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China Macro Reporter
By Malcolm Riddell·August 27, 2020
Opening Statement
SourceLogo 'Harvard has done a really stand-up thing.'

Greetings!

 

It’s August, and from now until Labor Day, the China Macro Reporter will publish less often and have fewer posts.

  • But if some big things happen, we’ll bring you the analyses you need to understand those events.

 

‘A Stand-Up Thing’

‘Harvard has done a really stand-up thing,’ writes Jay Nordlinger of the National Review.

  • Indeed.

Last week, the Harvard Fairbank Center for Chinese Studies invited Xu Zhangrun to be an Associate in Research for the 2020-2021 academic year. (He is in fact listed as such on the website.)

  • "We thought it appropriate to make a gesture of support in light of recent developments, and therefore invited him to apply for an affiliation with us," said Fairbank Center director Michael Szonyi.

Dr. Xu, formerly an esteemed professor of constitutional law at Tsinghua University, has written damning essays criticizing Xi Jinping and his regime.

  • He was arrested on charges of soliciting prostitution (a common ploy used against critics, some of whom I’ve know).
  • After being held for a week, he was released and then fired by Tsinghua.
  • Soon after the Fairbank Center extended its offer. [Full disclosure: I am and have been for many years an Associate in Research at the Fairbank Center.]
  • It is unlikely though that Dr. Xu will be permitted to leave China.

Jerry Cohen, the dean of China legal studies in the U.S., said:

  • "We should be inviting many of the great people in China who are oppressed or restricted in their activities to be associated with our research institutes."
  • "I see what it has done for Professor Xu. It has given him greater resistance and greater strides in his struggle against oppression." 

Why China’s Economy is Growing Faster than the Rest

Shang-Jin Wei of Columbia University, told me during our interview four reasons why the Chinese economy is doing well.

  • One in particular stuck me.

For all its efforts to transition to a service economy, manufacturing still rules in China.

  • Restarting the service economy, with its reliance on person-to-person contact, is a lot harder than restarting factories.
  • So the factories came on line faster and, as the bigger part of the economy, drove the recovery.

The U.S. Has Artificial Intelligence Competition All Wrong

Ben Buchanan of Georgetown University points out:

  • ‘For all its geopolitical complexity, AI competition boils down to a simple technical triad: data, algorithms, and computing power.’

China may have a lead in data and is doing well algorithms, but it can’t compete on computing power.

  • That’s where the West has the great advantage.

The challenge to the West to stay ahead in computing innovation and to deny China access to the chips it needs – themes that regular readers have heard here often.

The U.S. & China are in a Bad Marriage - Not a Cold War

Readers know that I disagree with characterizing the U.S.-China relationship as a new ‘Cold War’ or ‘Cold War 2.0’ or whatever.

  • Zachary Karbell seems to agree when he writes,

‘The United States and China are not in a cold war.’

  • ‘They are in a bad marriage, with no current option for divorce.'
  • ‘That will remain the case for many years to come.’

‘What these analogies [to the Cold War] completely miss, however, is the nature of the Chinese-U.S. economic relationship, which is so much more connected and intertwined than the U.S.-Soviet one ever was.’

  • ‘That alone renders the Cold War template almost completely irrelevant as a guide to our present and future.’

‘Over time, the frostiness may well lead to less and less economic commingling, but that will be measured in years, not months.’

  • ‘Unless either China or the United States finds a spare $5 trillion to $10 trillion to rebuild completely independent supply chains, that structure of trade and manufacturing and mutual engagement is with us for a long haul.’

Go deeper into these issues - Browse the posts below.

To read the original article, click the title.

Let me know what you think. And please forward the China Macro Reporter to your friends and colleagues.

All the best,

Malcolm

Greetings! 

It’s August, and from now until Labor Day, the China Macro Reporter will publish less often and have fewer posts.

  • But if some big things happen, we’ll bring you the analyses you need to understand those events.

In today's issue, 

  1. A terrific interview with Columbia's Shang-Jin Wei about why China's economy is growing faster than others - you will be surprised at Shang-Jin's reasoning.
  2. An analysis of why the U.S. is still ahead of China in AI - think semiconductors.
  3. An explanation of why the U.S. & China aren't in a Cold War but a bad marriage - and why divorce is definitely not on the horizon.
  4. An inspiring move by the Harvard Fairbank Center for Chinese Studies firmly supporting an esteemed academic who is under attack for his eloquent criticisms of Xi Jinping and his regime - 'Harvard has done a stand-up thing.'
  5. A look at how China has used its money supply to stimulate the economy and why that has peaked -  excellent analysis + great charts.


1. Why China’s Economy is Growing Faster than the Rest

Shang-Jin Wei of Columbia University told me during our interview four reasons why the Chinese economy is doing well.

  • One in particular struck me.

For all its efforts to transition to a service economy, manufacturing still rules in China.

  • Restarting the service economy, with its reliance on person-to-person contact, is a lot harder than restarting factories.
  • So the factories came online faster and, as the bigger part of the economy, drove the recovery.


2. The U.S. Has Artificial Intelligence Competition All Wrong

Ben Buchanan of Georgetown University points out:

  • ‘For all its geopolitical complexity, AI competition boils down to a simple technical triad: data, algorithms, and computing power.’

China may have a lead in data and is doing well algorithms, but it can’t compete on computing power.

  • That’s where the West has a great advantage.

The challenge to the West to stay ahead in computing innovation and to deny China access to the chips it needs – themes that regular readers have heard here often.


3. The U.S. & China are in a Bad Marriage - Not a Cold War

Readers know that I disagree with characterizing the U.S.-China relationship as a new ‘Cold War’ or ‘Cold War 2.0’ or whatever.

  • Zachary Karabell seems to agree when he writes,

‘The United States and China are not in a cold war.’

  • ‘They are in a bad marriage, with no current option for divorce.'
  • ‘That will remain the case for many years to come.’

‘What these analogies [to the Cold War] completely miss, however, is the nature of the Chinese-U.S. economic relationship, which is so much more connected and intertwined than the U.S.-Soviet one ever was.’

  • ‘That alone renders the Cold War template almost completely irrelevant as a guide to our present and future.’

‘Over time, the frostiness may well lead to less and less economic commingling, but that will be measured in years, not months.’

  • ‘Unless either China or the United States finds a spare $5 trillion to $10 trillion to rebuild completely independent supply chains, that structure of trade and manufacturing and mutual engagement is with us for a long haul.’


4. 'A Stand-Up Thing’

‘Harvard has done a really stand-up thing,’ writes Jay Nordlinger of the National Review.

  • Indeed.

Last week, the Harvard Fairbank Center for Chinese Studies invited Xu Zhangrun to be an Associate in Research for the 2020-2021 academic year. (He is in fact listed as such on the website.)

  • "We thought it appropriate to make a gesture of support in light of recent developments, and therefore invited him to apply for an affiliation with us," said Fairbank Center director Michael Szonyi.

Dr. Xu, formerly an esteemed professor of constitutional law at Tsinghua University, has written damning essays criticizing Xi Jinping and his regime.

  • He was arrested on charges of soliciting prostitution (a common ploy used against critics, some of whom I’ve know).
  • After being held for a week, he was released and then fired by Tsinghua.
  • Soon after the Fairbank Center extended its offer. [Full disclosure: I am and have been for many years an Associate in Research at the Fairbank Center.]
  • It is unlikely though that Dr. Xu will be permitted to leave China.

Jerry Cohen, the dean of China legal studies in the U.S., said:

  • "We should be inviting many of the great people in China who are oppressed or restricted in their activities to be associated with our research institutes."
  • "I see what it has done for Professor Xu. It has given him greater resistance and greater strides in his struggle against oppression." 


5. China: An effective but subsiding stimulus

Wenzhe Zhao of CreditSuisse writes:

  • ‘Due to the recent policy stimulus, M2 growth in China has accelerated.’’
  • Money aggregate, M2, responds to the monetary stimulus and transmits it to new spending.'

‘China's one-of-a-kind credit has helped stabilize the economy in the pandemic.’

  • ‘Infrastructure and real estate sectors have benefited disproportionately from the monetary stimulus, but private manufacturing, services, and parts of the household sector have lagged due to fragmented credit allocation mechanisms.’

‘The marginal impact of the current set of counter-cyclical stimulus in China has peaked, though is still positive.’

  • ‘Policy priorities will likely shift again towards strategic reform goals as long as the virus remains under control domestically.’

Go deeper into these issues - Browse the posts below.

To read the original article, click the title.

Let me know what you think. And please forward the China Macro Reporter to your friends and colleagues.

All the best,

Malcolm

 
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1. The Interview: Shang Jin-Wei
SourceLogo Why China's Economy is Growing Faster than Others

CHINADebate

Malcolm Riddell | CHINADebate

Malcolm Riddell: ‘Why is China’s economy doing so much better than other economies?’

Shang-Jin Wei: ‘The IMF is projecting negative growth rates for every major economy. Every major economy except China.’

  • ‘The United States is projected to have a growth rate on the order of minus 8%.’
  • ‘Spain, France, Italy, Mexico, and others are projected to have growth rates of minus 10% or close to minus 10%.’
  • ‘China, according to IMF, is likely to grow at 1% - and major investment banks are higher at 2-3%.’

‘Some argue that China has positive growth because it started at a higher growth rate of 6-7%, than the G20 countries growing at say 2% or so.’

  • ‘So if we have consistent downward reduction of growth rate by 4% across all major economies, G20 economies go into negative growth but China is positive.’

‘The problem with this explanation is a country like India.’

  • ‘India last year had a growth rate very close to China.’
  • ‘Yet the IMF and the investment banks are projecting big negative growth on the order of minus 4.5%.’

‘Others look to China’s stimulus efforts for the answer.’

  • ‘Virtually every major economy rolled out more supportive monetary policies, more supportive fiscal policies. China’s were in line with these.’
  • ‘So comparatively it’s more or less a wash.’

Malcolm: ‘Then what accounts for China’s positive growth?’

Shang-Jin: ‘Four factors, I think.’

‘First is China's relatively aggressive and decisive measures on the COVID public health crisis itself that managed to get the pandemic under control much faster than the other large economies.’

  • ‘‘The relative success in controlling the pandemic translates into how much people are willing to go back to their normal lives, to their jobs, and the like.’

‘The second thing is technology, especially digital technology in two aspects.’

‘First, online shopping, online ordering, and digital payments  offset the reduction in brick & mortar consumption.’

  • ‘This is much like what happened in many other economies, but China seems to be doing a bit more of that, and China’s delivery system is very competitive.’

‘Second, perhaps more importantly, is the use of this health app on the smartphones, the so-called ‘green code.” ’

  • ‘This is an initiative of some technology companies like Alibaba, together with local governments.’
  • ‘Different cities and regions rolled out those health apps at different times, but they rolled out fairly quickly within in a two- or three-week period.’
  • ‘Now virtually every region has their own version of green health codes.’

‘The green health code does two things.’

  • ‘One is it allows contact tracing very quickly, mapping who is in close contact with whom in the last say two weeks or so.’

‘So when a person is discovered to be infected or self-report to be infected, my code will go from green to red.’

  • ‘But the app also tracks others I have been in contact with.’

‘When my code turns red, the codes of the people who have had close contact with me in the last few weeks automatically changes to red too.’

  • ‘When this happens, they cannot go out, or leave their residential compound, or go to shopping malls, and so on for two weeks.’

‘This of course limits the risk of infection spread.’

  • ‘But perhaps more importantly, when you go to a mall, you have greater confidence that the people they will run into are not unlikely to be infected.’
  • ‘So you are more willing to consume. You are more willing to go to restaurants. And you are more willing to go back to the office and the factory.’

‘And the third factor is economic structure.’

  • ‘Although China's more service-oriented than before, manufacturing still dominates.

‘China’s relying relatively more on the manufacturing share, than say the U.S., actually helps in its economic recovery.’

  • ‘The service sector depends on person-to-person contact; factories don’t.’
  • ‘So China has been able to get its larger manufacturing sector open faster than economies where services dominate and start generating GDP sooner and faster.’

‘Finally, China went into the pandemic recession earlier than other countries, and it ended the pandemic earlier than other economies.’

  • ‘As China recovered, those other countries’ were now locked down; but people needed to eat, needed to buy stuff, and so on.’
  • ‘Because of this, China actually received better than usual orders for its exports.’

‘Chinese exports have boomed starting from late March to now.’

  • And this helped to compensate for the loss of the GDP growth in other sectors.’

CHINADebate

Shang-Jin Wei 

Professor, Columbia University & former Chief Economist, Asian Development Bank


Malcolm Riddell: ‘Why is China’s economy doing so much better than other economies?’

Shang-Jin Wei: ‘The IMF is projecting negative growth rates for every major economy. Every major economy except China.’

  • ‘The United States is projected to have a growth rate on the order of minus 8%.’
  • ‘Spain, France, Italy, Mexico, and others are projected to have growth rates of minus 10% or close to minus 10%.’
  • ‘China, according to IMF, is likely to grow at 1% - and major investment banks are higher at 2-3%.’

‘Some argue that China has positive growth because it started at a higher growth rate of 6-7%, than the G20 countries growing at say 2% or so.’

  • ‘So if we have consistent downward reduction of growth rate by 4% across all major economies, G20 economies go into negative growth but China is positive.’

‘The problem with this explanation is a country like India.’

  • ‘India last year had a growth rate very close to China.’
  • ‘Yet the IMF and the investment banks are projecting big negative growth on the order of minus 4.5%.’

‘Others look to China’s stimulus efforts for the answer.’

  • ‘Virtually every major economy rolled out more supportive monetary policies, more supportive fiscal policies. China’s were in line with these.’
  • ‘So comparatively it’s more or less a wash.’

Malcolm: ‘Then what accounts for China’s positive growth?’

Shang-Jin: ‘Four factors, I think.’

1.

‘First is China's relatively aggressive and decisive measures on the COVID public health crisis itself that managed to get the pandemic under control much faster than the other large economies.’

  • ‘The relative success in controlling the pandemic translates into how much people are willing to go back to their normal lives, to their jobs, and the like.’

2.

‘The second thing is technology, especially digital technology in two aspects.’

‘First, online shopping, online ordering, and digital payments  offset the reduction in brick & mortar consumption.’

  • ‘This is much like what happened in many other economies, but China seems to be doing a bit more of that, and China’s delivery system is very competitive.’

‘Second, perhaps more importantly, is the use of this health app on the smartphones, the so-called ‘green code.” ’

  • ‘This is an initiative of some technology companies like Alibaba, together with local governments.’
  • ‘Different cities and regions rolled out those health apps at different times, but they rolled out fairly quickly within in a two- or three-week period.’
  • ‘Now virtually every region has their own version of green health codes.’

‘The green health code does two things.’

  • ‘One is it allows contact tracing very quickly, mapping who is in close contact with whom in the last say two weeks or so.’

‘So when a person is discovered to be infected or self-report to be infected, my code will go from green to red.’

  • ‘But the app also tracks others I have been in contact with.’

‘When my code turns red, the codes of the people who have had close contact with me in the last few weeks automatically changes to red too.’

  • ‘When this happens, they cannot go out, or leave their residential compound, or go to shopping malls, and so on for two weeks.’

‘This of course limits the risk of infection spread.’

  • ‘But perhaps more importantly, when you go to a mall, you have greater confidence that the people they will run into are not unlikely to be infected.’
  • ‘So you are more willing to consume. You are more willing to go to restaurants. And you are more willing to go back to the office and the factory.’

3.

‘And the third factor is economic structure.’

  • ‘Although China's more service-oriented than before, manufacturing still dominates.'

‘China’s relying relatively more on the manufacturing share, than say the U.S., actually helps in its economic recovery.’

  • ‘The service sector depends on person-to-person contact; factories don’t.’
  • ‘So China has been able to get its larger manufacturing sector open faster than economies where services dominate and start generating GDP sooner and faster.’

4.

‘Finally, China went into the pandemic recession earlier than other countries, and it ended the pandemic earlier than other economies.’

  • ‘As China recovered, those other countries’ were now locked down; but people needed to eat, needed to buy stuff, and so on.’
  • ‘Because of this, China actually received better than usual orders for its exports.’

‘Chinese exports have boomed starting from late March to now.’

  • And this helped to compensate for the loss of the GDP growth in other sectors.’

 
2. AI Competition
SourceLogo The U.S. Has Artificial Intelligence Competition All Wrong

Foreign Affairs

Ben Buchanan | Director of the CyberAI Project at Georgetown University

‘Data and algorithms are critical, but they mean little without the compute to back them up. By taking advantage of their natural head start in this realm, the United States and its allies can preserve their ability to counter Chinese capabilities in AI.

‘For all its geopolitical complexity, AI competition boils down to a simple technical triad:’

  • ‘data, algorithms, and computing power.’

‘The first two elements of the triad receive an enormous amount of policy attention.

  • ‘As the sole input to modern AI, data is often compared to oil—a trope repeated everywhere from technology marketing materials to presidential primaries.’

‘Equally central to the policy discussion are algorithms, which enable AI systems to learn and interpret data. While it is important not to overstate its capability in these realms, China does well in both:’

  • ‘its expansive government bureaucracy hoovers up massive amounts of data, and its tech firms have made notable strides in advanced AI algorithms.

‘But the third element of the triad is often neglected in policy discussions.’

  • ‘Computing power—or compute, in industry parlance—is treated as a boring commodity, unworthy of serious attention.’

‘But in AI, compute is quietly essential.’

  • ‘As algorithms learn from data and encode insights into neural networks, they perform trillions or quadrillions of individual calculations.’
  • ‘Without processors capable of doing this math at high speed, progress in AI grinds to a halt.’

‘Cutting-edge compute is thus more than just a technical marvel; it is a powerful point of leverage between nations.’

  • ‘Recognizing the true power of compute would mean reassessing the state of global AI competition.’

‘Unlike the other two elements of the triad, compute has undergone a silent revolution led by the United States and its allies—'

  • ‘one that gives these nations a structural advantage over China and other countries that are rich in data but lag in advanced electronics manufacturing.’

‘U.S. policymakers can build on this foundation as they seek to maintain their technological edge.’

  • ‘The increasing cost and complexity of compute give the United States and its allies an advantage over China, which still lags behind its competitors in this element of the AI triad.’

‘American companies dominate the market for the software needed to design computer chips, and the United States, South Korea, and Taiwan host the leading chip-fabrication facilities.’

  • ‘Three countries—Japan, the Netherlands, and the United States—lead in chip-manufacturing equipment, controlling more than 90 percent of global market share.’

‘For decades, China has tried to close these gaps, sometimes with unrealistic expectations.’

  • ‘When Chinese planners decided to build a domestic computer chip industry in 1977, they thought the country could be internationally competitive within several years.’

‘Beijing made significant investments in the new sector. But technical barriers, a lack of experienced engineers, and poor central planning meant that Chinese chips still trailed behind their competitors several decades later.’

  • ‘By the 1990s, the Chinese government’s enthusiasm had largely receded.’

‘In 2014, however, a dozen leading engineers urged the Chinese government to try again.’

  • ‘Chinese officials created the National Integrated Circuit Fund—more commonly known as “the big fund”—to invest in promising chip companies.’

‘Its long-term plan was to meet 80 percent of China’s demand for chips by 2030. But despite some progress, China remains behind.’

  • ‘The country still imports 84 percent of its computer chips from abroad, and even among those produced domestically, half are made by non-Chinese companies.’
  • ‘Even in Chinese fabrication facilities, Western chip design, software, and equipment still predominate.’

‘The current advantage enjoyed by the United States and its allies—stemming in part from the growing importance of compute—presents an opportunity for policymakers interested in limiting China’s AI capabilities.’

  • ‘By choking off the chip supply with export controls or limiting the transfer of chip-manufacturing equipment, the United States and its allies could slow China’s AI development and ensure its reliance on existing producers.’

 ‘Export controls on chips or chip-manufacturing equipment might well have diminishing marginal returns.’

  • ‘A lack of competition from Western technology could simply help China build its industry in the long run.’

‘Limiting access to chip-manufacturing equipment may therefore be the most promising approach, as China is less likely to be able to develop that equipment on its own.’

  • ‘But the issue is time sensitive and complex; policymakers have a window in which to act, and it is likely closing.’
  • ‘Their priority must be to determine how best to preserve the United States’ long-term advantage in AI.’

Foreign Affairs

Ben Buchanan | Director of the CyberAI Project at Georgetown University

‘Data and algorithms are critical, but they mean little without the compute to back them up.'

‘For all its geopolitical complexity, AI competition boils down to a simple technical triad:’

  • ‘data, algorithms, and computing power.’

‘The first two elements of the triad receive an enormous amount of policy attention.'

  • ‘As the sole input to modern AI, data is often compared to oil—a trope repeated everywhere from technology marketing materials to presidential primaries.’

‘Equally central to the policy discussion are algorithms, which enable AI systems to learn and interpret data. While it is important not to overstate its capability in these realms, China does well in both:’

  • ‘its expansive government bureaucracy hoovers up massive amounts of data, and its tech firms have made notable strides in advanced AI algorithms.'

‘But the third element of the triad is often neglected in policy discussions.’

  • ‘Computing power—or compute, in industry parlance—is treated as a boring commodity, unworthy of serious attention.’

‘But in AI, compute is quietly essential.’

  • ‘As algorithms learn from data and encode insights into neural networks, they perform trillions or quadrillions of individual calculations.’
  • ‘Without processors capable of doing this math at high speed, progress in AI grinds to a halt.’

‘Cutting-edge compute is thus more than just a technical marvel; it is a powerful point of leverage between nations.’

  • ‘Recognizing the true power of compute would mean reassessing the state of global AI competition.’

‘Unlike the other two elements of the triad, compute has undergone a silent revolution led by the United States and its allies—'

  • ‘one that gives these nations a structural advantage over China and other countries that are rich in data but lag in advanced electronics manufacturing.’

‘U.S. policymakers can build on this foundation as they seek to maintain their technological edge.’

  • ‘The increasing cost and complexity of compute give the United States and its allies an advantage over China, which still lags behind its competitors in this element of the AI triad.’

‘American companies dominate the market for the software needed to design computer chips, and the United States, South Korea, and Taiwan host the leading chip-fabrication facilities.’

  • ‘Three countries—Japan, the Netherlands, and the United States—lead in chip-manufacturing equipment, controlling more than 90 percent of global market share.’

‘For decades, China has tried to close these gaps, sometimes with unrealistic expectations.’

  • ‘When Chinese planners decided to build a domestic computer chip industry in 1977, they thought the country could be internationally competitive within several years.’

‘Beijing made significant investments in the new sector. But technical barriers, a lack of experienced engineers, and poor central planning meant that Chinese chips still trailed behind their competitors several decades later.’

  • ‘By the 1990s, the Chinese government’s enthusiasm had largely receded.’

‘In 2014, however, a dozen leading engineers urged the Chinese government to try again.’

  • ‘Chinese officials created the National Integrated Circuit Fund—more commonly known as “the big fund”—to invest in promising chip companies.’

‘Its long-term plan was to meet 80 percent of China’s demand for chips by 2030. But despite some progress, China remains behind.’

  • ‘The country still imports 84 percent of its computer chips from abroad, and even among those produced domestically, half are made by non-Chinese companies.’
  • ‘Even in Chinese fabrication facilities, Western chip design, software, and equipment still predominate.’

‘The current advantage enjoyed by the United States and its allies—stemming in part from the growing importance of compute—presents an opportunity for policymakers interested in limiting China’s AI capabilities.’

  • ‘By choking off the chip supply with export controls or limiting the transfer of chip-manufacturing equipment, the United States and its allies could slow China’s AI development and ensure its reliance on existing producers.’

‘Export controls on chips or chip-manufacturing equipment might well have diminishing marginal returns.’

  • ‘A lack of competition from Western technology could simply help China build its industry in the long run.’

‘Limiting access to chip-manufacturing equipment may therefore be the most promising approach, as China is less likely to be able to develop that equipment on its own.’

  • ‘But the issue is time-sensitive and complex; policymakers have a window in which to act, and it is likely closing.’
  • ‘Their priority must be to determine how best to preserve the United States’ long-term advantage in AI.’

 
3. Defining the U.S.-China Relationship
SourceLogo The U.S. & China are in a Bad Marriage - Not a Cold War

Foreign Policy

Zachary Karabell

‘The United States and China are not in a cold war. They are in a bad marriage, with no current option for divorce.’

‘Talk of a new Cold War—and the idea that Chinese-U.S. relations are at their worst since the two countries normalized diplomatic ties in 1979—is its own form of frenzy.’

  • ‘And that way of thinking is forcing a 20th-century template of the Cold War between the United States and the Soviet Union onto a U.S.-Chinese relationship that could not be more different.’

‘The United States and China are not in a cold war.’

  • ‘They are in a bad marriage, with no current option for divorce.
  • ‘That will remain the case for many years to come.’

‘Of late, the bickering between the United States and China has certainly gotten much worse. Secretary of State Mike Pompeo has assailed Chinese President Xi Jinping as a “true believer in a bankrupt totalitarian ideology.” ’

  • ‘And the two countries have imposed an escalating series of tit-for-tat measures against each other, ranging from Chinese sanctions on U.S. senators to U.S. orders to close the Chinese consulate in Houston.’

‘That, in turn, has led policy experts and China watchers to speak of “a drift toward Cold War,” with potential for all the familiar hallmarks of last century’s Cold War between the United States and the Soviet Union:’

  • ‘starkly opposed ideologies;’
  • ‘proxy confrontations that then become proxy wars in other countries;’
  • ‘mutually exclusive spheres of influence in which each attempts to freeze out the other; and’
  • ‘a global diplomatic, propaganda, and economic offensive to line up allies and cut off the economic oxygen of the other side.’

‘What these analogies completely miss, however, is the nature of the Chinese-U.S. economic relationship, which is so much more connected and intertwined than the U.S.-Soviet one ever was.’

  • ‘That alone renders the Cold War template almost completely irrelevant as a guide to our present and future.’

‘Over time, the frostiness may well lead to less and less economic commingling, but that will be measured in years, not months.’

  • ‘Unless either China or the United States finds a spare $5 trillion to $10 trillion to rebuild completely independent supply chains, that structure of trade and manufacturing and mutual engagement is with us for a long haul.’

‘Or perhaps the United States just needs a great enemy, as it used to have in the form of the Soviet Union.’

  • ‘And it’s true that China is better cast than, say, al Qaeda or that amorphous nonstate thing called “Islamic fundamentalism” or “terrorism.” ’
  • ‘The U.S. national security establishment was set up in the late 1940s in order to contain and confront a unitary state power with a potent military.’
  • ‘In that sense, China is a worthy successor to the Soviet Union.’

‘And what is faintly similar is that the two are locked in a great-power contest, in which China has moved to dominate the South China Sea as the United States did and still does in the Caribbean.’

  • ‘The two countries do have ideological differences as well, but those are much less acute for the simple reason that China does not seem to seek to export any particular ideology other than state sovereignty.’

‘In short, there is nothing comparable in today’s relationship between the United States and China to the 20th-century rivalry between the United States and the Soviet Union.’

Foreign Policy

Zachary Karabell

‘The United States and China are not in a cold war. They are in a bad marriage, with no current option for divorce.’

‘Talk of a new Cold War—and the idea that Chinese-U.S. relations are at their worst since the two countries normalized diplomatic ties in 1979—is its own form of frenzy.’

  • ‘And that way of thinking is forcing a 20th-century template of the Cold War between the United States and the Soviet Union onto a U.S.-Chinese relationship that could not be more different.’

‘The United States and China are not in a cold war.’

  • ‘They are in a bad marriage, with no current option for divorce.'
  • ‘That will remain the case for many years to come.’

‘Of late, the bickering between the United States and China has certainly gotten much worse. Secretary of State Mike Pompeo has assailed Chinese President Xi Jinping as a “true believer in a bankrupt totalitarian ideology.” ’

  • ‘And the two countries have imposed an escalating series of tit-for-tat measures against each other, ranging from Chinese sanctions on U.S. senators to U.S. orders to close the Chinese consulate in Houston.’

‘That, in turn, has led policy experts and China watchers to speak of “a drift toward Cold War,” with potential for all the familiar hallmarks of last century’s Cold War between the United States and the Soviet Union:’

  • ‘starkly opposed ideologies;’
  • ‘proxy confrontations that then become proxy wars in other countries;’
  • ‘mutually exclusive spheres of influence in which each attempts to freeze out the other; and’
  • ‘a global diplomatic, propaganda, and economic offensive to line up allies and cut off the economic oxygen of the other side.’

‘What these analogies completely miss, however, is the nature of the Chinese-U.S. economic relationship, which is so much more connected and intertwined than the U.S.-Soviet one ever was.’

  • ‘That alone renders the Cold War template almost completely irrelevant as a guide to our present and future.’

‘Over time, the frostiness may well lead to less and less economic commingling, but that will be measured in years, not months.’

  • ‘Unless either China or the United States finds a spare $5 trillion to $10 trillion to rebuild completely independent supply chains, that structure of trade and manufacturing and mutual engagement is with us for a long haul.’

‘Or perhaps the United States just needs a great enemy, as it used to have in the form of the Soviet Union.’

  • ‘And it’s true that China is better cast than, say, al Qaeda or that amorphous nonstate thing called “Islamic fundamentalism” or “terrorism.” ’
  • ‘The U.S. national security establishment was set up in the late 1940s in order to contain and confront a unitary state power with a potent military.’
  • ‘In that sense, China is a worthy successor to the Soviet Union.’

‘And what is faintly similar is that the two are locked in a great-power contest, in which China has moved to dominate the South China Sea as the United States did and still does in the Caribbean.’

  • ‘The two countries do have ideological differences as well, but those are much less acute for the simple reason that China does not seem to seek to export any particular ideology other than state sovereignty.’

‘In short, there is nothing comparable in today’s relationship between the United States and China to the 20th-century rivalry between the United States and the Soviet Union.’

 
4. China's Economic Stimulus
SourceLogo China: An effective but subsiding stimulus

CreditSuisse

Wenzhe Zhao | Credit Suisse.

‘If the virus remains under control within China, which appears more and more likely, the need for a relentless pursuit of credit expansion will diminish further.’

‘Due to the recent policy stimulus, M2 growth in China has accelerated.’’

  • Money aggregate, M2, responds to the monetary stimulus and transmits it to new spending.

‘China's one-of-a-kind credit has helped stabilize the economy in the pandemic.’

  • ‘Infrastructure and real estate sectors have benefited disproportionately from the monetary stimulus, but private manufacturing, services, and parts of the household sector have lagged due to fragmented credit allocation mechanisms.’

‘The marginal impact of the current set of counter-cyclical stimulus in China has peaked, though is still positive.’

  • ‘Policy priorities will likely shift again towards strategic reform goals as long as the virus remains under control domestically.’
  • ‘The recent acceleration in M2 growth is not expected to be inflationary (link).

‘Despite the modest size of the stimulus, its impact on M2 and economic growth has been salient.’

  • ‘The pace of M2 growth between February and May averaged RMB 2.4tn per month, doubling that over the past two years (Figure 1, above).’

‘Both institutional and household deposits have notably grown, a more balanced outcome than past episodes.’

  • ‘China's industrial production and electricity consumption have fully recovered to previous highs.’

‘Pushing resources with a heavy visible hand towards sectors that can yield an immediate economic upshot often creates economic imbalances.’

  • ‘Counter-cyclical credit easing tends to strengthen the goods sector much more than services and is more likely to benefit government-sponsored activities.’
  • ‘In the current episode, commercial banks also need to shoulder deteriorating asset quality and brace for lower profitability.’

‘The Chinese policymakers have long-acknowledged the side-effects with easy credit and have refrained themselves from stimulating the economy too bluntly this time around.’

  • ‘They have chosen not to announce the short-term GDP growth target for this year, a sign of their decreased willingness to sacrifice sustainability for short-term gains.’

‘If the virus remains under control within China, which appears more and more likely, the need for a relentless pursuit of credit expansion will diminish further.’

  • ‘As the current stimulus runs its full course through the remainder of the year, the onus would be back on private services business and jobs to take over the baton of growth with policy focusing concurrently on improving the credit allocation efficiency.’

CreditSuisse

Wenzhe Zhao | Credit Suisse

‘If the virus remains under control within China, which appears more and more likely, the need for a relentless pursuit of credit expansion will diminish further.’

‘Due to the recent policy stimulus, M2 growth in China has accelerated.’’

  • Money aggregate, M2, responds to the monetary stimulus and transmits it to new spending.'

‘China's one-of-a-kind credit has helped stabilize the economy in the pandemic.’

  • ‘Infrastructure and real estate sectors have benefited disproportionately from the monetary stimulus, but private manufacturing, services, and parts of the household sector have lagged due to fragmented credit allocation mechanisms.’

‘The marginal impact of the current set of counter-cyclical stimulus in China has peaked, though is still positive.’

  • ‘Policy priorities will likely shift again towards strategic reform goals as long as the virus remains under control domestically.’
  • ‘The recent acceleration in M2 growth is not expected to be inflationary.'

‘Despite the modest size of the stimulus, its impact on M2 and economic growth has been salient.’

  • ‘The pace of M2 growth between February and May averaged RMB 2.4tn per month, doubling that over the past two years (Figure 1, above).’

‘Both institutional and household deposits have notably grown, a more balanced outcome than past episodes.’

  • ‘China's industrial production and electricity consumption have fully recovered to previous highs.’

‘Pushing resources with a heavy visible hand towards sectors that can yield an immediate economic upshot often creates economic imbalances.’

  • ‘Counter-cyclical credit easing tends to strengthen the goods sector much more than services and is more likely to benefit government-sponsored activities.’
  • ‘In the current episode, commercial banks also need to shoulder deteriorating asset quality and brace for lower profitability.’

‘The Chinese policymakers have long-acknowledged the side-effects with easy credit and have refrained themselves from stimulating the economy too bluntly this time around.’

  • ‘They have chosen not to announce the short-term GDP growth target for this year, a sign of their decreased willingness to sacrifice sustainability for short-term gains.’

‘If the virus remains under control within China, which appears more and more likely, the need for a relentless pursuit of credit expansion will diminish further.’

  • ‘As the current stimulus runs its full course through the remainder of the year, the onus would be back on private services business and jobs to take over the baton of growth with policy focusing concurrently on improving the credit allocation efficiency.’

 
5. A Stand-Up Move
SourceLogo Xu Zhangrun & the Harvard Fairbank Center for Chinese Studies

Voice of America

‘Harvard has done a really stand-up thing.’

You can read a translation of Xu Zhangrun’s eloquent letter to the Fairbank Center here.

  • This is one more tremendous service from Geremie R. Barmé and the ‘China Heritage’ website. Check it out!

National Review. ‘Harvard has done a really stand-up thing.’

‘Outspoken Chinese legal scholar Xu Zhangrun has received an invitation from Harvard University to be a researcher at the school's Fairbank Center for Chinese Studies (FCCS), weeks after being fired by his former employer, Tsinghua University, for articles critical of President Xi Jinping.’ 

  • Note that in fact Xu is listed as an Associate in Research for the 2020-21 school year on the Fairbank Center website.’

‘ "We have much respect for Professor Xu's academic work," James Evans, the center's communications officer, told VOA's Mandarin service via email.’ [In the SCMP, this comment is credited to Fairbank Centre director Michael Szonyi.]

  • "We thought it appropriate to make a gesture of support in light of recent developments, and therefore invited him to apply for an affiliation with us."  
  • ‘While the associate-in-research affiliation is ordinarily granted in response to a request by the scholar, Evans said FCCS found "it would be an effective way to express support for Prof. Xu in a timely fashion." 
  • Xu wrote back to the center on Wednesday, thanking FCCS for the offer, saying it was "a substantive appointment that addresses the very core of my interests." ’  

‘Lu Nan, a U.S.-based political commentator who is friends with Xu, said the Beijing authorities will not allow Xu to leave the country. 

  • ‘ "I am 100% sure Xu's freedom of movement will be controlled," Lu told VOA. "Xu knows this — he can't physically leave China." 

‘Just days ago, Xu received the Notice for Unemployed Individual from his former employer, the prestigious Tsinghua University, officially finalizing termination of his contract.’

  • ‘After receiving the offer from the Fairbank Centre, Xu also received a “Notice of Unemployed Person” from the committee of his neighbourhood on Wednesday. According to the notice, Xu is required to attend vocational guidance training at the committee’s office next week.’

‘Xu was detained for a week in early July on charges of soliciting prostitutes in the southwestern city of Chengdu last year, which he denied.’

  • National Review.That is a common ploy, on the part of dictatorships. The more common one, however, is child-rape: a charge of pedophilia.’

‘Xu, who was barred from leaving China, had taught at Tsinghua University's law school for over two decades.’

  • ‘In a series of articles published over the past few years, Xu has harshly criticized Xi, accusing him of moving toward authoritarianism since coming to power in 2012 and blaming him for China's political, economic and cultural setbacks.’ 

‘Professor Jerome Cohen, founder of New York University's U.S.-Asia Law Institute, called Harvard's invitation to Xu "a brilliant move" that raises the question of whether other research organizations should also extend invitations to rights activists in China’. 

  • "I have long thought that I should limit my contacts with distinguished human rights people in China, because it might add to their problems."
  • "But I see now, perhaps we should take the opposite approach and we should be inviting many of the great people in China who are oppressed or restricted in their activities to be associated with our research institutes."
  • "I see what it has done for Professor Xu. He has put out a wonderful, extremely interesting essay in response to the honor Harvard extended to him. It is obviously a psychic income.”
  • “It has given him greater resistance and greater strides in his struggle against oppression." 

Voice of America

‘Harvard has done a really stand-up thing.’

You can read a translation of Xu Zhangrun’s eloquent letter to the Fairbank Center here. Moving and not a little heartbreaking.

  • This is one more tremendous service from Geremie R. Barmé and the ‘China Heritage’ website. Check it out!

_______________________________________

National Review. ‘Harvard has done a really stand-up thing.’

VOA. ‘Outspoken Chinese legal scholar Xu Zhangrun has received an invitation from Harvard University to be a researcher at the school's Fairbank Center for Chinese Studies (FCCS), weeks after being fired by his former employer, Tsinghua University, for articles critical of President Xi Jinping.’ 

  • Note that in fact Xu is listed as an 'Associate in Research' for the 2020-21 school year on the Fairbank Center website, even though it is unlikely he will be allowed to leave China.

‘ "We have much respect for Professor Xu's academic work," James Evans, the center's communications officer, told VOA's Mandarin service via email.’ [In the SCMP, this comment is credited to Fairbank Centre director Michael Szonyi.]

  • "We thought it appropriate to make a gesture of support in light of recent developments, and therefore invited him to apply for an affiliation with us."  
  • ‘While the associate-in-research affiliation is ordinarily granted in response to a request by the scholar, Evans said FCCS found "it would be an effective way to express support for Prof. Xu in a timely fashion." 
  • Xu wrote back to the center on Wednesday, thanking FCCS for the offer, saying it was "a substantive appointment that addresses the very core of my interests." ’  

‘Lu Nan, a U.S.-based political commentator who is friends with Xu, said the Beijing authorities will not allow Xu to leave the country. 

  • ‘ "I am 100% sure Xu's freedom of movement will be controlled," Lu told VOA. "Xu knows this — he can't physically leave China." 

‘Just days ago, Xu received the Notice for Unemployed Individual from his former employer, the prestigious Tsinghua University, officially finalizing termination of his contract.’

  • ‘After receiving the offer from the Fairbank Centre, Xu also received a “Notice of Unemployed Person” from the committee of his neighbourhood on Wednesday. According to the notice, Xu is required to attend vocational guidance training at the committee’s office next week.’

‘Xu was detained for a week in early July on charges of soliciting prostitutes in the southwestern city of Chengdu last year, which he denied.’

  • National Review. ‘That is a common ploy, on the part of dictatorships. The more common one, however, is child-rape: a charge of pedophilia.’

‘Xu, who was barred from leaving China, had taught at Tsinghua University's law school for over two decades.’

  • ‘In a series of articles published over the past few years, Xu has harshly criticized Xi, accusing him of moving toward authoritarianism since coming to power in 2012 and blaming him for China's political, economic and cultural setbacks.’ 

‘Professor Jerome Cohen, founder of New York University's U.S.-Asia Law Institute, called Harvard's invitation to Xu "a brilliant move" that raises the question of whether other research organizations should also extend invitations to rights activists in China.' 

  • "I have long thought that I should limit my contacts with distinguished human rights people in China, because it might add to their problems."
  • "But I see now, perhaps we should take the opposite approach and we should be inviting many of the great people in China who are oppressed or restricted in their activities to be associated with our research institutes."
  • "I see what it has done for Professor Xu. He has put out a wonderful, extremely interesting essay in response to the honor Harvard extended to him. It is obviously a psychic income.”
  • “It has given him greater resistance and greater strides in his struggle against oppression." 

 
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Malcolm Riddell 大宝 — your editor
Malcolm_Riddell As investment banker, diplomat, lawyer, Harvard academic, and CIA spy, I have participated in China affairs for more than 40 years.
✉️malcolm.riddell@riddell-tseng.com
 
 
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