Navarro is on record to state that the detentions in China are linked to Meng’s case. “Of course, it is. That’s the Chinese playbook,” he told Fox. Meanwhile, US President Donald Trump drew a link between Meng’s detention and the trade talks with China in a Reuters interview. Canadian Foreign Minister Chrystia Freeland took umbrage to that. “Our extradition partners should not seek to politicize the extradition process or use it for ends other than the pursuit of justice and following the rule of law,” she reportedly said. This translation of Chinese analyst Deng Yuwen’s tweet by Reuters’ Christian Shepherd suggests that a political solution to Meng’s case as opposed to a legal one is in Beijing’s interests. In this context, consider this bit from Lu Shaye, China’s ambassador to Canada: “The detention of Ms Meng is not a mere judicial case, but a premeditated political action in which the United States wields its regime power to witch-hunt a Chinese high-tech company out of political consideration.”
One can see the debate playing out in some of the pieces out this week. For instance, Jeffrey Sachs in this article questions the legitimacy of Meng’s arrest and argues that “Such a move is almost a US declaration of war on China’s business community. Nearly unprecedented, it puts American business people travelling abroad at much greater risk of such actions by other countries.”
That the business community is concerned is apparent. This WSJ piece discusses some of these concerns among US analysts and business executives. It quotes an unidentified US tech firm official as saying: “It’s really important that people in the U.S. government think about this four steps ahead, and not just one move at a time. If we see a world where people are not just arresting tech executives but seeking their extradition from third countries, you could create a lot of uncertainty for the ability of business leaders to travel around the world.”
However, Hofstra University’s Julian Ku argues that Sachs’ view of the legitimacy of Meng’s detention is mistaken. He says that according to the affidavit described at Meng’s Vancouver bail hearing, she is charged with bank fraud and not violating US sanctions. And “there is nothing illegitimate about the US. seeking to punish bank fraud against its own corporations and nationals under US or international law.” Professor Ku further adds that even if Meng is to be tried for violating US sanctions, that wouldn’t be “an unreasonable exercise of U.S. power.”
2. Trade War Moves
One thing that the Huawei fiasco hasn’t done is derail the 90-day trade war ceasefire between Trump and Xi Jinping. Chinese Vice Premier Liu He spoke to US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Tuesday. WSJ reports that the three men “discussed Chinese purchases of agricultural products and changes to fundamental Chinese economic policies.” China’s commerce ministry says that the two sides also “exchanged views on the timetable and roadmap to push forward the following trade talks.” The WSJ report claims that Liu He plans to travel to Washington next month for further talks. However, later in the week, Chinese Commerce Ministry spokesperson Gao Feng remarked that “the Chinese side welcomes the US team to visit China for consultation and is open to visiting the US for communication.” So perhaps, there isn’t still a decision on how this will move forward.
While that gets clarified, there are some tangible steps being taken. For instance, Bloomberg reports that a “proposal to eliminate the 25 percent surcharge slapped onto US-made cars this year has been submitted to China’s cabinet. The plan would be reviewed in coming days.” Current level of tariffs on US-made cars is 40 percent. The removal of this surcharge, which was implemented as part of the trade war, would mean return to status quo ante. Also, the US Department of Agriculture has confirmed private sales of 1.13 million tonnes of US soybeans to China. That’s the first such deal since the trade war began to hit US soybean exports to China. Reuters reports that “the purchases, which traders said were made by state-owned companies in China, were viewed as the most concrete evidence yet that Beijing is making good on pledges the US government said Xi made when the two leaders met on Dec 1.”
Finally, the WSJ story referenced above also discusses conversations about China preparing to alter the Made in China 2025 policy to allow foreign companies greater participation. In this context, do note this Caixin report on the altered list for local government priorities issued by the State Council. Made in China 2025 along with cutting overcapacity in the steel and coal sectors, and promotion of public-private partnerships, which were on the 2016 list, have been dropped from the current list. The report, however, adds: “Though Made in China 2025 was left out, the list included policies that support independent innovation, high-technology industries and industrial transformation.” Rebranding underway, perhaps?
Irrespective of this, Bloomberg reports that the US Commerce Department is pressing ahead with the conversation on potentially imposing export controls on a set of new technologies that have national-security applications. The timeline for public comment has been extended to January 10, in response to companies and business groups that have asked for more time to weigh in on the complex process. “More detailed responses will help Commerce and other agencies identify and assess emerging technologies to update the control list without impairing national security or hampering the ability of the U.S. commercial sector to keep pace with and exceed international advances in emerging technologies,” the department said in a statement.
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3. Politburo on the Economy
The Politburo, with Xi in charge, met this week to discuss economic priorities in 2019. Also on the agenda, as per Xinhua, were plans for building good conduct and political integrity within the CPC as well as fighting corruption. The report talked about focussing on the “three tough battles.” But it’s essence is that China in 2019 should uphold the underlying principle of pursuing progress while ensuring stability and focus on forward high-quality development. Supply-side structural reform should be the “main task,” along with focus on deepening market-oriented reform, opening up at a high level, and building of a modernized economy. The last really noteworthy bit about the economy is this statement: “The meeting stressed that changes in the international environment and domestic conditions should be looked at dialectically, urging the Party to be prepared for potential adversities.” SCMP adds that one part of the statement talked about the Chinese government’s attempts to develop “a powerful home market” to help offset external uncertainties next year.
Economic data, however, shows increasing weakness. FT reports that “Chinese retail sales grew at the slowest pace in 15 years in November and factory output was the weakest in nearly three years, in the latest signs that economic stimulus measures enacted since the summer have failed to reverse flagging growth.” What’s positive was that “Fixed-asset investment growth hit a five-month high, supported by faster spending on housing and infrastructure. But annual growth of 5.9 per cent in the January to November period was still well below 2017’s full-year pace of 7.2 per cent.”
WSJ reports that weakness is evident across the industrial sector. It quotes Mao Shengyong, NBS spokesperson, as saying that downward pressure on growth remains strong, especially given the weaker demand for Chinese exports and the trade frictions with the US PBOC Governor Yi Gang believes that in the current circumstances, China needs “relatively loose monetary conditions.” He added that China’s current account surplus could fall to 0.1-0.2 percent of GDP this year, Yi added.
Meanwhile, on corruption, the Politburo statement was rather intriguing. At one level it says, “a sweeping victory has been won in the fight against corruption and major outcomes achieved in exercising full and strict governance over the Party.” The next sentence, however, terms the fight against corruption as “grave and complex.” That characterisation is the same as in Xi’s 19th Party Congress speech last year.
4. Disgruntled Veterans
Xinhua announced this week the detention of 10 people involved in a veterans protest in Pingdu city in Shandong Province in October. The report called it a “serious criminal case” with the 10 individuals gathering “crowds for illegal demonstrations and assaulting the police.” “Police have charged the suspects with obstructing official business, intentional injury, disrupting public order and causing disturbances,” the report added. Increasing number of protests by disgruntled veterans is a matter of serious concern for the CPC. This SCMP report has more details on the October incident.
Following the Xinhua report, People’s Daily published an commentary (in Mandarin) on the issue, saying that few veterans had “crossed the bottom line, engaged in illegal and criminal activities.” Because of their actions “the image of retired military personnel has been damaged.” The piece begins by discussing the important role of the forces and veterans. It then talks about actions taken by the central government to support veterans, such as the establishment of the Ministry of Veterans Affairs and a draft law on veterans welfare, which has put together in October this year. Next it acknowledges the presence of some grievances, urging veterans to resort to “rational” and “legal” means of registering their concerns. The piece also calls on local governments to “conscientiously study and effectively implement the central policies.”
On Sunday, China’s Ministry of Veterans Affairs also issued a notification, urging “efforts to provide public service jobs, organize job fairs, and implement preferential policies for companies that hires veterans.”
This William Holland piece in Asia Times helps broaden understanding of the veterans issue. It says that China has over 57 million living veterans. A number of them are protesting “against broken promises after demobilization.” This is because they are “witnessing the rise of entire social classes, many allied to the military or state-owned enterprises, but they’re being left out.” Another important point to note is that Chinese veterans are “decommissioned or demobilized into a tangle of provincial edicts.” And given that a large number of the PLA cadets come from poorer regions of the country, there are disparities in payoffs and strains on local economies.
5. Drills & Dance
The 7th Sino-Indian Hand-in-Hand drills kicked off in Chengdu this week. There was dancing and football to be enjoyed as the 14-day exercise began, but there was very little of this light-hearted coverage in the Chinese press. The likes of Xinhua and CGTN stuck to the official script of the two sides building trust through an anti-terror drill. However, this piece by Wang Peng, from the PLA Air Force Engineering University, on Admiral Sunil Lanba’s comments during Navy Day is interesting to note. Wang discusses India’s naval development plans. He says that “India’s maritime security strategy clearly regards the Indian Ocean region as India’s core interest” and the objective of naval development is to “achieve its 100% control of the Indian Ocean.” But there is more. Wang argues that “the Indian Navy has always had the ambition of governing two oceans,” with India having “accelerated the implementation of the Eastward Advancement strategy in recent years.”
While on security-related matters, here are two Indian media pieces on border infrastructure. The first, in The Telegraph, talks about New Delhi planning to upgrade Hasimara Air Force Station in north Bengal to base Rafale fighter jets and increasing funds for radar-based intelligence on Chinese airports in Lhasa and Shigatse. The second is this TOI piece on the scheduled opening of Bogibeel Bridge on the Brahmaputra on December 25. The report says, the bridge which will facilitate faster movement of troops to Arunachal Pradesh.
Moving on to economic ties, Chinese smartphone maker Vivo says that it ha acquired 169 acres of land in UP to set its second plant in the country. Meanwhile, there is a spat brewing with regard to shipments by Chinese e-commerce companies. ET reports that the government is considering restrictions on purchases from Chinese e-commerce platforms. The issue here is that these goods are shipped as “gifts” under Rs. 5000, which are exempt from duties. The Global Times did pick up the story, arguing – in its over-the-top style – that any restrictions by the Indian government against Chinese e-commerce firms are unwelcome.
Finally, two pieces this week offer a peek at how India and China tend to disagree but also cooperate at multilateral institutions based on their interests. This Mint piece on the jostling at the WTO to fill four vacancies at the Appellate Body shows how India, China and the EU are trying to work together to counter US dominance. In contrast, this piece in The Wire argues that India, the US and EU have partnered to remove references to BRI in UN resolutions. “The spread of Xi Jinping thought via subterfuge came to a complete halt, at least at the UN, thanks to some diplomatic due diligence by India, the US and the EU.”
6. BRI Pushback
Bloomberg had a lengthy piece this week analysing the pushback that China’s Belt and Road Initiative has faced, particularly towards the latter half of 2018. The piece cites Maldives, Myanmar, Malaysia, Sri Lanka and even Pakistan as some examples where BRI, Chinese investments and debt have become political issues. Here are some interesting points to note in the piece:
- The report quotes an unidentified senior Chinese official as saying: Chinese authorities have noted the examples of misconduct and are reassessing and tweaking their global infrastructure plans…They are well aware that poorly executed projects can hurt China’s reputation and are alert to the potential for resentment to spread.
- It adds that “China has commissioned internal reports that have highlighted the backlash, with the aim of continuing Xi’s outward push at a time when the economy is struggling.” So don’t expect a pull back. What you can expect are adjustments. That’s also the point that Raffaello Pantucci makes in this FT piece, arguing that the pushback against BRI “is more one of renegotiation than cancellation. The fundamental logic of many of the BRI in developing countries neighbouring China remains intact.”
- The report quotes Andrew Small as saying that this would mean “more willingness to renegotiate terms, more focus on project quality, more efforts to cooperate with third-country partners such as Japan, and greater sensitivity to political and macroeconomic risk.” You can look at this piece by Hu Xiaowen, Associate Research Fellow of the Yunnan University, describing Sri Lanka an “ideal partner to carry out the ‘China-India Plus’ plan” in this context.
While reading this, also note this new report by Citi, which argues that China will speed up BRI infrastructure projects amid trade tensions with the US. “We see near-term opportunities for sectors such as commodity and mining, transportation and logistics, as well as finance,” Citi says.
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