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China Is Taking Over India's Tech Space. Should We Worry?

China Is Taking Over India's Tech Space. Should We Worry? | ANALYSIS | Scoop.it
India is not unique in the wave of Chinese tech acquisitions, but the absence of any robust debate on the implications is rather curious.
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Shang-Jin Wei

Shang-Jin Wei | ANALYSIS | Scoop.it

N.T. Wang Professor of Chinese Business and Economy and Professor of Finance and Economics, Graduate School of Business and School of International and Public Affairs, Columbia University

Formerly:

  • Chief Economist and Director General of its Economic Research and Regional Cooperation Department, Asian Development Bank.
  • Assistant Director and Chief of Trade and Investment Division, IMF
  • Chief of Mission to Myanmar (Burma), IMF
  • Associate Professor of Public Policy, Harvard University
  • New Century Chair in Trade and International Economics, Brookings

PhD, MS, University of California, Berkeley.

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China Macro Reporter Archive

Greetings!

In today’s issue:

1. Biden Shows his Hand on China

  • 'Biden’s Opening Salvo on Beijing'

2. Xi Shows his Hand on the U.S.

  • 'China’s Xi Champions Multilateralism at Davos, Again' 
  • 'Xi Jinping Wows Them at Davos'

3. Multi-Lateralism, Chinese-Style

  • 'China’s Xi Warns Against Confrontation in Veiled Message to Biden'
  • 'Xi Jinping at the Virtual Davos: Multilateralism with Chinese characteristics'

4. Cooperation or 'Strategic Competition'?

  • 'China rejects 'strategic competition' and calls on US to cooperate'

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue.

Including an article here does not imply agreement with or endorsement of its contents.

We are just a week into the Biden Era, and China and the U.S. are presenting its opening moves.

 

On the China side, of particular interest are two policies being pushed:

  • ‘Multilateralism,’ that in China’s meaning may be ‘Multilateralism with Chinese Characteristics.’ Hence a different meaning for China than what the rest of the world understands, and
  • ‘Cooperation’ rather than ‘strategic competition’ in U.S.-China relations.

In sum the lines being drawn are:

  • Chinese ‘multilateralism’ versus U.S.'s ‘coalition of allies,’ and
  • China’s ‘Cooperation’ versus the U.S.’s ‘Strategic Competition.’

In his virtual Davos speech this week, Xi Jinping highlighted both.

  • So far, the Biden administration isn’t budging. And don’t expect it to.

On the U.S. side, Biden administration has also been busy. As Walter Russell Mead writes:

  • ‘The Biden administration is less than a week old, but its most consequential foreign-policy decisions may already be behind it.’
  • ‘Initiating his China policy with the most aggressive concatenation of moves against a foreign power that any peacetime U.S. administration has ever launched so early on, President Biden has thrown down a gauntlet that Beijing is unlikely to ignore.’

‘Besides issuing a formal invitation to Taiwan’s top Washington representative to attend the inauguration (the first such invitation since the U.S. established formal relations with Beijing in 1979), the incoming team has pledged to continue arms sales to Taiwan and indicated that it wants to delay high-level U.S.-China talks until it consults with close allies—a stand that China will interpret as a rebuff.’

  • ‘As if this weren’t enough, Secretary of State-designate Antony Blinken announced that he concurs with his predecessor Mike Pompeo’s finding that China is engaged in a genocide against its mostly Muslim Uighur minority in Xinjiang province.’
  • ‘Taken with the previously planned dispatch of a naval strike group to the South China Sea, it all amounts to a stern message to Beijing.’

Tell me again about how Biden is going to be soft on China.

 

'The early signs from China aren’t encouraging.’

  • ‘On Inauguration Day,

Chinese forces attacked Indian positions in Sikkim, across the border from Tibet.’

  • ‘Following 13 Chinese sorties into Taiwan’s southwestern air-defense identification zone on Saturday, State Department spokesman Ned Price warned China to cease “its military, diplomatic and economic pressure against Taiwan.” ’
  • ‘China responded by sending another 15 sorties the next day.’

 

If this was a bit of the stick, Xi Jinping offered some carrots in his virtual Davos address on Monday: ‘Chinese President Xi Jinping called on countries to uphold international rules and to remain “committed to openness and inclusiveness.” ’

  • ‘ “The problems facing the world are intricate and complex. The way out of them is through upholding multilateralism and building a community with a shared future for mankind,” Xi said.’
  • ‘He emphasized the importance of abiding by international law and international rules, stating that “international governance should be based on the rules and consensus reached among us, not on the order given by one or the few.” ’

To which the Editorial Board of The Wall Street Journal responded: ‘Chinese President Xi Jinping knows his audience.’

  • ‘In his Monday address to the World Economic Forum, the annual meeting of global luminaries in Davos, Mr. Xi sounded like a liberal internationalist in good standing.’
  • ‘He pulled out all the buzzwords that make Davosians swoon: “inclusive growth,” “green development,” “global governance” and “consensus building.” ’

‘The Davos website effused that this was a “historic opportunity for collaboration.” ’

  • ‘But Mr. Xi’s People’s Liberation Army told a different story over the weekend, menacing Taiwan with back-to-back military flyovers of more than a dozen planes.’
  • ‘The provocation is a reminder that while the government has changed hands in Washington, it hasn’t in Beijing, which still sees extending sovereignty over Taiwan—possibly by force—as a priority.’

‘Mr. Xi said in his speech that “the strong should not bully the weak,” but that admonition doesn’t seem to apply to his own government.’

  • ‘ “We should stay committed to international law

and international rules, instead of seeking one’s own supremacy,” he added.’

  • ‘Tell that to the people of Hong Kong who were promised autonomy through 2047 in a treaty Beijing signed with Britain but are now being arrested for even mild political dissent.’

 

Asked if Mr. Xi’s speech had an impact on U.S. thinking toward China, White House press secretary Jen Psaki said in Monday's press briefing:’

  • ‘ "We're in a serious competition with China. Strategic competition with China is a defining feature of the 21st century," Psaki said, criticizing China for engaging in conduct that "hurts American workers, blunts our technological edge, and threatens our alliances and our influence in international organizations." ’
  • ‘She called for a "new approach" with China, but that the administration of President Joe Biden will approach the issue "with some strategic patience," citing the need to discuss the path going forward with bipartisan members of Congress.’

 

In response to Ms. Psaky’s comments, PRC Ministry of Foreign Affairs spokesperson, Zhao Lijian, said:

  • ‘China wants cooperation, not strategic competition, the Foreign Ministry said Tuesday, a day after the White House said it was looking to form a "new approach" toward China.’
  • "Over the past few years, the Trump administration went in a very wrong direction. They regarded China as a 'strategic competitor' and even a 'threat,' and thus took erroneous actions that interfered in China's internal affairs and undermined China's interests."
  • "Both countries stand to gain from cooperation and lose from confrontation. Cooperation is the only right choice for both"

 

And regarding Mr. Xi’s call for multilateralism, Hung Tan of The Atlantic Council noted: ‘Xi’s vision of multilateralism differs in key aspects from the conceptions of multilateralism espoused by much of the world.’

  • ‘Is multilateralism to be based on state rights as sovereign equals that accept no meddling in their internal affairs? Or’
  • ‘Is it instead to be based on universal human rights to which people aspire all over the world—on the notion that governments anywhere should be held accountable for respecting the basic rights of their citizens?’

‘Xi essentially proposed a multilateralism with Chinese characteristics—designed to ensure that international interactions be conducted in accordance with China’s perspectives.’

  • ‘What should be clear

after Xi’s address is that when China’s leader invokes multilateralism, he doesn’t have in mind what many others in the international community do.’

  • ‘That chasm needs to be recognized—and bridged.’

 

Looks as if more the chasm in conceptions of multilateralism has to be bridged.

  • Stay tuned. This is just getting interesting.

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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'China rejects 'strategic competition' and calls on US to cooperate'

'China rejects 'strategic competition' and calls on US to cooperate' | ANALYSIS | Scoop.it

Nikkei Asian Review

‘China wants cooperation, not strategic competition.’

‘China wants cooperation, not strategic competition, the Foreign Ministry said Tuesday, a day after the White House said it was looking to form a "new approach" toward China.’

  • ‘ "Over the past few years, the Trump administration went in a very wrong direction. They regarded China as a 'strategic competitor' and even a 'threat,' and thus took erroneous actions that interfered in China's internal affairs and undermined China's interests," Zhao Lijian, the Ministry of Foreign Affairs spokesperson, said during a regular news briefing.’
  • ‘ "As two major countries, China and the United States have broad common interests and shoulder special, major responsibilities in safeguarding world peace and stability, and in promoting global development and prosperity," he said.
  • ‘ "Both countries stand to gain from cooperation and lose from confrontation. Cooperation is the only right choice for both," he stressed.’

‘Zhao's stance echoes the "new type of great power relations" that Beijing was trying to sell to Washington during the era of former President Barack Obama.’

  • ‘In a meeting with Obama at the Sunnylands Resort in California in 2013, President Xi Jinping described the three main concepts as: no conflict or confrontation, and treating each other's strategic intentions objectively; mutual respect, including for each other's core interests and major concerns; and mutually beneficial cooperation, by abandoning the zero-sum game mentality and advancing areas of mutual interest.’

‘ "We hope the new U.S. administration will learn from the Trump administration's lessons where they carried out the wrong policies on China," Zhao said.’

  • ‘ "We hope the new administration will view China and China-U.S. relations in an objective and rational manner, implement China policies that are positive and constructive." ’
  • ‘Zhao went on to say that he hopes Washington will "meet with China half way, focus on cooperation, manage differences, and bring China-U.S. relations back on the right track of sound and stable development." ’

‘The comments stand in contrast to the relationship described by White House press secretary Jen Psaki in Monday's press briefing.’

  • ‘ "We're in a serious competition with China. Strategic competition with China is a defining feature of the 21st century," Psaki said, criticizing China for engaging in conduct that "hurts American workers, blunts our technological edge, and threatens our alliances and our influence in international organizations." ’
  • ‘She called for a "new approach" with China, but that the administration of President Joe Biden will approach the issue "with some strategic patience," citing the need to discuss the path going forward with bipartisan members of Congress.’

‘The term "strategic patience," which Psaki mentioned in her Monday briefing, was used by the Obama administration in its policy toward North Korea.’

  • ‘It referred to not negotiating with the regime unless it takes concrete steps toward dismantling its nuclear arsenal.’

‘However, the strategy ended up granting time to North Korea to further develop nuclear weapons.’

  • ‘Biden served as vice president under Obama, and Psaki was the spokesperson for the State Department during part of the Obama administration.’
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'China’s Xi Warns Against Confrontation in Veiled Message to Biden'

'China’s Xi Warns Against Confrontation in Veiled Message to Biden' | ANALYSIS | Scoop.it

The Wall Street Journal

James T. Areddy | The Wall Street Journal

‘Chinese President Xi Jinping issued a veiled warning against the new Biden administration’s preparations to rally allies to challenge Beijing on a range of issues.’

‘Chinese President Xi Jinping issued a veiled warning against the new Biden administration’s preparations to rally allies to challenge Beijing on a range of issues, urging multilateral coordination to tackle global challenges such as the pandemic.’

  • ‘ “To build small circles or start a new Cold War, to reject, threaten or intimidate others, to willfully impose decoupling, supply disruption or sanctions, to create isolation or estrangement, will only push the world into division and even confrontation,” Mr. Xi told the World Economic Forum, which this year is convening online instead of in the ski town of Davos, Switzerland.’

‘In urging multilateral engagement to discuss disagreements, Mr. Xi offered no initiatives to address Western criticisms of Chinese policies in such areas as trade, human rights and the military.’

  • ‘Yet he warned, “It serves no one’s interest to use the pandemic as an excuse to reverse globalization and go for seclusion and decoupling.” ’
  • ‘His emphasis on warning against action by “one or the few” comes as Mr. Biden’s team is looking for ways to rebuild American alliances that were tested during the Trump administration.’

‘Mr. Xi’s defense of multilateralism harked to his 2017 debut in Davos when he warned “no one will emerge a winner in a trade war” days before Donald Trump’s inauguration as U.S. president.’

  • ‘After going toe-to-toe over trade, the U.S. and China in early 2020 signed a deal but left in place tariffs and acrimony on both sides.’
  • ‘Klaus Schwab, founder of the World Economic Forum, introduced Mr. Xi to the virtual forum on Monday by recalling his previous appearance at Davos and saying that it was followed by “the age of disagreement.” ’

‘His comments—from his office desk placed in front of a rendering of the Great Wall, designed to deter foreign invasions—came days after President Biden took office in the U.S. In his roughly 25-minute address, Mr. Xi also:’

  • ‘called for stepped-up global macroeconomic policy coordination and said nations should abandon “ideological prejudice” about a single kind of governance.’
  • ‘said Beijing would continue to open its economy and honor its global commitments, but emphasized that each country had a right to blaze its own path.’
  • ‘called for more coordination through the Group of 20 leading economies, the World Trade Organization, the United Nations and the World Health Organization, all bodies where China holds powerful sway.’
  • ‘said financial policy should be coordinated but didn’t mention Western-run organizations like the International Monetary Fund or the World Bank.’
  • ‘reiterated China’s global climate policies including achieving carbon neutrality by 2060, an area the Biden administration has said is promising for cooperation with Beijing.’
  • ‘said China’s economic successes will “give further emphasis to global economic recovery.’
  • ‘said history has shown no one would win in confrontation, whether it is a “Cold War, hot war, trade war or tech war.” ’

‘White House spokeswoman Jen Psaki said Monday that Mr. Xi’s comments don’t change how the administration is looking at issues related to China but that the White House aims to improve its defensive strategy, including on technology.’

  • ‘ “No, the comments don’t change anything,” Ms. Psaki said. “We believe this moment requires a strategic and a new approach forward.” ’
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Part Two | 'Biden’s Opening Salvo on Beijing'

Part Two | 'Biden’s Opening Salvo on Beijing' | ANALYSIS | Scoop.it

The Wall Street Journal

Walter Russell Mead | Bard College

‘China will think carefully before making its next moves, but it’s unlikely to submit tamely to American pressure.’

‘The ball is now in Xi Jinping’s court. His choices are limited.’

  • ‘He can respond with tough statements but signal a willingness to engage Washington pragmatically.’
  • ‘This would hand Mr. Biden a diplomatic victory at the start of his administration and tell the rest of the world that China isn’t yet prepared to take on America.’
  • ‘It would also damage Mr. Xi at home, as anything that looks like a retreat would infuriate Chinese nationalists and undercut official propaganda about China’s global stature.’

‘Alternatively, Beijing can respond with provocations of its own.’

  • ‘Mr. Xi can order military moves in disputed territories from the Himalayas to the Senkaku islands in the East China Sea.’
  • ‘He can also double down on repressive measures in China.’
  • ‘The object would be to call Mr. Biden’s bluff, forcing Washington to choose between a humiliating retreat or a further escalation of tensions.

‘The early signs aren’t encouraging.’

  • ‘On Inauguration Day, Chinese forces attacked Indian positions in Sikkim, across the border from Tibet.’
  • ‘Following 13 Chinese sorties into Taiwan’s southwestern air-defense identification zone on Saturday, State Department spokesman Ned Price warned China to cease “its military, diplomatic and economic pressure against Taiwan.” ’
  • ‘China responded by sending another 15 sorties the next day.’

‘The unifying theme of Mr. Xi’s speech to the World Economic Forum Monday morning was China’s staunch opposition to U.S. attempts to isolate China or limit its rise.’

  • ‘China will think carefully before making its next moves, but it’s unlikely to submit tamely to American pressure.’
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Part One | 'Biden’s Opening Salvo on Beijing'

Part One | 'Biden’s Opening Salvo on Beijing' | ANALYSIS | Scoop.it

The Wall Street Journal

Walter Russell Mead | Bard College

‘The Biden administration is less than a week old, but its most consequential foreign-policy decisions may already be behind it.’

‘The Biden administration is less than a week old, but its most consequential foreign-policy decisions may already be behind it.’

  • ‘Initiating his China policy with the most aggressive concatenation of moves against a foreign power that any peacetime U.S. administration has ever launched so early on, President Biden has thrown down a gauntlet that Beijing is unlikely to ignore.’

‘Besides issuing a formal invitation to Taiwan’s top Washington representative to attend the inauguration (the first such invitation since the U.S. established formal relations with Beijing in 1979), the incoming team has pledged to continue arms sales to Taiwan and indicated that it wants to delay high-level U.S.-China talks until it consults with close allies—a stand that China will interpret as a rebuff.’

  • ‘As if this weren’t enough, Secretary of State-designate Antony Blinken announced that he concurs with his predecessor Mike Pompeo’s finding that China is engaged in a genocide against its mostly Muslim Uighur minority in Xinjiang province.’
  • ‘Taken with the previously planned dispatch of a naval strike group to the South China Sea, it all amounts to a stern message to Beijing.’

‘These moves must be troubling for those who hoped that Mr. Biden would “prioritise global issues over great power competition,” as Anne-Marie Slaughter, who served as the State Department director of policy planning during the Obama administration, put it in a recent op-ed for the Financial Times.’

‘It’s not entirely clear how coordinated the new measures are.’

  • ‘The late designation of Chinese behavior as genocide by the Trump-era State Department in particular put Mr. Biden in a difficult spot.’
  • ‘He had called the repression of the Uighurs a genocide on the campaign trail, but stump-speech rhetoric has no legal force.’
  • ‘Once the State Department weighed in officially, Mr. Biden couldn’t walk back a designation he was on record as endorsing without looking weak.’

‘It remains to be seen whether the administration will attempt to tone down the strong message sent by its early actions.’

  • ‘The combination of the hard line on Taiwan and the genocide designation could be the foundation of a policy mix that is significantly more provocative than even some China hawks in the new administration wanted—and far more hawkish than the human-rights advocates supporting the genocide designation understood.’
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Xi Jinping at the virtual Davos: Multilateralism with Chinese characteristics

Xi Jinping at the virtual Davos: Multilateralism with Chinese characteristics | ANALYSIS | Scoop.it

Atlantic Council

Hung Tran | Atlantic Council

‘At the virtual Davos this week, Xi essentially proposed a multilateralism with Chinese characteristics—designed to ensure that international interactions be conducted in accordance with China’s perspectives.’

‘On Monday, at the first virtual version of the World Economic Forum’s annual Davos gathering, Chinese President Xi Jinping delivered a major speech describing multilateralism as “the torch” that will illuminate “humanity’s way forward.” ’

  • ‘The statement is reminiscent of Xi’s promotion of globalization at a previous Davos meeting in 2017, around the time that former US President Donald Trump was threatening a series of unilateral trade actions against China and other countries.’

‘While international cooperation within multilateral frameworks is indeed crucial in addressing many of the serious challenges presently facing the world, it is important to recognize that not all calls for multilateralism are the same.’

  • ‘The particulars of the multilateral vision inform how international cooperation works in practice.’
  • ‘And Xi’s vision of multilateralism differs in key aspects from the conceptions of multilateralism espoused by much of the world.’

‘First and foremost, Xi characterized the charter of the United Nations (UN) as containing “the basic and universally recognized norms governing state-to-state relations,” but failed to mention that the same charter also “reaffirm(s) faith in fundamental human rights, in the dignity and worth of the human person.” ’

  • ‘Arguing that “each country is unique with its own history, culture, and social system, and none is superior to the other,” Xi rejected “meddling in other countries’ internal affairs.” ’
  • ‘Xi’s advocacy of sovereign equality among nations and non-interference in countries’ internal affairs has been directed toward warding off criticism of China’s violations of the human and democratic rights of the people in Xinjiang, Tibet, and Hong Kong.’

‘Since criticism of those rights violations has come mainly from developed countries in the West, while many developing countries have supported China’s defense against that criticism, Xi’s remarks point to fundamentally different notions of multilateralism.’

  • ‘Is multilateralism to be based on state rights as sovereign equals that accept no meddling in their internal affairs? Or’
  • ‘Is it instead to be based on universal human rights to which people aspire all over the world—on the notion that governments anywhere should be held accountable for respecting the basic rights of their citizens?’

‘Xi’s emphasis on the uniqueness of each country’s system and non-interference in internal affairs also has major implications for international economic and trade relationships.’

  • ‘In his speech Xi advocated respect for global trading rules, but only to the extent that those rules do not interfere with China’s economic system.’
  • ‘The Chinese system involves state guidance and support for both state-owned and non-state-owned companies, exercised not only through state laws and regulations but also by embedding Chinese Communist Party cells in companies.’
  • ‘These conditions have made it impossible for international companies to operate on a level playing field when trading with or investing in China.’

‘These systemic differences between China and the West should inform current efforts to reform the global trading system based on the World Trade Organization.’

  • ‘Instead of only focusing on changing or improving global rules, more work should be directed toward developing practical ways to ensure reciprocity between trading partners in their treatment of each other’s companies—and even reciprocity of outcomes from that trade for citizens in each country.’
  • ‘Such an approach would help address concerns among people, especially in developed countries, about being displaced and left behind by the expansion of free trade.’

‘At the virtual Davos this week, Xi essentially proposed a multilateralism with Chinese characteristics—designed to ensure that international interactions be conducted in accordance with China’s perspectives.’

  • ‘What should be clear after Xi’s address is that when China’s leader invokes multilateralism, he doesn’t have in mind what many others in the international community do.’
  • ‘That chasm needs to be recognized—and bridged.’
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'China’s Xi Champions Multilateralism at Davos, Again' 

'China’s Xi Champions Multilateralism at Davos, Again'  | ANALYSIS | Scoop.it

The Diplomat

Elenor Albert | George Washington University

‘While Xi’s speech may have echoed similar themes from his 2017 address, today’s circumstances are markedly different.’

‘In his 25-minute speech at the World Economic Forum (WEF) on January 25, Chinese President Xi Jinping called on countries to uphold international rules and to remain “committed to openness and inclusiveness.” ’

  • ‘ “The problems facing the world are intricate and complex. The way out of them is through upholding multilateralism and building a community with a shared future for mankind,” Xi said.’
  • ‘The address was the Chinese leader’s first appearance at Davos in four years, following a speech in 2017 when he strongly advocated for free trade and defended the benefits of globalization.’

‘While Xi’s speech may have echoed similar themes from his 2017 address, today’s circumstances are markedly different.’

  • ‘For one thing, despite trade tensions between Beijing and Washington, China’s economic position appears to have grown stronger.’
  • ‘In 2020, China emerged as the only major economy to avoid falling into recession in face of the COVID-19 pandemic, expanding by 2.3 percent while the U.S. economy and the eurozone are expected to have shrunk by 3.6 percent and 7.4 percent respectively.’

‘Xi’s speech outlined a series of major tasks for moving forward.’

  • ‘First, he urged countries to embrace openness and multilateralism. Part of his advocacy for multilateralism included bolstering the role of the G-20 – “the premier forum for global economic governance” in Xi’s words – to coordinate macroeconomic policy.’
  • ‘Second, Xi emphasized the importance of abiding by international law and international rules, stating that “international governance should be based on the rules and consensus reached among us, not on the order given by one or the few.” ’
  • ‘Third, Xi pushed for greater commitment to consultation, guaranteeing equal rights to development, and greater reform of the existing global governance system.’

‘Notably, Xi’s two Davos speeches both coincided with a leadership transition in the United States, the world’s largest economy.’

  • ‘While Beijing may have capitalized on the former Trump administration’s suspicion of and recoiling from multilateralism, its embrace of global governance has been an enduring characteristic of Xi Jinping’s leadership.’
  • ‘Xi’s latest speech may not have revealed a new direction for the country’s conduct of foreign affairs, but it underlined that Beijing remains resolute in leading the call for the Global South and the developing world to be given more voice, especially in times of crisis.’

 

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'Xi Jinping Wows Them at Davos'

'Xi Jinping Wows Them at Davos' | ANALYSIS | Scoop.it

The Wall Street Journal

Editorial Board | The Wall Street Journal

‘The test for the Biden team is whether it will be tripped up by the feints toward international norms and comity that punctuate Mr. Xi’s pattern of regional aggression.’

Read Mr. Xi's full comments.

‘Chinese President Xi Jinping knows his audience.’

  • ‘In his Monday address to the World Economic Forum, the annual meeting of global luminaries in Davos, Mr. Xi sounded like a liberal internationalist in good standing.’
  • ‘He pulled out all the buzzwords that make Davosians swoon: “inclusive growth,” “green development,” “global governance” and “consensus building.” ’

‘The Davos website effused that this was a “historic opportunity for collaboration.” ’

  • ‘But Mr. Xi’s People’s Liberation Army told a different story over the weekend, menacing Taiwan with back-to-back military flyovers of more than a dozen planes.’
  • ‘The provocation is a reminder that while the government has changed hands in Washington, it hasn’t in Beijing, which still sees extending sovereignty over Taiwan—possibly by force—as a priority.’

‘Mr. Xi said in his speech that “the strong should not bully the weak,” but that admonition doesn’t seem to apply to his own government.’

  • ‘ “We should stay committed to international law and international rules, instead of seeking one’s own supremacy,” he added.’
  • ‘Tell that to the people of Hong Kong who were promised autonomy through 2047 in a treaty Beijing signed with Britain but are now being arrested for even mild political dissent.’

Judging from comments by Secretary of State nominee Tony Blinken and Secretary of Defense Lloyd Austin in their Senate hearings, the new Administration seems to recognize the importance of Taiwan’s independence and U.S. predominance in the Western Pacific.

  • Yet many in the Administration are also true believers in the types of global-governance values Mr. Xi claimed to endorse in his Davos speech, which they see as the best way to solve problems like climate change.
  • Unlike Mr. Xi, they aren’t experienced in using those values as a shield to relentlessly push their own national interest.

The contrast between Mr. Xi’s Monday sweet talk and the weekend Taiwan incursions is designed to throw the world off balance.

  • The test for the Biden team is whether it will be tripped up by the feints toward international norms and comity that punctuate Mr. Xi’s pattern of regional aggression.
 
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Southern tiger - China’s regional gap is worsening 

Southern tiger - China’s regional gap is worsening  | ANALYSIS | Scoop.it

The Economist

'China’s southern provinces are outperforming the north in nearly every economic dimension.’

‘ “Don’t invest beyond Shanhaiguan” is a popular quip in China, referring to a pass in the Great Wall that leads to the north-eastern rust belt.’

  • ‘Online pundits have updated the maxim to “don’t invest outside the Southern Song”, a dynasty that fell almost 750 years ago whose territory was roughly the same as China’s southern half today.’
  • ‘The joke has a nub of truth: China’s southern provinces are outperforming the north in nearly every economic dimension.’

‘Figures released on January 18th showed that China’s GDP grew by 2.3% in 2020.’

  • ‘The recovery was unbalanced, with factories at full throttle but consumption subdued.’
  • ‘That should improve after the pandemic ends.’
  • ‘The north-south imbalance, though, is likely to outlast it.’

‘The south’s share of GDP has risen to a peak of 65%, from 59% in 2015. Some of that is down to luck.’

  • ‘The north, home to China’s largest coal mines and oil reserves, was caught out by falls in commodity prices after 2013.’
  • ‘It also boasts big industrial firms; China’s shift from construction-fuelled growth towards consumption and services has hurt.’

‘Northern officials have tried harder to goose up growth, to the region’s detriment.’

  • ‘In 2013, the peak of China’s building frenzy, investment in assets such as roads and factories reached an eye-watering 66% of GDP in the north versus 51% in the south.’

‘Southern officials have been more hands-off.’

  • ‘China’s two most dynamic regions are in the south, anchored by Shanghai and Shenzhen.’

‘The south also makes the smartphones and sofas lapped up globally.’

  • ‘Its foreign-trade surplus last year was about 7% of GDP.’ 
  • ‘The north ran a 2% deficit.’

‘To add insult to injury, the north has also been disrupted more by sporadic covid-19 outbreaks.’

  • ‘Geography is part of the problem: a harsher winter makes the virus more transmissible. The north is stuck out in the cold.’
Malcolm Riddells insight:

Zubaid Ahmad

Founder and Managing Partner, Caravanserai Partners

Formerly:

• Vice Chairman, Citigroup’s Institutional Clients Group

• Vice Chairman and Head of Corporate Finance – Americas, Standard Chartered Bank

• Vice Chairman, J.P. Morgan Securities, Inc.

MBA, Harvard Business School; BSBA, Georgetown University.

Amb. Craig Allen

President, US-China Business Council

Formerly:

• U.S. Ambassador to Brunei Darussalam

• Deputy Assistant Secretary for Asia, U.S. Department of Commerce’s International Trade Administration,

• Deputy Assistant Secretary for China, U.S. Department of Commerce’s International Trade Administration

BA, University of Michigan; Master of Science in Foreign Service, Georgetown University

Tom Barkin

President and Chief Executive Officer, Richmond Fed

Formerly:

• Senior partner and chief financial officer, McKinsey & Company

• Member & Chairman, board of directors for the Federal Reserve Bank of Atlanta

BA, MBA, JD, Harvard

Philippe Burke

CIO, Apache Capital

Formerly:

• Principal and head of Global Leveraged Strategies, Morgan Stanley

• Senior Vice President, Lehman Brothers

MSc., London School of Economics; MBA, University of Chicago

Sameer Christy

Founder & Chairman of Streeton Partners

Formerly:

• Partner, McKinsey & Company

• Partner, Bain & Company

• Managing Director, Merrill Lynch Global Wealth Management

BA, Harvard College

Grace Gu

Fund Manager at Two Sigma

Formerly:

• Founder & CIO, Dracaena Capital Management

• Fund Manager, Graham Capital Management

• Fund Manager, BlackRock

BS, MS at Stanford University

John L. Holden

Senior director and head of the China practice for McLarty Associates.

• Senior Associate (Non-resident) with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies (CSIS)

Formerly:

• President, National Committee on U.S.-China Relations

• Chairman of the American Chamber of Commerce in China

• Founding associate dean, Yenching Academy, Peking University

• Professor of Practice, Guanghua School of Management, Peking University.

• Managing Director & Senior Counselor for Hill+Knowlton Strategies

• Founding Chairman, Shaklee (China) Ltd.

• Chairman, Cargill China Ltd.

Member, Council on Foreign Relations

BA, University of Minnesota; MA, Stanford University

Yukon Huang

Senior fellow, Asia Program, Carnegie Endowment

Formerly:

• Country director for China, World Bank

• Country director for Russia and the Former Soviet Union Republics, World Bank

PhD, Princeton University; BA, Yale University

Sonny Kalsi

Founder & Partner, GreenOak and CEO, BentallGreenOak

• Adjunct professor, Columbia University

• Trustee, Asia Society and board member, Hirshhorn Museum

Formerly:

• Global Co-Head of Morgan Stanley’s Real Estate Investing (MSREI) business and President of the Morgan Stanley Real Estate (MSRE) funds

BA Georgetown University and member of its Board of Regents

Chris Kelly

Entrepreneur, attorney, and activist

• Co-owner, NBA’s Sacramento Kings

Formerly:

• Chief Privacy Officer, first General Counsel, and Head of Global Public Policy, Facebook

• Candidate for the Democratic nomination, California Attorney General

JD, Harvard Law School; MA, Yale; BA Georgetown University and member of its Board of Regents

David Kotok

Chairman of the Board & Chief Investment Officer, Cumberland Advisors

• Director, Global Interdependence Center

• Member, National Business Economics Issues Council (NBEIC) and the National Association for Business Economics (NABE)

• Hosts ‘Camp Kotok,’ an annual Maine fishing trip for leaders in economics & finance

• BS, MS, MA, University of Pennsylvania

Lee Miller

CEO, China Beige Book

• Member, Economic Club of New York and the Council on Foreign Relations

• Board member, Global Interdependence Center

• Non-resident Senior Fellow, Atlantic Council

JD, University of Virginia School of Law; MA, Oxford University; a BA, Washington & Lee University

Amb. James Moriarty

Chairman, American Institute in Taiwan

Formerly:

• U.S. Ambassador to Bangladesh and Nepal

• Special Assistant to the President and Senior Director for Asia, National Security Council

• Director for China Affairs, National Security Council

BA, Dartmouth College

Steve Orlins

President, National Committee on U.S.-China Relations

Formerly:

• Managing director, Carlyle Asia

• President, Lehman Brothers Asia

Member, Council on Foreign Relations

BA, JD, Harvard

Andrew Polk

Co-founder and head of economic research, Trivium China

• Senior Associate (Non-resident), Freeman Chair in China Studies, Center for Strategic & International Studies (CSIS)

Formerly:

• China director, Medley Global Advisors

• Resident China economist, China Center for Economics and Business, The Conference Board

MA, the Johns Hopkins School of Advanced International Studies

John Rendon

President & CEO, Rendon Group

Josh Rogin

Columnist, The Washington Post

• Political Analyst, CNN

• Author, CHAOS UNDER HEAVEN: Trump, Xi and the Battle for the 21st Century (March 2021)

BA, George Washington University

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'Does Xi Jinping Face a Coup Threat?'

Greetings!

In today’s issue:

1. Rest easy. Xi is Safe.

  • 'Does Xi Jinping Face a Coup Threat?'

2. China a Career Killer?

  • 'Why Chinese Companies are Having a Tough Time Recruiting in the U.S.'

3. Rethinking 2020: What’s Overlooked and What’s Overhyped

4. China’s Financial Opening Accelerates

  • ‘China’s Easing of Regulations Restricting Foreign Ownership of Financial Firms’
  • ‘Reasons for Increases In Cross-Border Capital Flows into China’

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue.

Including an article here does not imply agreement with or endorsement of its contents.

'Does Xi Jinping Face a Coup Threat?'

  • This clickbait for China wonks.

And it led me to listen to the full and fascinating Pekingology podcast with CSIS’s Jude Blanchette interviewing Yale’s Dan Mattingly.

  • Here are some highlights:

‘In the popular imagination, what an autocrat has to fear unrest. He has to fear protestors in the street, storming the gates and taking him down.’

  • ‘Generally though, what has led to the unconstitutional exit of authoritarian leaders from office isn't mass protest, isn't mass uprising - instead it's coups; it's other elites taking down the leader. And that's really what autocrats have to worry about.’
  • ‘A study shows that almost 70% of leaders in the post-war period of autocratic leaders when they've exited office has been because of coups.’
  • ‘So it's this fear of other elites that's really important.

‘And who launches coups and what are coups successful nine and 10 times a successful coup is by the military.’

  • ‘So if you're an autocrat, you really have to be nervous about what's the military doing and is the military coming after me?’

‘If you take a kind of broad view of different types of authoritarian regimes, one-party regimes like China under the CCP are generally more stable, more resilient, less likely to experience a coup.’

  • ‘Military dictatorships – and China is by no means a military dictatorship - are more vulnerable to coups than one-party systems like China.’

Dr. Mattingly goes on to argue that Xi Jinping has sufficiently secured the support of the leadership of the People’s Liberation Army to keep himself safe from a military coup.

  • We can all rest easier.

 

My interview with Julian Ha, a partner in the global executive search firm, Heidrick & Struggles, highlighted issues about the U.S. executives who work or refuse to work for Chinese companies doing business in the U.S. that I had never considered. He told me:

  • ‘Just a few years ago, some of the very large Chinese conglomerates - the Anbangs, the HNAs, and the Wandas, and the Huaweis - were all expanding globally but in the U.S. in particular.’
  • ‘And they were all hiring folks at senior levels to help them run the factories, to run the corporate functions, marketing, and so on.’

But ‘because of the uncertainty created by the retraction from the U.S. market and the rise of anti-China sentiment, the Chinese companies that are still in the game in the U.S. are having a much harder time recruiting talent.’

  • ‘When a Chinese company is being threatened with or actually being put on the Entities List, senior talent think twice about joining.’
  • ‘Potential recruits ask themselves, “Is this something that would be a career-limiting move?” ’

‘And they may be right.’

  • ‘I have seen senior executives who took on very public roles within some of these Chinese companies finding that their life after those companies has been more limited.’
  • ‘I would even go so far as to say it has a bit of a taint. A bit like working for big tobacco.’

 

‘Rethinking 2020: What’s Overlooked and What’s Overhyped’ from MacroPolo provides a corrective to conventional wisdom.

What’s overlooked?

1. ‘Closing the Curtain on the GDP Obsession Era’

  • ‘Although some observers have noted this shift on GDP, its significance may be underappreciated.’
  • ‘It is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.’
  • ‘In short, the Xi administration has been unexpectedly tolerant of austerity—a precondition for ramming through very difficult structural reforms that are essentially growth negative in the near term.’

2. ‘Decoupling Is Everywhere Except in Reality’

  • ‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate.’
  • ‘Bandied about with abandon,the term has created the perception that these highly complex supplier networks were being severed in real time.’
  • ‘What has been overlooked is just how little meaningful decoupling actually happened.’
  • ‘What has actually happened on the decoupling front appears disproportionately modest relative to the attention heaped on it.’

What’s overhyped?

1. ‘China Slams Door on The World

  • ‘Yet when it comes to capital markets, China has gone in precisely the opposite direction, further linking itself to global capital.’
  • ‘Although market openings began around 2018 and capital inflows rose steadily since, it wasn’t until 2020 that foreign capital inflows saw a notable spike.’

2. ‘BRI Is Down but Not Out’

  • ‘China’s overseas lending plummeted in 2019, leading some to prognosticate the death knell of the “Belt and Road Initiative” (BRI).’
  • ‘Yet China’s overseas lending has risen in 2020, though it has not returned to the heights seen in 2017 and 2018.’

 

‘China’s Financial Opening Accelerates’ by Nick Lardy and Tianlei Huang of the Peterson Institute for International Economics goes in-depth on some of the points made by MacroPolo:

  • ‘Despite predictions by some observers that the United States and China are headed for a “decoupling,” China’s integration into global financial markets is accelerating.’

'The best example of China’s deepening integration into global financial markets is the substantial increase in the role of US and other foreign financial institutions in China.'

  • 'This was made possible

when Chinese market regulators, starting in 2017, gradually eased long-standing restrictions on foreign ownership, most of which were incorporated into the US–China Phase One agreement signed in January 2020.'

'The attraction of the Chinese financial market for foreign firms is substantial and will only grow.'

  • 'The total assets of China’s financial sector at the end of the second quarter of 2020 stood at RMB340 trillion ($48 trillion).'
  • 'Because of previous restrictions, foreign firms have only a tiny slice of most segments of this market; they control less than 2 percent of banking assets, for example, and less than 6 percent of the insurance market.'

The analysis explains 'several factors have contributed to the rapid increase in foreign holdings of onshore renminbi-denominated Chinese securities.' They are:

1. 'Chinese stock and bond markets have grown rapidly since 2014 and have become too big for global investors to ignore.'

2. 'The number of channels that facilitate foreign portfolio investment has also grown.'  

3. 'The inclusion of Chinese securities in global stock and bond indices, like the Bloomberg Barclays index, drew institutional investing.'  

4. ‘Interest rates on Chinese government bonds are higher than the US interest rate, and a rate cut is unlikely.'

5. 'The renminbi appreciated about 6 percent vis-à-vis the dollar between January and early December 2020; from its low point in late May, it appreciated 8 percent. Foreign investors can now both earn higher returns on Chinese bonds and convert their RMB earnings back into dollars at a more favorable rate.'

6. ‘China's rapid economic recovery from the COVID-19 pandemic reflects the profitability of Chinese industry, which is driving its strong equity market performance.’

Here’s a trend that is likely to continue regardless of the state of U.S.-China relations.

  • That’s because China sees a benefit in bringing foreign expertise and capital.
  • And doesn’t fear competition because it closed those markets long enough for its own firms to attain overwhelming dominance.

 

One more thing. In the last issue I referenced former National Security Advisor, Gen. H.R. McMaster’s 'Biden would do the world a favor by keeping Trump’s China policy.' About this I wrote:

  • ‘Gen. McMaster gets one big thing wrong when he writes: ‘U.S. policy between the end of the Cold War and 2017 was based on a flawed assumption: that China, having been welcomed into the international order, would play by the rules, and, as it prospered, would liberalize its economy and, ultimately, its form of governance.’

‘In fact,' I wrote, 'this was never the avowed aim of the administrations during the period he cites.’

  • ‘This would be a quibble except that it may well be that, based on his writings, the incoming Indo-Pacific Coordinator, Kurt Campbell, may hold the same incorrect view, and that is an issue for crafting policy – keep an eye out of this.’

From the reader response I received I realize I didn’t explain my objection well. The problem is this:

  • Past administrations pursued a policy of engagement with China, not with the primary aim of changing China to a democracy from an autocracy.
  • The aim was to encourage, among other things, trade and business and China’s joining the community of nations as what Robert Zoellick called a ‘responsible stakeholder.’

If viewed as a tool only to change China’s political order, ‘engagement’ failed.

  • And that is just what critics who favor all-confrontation/all-the-time contend.
  • By misreading history and discrediting engagement with China they aim to advance their policy prescription of confrontation.

A better solution is both confrontation and engagement.

  • This is, in part, how President Reagan ended the Cold War.

And that is why this misreading of history can lead to bad U.S policy toward China.

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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Why Chinese Companies Have a Tough Time Recruiting in the U.S.

Why Chinese Companies Have a Tough Time Recruiting in the U.S. | ANALYSIS | Scoop.it

CHINADebate

Julian Ha | Heidrick & Struggles

‘I have seen senior executives who take on very public roles within some of these Chinese companies find that their life after those companies has been more limited. It even has a bit of a taint. A bit like working for tobacco.

Malcolm Riddell: ‘How does China fit into the work you're doing in executive search?’

Julian Ha: ‘A couple of years ago, some of the very large Chinese conglomerates - the Anbangs, the HNAs, and the Wandas, and the Huaweis - were all expanding globally but in the U.S. in particular.’

  • ‘And they were all hiring folks at senior levels to help them run the factories, to run the corporate functions, marketing, and so on.’
  • ‘My firm and I helped some of those companies with that recruiting of senior-level executive talent.’

‘More recently, we've seen the other side of the coin.’

  • ‘These Chinese companies have had to pull back, they've had to sell their assets, mostly because of orders from the Chinese government.’
  • ‘With that retraction, we've seen some of those executives move away from these Chinese companies.’

‘But also because of the uncertainty created by the retraction and the rise of anti-China sentiment, the Chinese companies that are still in the game in the U.S. are having a much harder time recruiting talent.’

  • ‘When a Chinese company is being threatened with or actually being put on the Entities List, senior talent think twice about joining.’
  • ‘Potential recruits ask themselves, “Is this something that would be a career-limiting move?” ’

‘And they may be right.’

  • ‘I have seen senior executives who took on very public roles within some of these Chinese companies finding that their life after those companies has been more limited.’
  • ‘I would even go so far as to say it has a bit of a taint. A bit like working for big tobacco.’

‘I've done some work for some of those Chinese companies, and it was much harder.’

  • ‘They had to pay a bit more to get talent.’
  • ‘But a lot of potential recruits just said, "Look, I believe in what they're trying to do, it's a good company, but I just can't hitch my wagon to them." ’

Malcolm Riddell: ‘That would probably go back, as you said, to the whole question of the Entities List, blacklisting, and the like. How has that had an impact on your work?’

Julian Ha: ‘In my practice area - I spearhead our firm's government affairs and public policy work, there has actually been a more compelling need to hire advocates to represent these companies even more vigorously and robustly. But therein lies the challenge.’

  • ‘To attract people to work for that kind of company has been harder because people do see, they read the tea leaves and ask, “Okay, well, what if this doesn't work out? Will my experience at this company be valued by other companies as a next step?” And that's getting a little bit murkier.’
  • ‘I don't want to over-generalize. There are some who come out and are able to land something quite well because clients value the experience they've developed, but for many it's become a bit harder.’

Malcolm Riddell: ‘And I would assume that's also for less controversial companies. If you're buying real estate, it's probably not the same as having a question as to whether or not you're a potential intruder into U.S. security systems.’

Julian Ha: ‘That's right. I think Alibaba is a good example.’

  • ‘They have a pretty robust Washington office, and they've been able to hire some very good people and continue to talk about what they do.’
  • ‘Because again, it's not as controversial when you're trying to create commerce and match buyers and sellers and manufacturers and producers, whereas if you're manufacturing certain types of equipment or software or other goods, then it becomes a lot harder.’

Malcolm Riddell: ‘How impact do you think the Biden administration’s China policy is going to have on what you're doing with the Chinese companies?’

Julian Ha: ‘I think the Biden administration is going to continue to toe the tougher line because I think the Democrats realize that a soft-on-China policy is not going to resonate with many of the voters that supported them.’

  • ‘So the trends I mentioned may be here for a while.’
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'Does Xi Jinping Face a Coup Threat?'

'Does Xi Jinping Face a Coup Threat?' | ANALYSIS | Scoop.it

Center for Strategic & International Studies (CSIS)

Jude Blanchette | CSIS

Dan Mattingly | Yale

‘So if you're an autocrat, you really have to be nervous about what's the military doing and is the military coming after me?’

Listen to the 36m podcast – fascinating insights into Xi and China political/military system

Jude Blanchette: ‘I want it to start with actually the very first sentence of the paper where you write: “Autocratic rule is a violent business.” Why is it a violent business?’

Dan Mattingly: ‘If you are an autocrat, who do you have to fear? Like what keeps you up at night? If you are not just Xi Jinping, but any autocrat’.

  • ‘In the popular imagination, what an autocrat has to fear unrest. He has to fear protestors in the street, storming the gates and taking him down.’

‘Generally though, what has led to the unconstitutional exit of authoritarian leaders from office isn't mass protest, isn't mass uprising - instead it's coups; it's other elites taking down the leader. And that's really what autocrats have to worry.’

  • ‘A study shows that almost 70% of leaders in the post-war period of autocratic leaders when they've exited office has been because of coups.’
  • ‘And so it's this fear of other elites that's really important. And who launches coups and what are coups successful nine and 10 times a successful coup is by the military.’
  • ‘So if you're an autocrat, you really have to be nervous about what's the military doing and is the military coming after me?’

‘If you look at Chinese history, you want to go back before the Chinese Communist Party, go back before 1949.’

  • ‘Look at Imperial China, something like a fifth of Chinese emperors were killed in office and another fifth were deposed by other elites.’

‘Before the CCP came to power in 1949, these were things the Chinese political system has had to deal with.’

  • ‘The CCP of course, is way different than Imperial China and has been successful to date in fending off coups.’
  • ‘What's the secret sauce that the CCP has that has avoided attempted coups.’

‘If you take a kind of broad view of different types of authoritarian regimes, one-party regimes like China under the CCP are generally more stable, more resilient, less likely to experience a coup.’

  • ‘Military dictatorships – and China is by no means a military dictatorship - are more vulnerable to coups than one-party systems like China.’

Jude: ‘There's been speculation that there are elements we can't see within the system who are hiding their brightness and biding their time, waiting for Xi Jinping to royally screw up.’

  • ‘Has Xi Jinping's ability to promote and support, and to essentially reshape the senior leadership of the military decreased the likelihood of coup?’
  • ‘Is this a guy who is now kind of like Stalin after the purges, where he is wiped the table clean, and now it's just a matter of running out the clock until he has a stroke.’
  • ‘What is your assessment of that big question of Xi Jinping's consolidation of power and strength in the system?’

Dan: ‘That's the million dollar question.

  • ‘You can't completely rule it out, with this caveat: I do think that he's done enough so that it makes it really hard to launch a successful military coup against him.
  • ‘Between promoting people who are loyal to him and promoting left-behind officers who aren't well connected to other civilian elites and other military elites, he's done enough on the military side to make it hard to get military buy-in for a coup to occur.

‘And there are a number of other factors that push against it.

  • ‘Number one is a real sense of unity and national force that Xi Jinping has effectively stoked by first painting the United States as a threat to China.
  • ‘Number two is the rhetoric about the role of the Party as an important force in China's very revival.
  • ‘Number three is Xi's laser focus on making sure the military is loyal.
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China Macro Reporter Archive

Of the many prescriptive China essays I have read, this is among the top.

  • It is so rich that the few excerpts I included below don’t do justice to Dr. Kennedy’s analysis.
  • So be sure to read the entire piece. Even if the Biden administration doesn’t follow his recommendations, you will be better able to analyze the policies and actions it does take using his framework.

 

Finally, in an oblique answer to Gen. McMaster’s suggestion that the Biden administration keep Trump China policy is the observation in the title of an article in Fortune: 'When it comes to China, Team Biden sounds a lot like Team Trump.'

  • ‘In recent days, as Biden has announced his picks for cabinet positions and senior policy advisers, it has been almost impossible to distinguish his new team's China rhetoric from that of the departing Trump officials.’
  • ‘Whether Beijing will find it easier to engage with Biden's China hawks than Trump's China hawks remains unclear.’

So perhaps Gen. McMaster can rest easier knowing that even if specific Trump policies are not followed their spirit appears to be intact.

  • If President Biden’s China policy is in the Reagan mode, we may find that instead of a pejorative, ‘Beijing Biden’ may become a sobriquet of acclaim.
  • Like General ‘Chinese’ Gordon and the Ever Victorious Army. 

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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'When it comes to China, Team Biden sounds a lot like Team Trump'

Greetings!

In today’s issue:

Biden's China Hawks

  • 'When it comes to China, Team Biden sounds a lot like Team Trump'

Keep Trump's China Policy [?]

  • H. R. McMaster: 'Biden would do the world a favor by keeping Trump’s China policy'

Breaking Down Biden's China Challenges

  • 'A Complex Inheritance: Transitioning to a New Approach on China'

As I write, Joe Biden has just become the 46th President of the United States.

  • With this event, I will depart from the non-partisan approach I try to bring to CHINADebate and say that for me this is a day for celebrating.

That said, I repeat that former President Donald Trump receives full marks for alerting all of us to the risks and dangers that China poses.

  • The rub of course is that the policies and actions Mr. Trump selected to meet these were not coordinated and sustained – and frankly were the wrong ones.

So, with Mr. Trump out of office, I may not have another opportunity to invoke my usual question that implicitly critiques Trump China policy: ‘What would Reagan do?

  • Because unlike Mr. Trump, Reagan, in striving to end (not win) the Cold War, had a clear objective, policies coordinated into broad strategies, and sustained application of these.
  • Were these the right ones? The proof is in the results.

Because of the failures of Mr. Trump’s China policies, I was taken aback by the title of an essay by former National Security Advisor, Gen. H. R. McMaster: 'Biden would do the world a favor by keeping Trump’s China policy.'

Gen. McMaster gets one big thing wrong when he writes: ‘U.S. policy between the end of the Cold War and 2017 was based on a flawed assumption: that China, having been welcomed into the international order, would play by the rules, and, as it prospered, would liberalize its economy and, ultimately, its form of governance.’

  • In fact, this was never the avowed aim of the administrations during the period he cites.
  • This would be a quibble except that it may well be that, based on his writings, the incoming Indo-Pacific Coordinator, Kurt Campbell, may hold the same incorrect view, and that is a issue for crafting policy – keep an eye out of this.

But the real problem is that Gen. McMaster conflates the statements of a strategy with actions to implement it. He writes:

  • ‘Little noticed during a week when the House of Representatives voted for impeachment, the Trump administration released a partially declassified document from February 2018 entitled “U.S. Strategic Framework for the Indo-Pacific.” ’
  • ‘That document, and the collaborative work across the U.S. government during the year that preceded it, effected the most significant shift in U.S. foreign policy since the end of the Cold War.’
  • True or not, the shift didn’t result in effective action.

The ‘Strategic Framework’ has much to commend it and is worth the Biden team’s attention.

  • But it will end up in the trash can as they formulate new policies that match President Biden’s worldview.

So instead of doing ‘the world a favor by keeping Trump’s China policy,' as Gen. McMaster suggests, the Biden team would do better to craft policies following the nuanced approach laid out by Scott Kennedy of the Center for Strategic and Economic Studies in 'A Complex Inheritance: Transitioning to a New Approach on China.'

Dr. Kennedy contends: ‘Although the Trump administration has tried to intentionally handcuff its successors, the Biden administration has substantial flexibility to reshape America’s China policy.’

  • ‘To successfully transition to a new and more effective China strategy, the various existing measures should not be treated in the same way.’

‘Instead, they can be sorted into four categories (see below figure):'   

  1. 'Unilateral Multilateralism'
  • 'Isolate China'
  • 'Bilateral Stabilization'
  • 'Modified Restrictions and Reforms’ 

'Each of these should be handled differently.’

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 H.R. McMaster: 'Biden would do the world a favor by keeping Trump’s China policy'

 H.R. McMaster: 'Biden would do the world a favor by keeping Trump’s China policy' | ANALYSIS | Scoop.it

The Washington Post

Gen. H.R. McMaster | former National Security Advisor

‘No doubt the Biden administration will see ways to improve the strategic framework we devised, but continuity with the approach is essential.’

‘Elements of Trump’s policies toward China are eminently worth preserving.

  • ‘Little noticed during a week when the House of Representatives voted for impeachment, the Trump administration released a partially declassified document from February 2018 entitled “U.S. Strategic Framework for the Indo-Pacific.” ’
  • ‘That document, and the collaborative work across the U.S. government during the year that preceded it, effected the most significant shift in U.S. foreign policy since the end of the Cold War.’

‘The shift was long overdue, because U.S. policy between the end of the Cold War and 2017 was based on a flawed assumption:’

  • ‘that China, having been welcomed into the international order, would play by the rules, and, as it prospered, would liberalize its economy and, ultimately, its form of governance.’

‘Instead, the Chinese Communist Party pursued an increasingly aggressive agenda, exploiting the United States’ policy of cooperation and engagement.’

  • ‘As national security adviser at the time, I was among those who worked on the policy underpinning the strategic framework.’
  • ‘Foremost among our new, more-realistic assumptions about the CCP’s aims was our belief that “strategic competition between the United States and China will persist, owing to the divergent nature and goals of our political and economic systems.” ’

‘As China has continued its aggressive economic and military policies, the accuracy of that assessment has been confirmed.’

  • ‘No doubt the Biden administration will see ways to improve the strategic framework we devised, but continuity with the approach is essential.’
  • ‘President-elect Joe Biden’s policy advisers can strengthen the framework by correcting three common misunderstandings about it.’

1. ‘The first is that current Chinese aggression has resulted from U.S.-China tensions or is a response to the Trump administration’s description of China as a U.S. rival.’

  • ‘That’s a misreading, resulting from strategic narcissism — an arrogant conceit that CCP leaders have no aspirations, no volition except in reaction to the United States.’
  • ‘Even a cursory survey of recent CCP actions shows how mistaken that view is.’

‘The Biden administration should begin its China policy review by recognizing that the United States did not cause CCP aggression and that CCP aggression is not just a U.S. problem.’

  • ‘The CCP is a threat to the free world: The choice for other nations is not between Washington and Beijing but between sovereignty and servitude.’

2. ‘The second misunderstanding is that the United States has eschewed international cooperation to counter CCP aggression in favor of an “America alone” approach.’

  • ‘Yet the strategic framework cited alliances and partnerships as essential, with an emphasis on a “shared vision for a free and open Indo-Pacific.” ’
  • ‘Cooperation has grown since 2017, as can be seen in the invigoration of “the Quad” format (India, Japan, Australia and the United States), and growing law enforcement and intelligence cooperation against Chinese cyberwarfare and cyberespionage.’

3. ‘The third misunderstanding is that U.S. competition with China is dangerous or even irresponsible because of “Thucydides’s Trap,” a term coined to express the likelihood of conflict between a rising power (China) and an allegedly declining power (the United States).’

  • ‘The CCP exploits perceptions of the trap by blaming the United States for trying to keep China down.’
  • ‘Beijing isn’t aggressive in this fairy tale, it is simply standing up for the Chinese people.’
  • ‘The way for the United States to avoid the trap is neither to gravitate toward confrontation nor passive accommodation.’

‘Transparent competition, as described in the Indo-Pacific strategy, can prevent unnecessary escalation — and it can foster cooperation with China, not foreclose on it.

‘The Biden administration should be confident in the free world’s ability to compete effectively with the CCP and its authoritarian, mercantilist model.’

  • ‘In the past year, the United States has been sorely tested by pandemic, recession, social division and political strife, but our republic has proved resilient.
  • ‘It is up to the task of working with partners to defend the free world from Chinese Communist Party aggression.’
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Articles by Clay Chandler | Fortune

Articles by Clay Chandler | Fortune | ANALYSIS | Scoop.it

Fortune

‘Biden has announced his picks for cabinet positions and senior policy advisers, it has been almost impossible to distinguish his new team's China rhetoric from that of the departing Trump officials.’

‘President-elect Joe Biden vows that, in his first ten days as president, he'll roll back nearly every major policy initiative of the Trump administration.’

  • ‘And yet, in one key area—dealing with China—Biden has signaled he's in no rush to depart from the Trump administration policies.’

‘Orders to rescind Trump tariffs on $350 billion worth of Chinese imports are conspicuously absent from Biden's ten-day policy blitz.’

  • ‘Nor has Biden suggested any immediate interest in overturning Trump administration actions to delist Chinese telecommunications companies on the New York Stock Exchange, or ban Chinese apps, or blacklist Chinese technology companies.’

‘Biden's aides have said that, for many problems involving China, the incoming president plans to take a multilateral approach by enlisting the support of Western allies to maximize U.S. leverage on Beijing.’

  • ‘That would be a clear departure from Trump's "America First" style.
  • ‘But building that consensus will take time.’

‘And in recent days, as Biden has announced his picks for cabinet positions and senior policy advisers, it has been almost impossible to distinguish his new team's China rhetoric from that of the departing Trump officials.’

‘Consider Tuesday, when Trump's Secretary of State Mike Pompeo, on his last full day in office, took the rare step of issuing a formal determination accusing the Chinese government of engaging in "genocide" and "crimes against humanity" against predominantly Muslim Uighurs and other religious minorities in Xinjiang.’

  • ‘The judgment, issued after months of internal debate, is the strongest denunciation by any country of the Chinese government's treatment of Uighurs.’

‘Biden's nominee for Secretary of State Anthony Blinken, appearing at a confirmation hearing before the Senate Foreign Relations committee, was swift to declare his support for Pompeo's finding. (The Biden campaign called China's treatment of Uighurs "genocide" in August.)’

  • ‘And Blinken didn't stop there. He also echoed Trump administration criticisms of China's early handling of the COVID-19 outbreak, affirmed the importance for U.S. military support for Taiwan, and lamented that "democracy is being trampled" in Hong Kong.’
  • ‘ "There is no doubt that [China] poses the most significant challenge of any nation-state in the world to the United States," Blinken told the committee.’

‘That same day, Biden's nominee for Treasury Secretary Janet Yellen, in a separate confirmation hearing, pronounced China guilty of "horrendous human rights abuses"—and promised the Biden administration would "take on China's abusive, unfair and illegal practices."’’

  • ‘Yellen also accused China of "erecting trade barriers and giving illegal subsidies to corporations" and "stealing intellectual property," and faulted its inadequate "labor and environmental standards."’’
  • ‘And while she didn't specifically accuse China of currency manipulation, the former Federal Reserve chair promised to "oppose any and all attempts by foreign countries to artificially manipulate currency values to gain advantage in trade." ’

‘Appearing before a third Senate panel, Avril Haines, Biden's nominee for director of the Central Intelligence Agency, said that, if confirmed, she would make it a top priority to devote more resources to countering the intelligence threat from an "assertive and aggressive" China.’

‘Other Biden appointments underscore the new president's willingness to emulate Trump's confrontational approach to China.’

‘Biden has picked former Obama state department official Kurt Campbell to take on a newly created role within his National Security Council as "Indo-Pacific coordinator." ’

  • ‘Campbell was the architect of the Obama administration's 2012 "pivot to Asia" strategy, which called for taking a tough line on China while bolstering U.S. military resources and diplomatic relationships in the rest of the region.’
  • ‘In a 2018 essay entitled "The China Reckoning" and co-authored with former Biden aide Ely Ratner, Campbell argued that Trump was right to decry America's four-decades-long policy of engagement with China as a failure.’

‘Politico reported Tuesday that Biden has chosen Ratner, a veteran Asia analyst, as principal China adviser to Lloyd Austin III, the retired general nominated for Secretary of Defense.’

  • ‘Word of Ratner's selection drew praise from Republican security experts. "Ely Ratner is a strong addition" to the defense department, former Trump assistant secretary of defense for Indo-Pacific affairs Randy Schriver told Politico.’

‘Ratner currently serves as executive vice-president and director for studies at the Center for a New American Security, a think tank.’

  • ‘After the Politicostory published, he posted a link on Twitter to a January 2020 report published by the center entitled "Rising to the China Challenge." ’
  • ‘The report warns that "China is driving toward a more closed and illiberal future for the Indo-Pacific, core aspects of which would undermine vital U.S. interests." ’

‘Former Trump officials also have hailed Biden's choice of Katherine Tai to lead the Office of the U.S. Trade Representative.’

  • ‘She has been described by trade experts on both sides of the partisan aisle as a negotiator whose views on Chinese trade practices match those of outgoing trade czar Robert Lighthizer, one of Trump's most vehement trade hawks.’

‘Whether Beijing will find it easier to engage with Biden's China hawks than Trump's China hawks remains unclear.’

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Rethinking 2020: What’s Overlooked and What’s Overhyped

Rethinking 2020: What’s Overlooked and What’s Overhyped | ANALYSIS | Scoop.it

MacroPolo

Damien Ma & Houze Song | MacroPolo

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate. What has been overlooked is just how little meaningful decoupling actually happened.’

‘Stepping back at the end of 2020, we want to highlight two overlooked and two overhyped trends that, in our judgment, will matter greatly to China’s political economy and for how it adjusts to a dramatically changed external environment.’

Overlooked

  1. ‘Closing the Curtain on the GDP Obsession Era’

‘The signs have been there, but it wasn’t until 2020 that the writing clearly appeared on the wall: GDP growth will no longer hold sway over China’s development.’

  • ‘The number of provinces that have repeatedly failed to meet national growth targets has already surged, with no apparent political consequences.’
  • ‘Xi Jinping had also signaled in April 2020 that Beijing is willing to accept regional growth divergences.’
  • ‘That likely foreshadowed what was to come in the 14th Five-Year Plan in November 2020, which was accompanied by Xi’s unprecedented explanation of why it didn’t include a specific growth target.’

‘Although some observers have noted this shift on GDP, its significance may be underappreciated.’

  • ‘It is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.’
  • ‘In short, the Xi administration has been unexpectedly tolerant of austerity—a precondition for ramming through very difficult structural reforms that are essentially growth negative in the near term.’
  1. ‘Decoupling Is Everywhere Except in Reality’

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate.’

  • ‘Bandied about with abandon, the term has created the perception that these highly complex supplier networks were being severed in real time.’
  • ‘What has been overlooked is just how little meaningful decoupling actually happened.’

‘Foreign businesses are just one gauge of decoupling, but they are particularly important leading indicators of shifts in supply chain ecosystems.’

  • ‘In 2020, the respective portions of US (87%) and European (89%) businesses indicating no intention to leave China are as high or even higher than they’ve been in recent years.’
  • ‘And despite the Japanese government creating a fund to help re-shore its manufacturers, only 4% of Japanese businesses said they’re definitively leaving China.’

‘Pandemic disruptions certainly weighed heavily on firms’ decisions, likely delaying drastic changes or planned investment.’

  • ‘It is also true that many companies want to diversify beyond China—some already have—to hedge against risk.’
  • ‘Nonetheless, what has actually happened on the decoupling front appears disproportionately modest relative to the attention heaped on it.’
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China Macro Reporter Archive

Greetings!

In today’s issue:

Where in the World is Jack Ma?

  • 'The CCP's Ambivalence about the Private Sector’
  • ‘Jack Ma Misreads Xi Jinping’

China’s Fintech Threat

  • ‘Financial Technology Is China’s Trojan Horse’

2021 Economic Outlook: Sunrise in a Fractured World’ | CHINA

  • ‘China: Taming the Overshoot’

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue.

Including an article here does imply agreement with or endorsement of its contents.

 

For the past several months - since the much-criticized speech, the Ant Financial IPO debacle, the regulatory dressing down, and the anti-monopoly probe into Alibaba - Jack Ma has not been seen in public.

  • ‘Where in the world is Jack Ma?’ has become a question both in the international press as well as on Chinese social media.

What reporting there is says he’s not under detention, and he’s not been ‘disappeared.’

  • Instead, it is said that, with shareholder, employees, regulators, and apparently even Xi Jinping all mad at him, he has made the decision to hunker down in Hangzhou and stay out of sight.
  • It’s hard to see how he could do himself any good saying anything right now.

Casting doubt on this explanation are the number of Chinese billionaires and well-known figures who have fallen afoul of Xi Jinping and the Chinese Communist Party and come to bad ends.

  • So even if Mr. Ma is out of official clutches for the moment, it doesn’t mean his time isn’t coming.

As provocative as Mr. Ma’s plight is, more important is its place in the context of Xi Jinping’s efforts to bring the private sector generally and the fintech industry more specifically under tighter Party control.

  • Weaving these together, along with the story of CITIC founder and stay-behind capitalist, Rong Yiren, Neil Thomas has produced a terrific essay, ‘The Red Capitalist,’ in The China Wire.  

He examines the changing fortunes of China’s private sector since the founding of the PRC.

  • And he contrasts the difference in the skills in navigating these changes between Mr. Rong (generally successfully) and Mr. Ma (to be determined).
  • [Note: I have omitted Mr. Rong’s story from the posts below because of length not interest – the entire essay is well-worth reading.]

Mr. Thomas says: ‘Beijing has grown increasingly suspicious of powerful business elites.’

  • ‘Under Xi Jinping, the Party has begun to exert greater control over the private sector, with plans announced last September to cultivate a “backbone team” of business executives who “unswervingly follow the Party” and cooperate in “major national strategies.”

'There’s little doubt that business elites who defy the Party will be dealt with harshly.'

  • 'In recent years, Beijing has hunted down entrepreneurs, seized their assets, and broken up and occasionally even nationalized firms deemed a systemic risk to the economy.'
  • ‘Perhaps no other nation has arrested more billionaires and brought them to heel.’ 

‘Even Jack Ma, the country’s best-known entrepreneur, seems to have fallen out of favor with the Party.’

  • ‘He’s been upbraided

by Beijing and denounced in state media.’

  • ‘Xi is reported to have personally intervened to cancel the global stock offering of Ma’s Ant Group on the eve of what was expected to be the biggest IPO in history, following a strident speech Ma made in October.’
  • ‘In the aftermath, banking and antitrust regulators are threatening to carve up parts of Ma’s $400 billion empire amid reports the 56-year-old internet tycoon has gone missing.’

‘But in addition to brazen contempt for Party officials [especially in that speech in October 2020], Ma’s transgression was made worse by his seeming obliviousness to the Party’s economic goals, which have shifted considerably in recent years.’

  • ‘De-risking China’s debt-laden financial system became one of Xi’s top priorities.’

‘ “The reason why Jack Ma and others could build enormous Internet companies is because the Party had no idea what they were doing,” says Jim McGregor of APCO China.'

  • ‘ “Things changed once the Party-State started to see them as a potential source of financial risk, and therefore as a potential source of risk to social stability.” ’ says Harvard’s Meg Rithimire.

‘Xi, of course, is not Mao.’

  • ‘He believes the private sector is an “intrinsic element” of China’s economy and refers to entrepreneurs as “our people.” ’
  • ‘Xi does not want to socialize business; he mostly wants private firms to support Party policies.’
  • ‘And if the decision to rein in Ma is any indication, he will likely succeed.’

Stay tuned.

 

Depending on how you look at it, the argument in 'Financial Technology Is China’s Trojan Horse' in Foreign Affairs by Nadia Schadlow and Richard Kang of Prism Global Management, either:

  • Contradicts the narrative outlined just now that the Party is out to control fintech regardless of the cost to industry, or
  • Presents a sort of flipside to that narrative, with Party co-opting fintech in a plan for China’s geoeconomics dominance.

Either way the argument is provocative. Here goes:

First, ‘Chinese fintech firms function like a geoeconomic Trojan horse.’

  • ‘First, Alipay [one of Jack Ma’s companies] and WeChat Pay —companies that make up 95 percent of China’s mobile payments market—integrate themselves into daily economic life in another country.’
  • ‘Then, piggybacking off this financial infrastructure, they and other Chinese firms acquire digital banking licenses and rapidly expand into other sectors, including digital insurance, consumer credit, remittances, and lending.’
  • ‘These companies soon become too embedded in their host country to remove.’

Second, ‘China’s bid for fintech hegemony in Asia is a step toward an even bigger goal: achieving global reserve currency dominance.’

  • How? Expansion of the digital Yuan.

So third, ‘Beijing is challenging the sway of the U.S. dollar over Southeast Asia and parts of Africa as it prepares to launch, likely within the next year, a sovereign digital yuan, which would make transactions easier and also enable China to better track how its currency is used.’

  • ‘Consumers and merchants throughout Southeast Asia will soon be able to use the digital yuan on Alipay and WeChat Pay.’
  • ‘Later, the apps will serve as distributors of the digital yuan as local businesses find it more efficient to use the yuan than the dollar in transactions with Chinese companies.’
  • ‘The CCP could then push for the digital yuan to be used instead of the U.S. dollar by bigger institutions and businesses conducting large transactions, such as making interest payments and financing supply chains.’
  • ‘China’s digital yuan could also siphon transactions away from Western-dominated money exchange platforms such as SWIFT, the key mechanism that maintains U.S. dollar dominance in global trade.’

I don’t have the knowledge to judge how likely these scenarios are or to what extent they might succeed.

  • That said, from what little I know, I can see Chinese fintech leading to at least perhaps a modest erosion of the dollar in Southeast Asian transactions.
  • But nothing in my studies show the Yuan as a serious threat to the dollar, from fintech or any other Chinese effort.
  • And while the Chinese government no doubt welcomes fintech’s expansion in Southeast Asia, I find it difficult to imagine that that would trump the Party’s aim of exerting more control over the industry and of lowing risks to China’s financial system.

More disturbing is the essay’s pointing out that U.S. firms have not been ‘serious about offering other countries alternatives to China’s fintech companies, tapping the strength of U.S. technology firms.’

  • ‘Either Alibaba or Tencent has invested in every single one of the 13 technology unicorns—startups valued at $1 billion or more—in Southeast Asia.’
  • ‘Facebook and PayPal, by contrast, invested in their first Southeast Asian fintech player, Gojek, just last March.’

The essay concludes: ‘U.S. companies such as Facebook, Google, and PayPal must not get boxed out of the world’s most significant growth markets, which are mostly in the Indo-Pacific region.’

  • Unlike the rest of the essay, that strikes me as unarguably true.

 

This issue concludes with another great analysis of the global economy from CreditSuisse, ‘2021 Economic Outlook: Sunrise in a Fractured World.’

  • As usual, I have just included the section on China, but the entire report is worth careful reading. A few bottom lines:
  • Estimated 2021 GDP growth: 7.1%
    • ‘With the recovery already underway, a GDP growth overshoot in 2021 appears inevitable.'
    • ‘From a policy perspective, we expect that authorities will likely avoid a pro-cyclical policy stance and, to the extent possible, rein in the overshoot in 2021.’
    • ‘They would most likely prefer to avoid an aggressive overshoot in one particular year in exchange for a smoother and more sustainable growth profile over the next five years.’
    • Translation: Even if GDP is 7.1%, the number reported this year will be lower, with the difference carried over.
  • ‘We expect a moderation to M2 growth on the monetary front from 10.4% in 2020 to 9.3% in 2021.’
  • ‘On the fiscal front, we expect a tighter fiscal stance.’
  • ‘We revised our expectation for 2021 headline CPI downward, from 2.5% yoy to 1.1% yoy, mainly due to pork deflation.’
  • ‘As per the exchange rate, the CNY is expected to experience additional appreciation over the coming 12 months.’
    • ‘We forecast USDCNY to reach around 6.3 by the end of 2021.’

You’ll find the analysis of each of these and more in the report.

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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The Red Capitalist

The Red Capitalist | ANALYSIS | Scoop.it

The China Wire

‘The reason why Jack Ma and others could build enormous Internet companies is because the Party had no idea what they were doing. They became famous globally and made China look very good, but then the Party had to figure out how to get their arms around them.’

‘Even Jack Ma, the country’s best-known entrepreneur, seems to have fallen out of favor with the Party.’

  • ‘He’s been upbraided by Beijing and denounced in state media.’
  • ‘Xi is reported to have personally intervened to cancel the global stock offering of Ma’s Ant Group on the eve of what was expected to be the biggest IPO in history, following a strident speech Ma made in October.’
  • ‘In the aftermath, banking and antitrust regulators are threatening to carve up parts of Ma’s $400 billion empire amid reports the 56-year-old internet tycoon has gone missing.’

‘It was the fall of 2020, and Jack Ma had reason to worry.’

  • ‘Recent moves by Beijing would tighten controls on digital finance and could stymie the business model of his digital payments company, Ant Group.’
  • ‘With Ant’s upcoming debut on Shanghai’s STAR market expected to be the biggest in history — a record $37 billion listing — Ma felt like he should speak up.’

‘At the Bund Forum in Shanghai last October, he blasted China’s financial regulators as a “geriatric club” and argued that the tools they were using to control China’s financial system were misguided and out of touch.’

  • ‘The imposition of reserve requirements on micro-lenders such as Ant, he said, would be like “feeding dementia medication meant for seniors to a child suffering from polio.” ’
  • ‘People close to Ma told Reuters that he rejected suggestions to soften his remarks at the Bund Forum because the tech titan believed that “he should be able to say what he wanted.” ’

‘Ma is a Party member and once boasted to fellow entrepreneurs about his closeness with Xi Jinping.’

  • ‘But while the national business hero has prevailed against regulators in the past, observers say his speech contravened the prevailing wisdom for business leaders in China since Rong’s time.’ 
  • ‘That is, “serve the Party — within whatever limits the current Party line allows, but don’t get too far out in front,” says Jerome A. Cohen, a legal scholar.’
  • ‘ “Towing the party-line in public statements is safer than expressing independent opinions about China’s political economy,” says Kellee S. Tsai, a professor at Hong Kong University of Science & Technology.’
  • ‘ “Look what happened to Ren Zhiqiang [the real estate tycoon recently sentenced to 18 years in prison for criticizing the Party].” ’

‘But in addition to brazen contempt for Party officials, Ma’s transgression was made worse by his seeming obliviousness to the Party’s economic goals, which have shifted considerably in recent years.’

  • ‘In 2015, a stock market crisis combined with unexpectedly volatile experiments in RMB devaluation “played a huge role in convincing Xi Jinping that the private sector was not under control, that the Party-State had not even close to sufficient insight into what corporate finance was like in China and into what financial innovation was happening,” says Harvard’s Rithmire.’

‘De-risking China’s debt-laden financial system became one of Xi’s top priorities.’

  • ‘Even though Ma may be right about the need for more innovation in China’s financial sector, Rithmire says his speech highlighted how the fissures between profit-maximization and Party priorities have widened in recent years.’
  • ‘ “It used to be that, within limits, capitalists were allowed to do what they wanted to do because their pursuit of profits was producing economic growth for China,” Rithmire says.’
  • ‘ “But things changed once the Party-State started to see them as a potential source of financial risk, and therefore as a potential source of risk to social stability. For a long time, we thought that growth was the bottom line for the CCP, but the bottom line is actually social stability.” ’
  • ‘ “The reason why Jack Ma and others could build enormous Internet companies is because the Party had no idea what they were doing,” says Jim McGregor of APCO China. “They became famous globally and made China look very good, but then the Party had to figure out how to get their arms around them.” ’

 

‘After Ma’s speech, Xi went further.’

  • ‘He ordered an investigation into Ant’s lending practices, and just two days before Ant’s planned debut on November 5, the Shanghai Stock Exchange suspended Ant’s listing — the stated reason being the sudden approval (with Xi’s blessing) of tough new rules that require Ant to guarantee up to $20 billion more of its loans.’
  • ‘In a sensational report published in late December, The Wall Street Journal said that just before the authorities canceled the Ant Group IPO in November, Jack Ma offered to hand over to the government parts of his online financial emporium. 

‘Then a week later, Beijing also announced antitrust measures for tech firms.’

‘Xi, of course, is not Mao.’

  • ‘He believes the private sector is an “intrinsic element” of China’s economy and refers to entrepreneurs as “our people.” ’
  • ‘Xi does not want to socialize business; he mostly wants private firms to support Party policies.’
  • ‘And if the decision to rein in Ma is any indication, he will likely succeed.’
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'The CCP & the Private Sector'

'The CCP & the Private Sector' | ANALYSIS | Scoop.it

The China Wire

‘Analysts say the shift away from private enterprises is a sign Beijing felt that the private sector was getting ahead of the Party’s ability to control things.’

Beijing has grown increasingly suspicious of powerful business elites.

  • Under a new paramount leader, Xi Jinping, the Party has begun to exert greater control over the private sector, with plans announced last September to cultivate a “backbone team” of business executives who “unswervingly follow the Party” and cooperate in “major national strategies.”

There’s little doubt that business elites who defy the Party will be dealt with harshly.

  • In recent years, Beijing has hunted down entrepreneurs, seized their assets, and broken up and occasionally even nationalized firms deemed a systemic risk to the economy.
  • In Hong Kong, the authorities kidnapped the billionaire Xiao Jianhua from the Four Seasons Hotel and then smuggled him across the border into mainland China, before dismantling his financial empire.
  • Just last week, the government handed down a life sentence for one corrupt state executive and a death sentence to another.

‘The Chinese Communist Party, of course, has never been entirely comfortable with capitalists.’

  • ‘Throughout its 71-year-history, even when the Party has relied heavily on market-driven growth, it has viewed private firms as a source of inequality, a rival to state enterprises, and perhaps an independent force that could undermine Party rule.’

‘ “The Party likes to control everything,” says Bruce J. Dickson of George Washington University.’

  • ‘ “They worry about independent sources of wealth as a threat to the government. And there are two ways of dealing with that threat: you co-opt it or you crush it.” ’

‘China, through the decades, has done both.’

  • ‘It has invited businessmen to become members of the Communist Party, when that suited the goals of the leadership.’

‘And it has ousted and imprisoned them in strikingly large numbers, and then publicly pilloried them, as Jack Ma is now experiencing.’

  • ‘Perhaps no other nation has arrested more billionaires and brought them to heel.’ 

‘Analysts say the shift away from private enterprises is a sign Beijing felt that the private sector was getting ahead of the Party’s ability to control things.’

  • ‘They say Beijing is now reasserting control over the economy and private entrepreneurs, bringing to an end a decades-long period of free-wheeling capitalism and globe-trotting business tycoons.’

‘The Party has generally succeeded in eliciting support from entrepreneurs by giving them a greater stake in the system.’

  • ‘But as the private sector has ballooned in China — private firms comprised 84 percent of all companies in 2018, up from 17 percent in 1996 — the Party has felt its influence over business wane.’
  • ‘A 2017 study by the Unirule Institute of Economics, a Chinese think tank since shut down by Beijing, found that 92 percent of private entrepreneurs believed political involvement helped their business, but only a small minority actually cared about the political goals of the Party.’

‘For Xi, such ambivalence is alarming.’

  • ‘He has been clear about the need for risk-taking executives to respect control-oriented policies, including new regulations that strengthen United Front work in private firms and stress the need for “ideological and political education” of entrepreneurs.’

‘He has also made moves to elevate the role of corporate Party committees from simply organizing political trainings for a firm’s Party members to “monitoring” whether business choices respect Party policy.’

  • ‘To that end, his campaign to achieve “comprehensive coverage” of Party committees in private firms has led to is the strictest supervision since the Mao era.’
  • ‘According to an official survey, the proportion of private firms with Party committees rose from just 4 percent in 1993 to 48.3 percent in 2018, with a growth rate that’s more than doubled under Xi.’ 
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Kurt Campbell & Biden Asia Policy

Greetings!

In today’s issue:

1. Kurt Campbell: Biden's 'Indo-Pacific Coordinator'

2. 'How America Can Shore Up Asian Order' by Kurt Campbell

  1. 'Restoring Balance'
  2. 'Restoring Legitimacy'
  3. 'Forging Coalitions'

CHINADebate, the publisher of the China Macro Reporter, aims to present different views on a given issue.

Including an article here does imply agreement with or endorsement of its contents.

With President-elect Biden’s nomination of Kurt Campbell to be 'Indo-Pacific Coordinator' (a new title) at the National Security Council, we finally have clearly indications about the direction of China policy and Indo-Pacific policy more broadly under a Biden administration.

  • We have this because Dr. Campbell, who has served in many senior international relations positions, has written extensively and recently about his Asia policy views.

The most recent was an essay in Foreign Affairs on January 12, 2021, which is presented in the posts below.

  • And given Dr. Campbell’s experience, seniority, and influence, we can also expect that he will be a key driver of Asia policy in the Biden administration.

In that recent essay, 'How America Can Shore Up Asian Order,’ co-authored with Brookings Rush Doshi, he writes: ‘Two specific challenges, however, threaten the Indo-Pacific order’s balance and legitimacy.’

‘The first is China’s economic and military rise.’

  • ‘China alone accounts

for half the region’s GDP and military spending, a gap that has only grown since the COVID-19 pandemic.’

  • ‘And like any rising state, China seeks to reshape its surroundings and secure deference to its interests.’
  • ‘The way Beijing has pursued these goals—South China Sea island building, East China Sea incursions, conflict with India, threats to invade Taiwan, and internal repression in Hong Kong and Xinjiang—undermines important precepts of the established regional system.’
  • ‘This behavior, combined with China’s preference for economic coercion, most recently directed against Australia, means that many of the order’s organizing principles are at risk.’

‘The second challenge is more surprising because it comes from the original architect and longtime sponsor of the present system—the United States.’

  • ‘Despite determined efforts

by the Trump administration’s Asia experts to mitigate the damage, President Donald Trump himself strained virtually every element of the region’s operating system.’

  • ‘He pressed allies such as Japan and South Korea to renegotiate cost-sharing agreements for U.S. bases and troops and threatened to withdraw forces entirely if he was unsatisfied with the new terms.’
  • ‘Both moves undermined alliances the Indo-Pacific needs to remain balanced.’
  • ‘Trump was also generally absent from regional multilateral processes and economic negotiations, ceding ground for China to rewrite rules central to the order’s content and legitimacy.’
  • ‘Finally, he was cavalier about support for democracy and human rights in ways that weakened the United States’ natural partners and emboldened Chinese authorities in Hong Kong and Xinjiang.’

‘This combination of Chinese assertiveness and U.S. ambivalence has left the region in flux.’

To address these, he writes: ‘A strategy for the Indo-Pacific today would benefit from satisfying three needs:’ 

  1. ‘the need for a balance of power;’
  2. ‘the need for an order that the region’s states recognize as legitimate; and’
  3. ‘the need for an allied and partner coalition to address China’s challenge to both.’

I have included Dr. Campbell’s comments on each of these in separate posts below.

Josh Rogin of The Washington Post writes:

  • ‘President-elect Biden has announced a new Asia-related position inside the National Security Council and has chosen former State Department official Kurt Campbell to fill it.’
  • ‘The move should reassure nervous Asian allies that the Biden administration is taking the China challenge seriously.’
  • ‘Campbell will join the administration with the title of “Indo-Pacific coordinator,” a job that will give him broad management over the NSC directorates that cover various parts of Asia and China-related issues.’

‘The announcement is viewed favorably by those Asia experts in Washington who hope the Biden administration will take a more competitive approach to dealing with China than the Obama administration did.’

  • ‘ “China hawks have a healthy skepticism about how the Biden administration will approach Beijing, but bringing in Kurt to play this senior role, and all the more junior, competitive-minded people who will work for him, is a very encouraging sign,” said Eric Sayers, visiting fellow at the American Enterprise Institute.’
  • ‘ “It will be bureaucratically tricky to make this position work smoothly in our government, but if anyone has the personality and drive to pull it off, it’s Kurt.” ’

Mr. Rogin notes: ‘Asia watchers in Washington and America’s Asian allies should be reassured that Biden is planning to elevate the importance of the Indo-Pacific region by creating this coordinator role and staffing it with someone so senior.’

  • ‘But the real test

will be whether the Biden administration actually devotes the time and resources needed to complete the “Pivot to Asia” Campbell first pitched a decade ago.’

Given the way Asian nations remember the failed ‘Pivot,’ Dr. Campbell will have to give them a lot of reassurance to gain their support in the competition with China.

  • Stay tuned.

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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'3. Forging Coalitions'

'3. Forging Coalitions' | ANALYSIS | Scoop.it

Foreign Affairs

Kurt Campbell | nominee, Indo-Pacific Coordinator, NSC

Rush Doshi | Brookings

‘The principal challenge facing the United States is to bridge European and regional approaches to Chinese challenges.’

‘Although the idea that the United States should “work with allies” is almost a cliché, the challenges to doing so are significant.’

  • ‘Maintaining the existing Indo-Pacific order will inevitably require a broad coalition, and the very members that might join may not see the value of such a combined approach until the present system is irreversibly damaged.’
  • ‘The need for allies and partners is often evident only after the status quo is overturned.’

‘Distant European leaders are inevitably less concerned about China’s assertiveness than the Indo-Pacific states next door.’

  • ‘The principal challenge facing the United States is to bridge European and regional approaches to Chinese challenges.’
  • ‘That task is made more difficult by Beijing’s economic power: last month, China used last-minute concessions to successfully pull the EU into a major bilateral investment agreement despite concerns that the deal would complicate a unified transatlantic approach under the Biden administration.’

‘Given these limitations, the United States will need to be flexible and innovative as it builds partnerships.’

  • ‘Rather than form a grand coalition focused on every issue, the United States should pursue bespoke or ad hoc bodies focused on individual problems, such as the D-10 proposed by the United Kingdom (the G-7 democracies plus Australia, India, and South Korea). These coalitions will be most urgent for questions of trade, technology, supply chains, and standards.’ 
  • ‘Other coalitions, though, might focus on military deterrence by expanding the so-called Quad currently composed of Australia, India, Japan, and the United States, infrastructure investment through cooperation with Japan and India, and human rights through the two-dozen states that criticized Beijing’s internment camps in Xinjiang and its assault on Hong Kong’s autonomy.’ 

‘The purpose of these different coalitions—and this broader strategy—is to create balance in some cases, bolster consensus on important facets of the regional order in others, and send a message that there are risks to China’s present course.’

  • ‘This task will be among the most challenging in the recent history of American statecraft.’
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Scooped by Malcolm Riddell

'How America Can Shore Up Asian Order': 2. Restoring Legitimacy

'How America Can Shore Up Asian Order': 2. Restoring Legitimacy | ANALYSIS | Scoop.it

Foreign Affairs

Kurt Campbell | nominee, Indo-Pacific Coordinator, NSC

Rush Doshi | Brookings

‘Negotiating Beijing’s role in this order is the most complex element of the overall endeavor.’

‘Military and material balance alone, however, will not sustain a renewed regional order.’

  • ‘The stability of any international system, wrote Kissinger, ultimately relies on what he termed “generally accepted legitimacy.” ’
  • ‘Any international framework needs buy-in from the powers within it.
  • ‘Here, the United States will again need to play a central role.’

‘Unlike prewar Europe, legitimacy in the Indo-Pacific is not only a matter of international politics and security.’

  • ‘Trade, technology, and transnational cooperation are also vital.’

‘As Evan Feigenbaum argues, there are “two Asias” that together constitute the region’s order: one focused on politics and security and the other on economics.’

  • ‘China’s territorial adventurism undermines the former, its coercive economic policies undermine the latter, and U.S. ambivalence under Trump undermines both.’

‘If those trends continue and Indo-Pacific states begin to view the current order as illegitimate, they may drift into China’s shadow.’

  • ‘Were that to occur, the dynamic region might split into spheres of influence: outside powers shut out, disputes resolved through force, economic coercion the norm, U.S. alliances weakened, and smaller states without autonomy and freedom to maneuver.’

‘Reversing these trends will be challenging and require diplomatic finesse, commercial innovation, and institutional creativity on the part of U.S. policymakers.’

  • ‘In the political and security realm, bolstering the present order’s legitimacy will, at minimum, require serious U.S. reengagement: an end to shaking down allies, skipping regional summits, avoiding economic engagement, and shunning transnational cooperation.’
  • ‘This new posture will give the United States a greater regional role and empower Indo-Pacific states in the face of China’s growing clout.’

‘In the economic realm, strengthening the present order means ensuring the system continues to deliver material benefits for its members, even as China grows more sophisticated in its use of economic carrots and sticks.’

  • ‘In contrast to prewar Europe’s negotiations, which emphasized borders and political recognition, those in the Indo-Pacific will inevitably revolve around supply chains, standards, investment regimes, and trade agreements.’

‘Even as the United States works to reshore sensitive industries and pursue a “managed decoupling” from China, it can reassure wary regional states that moving supply chains out of China will often mean shifting them to other local economies, creating new growth opportunities.’

  • ‘Moreover, as China provides infrastructure financing through the Belt and Road Initiative, the United States should develop ways to provide alternative financing and technical assistance.’ 

‘Negotiating Beijing’s role in this order is the most complex element of the overall endeavor.’

  • ‘Although Indo-Pacific states seek U.S. help to preserve their autonomy in the face of China’s rise, they realize it is neither practical nor profitable to exclude Beijing from Asia’s vibrant future.’
  • ‘Nor do the region’s states want to be forced to “choose” between the two superpowers.’

‘A better solution would be for the United States and its partners to persuade China that there are benefits to a competitive but peaceful region organized around a few essential requirements:’

  • ‘a place for Beijing in the regional order;’
  • ‘Chinese membership in the order’s primary institutions;’
  • ‘a predictable commercial environment if the country plays by the rules; and’
  • ‘opportunities to jointly benefit from collaboration on climate, infrastructure, and the COVID-19 pandemic.’

‘Marginal buy-in from China has played a central role in the region’s success thus far.’

  • ‘It will remain important in the years ahead.’
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Scooped by Malcolm Riddell

How America Can Shore Up Asian Order: 1. Restoring Balance

How America Can Shore Up Asian Order: 1. Restoring Balance | ANALYSIS | Scoop.it

Foreign Affairs

Kurt Campbell | nominee, Indo-Pacific Coordinator, NSC

Rush Doshi | Brookings

‘China’s growing material power has indeed destabilized the region’s delicate balance and emboldened Beijing’s territorial adventurism. Left unchecked, Chinese behavior could end the region’s long peace.’

‘ “The balance of power,” Kissinger writes in A World Restored, “is the classic expression of the lesson of history that no order is safe without physical safeguards against aggression.” Applied to the Indo-Pacific, such a warning is prescient:’

  • ‘China’s growing material power has indeed destabilized the region’s delicate balance and emboldened Beijing’s territorial adventurism.’
  • ‘Left unchecked, Chinese behavior could end the region’s long peace.’

‘The growing material imbalance between China and the rest of the region is notable.’

  • ‘Beijing spends more on its military than all its Indo-Pacific neighbors combined.’
  • ‘China has invested in anti-access/area-denial weapons (including supersonic missiles and “smart” mines) that threaten the viability of U.S. regional intervention.’
  • ‘It has also invested in blue-water, amphibious, and power-projection capabilities that Beijing could employ for offensive missions against India, Japan, Taiwan, Vietnam, and others.’

‘In response to these threats, the United States needs to make a conscious effort to deter Chinese adventurism.’

  • ‘Washington can start by moving away from its singular focus on primacy and the expensive and vulnerable platforms such as aircraft carriers designed to maintain it.’
  • ‘Instead, the United States should prioritize deterring China through the same relatively inexpensive and asymmetric capabilities Beijing has long employed.’

‘Real regional balance, however, also requires action in concert with allies and partners.’

  • ‘The United States needs to help states in the Indo-Pacific developtheir own asymmetric capabilities to deter Chinese behavior.’
  • ‘Although Washington should maintain its forward presence, it also needs to work with other states to disperse U.S. forces across Southeast Asia and the Indian Ocean.’
  • ‘This would reduce American reliance on a small number of vulnerable facilities in East Asia.’
  • ‘Finally, the United States should encourage new military and intelligence partnerships between regional states, while still deepening those relationships in which the United States plays a major role—placing a “tire” on the familiar regional alliance system with a U.S. hub and allied spokes.’
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