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Scooped by Malcolm Riddell

'How America Can Shore Up Asian Order'

'How America Can Shore Up Asian Order' | ANALYSIS | Scoop.it

Foreign Affairs

Kurt Campbell | nominee, Indo-Pacific Coordinator, NSC

Rush Doshi | Brookings

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

‘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.’

‘Such an approach can ensure that the Indo-Pacific’s future is characterized by balance and twenty-first-century openness rather than hegemony and nineteenth-century spheres of influence.’

  • ‘The challenge for U.S. policy is not to create order out of chaos, but to modernize and strengthen elements of an existing system.’

‘The Indo-Pacific has evolved an “operating system,” that is as much about promoting commerce as preventing conflict.’

  • ‘Constructed in the aftermath of World War II, the region’s system is a combination of legal, security, and economic arrangements that liberated hundreds of millions from poverty, promoted countless commercial advances, and led to a remarkable accumulation of wealth.’
  • ‘At its heart are time-tested principles: freedom of navigation, sovereign equality, transparency, peaceful dispute resolution, the sanctity of contracts, cross-border trade, and cooperation on transnational challenges.’
  • ‘The United States’ long-standing commitment to forward-deployed military forces, moreover, has helped underscore these principles.’

‘Two specific challenges, however, threaten the 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.’

  • ‘The contemporary Indo-Pacific feels like prewar Europe—drifting out of balance, its order fraying, and with no obvious coalition to address the problem.’
  • ‘If the next U.S. administration wants to preserve the regional operating system that has generated peace and unprecedented prosperity, it needs to begin by addressing each of these trends in turn.’ 
No comment yet.
Scooped by Malcolm Riddell

'Kurt Campbell, Biden’s pick for a new NSC Asia position, should reassure nervous allies'

'Kurt Campbell, Biden’s pick for a new NSC Asia position, should reassure nervous allies' | ANALYSIS | Scoop.it

The Washington Post

Josh Rogin | The Washington Post

‘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.’

‘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.” ’

‘Campbell, one of the most senior Asia hands in the Democratic foreign policy ranks, last served in government as assistant secretary of state for East Asian and Pacific affairs under Hillary Clinton.

‘In late 2019, Campbell and Sullivan laid out their theory of the case for dealing with China in an essay for Foreign Affairs titled “Competition Without Catastrophe: How America Can Both Challenge and Coexist With China.” ’

  • ‘They argued that the Trump administration had it right when it identified China as a “strategic competitor” in its 2017 National Security Strategy, but they said this competition must be waged with vigilance and humility, structured around the goal of coexisting with China rather than expecting to change it.’
  • ‘ “Although coexistence offers the best chance to protect U.S. interests and prevent inevitable tension from turning into outright confrontation, it does not mean the end of competition or surrender on issues of fundamental importance,” they wrote.’
  • “Instead, coexistence means accepting competition as a condition to be managed rather than a problem to be solved.” ’

‘Campbell believes the United States must not return to a strategy based on engaging China in hopes that China will liberalize.’

  • ‘The United States must acknowledge that strategy didn’t work, he wrote in a 2018 Foreign Affairs essay with Ely Ratner, Mr. Biden's nominee to be assistant secretary of defense for Indo-Pacific Security Affairs.’

‘On Tuesday, Campbell and Rush Doshi, director of the Brookings Institution's China Strategy Initiative, released a new Foreign Affairs essay [see the next post] focused on how the United States can “shore up” the international order in Asia, by restoring a balance of power with China, bolstering alliances and then using those alliances to push back on Beijing’s aggressive actions.’

  • ‘Through a network of overlapping coalitions, the United States should join with like-minded partners to “send a message [to Beijing] that there are risks to China’s present course,” they wrote.’
  • ‘ “This task will be among the most challenging in the recent history of American statecraft.” ’

‘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.’
No comment yet.
Scooped by Malcolm Riddell

Financial Technology Is China’s Trojan Horse

Financial Technology Is China’s Trojan Horse | ANALYSIS | Scoop.it

Foreign Affairs

Nadia Schadlow and Richard Kang | Prism Global Management

Chinese fintech firms function like a geoeconomic Trojan horse.’

‘In one of his last acts as president, Donald Trump issued an executive order banning eight Chinese software applications, including Alipay and WeChat, the world’s largest mobile payment app.’

  • ‘Trump’s ban, issued on January 5, sought to address concerns that these popular Chinese apps might allow Beijing access to sensitive data about Americans.’

‘But China’s emerging dominance in financial technology, also known as “fintech,” poses an even more fundamental problem for the United States.’

  • ‘Beijing will use fintech to occupy the high ground in global commerce, bolster its surveillance state, and lay the groundwork to challenge the U.S. dollar as the world’s reserve currency.’

Embed Fintech in Economies. ‘China’s dominance in fintech promises to boost the CCP’s expansionist ambitions in another way, hardwiring other countries to China’s economy. Chinese fintech firms function like a geoeconomic Trojan horse.’

  • ‘First, Alipay 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.’

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

  • ‘Last fall, analysts at the U.S. financial services firm Morgan Stanley forecast that the yuan could surpass the Japanese yen and the British pound sterling to become the world’s third-largest reserve currency by 2030, accounting for between five and ten percent of global foreign exchange reserve assets.’
  • ‘Countries in the Southeast Asia may soon begin to increase the share of yuan in their foreign currency reserves.’

Digital Yuan. ‘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.’

‘That shift has already begun—even before the release of China’s new sovereign digital currency.’

  • ‘As bilateral trade between China and Southeast Asian countries has grown in recent decades, so has the share of trade that is conducted in Chinese yuan, eating into the U.S. dollar’s share of bilateral trade.’

‘China’s digital yuan could siphon transactions away from Western-dominated money exchange platforms such as SWIFT, the key mechanism that maintains U.S. dollar dominance in global trade.’

  • ‘CCP officials have described SWIFT as a means for the United States to maintain “global hegemony” and reap “huge profits by virtue of the monopoly platform.” U.S. officials must take Chinese moves in this area seriously.’
  • ‘Max Levchin, a co-founder of PayPal, believes that if the United States does not make a digital version of the dollar more readily available, “we run the risk of letting China become the digital reserve currency of the world.” ’  
  • ‘The United States will lose the leverage and influence it has over many countries if they increasingly opt for the yuan over the dollar.’

‘The United States must get serious about offering other countries alternatives to China’s fintech companies, tapping the strength of U.S. technology firms.’

  • ‘And yet these firms have been slow to involve themselves in the growing competition with China.’

‘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.’
  • ‘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.’
No comment yet.
Scooped by Malcolm Riddell

'China: Taming the overshoot'

'China: Taming the overshoot' | ANALYSIS | Scoop.it

 

CreditSuisse

‘We expect GDP growth to improve to 7.1% in 2021 from 2.2% in 2020. Realized growth will likely overshoot potential growth in 2021, but from a policy perspective, we expect that the authorities would 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.’

‘The Chinese economy is coming out of the pandemic slump earlier than other economies, but the recovery has been uneven.’

  • ‘Starting in Q320, production-side indicators have been rebounding faster than expenditure-side indicators.’

‘There has however been a noticeable unevenness on the expenditure side.

  • ‘The infrastructure and real estate sectors have disproportionately benefited from the stimulus, while in contrast, private manufacturing, services, and parts of the household sector have lagged due to fragmented credit allocation mechanisms.’

‘We anticipate the divergence between production and expenditure-side indicators to fade going into 2021, a process that recent indicators suggest is already underway.’

  • ‘The fashion of the convergence is expected to rely more on the acceleration of the expenditure-side recovery, but it will also include a moderation to production momentum.’

‘Even with anticipated growth of 7.1% in 2021, the risk is actually skewed to the upside.’

  • ‘For the unevenness within the expenditure side, we anticipate manufacturing fixed-asset investment (FAI) growth, which has been lagging other FAI components, to catch up (Figure 46).’
  • ‘In addition, we also expect the ongoing rebound in services consumption to continue as disposable income growth recovers (Figure 47).’

‘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.’

‘Specifically, 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.’
  • ‘The one-time COVID-19 treasury issuance, which accounted for about 1% of GDP, will almost certainly not be repeated in 2021.’
  • ‘Special purpose bonds will remain, but we expect their annual quota to decrease by roughly half a percentage point of GDP relative to that of 2020.’
  • ‘There will likely also be modest downward adjustments to the official fiscal deficit target of about 0.3- 0.5% of GDP in 2021 relative to the 3.6% target in 2020.’
  • ‘Abstracting away from any multiplier effect, the fiscal drag in 2021 relative to that of 2020 would be approximately 2% of GDP.’

‘To be clear, even with the tightening policy stance, overall GDP growth and its various key components are still expected to have above-trend growth in 2021.’

  • ‘For example, we expect real estate investment (REI) to grow by 6.5% in 2021, faster than the anticipated growth rate for 2020 (4.1%) but slower than pre- COVID-19 growth in 2019 of 10.0%.’
  • ‘REI growth in 2020 will likely fall below the implied growth rate based on macroeconomic factors such as M2 growth and house price inflation, predominantly attributed to the COVID-19-induced contraction experienced in Q120.’
  • ‘Hence, despite the anticipated slowdown to M2 growth in 2021 and authorities’ ongoing effort to curb house price inflation, we expect REI growth in 2021 to be higher than the implied growth rate normally associated with such macro conditions.’

‘We revised our expectation for 2021 headline CPI downward, from 2.5% yoy to 1.1% yoy, mainly due to pork deflation.’

  • ‘After looking at sequential price momentum instead of year-over-year numbers, which are distorted by the base effect, we believe that headline CPI is about to enter a reflationary cycle.’

‘As China continues to reduce its production-expenditure rebound gap, there might be a modest improvement to core inflation.’

  • ‘We do not think that the PBoC will react to the disinflation in CPI with a more accommodating monetary stance.’
  • ‘For the same reason that the PBoC did not tighten when pork drove up inflation during 2019, it will most likely not respond to pork-driven disinflation.’

‘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.’

‘Moving beyond 2021, we anticipate three key policy categories to be emphasized in the next five-year plan:’

  1. ‘Technology Advancement. The technology category encompasses the ongoing efforts to establish “new infrastructure,” innovate and enhance capabilities in the key strategic sectors, and secure essential inputs.’
  2. ‘Labor Productivity. The labor category aims to increase labor productivity, including labor market reforms to facilitate labor movement, educational reform to improve the quality of the labor force, and a further opening of Chinese markets to foreign participation and competition.’
  3. ‘Land Reform. Finally, the land reform category aims to clarify land usage rights and the transfer of usage rights.’
  • ‘The scope of this reform would cover at least farmland and land used for residential and commercial properties.’
  • ‘Land reform will directly affect the pace of urbanization, which in turn would provide ongoing support to sectors such as real estate and traditional infrastructure in avoiding cliff-like decelerations.’

‘Finally, we view China’s participation in the recently signed RCEP as a positive development for multilateralism and trade within the region.’

  • ‘This should also slow down the decoupling forces between China and the rest of the world.’
No comment yet.
Scooped by Malcolm Riddell

Foreign Ministry Spokesperson Hua Chunying's Regular Press Conference on January 8, 2021

Foreign Ministry Spokesperson Hua Chunying's Regular Press Conference on January 8, 2021 | ANALYSIS | Scoop.it

Ministry of Foreign Affairs of the PRC

Hua Chunying | Ministry of Foreign Affairs of the PRC

‘Besides, facts are there, beyond anyone's denial, regardless of whether they came up in the Chinese media reports or not.’

Regular Press Conference, January 7, 2021

Beijing Youth Daily: ‘Some American media reported that China is taking advantage of the chaos in the United States to expand China's influence, and the United States is even more unable to stop China's development. What is your comment on this?’

Hua Chunying:What's happened at the Capitol Hill has been extensively covered by the US media.’

  • ‘We've seen TV programs playing out violent scenes 24/7.’
  • ‘We've heard world leaders commenting on it.’
  • ‘People from all walks of life in the United States are talking about it.’
  • ‘Then why, when the Chinese media are following this widely-reported event, it suddenly became propaganda?’

When I responded to a foreign journalist's question yesterday, I invited all of you to seriously think about why some people reacted differently to similar scenes played out in the United States and Hong Kong and why they termed them differently. Why are factual reports by the Chinese media being labeled propaganda or even disinformation?’

  • Is it simply because some people in the United States find them unpalatable?’
  • I don't think this complies with the truthfulness principle of journalism.’
  • Besides, facts are there, beyond anyone's denial, regardless of whether they came up in the Chinese media reports or not.’

However, this does uncover the ubiquitous existence of double standard when it comes to Chinese media and reflect the sense of superiority and ideological prejudice long harbored by some individuals.’

  • For some people in the west, they pride themselves on their democracy and freedom, even though deep down they have their grievances and dissatisfaction; they criticize China as being authoritarian and totalitarian, even though deep down they may hope they could lead a life as the Chinese do.’

For those issues that have come up in the United States or in other western countries, they in the west can argue, debate and comment in ways whatever they want.’

  • ‘But if the Chinese side pitches in, then it suddenly morphs into "propaganda" or "disinformation".’

AFP: ‘The media has noted some similarities and some differences between what happened in Hong Kong and in the United States. I think one issue that news reports pointed out was also the intent behind the unrest. In the U.S. case they were trying to overturn the results of an election, while in Hong Kong they were demanding for more democracy. I'm just wondering if you could clarify your take on this?’

Hua Chunying: ‘The two are very similar in terms of subjecting legislature to violence.’

  • ‘On July 2019, radical protesters stormed the legislature, trashed the place, defaced the Hong Kong emblem, fan up anti-police sentiment, and hurled toxic liquid and powder at and even stabbed police force.’
  • ‘But the Hong Kong Police Force responded with maximum restraint.’

‘Similar scenes played out in the United State but were reported by some press in different words.’

  • ‘Protesters were "thugs" and "domestic terrorists" when they stormed the Capitol Hill, but were "democratic fighters" and even "heroes" when they stormed the Hong Kong Legco.’
  • ‘It would be difficult if not impossible to find a better definition for double standard.’
No comment yet.
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'How Western media would have covered the storming of the U.S. Capitol if it had happened in another country' 

'How Western media would have covered the storming of the U.S. Capitol if it had happened in another country'  | ANALYSIS | Scoop.it

The Washington Post

Karen Attiah | The Washington Post

‘Of course political and racial violence have played a part in the history of the former British colony for centuries and have particularly been inflamed in the past four years.

If we talked about the storming of the Capitol in Washington the same way we talk about political violence in a foreign country, here’s how Western media would have covered it.

‘Political violence and rioting exploded in the United States on Wednesday as extremists loyal to right-wing leader Donald Trump stormed the legislative building in the nation’s capital, Washington, forcing lawmakers to go into hiding in secure locations.’

  • ‘The mob was incited to act by Trump himself.’ 
  • During a speech before thousands of his supporters earlier in the day, the president called the outcome of the November election an “egregious assault on our democracy” and urged people to “walk down to the Capitol” because "you will never take back our country with weakness.” ’

‘Soon a crowd was breaking into the Capitol, charging police barricades and breaking windows to try to disrupt the certification of the presidential election that resulted in a clear defeat for Trump.’

  • ‘A woman was fatally shot by security forces inside the Capitol, and three other people died under unspecified circumstances.’
  • ‘An IED was found at the headquarters of the ruling Republican National Committee, and the nearby headquarters of the opposition Democratic National Committee was evacuated after the discovery of a suspicious package.’

‘As observers wrestled with whether to call the actions a “coup” or a “sparkling authoritarian takeover," Trump supporters terrorized lawmakers and forced them to stop the certification of the election.’

  • ‘Hundreds were seen looting and chanting slogans while some police officers passively looked on.’

‘Many Americans, including prominent journalists, politicians and security officials, expressed dismay at the unfolding events, even though right-wing groups had described their plans online and some had even printed “CIVIL WAR” T-shirts with the date ‘January 6’ to mark the occasion.’ 

‘Of course political and racial violence have played a part in the history of the former British colony for centuries and have particularly been inflamed in the past four years.

‘World leaders expressed concern about the violence, but there have been no public commitments to send peacekeeping forces to Washington.’

  • ‘The United Nations did not issue a statement.’
  • ‘The African Union followed the European Union’s position of non-intervention in America’s fragile democracy, saying: “We, too, believe in American solutions to American problems.” ’

‘The coup attempt unfolded as the former British colony continues to struggle with a dysfunctional response to the deadly coronavirus pandemic — on Wednesday, the United States suffered a record of more than 3,800 covid-19 deaths.

‘Meanwhile, the political backlash for Trump was swift:’

  • ‘He was banned from Twitter and other social media platforms.’
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Chinese netizens jeer riot in US Capitol as 'Karma,' say bubbles of 'democracy and freedom' have burst - Global Times

Chinese netizens jeer riot in US Capitol as 'Karma,' say bubbles of 'democracy and freedom' have burst - Global Times | ANALYSIS | Scoop.it

Global Times

The Global Times is a daily newspaper under the auspices of the Chinese Communist Party's People's Daily newspaper.

‘Words like "Karma," "retribution" and "deserving" were frequently mentioned in Chinese netizens' comments when they saw the latest episode of the US' real version of House of Cards - which saw Trump supporters storming the Capitol, messing up House of Representatives Speaker Nancy Pelosi's office, clashing with police officers and looting items.’

  • ‘The pictures went viral in US, Chinese and international news outlets after the riots began Thursday morning.’ 

‘Chinese web users still remember the distress and anger they felt when they saw rioters in Hong Kong storming the Legislative Council Complex, scrawling graffiti, smashing and robbing items.’

  • ‘And, instead of condemning the violence, US politicians hailed the "courage" of these mobs, Western media praised the "restraint" of the rioters, and House Speaker Nancy Pelosi even called it a "beautiful sight."

‘Now, this "beautiful sight" is taking place in the US.’

  • ‘A Chinese netizen commented, "Pelosi can enjoy the beautiful sight - even at her office desk! For such a long time, US politicians called rioters 'freedom fighters' in other countries. Now, they finally have retribution!" ’ 
No comment yet.
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'Matt Pottinger resigns, but his China strategy is here to stay'  

The Washington Post

Josh Rogin | The Washington Post

‘Even though Pottinger’s name was largely unknown to the public, his influence on U.S. foreign policy will be felt for years to come.’

‘As President Trump’s devotees stormed the U.S. Capitol Wednesday afternoon, several senior administration officials took the opportunity to resign.’

‘Most Americans will likely see him as yet another fed-up Trump official, without realizing the greater significance of his four years of White House service.’

  • ‘Even though Pottinger’s name was largely unknown to the public, his influence on U.S. foreign policy will be felt for years to come.’
  • ‘The incoming Biden administration is set to preserve many of the changes in the government’s approach to China that Pottinger, along with other like-minded officials, worked to implement.’

‘Starting on the administration’s first day, Pottinger served as senior director for Asia on the National Security Council staff under his former commander in Afghanistan, Mike Flynn, who picked him for the post. Pottinger remained after Flynn was fired.’

‘Pottinger continued under national security adviser John Bolton and was elevated to deputy national security adviser under Bolton’s replacement, Robert C. O’Brien, crafting key speeches and traveling the world to explain the Trump administration’s often misunderstood China strategy.’

  • ‘Pottinger deliberately kept a low profile, but he occasionally stepped out in public to explain the thinking behind the administration’s approach.’

‘Pottinger is a hard-liner on China but not as hawkish as officials such as former White House chief strategist Stephen K. Bannon and White House trade adviser Peter Navarro.’

  • ‘But Pottinger often opposed accommodationists such as Treasury Secretary Steven Mnuchin.’
  • ‘Pottinger believed in restoring the balance of power between China and the United States in Asia after many years of drift due to lax policy in Washington.’

‘Pottinger has also focused on raising awareness of Chinese Communist Party efforts to spread influence and interfere in various U.S. institutions, including academia, the tech sector and Wall Street.’

  • ‘Inside the bureaucracy, he expanded the NSC’s Asia staff and pushed all national security agencies to rethink their assumptions and greatly increase their focus on China.’

‘The incoming Biden administration is planning to continue much of the basic China approach Pottinger and others set in place, albeit with some changes.’

  • ‘That reflects the bipartisan consensus in Congress and growing calls from voters in both parties for a strategy that more forcefully confronts Beijing’s external aggression and internal repression.’
  • ‘Biden is expected to name his own “Asia czar” inside the NSC staff, recognizing the importance of having a senior official such as Pottinger in charge of coordination on the issue.’

‘Trump’s own views on China have run the gamut, sometimes focusing on his friendship with Chinese President Xi Jinping and sometimes portraying China as a bitter enemy.’

  • ‘But Pottinger helped translate those impulses into lasting institutional change that will long outlive the Trump administration.’

 ‘“It’s impossible to overstate the impact Matt has had on American national security,” said Rep. Mike Gallagher (R-Wis.), who served with Pottinger when they were both Marine intelligence officers in Iraq.’

  • ‘ “He leaves behind a four-year legacy as impactful as any American strategist before him.” ’
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China Macro Reporter Archive

Greetings!

In today’s issue:

1. Eurasia Group| ‘Top Risks of 2021’

  • ‘Top Risks of 2021’: CHINA

2. Biden & the EU-China Investment Agreement

  • 'With Concessions and Deals, China’s Leader Tries to Box Out Biden' 
  • 'China and E.U. Leaders Strike Investment Deal, but Political Hurdles Await'

3. The EU-China Investment Agreement: Pro & Con

  • PRO | 'The Importance of the EU, China Investment Deal'
  • CON | 'Europe has handed China a strategic victory'

4. China's Antitrust Investigation into AliBaba

  • 'Mo money, Ma problems - Chinese trustbusters’ pursuit of Alibaba is only the start'
  • 'China’s Pro-Monopoly Antitrust Crusade'

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.

Each New Year brings with it a slew of predications about what’s coming up in that year.

  • Among the best of these is the Eurasia Group’s ‘Top Risks,’ written in part by Ian Bremmer.
  • I’ve included just the China section, which concludes that, ‘On balance, this year will see a bilateral rivalry as intense as that of last year, and that’s dangerous.’
  • Eurasia Group’s business is risk assessment – and it is very good at it. So the whole report is worth a read.

While I am not one for making New Year’s predictions, two events over the holidays have caused me to relent.

  1. The EU’s signing an investment agreement with China, despite signals from the incoming Biden administration to hold off until the Biden team could weigh in.
  2. China’s starting an antitrust investigation into Alibaba for ‘alleged monopoly conduct.’

You haven’t seen much in these pages about the EU-China investment agreement.

  • That’s because it’s been dead in the water for the seven years the EU and China have been negotiating it.

The EU in various contexts have made this lack of progress one its major complaints against China.

  • Even though Angela Merkel, during her 2020 term as EU president, made the agreement a priority, not much happened.

China, for its part, had little incentive to conclude a deal – it already had a fairly free hand investing in the EU.

  • And it had little to gain from acceding to the EU’s demands.
  • Besides, as the EU leaders also often lamented, China is focused on the U.S. and sees the EU as a relative pipsqueak.

Then Joe Biden, with his talk of coalitions of allies against China, won the presidency, and Xi Jinping changed his tune.

  • In December, Xi instructed his negotiators to agree to many of the EU’s demand and get the deal done.
  • Merkel, quick to secure this for her legacy and to advance the interests of the German auto industry, began lobbying fellow EU countries to sign on.

Jake Sullivan, National Security Advisor-designate, posted a somewhat oblique (incoming administration are prohibited from meddling in foreign affairs) but nonetheless clear Tweet, saying that hey, why don’t you guys wait until we’re in office, and we’ll work on this China thing together. 

  • Ignoring this entreaty, Merkel plowed ahead, and the deal was signed.

This has led to speculation that the EU is now going its own way and that Mr. Biden will have a difficult time forging any coalition, about China or otherwise, with the EU.

  • And with regard to China specifically, ‘Reinhard Bütikofer, chairman of the European parliament’s delegation on China, says: “We’ve allowed China to drive a huge wedge between the US and Europe.” ’

On the other hand, Joerg Wuttke, president of the EU Chamber of Commerce in China said:

  • ‘We should not have waited for the Biden administration to sort things out. Wait for what?’
  • ‘We don't know if China will be more responsive if the three parties sit together.’
  • ‘We don't have a timeline. Shall we wait another two or three years?’

‘This doesn't exclude our meeting, putting together a program, and talking to the Chinese in a coherent manner, the OECD countries, possibly all together, and the U.S.’

  • ‘But this happening is very much unknown.’
  • ‘We like the fact that there could be a coalition, but at this stage, get the investment deal done and move on.’

My impression is that Mr. Wuttke is on the right track.

  • Yes, it would have better, from a U.S. point of view, if a new Biden administration had had a chance to weigh in.
  • But the deal, from an EU point of view, was more important.
  • And acting in what the EU considered its own interest, especially after four years of being kicked around by the U.S., seems pretty reasonable.

My prediction: This will be a speed bump to U.S.-EU cooperation on China – it is not a signal of EU reluctance to join a coalition.

  • The deal will not come up for a final ratification for a year or so.
  • Given opposition within the EU and the opportunity for the Biden administration to have its voice heard, there is a better than even chance that the EU will not ratify it anyway.

The story to watch is China’s antitrust investigation into Alibaba.

My prediction: Expect a broad and thorough Chinese government effort to assert control over China’s fintech industry.

 

  • Chinese fintech companies have control of masses of data on individuals that the Party believes should only be in its hands, and they have the ability to generate narratives that don’t conform to those of the Party.
  • Xi has demonstrated time and again that Party control trumps GDP.
  • So even if this effort to rein in fintech harms the drive for tech autonomy and global dominance, Mr. Xi will persevere and prevail.
  • This will be one of the biggest and most consequential stories of 2021.

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 Importance of the EU, China Investment Deal'

'The Importance of the EU, China Investment Deal' | ANALYSIS | Scoop.it

Bloomberg

Joerg Wuttke | president, EU Chamber of Commerce in China

‘But we should not have waited for the Biden administration to sort things out. Wait for what? We don't know if China will be more responsive if the three parties sit together. We don't have a timeline. Shall we wait another two or three years?’

Bloomberg: ‘How significant is this investment treaty in reality for European businesses?’

Joerg Wuttke: ‘Well, it's a deal, after seven years of discussions.’

  • ‘So we're very happy about the fact that they stopped talking and now we can walk.’

‘The other thing is, of course, we have to look into the details.’

  • ‘But, this deal will be hashed out by the, vetted by the lawyers over 2021.’
  • ‘And then we have to get this deal passed through European parliament.’

‘But business is happy that this has concluded.’

Bloomberg: ‘Do you think it gets passed ultimately by the European parliament?’

Joerg Wuttke: ‘Well, I hope it will be passed - business really can't wait forever.’

‘Of course, I know the concerns by parliamentarians about the human rights situation in China. That will not go away anytime soon.’

  • ‘But I really hope that our parliamentarians are pragmatic and actually pass this deal through the system in order for us to implement more jobs in Europe and get more business done with China.’

Bloomberg: ‘Joerg, you touched on the question of human rights and of course that has been a criticism from some members of parliament in Brussels, members of the European parliament.’

  • ‘The question for some will be: Should the Europeans be striking an investment deal with a country that is jailing journalists, that according to the United Nations has as many as a million people held in camps in Xinjiang, that is involved and engaged in what the Canadians call hostage diplomacy?’

Joerg Wuttke: ‘You know, this is what I would call “system inherent.” ’

  • ‘As European, of course, we cannot welcome this.’
  • ‘But again this is a market access deal.’

‘We have, for example, seen that Australia, Japan, Korea sign the Regional Comprehensive Economic Partnership which included China at the beginning of December with none of these sustainability baskets being mentioned.’

  • ‘The Phase One US-China Deal has much less language on forced labor than the European.’
  • ‘So in a way, European negotiators managed to push the envelope for the first time on this one.’

‘But, the parties have made it very clear: This is first step; this is market access.’

  • ‘When it comes to these human rights issues, we really have to find a better toolbox to deal with China and a separate occasion.’

Bloomberg: ‘What is your response to some within the incoming Biden administration who have said, "Look, the EU should have waited. They should have waited until Biden was in office, and then they should have pursued a coordinated approach with the US when it comes to China?" ’

Joerg Wuttke: ‘I can understand the anxiety.’

  • ‘But the EU and the U.S. have a lot of common grievances with China.’
  • ‘We are happy that Biden team looks more favorable at teaming up with us on these.’

‘But we should not have waited for the Biden administration to sort things out. Wait for what?’

  • ‘We don't know if China will be more responsive if the three parties sit together.’
  • ‘We don't have a timeline. Shall we wait another two or three years?’

‘Angela Merkel expressed her intent to get this done in 2020 in the beginning of 2020, when it was not clear who was going to win the U.S. elections.’

  • ‘To actually finalize something, get over it, get it done is very much welcomed by European business. Why wait?’

‘That doesn't exclude our meeting, putting together a program, and talking to the Chinese in a coherent manner, the OECD countries possibly altogether and the U.S.’

  • ‘But this happening is very much unknown.’
  • ‘We like the fact that there could be a coalition, but at this stage, get it done and move on.’
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'China and E.U. Leaders Strike Investment Deal, but Political Hurdles Await'

'China and E.U. Leaders Strike Investment Deal, but Political Hurdles Await' | ANALYSIS | Scoop.it

The New York Times

‘China appeared eager to reach an agreement before Mr. Biden takes office in January, calculating that closer economic ties with the Europeans could forestall efforts by the new administration to come up with an allied strategy for challenging China’s trade practices and other policies.’

‘Political opposition in Europe and Washington could ultimately derail the landmark an investment agreement between China and the European Union, the “Comprehensive Agreement on Investment.” ’

‘A large faction in the European Parliament, which must ratify the agreement before it can take effect, opposes the accord on the grounds that it does not do enough to stop human rights abuses in China.’

  • ‘ “Public opinion was very disillusioned with the Chinese regime,” because of Hong Kong and the pandemic, said Philippe Le Corre, a research fellow at the Harvard Kennedy School who tracks Chinese investment in Europe.’
  • ‘ “And now we have this deal, which is mainly designed to please a handful of German multinational companies.” ’
  • ‘The opponents may be able to muster enough votes to block ratification in the European Parliament.’

‘In addition, a top aide to President-elect Joseph R. Biden Jr. has signaled that the incoming administration is not happy with the deal.’

  • ‘Mr. Biden, in a speech on Monday, said that on any issue that mattered to the U.S.-China relationship, the United States was “stronger and more effective when we are flanked by nations that share our vision for the future of the world.” ’
  • ‘The Europeans’ decision to overlook objections from the Biden camp was an indication that relations with the United States will not automatically snap back to the relative bonhomie that prevailed during the Obama administration.’
  • ‘European diplomats said this week that while they hoped for a more cooperative relationship with the Biden administration, they could not subordinate their interests to the U.S. election cycle.’

‘Negotiators for China and the European Union had been working on a deal for almost seven years, but progress accelerated suddenly after Mr. Biden defeated Mr. Trump in the election.’

  • ‘Unlike Mr. Trump, who has often been hostile to Europe, Mr. Biden is expected to try to cooperate with the European Union to rein in Chinese ambitions, but those efforts could take many months to materialize.’
  • ‘China appeared eager to reach an agreement before Mr. Biden takes office in January, calculating that closer economic ties with the Europeans could forestall efforts by the new administration to come up with an allied strategy for challenging China’s trade practices and other policies.’
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'With Concessions and Deals, China’s Leader Tries to Box Out Biden' 

'With Concessions and Deals, China’s Leader Tries to Box Out Biden'  | ANALYSIS | Scoop.it

The New York Times

‘Mr. Biden has pledged to galvanize a coalition to confront the economic, diplomatic and military challenges that China poses. China clearly foresaw the potential threat.’

‘China’s leader, Xi Jinping, has in recent weeks made deals and pledges that he hopes will position his country as an indispensable global leader, even after its handling of the coronavirus and increased belligerence at home and abroad have damaged its international standing.’

  • ‘A trade pact with 14 other Asian nations, the Regional Comprehensive Economic Partnership.’
  • ‘A pledge to join other countries in reducing carbon emissions to fight global warming.’
  • ‘Now, an investment agreement with the European Union, the “Comprehensive Agreement on Investment.” ’

‘In doing so, he has underlined how difficult it will be for President-elect Joseph R. Biden Jr. to forge a united front with allies against China’s authoritarian policies and trade practices, a central focus of the new administration’s plan to compete with Beijing and check its rising power.’

  • ‘The image of Mr. Xi joining Chancellor Angela Merkel of Germany, President Emmanuel Macron of France and other European leaders in a conference call on Wednesday to seal the dealwith the European Union also amounted to a stinging rebuke of the Trump administration’s efforts to isolate China’s Communist Party state.’

‘Around September, Mr. Xi showed renewed interest in wrapping up discussions for the European investment agreement, which had been dragging on for seven years.’

  • ‘Only months before, a deal seemed all but dead amid rising animosity toward China in Europe.’

‘A breakthrough came after the American presidential election.’

  • ‘Mr. Trump showed disdain for America’s traditional allies in Europe and Asia.’
  • ‘But Mr. Biden has pledged to galvanize a coalition to confront the economic, diplomatic and military challenges that China poses.’

‘China clearly foresaw the potential threat.’

  • ‘In early December, after phone calls with Ms. Merkel and Mr. Macron, Mr. Xi pushed to finish the investment agreement with the Europeans.’
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'Europe has handed China a strategic victory'

'Europe has handed China a strategic victory' | ANALYSIS | Scoop.it

Financial Times

Gideon Rachman | Financial Times

“We’ve allowed China to drive a huge wedge between the US and Europe.”

‘Ursula von der Leyen, the president of the European Commission, says she wants to lead a “geopolitical commission”.’

  • ‘But Ms Von der Leyen concluded 2020 by sending a truly awful geopolitical message — as her commission signed off on an investment treaty between the EU and China.’

‘Over the past year, China has crushed the freedom of Hong Kong, intensified oppression in Xinjiang, killed Indian troops, threatened Taiwan and sanctioned Australia.’

  • ‘By signing a deal with China nonetheless, the EU has signalled that it doesn’t care about all that.’
  • ‘As Janka Oertel, director of the Asia programme at the European Council on Foreign Relations think-tank, puts it: “This is a massive diplomatic win for China.”

‘It is also a considerable kick in the teeth for Joe Biden.’

  • ‘The US president-elect has stressed that, after Donald Trump, he wants to make a fresh start with Europe.’

‘In particular, the Biden administration wants to work on China issues together with fellow democracies.’

  • ‘Jake Sullivan, Mr Biden’s national security adviser, issued a last-minute plea for the Europeans to hold off on signing the deal — at least until they had a chance to discuss it with the new administration. He was ignored.’ 

‘EU officials offer several justifications for their decision.’

  • ‘They say that many of the concessions the EU has got from China have already been granted to the US, as part of America’s own “phase-one” trade deal. (These include sectoral openings in several industries, as well as changes to joint-venture requirements.) ‘
  • ‘Brussels officials point out that the US did not ask for European permission before concluding its own deal with China.’
  • ‘They justify the EU’s decision as a demonstration of “strategic autonomy”. 

‘These EU arguments sound tough-minded. But, in fact, they are naive.’

  • ‘It is naive to believe that China will respect the agreement it has signed.’
  • ‘It is naive to ignore the geopolitical implications of doing a deal with China right now.’
  • ‘And it is naive to think that the darkening political climate in Beijing will never affect life in Brussels or Berlin.’

‘The EU says that this deal will “discipline the behaviour” of China’s state-owned enterprises, which will now be required “to act in accordance with commercial considerations”.’

  • ‘But China made very similar commitments when it joined the World Trade Organization in 2001.’
  • ‘Pledges to rein in state subsidies made 20 years ago are now being offered up again as fresh concessions.’

‘Beijing’s promise to “work towards” enforcing international conventions on labour standards are also laughably weak.’

  • ‘As Shi Yinhong, a prominent Chinese academic, pointed out: “On labour, it’s impossible for China to agree. Can you imagine China with free trade unions?” ’ 

‘Over the past year, China has repeatedly demonstrated its willingness to ignore treaty commitments.’

  • ‘Its new national security law violates an agreement with Britain that guaranteed the autonomy of Hong Kong.’
  • ‘China has also imposed tariffs on Australian goods in violation of the China-Australia free trade agreement.’ 

‘The timing of this deal is exquisite for Beijing, since it presents the Biden team with a fait accompli.’

  • ‘Reinhard Bütikofer, chairman of the European parliament’s delegation on China, says: “We’ve allowed China to drive a huge wedge between the US and Europe.” ’

‘The EU-China deal was pushed hard by Angela Merkel, the German chancellor, and concluded right at the end of her country’s presidency of the EU.’

  • ‘Ms Merkel is seen as a champion of liberal values.’

‘But her approach to China is largely driven by commerce.’

  • ‘She knows that the German car industry has had a rough few years, and China is its largest market.’ 

‘Ms Merkel’s determination to press ahead may also reflect her own scepticism about the future of the US.’

  • ‘In a speech in 2017, she said that Europe could no longer rely on America.’
  • ‘The election of Mr Biden has probably not changed that view.’
  • ‘Many Europeans also believe that the US is on the brink of a new cold war with China — and want little part of that.’ 

‘Some of these arguments are reasonable enough.’

  • ‘It is hard to look at current events in Washington and feel totally confident about the stability of the US or the Atlantic alliance.’
  • ‘A European desire to avoid military confrontation in the Pacific is also rational.’ 
  • ‘But relying on an American security guarantee in Europe, while undermining American security policy in the Pacific, does not look like a wise or sustainable policy over the long run.’

‘The Europeans are also kidding themselves if they think they can be blind to the increasingly authoritarian and aggressive nature of Xi Jinping’s China.’

  • ‘For the past 70 years, Europeans have benefited from the fact that the world’s most powerful nation is a liberal democracy.’
  • ‘If an authoritarian nation, such as China, displaces America as the dominant global power, then democracies all over the world will feel the consequences.’ 

‘Even in the current geopolitical order, China has repeatedly demonstrated its willingness to use its economic power as a strategic weapon.’

  • ‘By deepening their economic reliance on China — without co-ordinating their policy with fellow democracies — European nations are increasing their vulnerability to pressure from Beijing.’
  • ‘That is a remarkably shortsighted decision to make, for a “geopolitical commission”.’
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ccc

ccc | ANALYSIS | Scoop.it

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

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XXX

XXX | ANALYSIS | Scoop.it

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 (figure 4).'

  • 'Foreign investors can now both earn higher returns on Chinese bonds and convert their RMB earnings back into dollars at a more favorable rate.'
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XX

XX | ANALYSIS | Scoop.it

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

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‘Reasons for Increases In Cross-Border Capital Flows into China’

‘Reasons for Increases In Cross-Border Capital Flows into China’ | ANALYSIS | Scoop.it

Peterson Institute for International Economics (PIIE)

Nick Lardy & Tianlei Huang | PIIE

'Cross-border portfolio capital flows into China have been rising since 2014.'

'Cross-border portfolio capital flows into China have been rising since 2014.'

  • 'Foreign ownership of onshore (excluding Hong Kong) Chinese stocks and bonds reached RMB5.7 trillion ($837 billion) at the end of September 2020, a nearly eightfold increase from January 2014 levels.'
  • 'Several factors have contributed to the rapid increase in foreign holdings of onshore renminbi-denominated Chinese securities.'
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‘China’s Easing of Regulations Restricting Foreign Ownership of Financial Firms’

Peterson Institute for International Economics (PIIE)

Nick Lardy & Tianlei Huang | PIIE

'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 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.'

'Historically, foreign financial firms were largely restricted to operating in joint ventures with a minority ownership stake—meaning that in most cases, the Chinese partner had ultimate control over the enterprise.'

  • 'This has led to a substantial increase in the number of majority and wholly foreign-owned financial institutions operating in China, including many US institutions.'
  • '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.'

  • 'Given the large size of China’s domestic financial industry, if foreign firms can increase their shares in these market sectors, they stand to generate large profits.'

'Doing so will be far from automatic, however, as Chinese financial institutions have built up strong positions in many of these markets.'

  • 'China’s regulators have allowed some US financial institutions to gain majority ownership of existing joint ventures and licensed other firms to access the Chinese market for the first time.'
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‘China’s Financial Opening Accelerates’

‘China’s Financial Opening Accelerates’ | ANALYSIS | Scoop.it

Peterson Institute for International Economics (PIIE)

Nick Lardy & Tianlei Huang | PIIE

‘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.’

‘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.’

  • ‘Regulatory reform has opened China’s financial market to many US and other foreign financial institutions.’
  • ‘Foreign ownership of onshore Chinese stocks and bonds is growing rapidly and is likely to continue to expand in 2021.’
  • ‘And inbound foreign direct investment (FDI) is on track to hit a new record in 2020.

‘This integration is very asymmetric, however.’

  • ‘China retains relatively tight control over both outbound direct investment and outflows of portfolio capital.’

‘US efforts to roll back the trend of deepening financial integration by threatening to delist Chinese companies traded on US markets and prohibiting any US investment in 35 Chinese companies that the Department of Defense alleges to be linked to the Chinese military appear to be largely symbolic.’

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‘Top Risks of 2021’

Eurasia Group

Ian Bremmer & Cliff Kupchan | Eurasia Group

Overall, this year will experience an expansion of a high level of US-China tensions.

Read all of the ‘Top Risks of 2021’

Key Points

‘Following Trump’s exit, the US-China relationship will not be as overtly confrontational.

  • ‘Both sides will seek some breathing space.’’

‘But the desire for stability will be offset by three new and underappreciated factors:

  • ‘a spillover of tensions from the United States to its allies,
  • ‘a competition to heal the world, and’
  • ‘another competition to green it.’

‘On balance, this year will see a bilateral rivalry as intense as that of last year, and that’s dangerous.’

Discussion

‘Unlike the Trump administration, which pursued a tougher China policy unilaterally, Biden will enlist and coordinate with allies in this area, seeking a multilateral front against specific Chinese economic and security policies.’

  • ‘The European Union, Japan, and India will be key targets of the US outreach. Despite a setback on the China-EU investment agreement, the new administration will have some successes—suspicion of China is broadly growing.’
  • ‘In turn, that will create deeper fissures between Beijing and these US allies.’

‘But creating a broad united front on China will not happen easily.’

  • ‘Beijing will lash out at countries closely coordinating with Washington, as it did against Australia last year.’
  • ‘In other cases, Beijing will offer its own economic incentives to push back against efforts at encirclement.’
  • ‘That will create a battle of diplomacy that will serve as an additional irritant to US-China relations.’

‘The US and China will both try to increase their influence by providing vaccines to other countries.’

‘China is poised to outperform the US.’

  • ‘Having largely contained the pandemic within the country’s borders, China’s powerful state apparatus will be able to export vaccines more easily.’
  • ‘And unlike the best vaccines available in the US, current Chinese vaccines can be safely moved at a relatively warm temperature (35- 46 degrees Fahrenheit), making them attractive to low-and-middle income countries that lack cold chain infrastructure.’

‘These advantages will enable China to make good on the big bet it placed on vaccine diplomacy.’

  • ‘Beijing has signed export deals for its vaccines and agreements to produce them in key emerging markets, allowing it to deepen friendships in Southeast Asia, Latin America, and sub-Saharan Africa.’
  • ‘And these efforts come at a time when “wolf warriors,” or hardliners, are ascendant in making Chinese foreign policy.’
  • ‘The result will be hubris on Beijing’s part, albeit with rewards for those in the Global South eager to be vaccinated.’

‘Biden, on the other hand, will have to focus on domestic policies, including jumpstarting the economic recovery, leaving less time and fewer resources for competition with China.’

  • ‘The US also faces a challenging vaccine rollout at home that could further dent its image internationally, and leave it with fewer bargaining chips to deal with countries such as the Philippines that seek to make vaccine access a precondition for greater foreign policy cooperation with Washington.’
  • ‘The result will be a US elite and public increasingly resentful of Chinese gains during the vaccine phase, and that will add strain to bilateral relations generally.’

‘The second new source of tension will be rivalry in green technologies.’

  • ‘Having pledged to reach peak carbon emissions before 2030 and to become carbon neutral before 2060, China seeks to score public diplomacy points and put the US on the back foot before Biden takes office.’
  • ‘Beijing already enjoys a big lead in many of the key clean energy supply chains of the 21st century, from batteries and electric vehicles to solar, wind, and beyond.’

‘Here, too, the US will be eager to catch up, employing industrial policy tools that mark a departure from the neoliberalism of the postwar period.’

  • ‘It will make major investments to re-shore portions of these clean energy supply chains back to the US, seek to shame Chinese coal investment abroad, and rally allies to pressure China on climate and clean energy issues.’
  • ‘China, for its part, has grown accustomed to its climate soft power boom during the Trump years and will not take this offensive lightly.’

‘US efforts to enlist allies, vaccine diplomacy, and climate tech competition will interact with longstanding tensions to further complicate US-China relations.’

  • ‘Disagreements over bilateral trade and technology, the treatment of the Uighurs, Hong Kong, Taiwan, and the South China Sea will fully carry over into this year ... all of which will sustain a significant chance of miscalculation and escalation during a crisis.’

‘So, yes, the two countries will seek some breathing room after the 20 January inauguration, Biden to focus on domestic affairs and Chinese President Xi Jinping to further consolidate his power in advance of the 2022 Party Congress.’

  • ‘But a detente is not to be.’
  • ‘Overall, this year will experience an expansion of a high level of US-China tensions.’

 

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Happy New Year!

Happy New Year!

And greetings from Sarasota, Florida, where it’s a beautiful 77 degrees on the first day of the year.

While I was planning this New Year’s issue, I debated with myself: Should I do a recap of China 2020 or a look forward into 2021?

  • Then a third possibility presented itself.

I read ‘Competition With China Could Be Short and Sharp: The Risk of War Is Greatest in the Next Decade,’ by Michael Beckley of Tufts University and Hal Brands of the School of Advanced International Studies at Johns Hopkins.

  • And I realized that, with a new administration about to take office, a look a few years out might be the most useful.
  • (I highlighted some key points below but the entire essay is well worth reading.)

Drs. Beckley and Brand present on argument that has appeared in earlier issues:

  • ‘China has entered a particularly perilous period as a rising power.’
  • ‘China has the money and muscle to challenge the United States in key areas and to disrupt the existing order’.’
  • ‘Yet its window of opportunity may be closing fast.’

When this argument has been presented here before, readers’ pushback has been that China’s window of opportunity is not closing.

  • They counter that, yes, China faces many problems - so do other nations - but its ability to manage them and its general wherewithal will allow to China continue to grow and gain power.
  • In others words, China is strong and getting stronger and not acting out of insecurity.

The reasons behind the strategies and actions of major powers are complex and sometimes contradictory.

  • And I certainly wouldn’t build an analytical framework on the premise that China’s actions stem from a fear of its window of opportunity closing.
  • But I wouldn’t exclude or eliminate that possibility from my framework either.

Because, if Beckley and Brand are right, then China falls into the ‘rhyming of history.’  As the authors point out:

  • ‘Historically, the most desperate dashes have come from powers that had been on the ascent but grew worried that their time was running short.’

‘World War I is a classic example.’

  • ‘Germany’s rising power formed the strategic backdrop to that conflict, but German fears of decline triggered the ultimate decision for war.’
  • ‘German leaders ran such catastrophic risks in the July crisis for fear that geopolitical greatness would elude them if they did not act quickly.’

‘The same logic explains imperial Japan’s fatal gamble in 1941, after the U.S. oil embargo and naval rearmament presented Tokyo with a closing window of opportunity to dominate the Asia-Pacific.’

Like these other nations, ‘China has entered a particularly perilous period as a rising power.’

  • ‘China has the money and muscle to challenge the United States in key areas.
  • ‘Yet China’s window of opportunity may be closing fast, as it faces a pronounced economic slowdown and a growing international backlash.’
  • ‘Over the next five to ten years, the pace of Sino-American rivalry will be torrid, and the prospect of war frighteningly real, as Beijing becomes tempted to lunge for geopolitical gain while it can.’

That is more than sufficient reason to consider the Beckley/Brands argument (and to read the whole essay).

  • And to set your geopolitical sights beyond 2021.

 

In the card you saw in the Christmas issue, the elephant and the blind monks of the CHINADebate logo were decked out for that holiday.

  • Now they have changed to New Year’s Eve attire.

Have a look here - and have a happy, healthy, and prosperous 2021.

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'History Rhymes'

'History Rhymes' | ANALYSIS | Scoop.it

Michael Beckley | Tufts University

Hal Brands | School of Advanced International Studies, Johns Hopkins

‘Historically, the most desperate dashes have come from powers that had been on the ascent but grew worried that their time was running short.’

‘Many people assume that rising revisionists pose the greatest danger to international security.’

  • ‘But historically, the most desperate dashes have come from powers that had been on the ascent but grew worried that their time was running short.’

‘World War I is a classic example.’

  • ‘Germany’s rising power formed the strategic backdrop to that conflict, but German fears of decline triggered the ultimate decision for war.’
  • ‘Russia’s growing military power and mobility menaced Germany’s eastern flank; new French conscription laws were changing the balance in the West; and a tightening Franco-Russian-British entente was leaving Germany surrounded.’
  • ‘German leaders ran such catastrophic risks in the July crisis for fear that geopolitical greatness would elude them if they did not act quickly.’

‘The same logic explains imperial Japan’s fatal gamble in 1941, after the U.S. oil embargo and naval rearmament presented Tokyo with a closing window of opportunity to dominate the Asia-Pacific.’

‘In the 1970s, Soviet global expansion peaked as Moscow’s military buildup matured and the slowing of the Soviet economy created an impetus to lock in geopolitical gains.’  

Like these other nations, ‘China has entered a particularly perilous period as a rising power.’

  • ‘China has the money and muscle to challenge the United States in key areas.
  • ‘Yet China’s window of opportunity may be closing fast, as it faces a pronounced economic slowdown and a growing international backlash.’

‘Over the next five to ten years, the pace of Sino-American rivalry will be torrid, and the prospect of war frighteningly real, as Beijing becomes tempted to lunge for geopolitical gain while it can.’

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'The Risk of War With China Is Greatest in the Next Decade'

'The Risk of War With China Is Greatest in the Next Decade' | ANALYSIS | Scoop.it

Foreign Affairs

Michael Beckley | Tufts University

Hal Brands | School of Advanced International Studies, Johns Hopkins

‘The bad news is that over the next five to ten years, the pace of Sino-American rivalry will be torrid, and the prospect of war frighteningly real, as Beijing becomes tempted to lunge for geopolitical gain.’

‘In foreign policy circles, it has become conventional wisdom that the United States and China are running a “superpower marathon” that may last a century.’

  • ‘But the sharpest phase of that competition will be a decade-long sprint.’

‘The Sino-American contest for supremacy won’t be settled anytime soon.’

  • ‘Yet history and China’s recent trajectory suggest that the moment of maximum danger is just a few years away.’

‘China has entered a particularly perilous period as a rising power:’

  • ‘China has the money and muscle to challenge the United States in key areas and to disrupt the existing order’.’
  • ‘Yet its window of opportunity may be closing fast.’

‘Since 2007, China’s annual economic growth rate has dropped by more than half, and productivity has declined by ten percent.’

  • ‘Meanwhile, debt has ballooned eightfold and is on pace to total 335 percent of GDP by the end of 2020.’
  • ‘China has little hope of reversing these trends, because it will lose 200 million working-age adults and gain 300 million senior citizens over the next 30 years.’

‘And as economic growth falls, the dangers of social and political unrest rise. Chinese leaders know this:’

  • ‘President Xi Jinping has given multiple speeches warning about the possibility of a Soviet-style collapse, and Chinese elites are moving their money and children abroad’

‘Meanwhile, global anti-China sentiment has soared to levels not seen since the 1989 Tiananmen Square massacre.’

  • ‘Nearly a dozen countries have suspended or canceled participation in Belt and Road Initiative (BRI) projects.’
  • ‘Another 16 countries, including eight of the world’s ten largest economies, have banned or severely restricted use of Huawei products in their 5G networks.
  • ‘India has been turning hard against China since a clash on their shared border killed 20 soldiers in June.’
  • ‘Japan has ramped up military spending, turned amphibious ships into aircraft carriers, and strung missile launchers along the Ryukyu Islands near Taiwan.’
  • ‘The European Union has labeled China a “systemic rival.” ’
  • ‘And the United Kingdom, France, and Germany are sending naval patrols to counter Beijing’s expansion in the South China Sea and Indian Ocean. On multiple fronts, China is facing the blowback created by its own behavior.’

‘The United States faces a pressing and volatile threat:

  • ‘an already powerful but insecure China beset by slowing growth and intensifying hostility abroad.’  

‘The good news for the United States is that over the long term, competition with China may prove more manageable than many pessimists believe.’

  • ‘Americans may one day look back on China the way they now view the Soviet Union—as a dangerous rival whose evident strengths concealed stagnation and vulnerability.’

‘The bad news is that over the next five to ten years, the pace of Sino-American rivalry will be torrid, and the prospect of war frighteningly real, as Beijing becomes tempted to lunge for geopolitical gain.’

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Scooped by Malcolm Riddell

Ho Ho Ho

Ho Ho Ho | ANALYSIS | Scoop.it

Season’s Greetings!

 

And a Merry Christmas from Sarasota, Florida.

  • Another sunny Christmas day. At 57º maybe a little cooler than usual.

 

Once again, here is CHINADebate’s holiday card to you all.

 

 

 

For those of you who don’t know, the painting is the CHINADebate logo, with seasonally appropriate caps added to the elephant and blind monks.

  • I use it every year because, frankly, I can’t come up with a better card.

 

The scene is a depiction of the story of the blind men and the elephant.

  • This is summarized in a Chinese chengyu as 瞎子摸象 (xiā zi mō xiàng), ‘blind men touch elephant.’

 

  • Here’s the story, which originated in India:

 

‘A group of blind men heard that a strange animal, called an elephant, had been brought to the town, but none of them were aware of its shape and form.’

  • ‘Out of curiosity, they said: "We must inspect and know it by touch, of which we are capable".

‘So, they sought it out, and when they found it they groped about it.’

  • ‘The first person, whose hand landed on the trunk, said, "This being is like a thick snake".
  • ‘For another one whose hand reached its ear, it seemed like a kind of fan.’
  • ‘As for another person, whose hand was upon its leg, said, the elephant is a pillar like a tree-trunk.’
  • ‘The blind man who placed his hand upon its side said the elephant, "is a wall". Another who felt its tail, described it as a rope.’
  • ‘The last felt its tusk, stating the elephant is that which is hard, smooth and like a spear.’

 

This parable is used by many different religions and philosophies to illustrate many different points.

  • In one interpretation, the conflicting views of the blind men lead to arguments about what an elephant is.
  • But finally one of them figures out the reason for such divergent positions.
  • He suggests that instead of fighting they gather around and assemble their experiences.
  • The result: A reasonable, although imperfect, portrait of an elephant in each man’s mind.

 

For CHINADebate, the painting and chengyu led to the tagline: ‘It takes a lot of different views to understand China.’

 

  • So for any given issue, we do our best to give you some different perspectives, and let you come to your own conclusion.

My best wishes to you all in this festive, if now muted, season.

  • And be on the lookout: the elephant and the blind men, differently attired, will be back on New Year’s Day.
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Scooped by Malcolm Riddell

China Macro Reporter Archive

Greetings!

In this issue:

1. Henry Paulson: How to Fix Our Relationship with China

2. CFR: How 2020 Shaped U.S.-China Relations

  • ‘Trump’s China Gift to Biden’
  • ‘Tech Rivalry Intensifies Over 5G, TikTok’

3. Semiconductors & Taiwan

  • 'Pound for Pound, Taiwan Is the Most Important Place in the World' 
  • 'Taiwan, Biden and China’s High-Tech Ambitions'

4. China Economic Policy 2021:

  • 'Economic Policy Likely Less Accommodative Than Expected in 2021' 

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.

First, there was ‘why can’t we just get along with China?’

  • Then in the last few years there has been the increasingly bipartisan judgement of ‘China is the primary threat to the U.S.’

During those years of ‘China as enemy’ more moderate voices generally kept their heads down.

  • Now, with a more moderate administration about to take office, those voices are back.

Representative of these is former Treasurer Secretary Hank Paulson. In a Wall Street Journal od-ed, he counsels:

  • ‘Competition without unnecessary confrontation should be our goal—because confrontation without effective competition has produced some poor results for the American people.’

'We must reject the notion that we don’t benefit from an economic relationship with China.'

  •  'It is not unpatriotic to say this.' 

That the debate about what China is and how the U.S. should relate to it is once again embracing a range of views.

  • And that will certainly lead to more clarity and better policy that Evil Empire rhetoric.

But, given the polling in the U.S. that shows strong anti-China sentiments and the members of Congress who reflect those views of their constituents, expect a standoff between the Hawks and those who not exactly Doves for some time to come.

 

Liz Economy of the Council on Foreign Relations points out that the Trump administration is in a rush in its final days to enshrine that Evil Empire rhetoric with more policy actions:

  • ‘In the weeks following the U.S. presidential election, administration officials have undertaken a flurry of activities related to TibetTaiwan, financial decoupling, and the South China Sea, adding to the vast edifice of initiatives they have constructed over the past four years.’

About these, Dr. Economy asserts a few counterintuitive points:

  • ‘While it may appear as though these last-minute actions will make it more difficult for the incoming Biden administration, the opposite is true.’
  • ‘The more policies the Trump administration piles on, the greater the leverage and range of options it leaves for the Biden team.’ 
  • ‘The Biden administration will have the luxury of deciding how much to retain of what the Trump team has built.’

BTW Dr. Economy’s comments come from a Council on Foreign Relations article, ‘How 2020 Shaped U.S.-China Relations.’

 

Afew months ago, I highlighted an essay but Harvard’s Graham Allison in which he suggested that U.S. efforts to starve Huawei – and China – of semiconductors could lead China to invade Taiwan to get control of its fabs.

  • His analogy was to the months before World War II when the U.S. cut off Japan’s access to oil, and Japan saw faced the choice: attack the U.S. or perish.
  • While, as Dr. Allison admits, this is an unlikely scenario, it pointed up once again how critical Taiwan is as a supplier of semiconductors.

 

That is reinforced in 'Pound for Pound, Taiwan Is the Most Important Place in the World,’ by Ruchir Sharma, chief global strategist, Morgan Stanley Investment Management, in The New York Times.

  • ‘The new Cold War, between the United States and China, is increasingly focused on access to just one industry in one place: computer chips made in Taiwan.’
  • ‘Over the past year, Taiwan has taken a lead in the race to build thinner, faster and more powerful chips, or semiconductors.’

‘As of now, any country looking to dominate the digital future has to buy these superfast, ultrathin chips from either Taiwan or South Korea.’

  • ‘And Taiwan has the edge in both technology and market power.’
  • ‘Pound for pound, it is the most important place in the world.’

One more reason why Taiwan and the Taiwan Straits are the most dangerous flashpoints in the world.

 

Commenting on this year’s upcoming Central Economic Work Conference, MacroPolo’s Houze Song writes:

  • ‘A central theme of this year’s Central Economic Work Conference (CEWC) will likely focus on the implementation of the recently announced 14th Five–Year Plan (FYP) that starts in 2021.’ 
  • ‘This means the policy direction will center on supply side structural reforms, such as innovation, improving the business environment, and addressing inequality.’
  • ‘Meanwhile, de-risking and deleveraging is back on Beijing’s agenda, which implies that demand-side policies will be relatively restrictive as well.’  
  • ‘Combined, this policy direction should inject some caution into the latest bullish growth forecasts for 2021, since the signal is still deemphasizing growth.’ 

This Conference will be a bigger deal than it sounds, and we’ll be following it closely.

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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