A weekly bulletin offering news and analysis related to the Middle Kingdom. This week, China does a balancing act on India and Pakistan.
1. Beijing’s Balancing Act
The tensions between India and Pakistan over the past few weeks have put China in an expected, yet interesting spot. China has deep interests in Pakistan – CPEC, a strong defense relationship and terrorism concerns related to Xinjiang. At the same time, it has a growing economic relationship with India and wants to work with New Delhi in the context of the broader geopolitical competition with the US. Consequently, what’s emerged from Beijing is a balancing act, which might not be easy to sustain in the long run.
Over the past week, there were four responses by the Chinese foreign ministry during its regular briefings. Fundamentally they called for India and Pakistan to “exercise restraint, take measures conducive to promoting dialogue and work actively to contribute to the lasting peace and stability in South Asia.” At the same time on the specific issue of Masood Azhar’s listing, the ministry said that UNSC “1267 Committee has detailed criteria for the listing and designation procedures for terrorist entities and individuals. China will continue to participate in the discussions”… in a “responsible manner.” For many in India, this implies that Beijing is unlikely to yield on Azhar’s listing. On March 1, with Wing Commander Ambinan Varthaman returning, the ministry called it Pakistani “goodwill,” encouraging both sides to “take substantive steps in resolving relevant disputes through consultations and dialogues.”
But then there was a meeting between the foreign ministers of Russia-China-India in Wuzhen. The joint communique issued after the talks is a document that addresses a broad range of issues from terrorism, the situation in Afghanistan, Syria, Libya, sustainable development, climate change and even an arms race in space. But on the specific point of terrorism, it says that “those committing, orchestrating, inciting or supporting terrorist acts must be held accountable and brought to justice in accordance with existing international commitments on countering terrorism, including the UN Global Counter-Terrorism Strategy, relevant UN Security Council resolutions and the FATF standards, international treaties, including on the basis of the principle ‘extradite or prosecute…’” In addition, at the presser after the talks, Foreign Minister Wang Yi said that it was “especially important” to “eradicate the breeding grounds of terrorism and extremism,” adding that China will continue to play a “constructive role as a mutual friend.” He also, however, stated “At the same time, we believe that Pakistan has always been opposed to terrorism.” India’s External Affairs Minister added to that saying, “As far as joint strategy is concerned, you just heard foreign minister Wang Yi’s speech. What he said during his concluding statement, he reiterated here, and he said that we would cooperate on eradicating the breeding grounds of terrorism.”
However, a later Foreign Ministry explanation of Wang’s remarks to the Hindustan Times tells us that he meant the international community must “actively promote political solutions to hotspot issues, strengthen dialogue and exchanges among civilizations, promote common development and prosperity of all countries and fundamentally eradicate the breeding ground of terrorism and extremist ideas.”
Pakistani Foreign Minister Shah Mehmood Qureshi also placed an “emergency telephone call” to Wang on the night of February 27. Qureshi reportedly hoped the Chinese side will continue to play a constructive role in easing the current tension. According to the Chinese readout of the call, Wang “stressed that the sovereignty and territorial integrity of all countries should be earnestly respected, and that the Chinese side is unwilling to see acts violating the norms governing international relations.” It’s interesting that Beijing had until then not used the sovereignty and territorial integrity line in public statements till this one. The only other place where it found a mention was in the RIC joint communique, which to me appears standard in such a document.
The balancing act is captured well in remarks by Steve Tsang, director of the China Institute at SOAS University of London, in this CNN report. “China cannot afford to be seen as failing Pakistan, but at the same time I don’t think the Chinese really want to pick a fight with the Indians over this.” Ananth Krishnan’s piece in The Print also captures this balancing act well, while offering some insight into what Beijing could do with regard to the new UNSC proposal on Masood Azhar. Keep in mind, Beijing did reportedly delay and dilute the first UNSC resolution on Pulwama.
He writes: “With the US, France and the UK moving the fourth application Wednesday to list Azhar, who claimed responsibility for the Pulwama attack, it remains to be seen if Beijing will follow the example of 2008, when it didn’t stop Saeed from being listed. What’s different, this time around, is a China that not only has greater stakes in Pakistan but also, under Xi, appears less concerned about the prospect of being diplomatically isolated — even on the clear-cut matter of designating a terrorist.”
2. Cars, Trade & Manufacturing
Away from the more contentious issues, three interesting reports on the possibility of China and India working together. First, ET Auto reports that Great Wall Motors, China’s largest SUV and pick-up truck maker, will be entering the Indian market by 2021-22. The move, the report says, follows China’s biggest automobile company Shanghai Automotive’s decision to roll out a slew of products. The report adds that Great Wall Motors already uses India as the technology hub for coding software for electric vehicles and artificial intelligence.
Second, a WTO ruling against China in a dispute with the United States has implications for India. VOA reports that the US had claimed that China paid its farmers nearly $100 billion more than WTO rules allow, creating an incentive to grow more wheat and rice, thus undercutting global prices for the grains. The report adds that the ruling could have ramifications for India, which has calculated its price supports in a similar way as China. Reuters reports that at a meeting of the WTO’s agriculture committee on Wednesday, the United States and Canada rejected India’s claim that its market price support for pulses was 1.5 percent of the value of production, saying that it was actually 31 percent to 85 percent, far above allowed limits. A few days earlier, in a joint proposal at the WTO, India, China, South Africa and Venezuela had accused the US of being “profoundly disingenuous.” The Economic Times reports, the proposal claims the US violated norms to impose import restrictions, sought exceptions to give higher subsidy to its corn, wheat, cotton and rice farmers, and gained from cross-border royalty flows on intellectual property rights.
Finally, Li Tao is executive director of the Institute of South Asian Studies at Sichuan University, and Qin Weina from the Center for Security and Development of Western Frontier China of Sichuan University, have a lengthy piece in the Global Times on India-China manufacturing cooperation. The piece essentially discusses the potential for collaboration given the different stages of development of the manufacturing sector in both countries. It argues: “By using India’s labor cost advantage and China’s capital and technology advantages, both sides can jointly improve their manufacturing levels to achieve mutual benefit and common development.” They further state that the two countries “mainly compete in industries like food processing and manufacturing, beverages, textiles and other primary products, oil processing, coking, and nonferrous metal, while they are complementary in medical equipment manufacturing, transportation equipment manufacturing, special equipment manufacturing and other capital- and technology-intensive industries.” And that adjusting the “trade structure based on their own advantages and disadvantages” could allow the two countries to work to release new potential.
3. In China
A week ago, Xi headed a group study session of the CPC Central Committee Political Bureau. He discussed the importance of financial security in the overall scheme of national security. At the heart of Xi’s message was the need to maintain a fine balance between maintaining growth and forestalling risk, Xinhua reports. He said that finance should play its role in serving the real economy, catering to economic and social development while meeting the needs of the people. This calls for improvements in the financing structure as well as in the systems of financial institutions, the market and products, the report added. The focus of this effort is likely to be a multi-level banking system with wide coverage and diverse expertise, i.e., an expansion in the number of small and medium-sized financial institutions. With regard to supporting the private sector, he says “private firms who are temporarily in difficulties but engage in businesses that match well with the national industrial development plans or focus on the real economy, possess leading technologies and enjoy an advantage in the market shall be prioritized.” Chinese banks are already being pushed to lend to the private sector. Xi’s remarks provide an assessment framework for the banks.
Random Thought Bubble: This isn’t about developing an open, market economy. What all this really means, I think, is better targeted lending and maintaining appropriate money supply.
While on the financial sector, Bloomberg reports that China is considering tax breaks to attract more global funds to register in the country and reverse swelling outflows to international tax havens. The report says that the Ministry of Finance has enlisted a global accounting firm to conduct due diligence ahead of a potential feasibility study on a capital gains tax exemption. The deliberations at the moment are said to be at a “preliminary stage.”
Xinhua, meanwhile, also has a good list of economic priorities that are likely to be reflected in the government work report that Premier Li Keqiang will present in early March. And if one were to think that the focus on high-quality development would have meant a shift away from GDP numbers, do note that GDP is the first factor in the list. Job creation is also a factor mentioned in the list. In this context, do note this Caixin report about China’s employment population, which has shrunk for the first time ever on record. At the end of 2018, the number of people employed fell to 776 million, a drop of 540,000 from 2017, according to the National Bureau of Statistics. The working-age population, or people between the ages of 16 and 59, also shrank — for the seventh consecutive year, down a total of 2.8% from 2011 to 2018, a clear sign that China’s population is aging rapidly.
Moving from the economy, Xi chaired the second meeting of the Commission for Overall Law-based Governance of the CPC Central Committee on Monday. Essentially, the meeting approved the legislative agenda for 2019. But it also signalled much more than that, calling for rule of law, based on 19th Party Congress vision, for the country, government and society to be be in place in China by 2035. It also “stressed efforts to maintain and promote sustained and sound economic growth with the high-quality development of legislation. Unified fundamental laws regarding foreign capital must be formulated, early arrangements must be made for the legal authorization for areas designated as reform and opening-up pilot zones, and a comprehensive and coordinated approach must be adopted in making laws regarding intellectual property right protection, bio-safety, land system reform and ecological civilization.”
On Wednesday then the Central Committee published a directive on enhancing the political work of the Party. The salient points of this are “consolidating political faith, upholding the Party’s political leadership, improving the Party’s political capacity, purifying the political atmosphere, and effectively enforcing the directive.” All of this, of course, along with the “fundamental requirement of firmly upholding General Secretary Xi Jinping’s status as the core of the CPC Central Committee and the whole Party.” Trivium China has an interesting breakdown of the Opinions on Strengthening the Party’s Political Construction. It talks about the document equating Xi Jinping Thought with Marxism itself and emphasising the need for political loyalty and control. The latter is also, as the brief, argues, an indication that “cadres might lose faith in the system.” A measure of Xi’s control is this report about Politburo members submitting their work reports to Xi. Reuters reports: “Comrades of the Politburo strictly enforce the rules of honesty and self-discipline of party members and leading cadres…and strengthen the education management of relatives and staff around them.”
4. Mixed Signals
Washington is once again sending mixed messages on a potential US-China trade deal. It appears that President Donald Trump and some of his advisors want an early deal, while others are more skeptical. Trump’s already held off on imposing additional tariffs on Chinese imports, thereby negating the March 1 deadline that had been placed. Bloomberg reports that in Hanoi, Trump said that “we’re very well on our way to doing something special. But we’ll see.” That last bit is interesting given the failure of the Hanoi summit with Kim Jong Un. Trump did say that he’s always prepared to walk.
Meanwhile, Treasury Secretary Steven Mnuchin said on Thursday that the two countries are working on a 150-page document that would turn into a “very detailed agreement,” though he cautioned that “we still have more work to do.” On the same day, National Economic Council Director Larry Kudlow said “Last week was fantastic…We’re making great headway on nontariff barriers and tariffs regarding various commodities such as soybeans and energy and beef. We have mechanisms with regard to enforcement, which is — I think — unparalleled.” He added, “I think we’re headed for a remarkable, historic deal.”
But a day earlier, USTR Robert Lighthizer testified before a Congressional committee calling for caution. While he acknowledged that progress was being made, he said: “Don’t go for the soybean solution. This is our one chance.” He also added: “I’m not foolish enough to think there’s one negotiation that’s going to change all the practices with China or our relationship with them. I view this as a process.” The reported agreement on an enforcement mechanism is part of that process. According to Lighthizer, the mechanism would consist of monthly meetings at the office director level, quarterly meetings at the vice-ministerial level and semi-annual gatherings at the ministerial level, with these last meetings convened by Lighthizer and Chinese Vice-Premier Liu He. Explaining this agreement, he added “We have to have the ability to take proportional action unilaterally to make sure that we have a situation where [China is] following the contract.” Experts, however, are skeptical about the feasibility and effectiveness of any such mechanism.
5. Huawei’s Song & Dance
Chinese tech giant Huawei and Beijing are both on the offensive. This week the battle played out on multiple fronts – at the Mobile World Congress in Barcelona, in a Canadian court and in the press. First, the MWC contest was rather ugly and unapologetic. Robert Strayer, the top US diplomat for cybersecurity policy, was in Barcelona, telling people that “the United States is asking other governments and the private sector to consider the threat posed by Huawei and other Chinese information technology companies.” At the same time, Guo Ping, Huawei’s rotating chairman, invoked Snow White to warn the audience: “PRISM, PRISM, on the wall, who is the most trustworthy of them all?” But it’s not just what was said, it’s also about presence. And Elizabeth Schulze’s report for CNBC tells us that Huawei’s physical presence at MWC has hard to miss. The big deal it announced at the MWC was a 5G agreement with the UAE’s Etisalat. South African carrier Rain also announced what’s reported as the first commercial 5G network in South Africa in partnership with Chinese vendor Huawei.
In all, there were over 20 deals that Huawei struck with operators in Barcelona. Japanese and South Korean operators remain skeptical of Huawei, whereas the EU is still sorting out its views on Huawei keeping the broader approach to and concerns regarding China in the picture. When it comes to India, the company accused the US of lobbying New Delhi against it. Speaking in Barcelona, Jay Chen, chief executive of Huawei India added that “If we get spectrum for trials, within 20 days we can start the 5G trials involving all stakeholders. We have been talking to the government. We will be the first to do it.”
Second, in Canada, the Justice Department has approved the commencement of proceedings for the extradition of Huawei CFO Meng Wanzhou to the US. The Guardian reports that still it could be years, though, before Meng is sent to the United States, since Canada’s slow-moving justice system allows many decisions to be appealed.
Third, Huawei’s launched quite an aggressive media campaign to counter the US narrative. There are state media pieces which hit out at the US for running a “smear campaign;” others call it an “embarrassment.” The Chinese ambassador to Canada Lu Shaye was less formal, when he termed the US campaign “bunk.” To be fair, as this AP piece tells us, there are serious holes in the US campaign, which probably has less to do with backdoors and espionage and more with the deepening geopolitical competition with China. Then there’s also this video that’s gone viral in China and has been picked up by the international press. Titled Huawei Beauty, Global Times tells us that it features about 30 children from the Chinese mainland and the Hong Kong and Macao special administrative regions, dancing and singing lyrics praising Huawei. (Watch here) Finally, there was a full-page advert that Huawei took out in the Wall Street Journal this week, telling people and the US media “Don’t believe everything you hear. Come and see us.”
6. The Long and Short of It
- China’s Approval Rating: Gallup’s new global poll finds that US leadership approval rating now sits at its lowest level for any of the past three administrations. The report says “the median global approval rating that adults across 133 countries and areas give the job performance of U.S. leadership remained stable at 31% in 2018.” It adds that “China and Russia, on the other hand, gained considerable ground. After tying with the U.S. in 2017, China edged farther ahead of the U.S. in 2018 with its leadership earning a median approval rating of 34%. This is China’s highest score since 2009, but it is still well short of its previous highs.”
- South China Sea: Indonesia is reportedly pushing ahead with plans to develop a fishing zone on the edge of the South China Sea. The plan is to construct the Integrated Marine and Fisheries Center on the Natuna Islands, Maritime Affairs Coordinating Minister Luhut Pandjaitan said. The island-chain lies in the far southern reaches of the South China Sea. Meanwhile, US Secretary of State Mike Pompeo visited the Philippines this week, promising Manila that the US will come to its aid if Philippine vessels or forces are attacked in the South China Sea, as provided under their 68-year-old Mutual Defense Treaty.
- CRISPR Controversy: A new STAT report states that three government institutions in China, including the nation’s science ministry, may have funded the “CRISPR babies” study by He Jiankui that led to the birth last November of two genetically modified twin girls. The report adds that “the documents examined by STAT — a slide presentation prepared by He’s team, Chinese-language patient consent forms, and China’s clinical trial registry — list three funding sources for the study that led to the twins’ birth: the Ministry of Science and Technology; Shenzhen Science and Technology Innovation Commission, part of the municipal government; and Southern University of Science and Technology.” The caveat in the report is that “It’s not clear, however, whether the institutions knew how their grants would be used. Scientists applying for grants in China typically have to itemize in detail how they would use the money. But it’s possible that for the CRISPR babies study, He could have used money that had been given to his lab for earlier research.” Meanwhile, the Chinese government this week unveiled draft regulations on gene editing and other potentially risky new biomedical technologies. Under the proposed measures, technology involving gene editing, gene transfer and gene regulation would be categorised as “high-risk” and placed under the authority of the State Council.
- PLA Focuses on Training: SCMP reports that the PLA took part in fewer joint exercises in 2018 as it focused on training at home. The report says “the PLA joined a bilateral exercise for the first time in 2002 and took part in 130 joint drills from 2003 to 2014.” That number “grew significantly in 2015 and 2016, when China’s military took part in 102 and 124 joint exercises, respectively. The number of port calls went from four in 2003 to 22 in 2016. But in 2017, China appeared to pull back from drills with other countries, joining only 24 – and last year the number was 17.”
- Venezuela Veto: Resolutions brought by the US and Russia on the crisis in Venezuela failed to clear the UNSC. The US resolution was vetoed by China and Russia, while the Russian resolution only garnered four votes. “At the Security Council, on the Venezuelan issue, our starting point is to uphold the spirit of the UN Charter and the basic principles governing international relations, promote a peaceful settlement of the Venezuelan issue and maintain long-term peace, stability and development in Latin America,” said Wu Haitao, China’s deputy permanent representative to the UN. China opposes external forces interfering in Venezuela internal affairs and opposes military intervention in Venezuela, he stressed.
- Managing Opinion on Xinjiang: Chinese officials arranged for a group of Malaysian and Indonesian journalists to visit Xinjiang from February 22-27. According to Xinhua, they were “were deeply impressed by spacious buildings and well-equipped lodging facilities.” Some of the journalists are also apparently “commended China’s efforts on de-extremism and countering terrorism,” according to the report. Do recall that leaders from Malaysia and Indonesia, important countries with large Muslim populations, had raised concerns over the treatment of Uighurs. This is all part of Beijing’s diplomatic offensive to counter the international criticism over its policies – something that Turkey and Britain have been pressing of late. Last week, Last Friday, China briefed representatives from some 80 countries in Beijing on its policies in Xinjiang, according to Reuters. The briefing was led by Xinjiang Deputy Governor Erkin Tuniyaz, who told the diplomats that “The terrorists, extremists and separatists have been preaching that ‘killing a pagan is better than 10 years of prayers, and those who do so can go directly to heaven’, and that ‘jihad is to kill, and martyrdom is to sacrifice one’s own life’…These and other absurd preachings have turned some ordinary people into murderous devils, who eventually committed crimes.” What’s more, the effort, as this CGTN report tells us, is to frame efforts in Xinjiang as a “new anti-terror and deradicalization strategy.”
Meanwhile, SCMP reports that Wang Junzheng, the former party chief of Changchun city, has been appointed as the party secretary in charge of law and order in Xinjiang. The report adds that a key challenge for Wang was to boost the morale of local cadres. An unidentified source is quoted as saying that “Many of them are overworked and are under tremendous pressure. They are required to arrange to have at least one person to be on call round the clock. There are not enough people in the office and they] have to be on duty twice a week. We are all very tired.”
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