Ni hao! Welcome to Eye on China, a weekly bulletin offering news and analysis related to the Middle Kingdom.
1. Troubled Waters: Fresh controversy erupted along the South China Sea this week, after The Inquirer, a Philippines daily, published new picturesrevealing the extent of Chinese militarization of islands along the Spratly archipelago. Most of the photos, the report says, were taken between June and December 2017. It adds that the images indicate China is “in the final stages of development as air and naval bases” on the artificial islands.
The Inquirer report came as ASEAN Defense Ministers met in Singapore, pledging to jointly combat terrorism and agreeing on maritime drills with China, likely by the end of 2018. They also then held talks with visiting Chinese Defense Minister Chang Wanquan. Discussing the South China Sea, Singapore’s Defence Minister Ng Eng Hen stated that talks on a code of conduct would continue, but it was “unrealistic” to expect a deal this year. Sounding a tougher note was the country’s foreign minister Vivian Balakrishnan who said that a code of conduct would not imply a resolution of territorial disputes. He also was critical of “land reclamations and activities in the area, which have eroded trust and confidence (and) increased tensions.”
Recall that Premier Li Keqiang, during the November 2017 ASEAN leaders’ meeting, called the code of conduct for the South China Sea a potential “stabilizer” and the “greatest hope is for peace and stability.” Beijing is keen to negotiate a framework within the year, with speculation being that it will define it as the guiding document overriding UNCLOS. Meanwhile, Chinese media is reporting that Beijing is moving to upgrade telecom services along some of the islands in the South China Sea. The three islands and reefs identified in the report are Yongxing (Woody Island), Yongshu (Fiery Cross Reef), and Meiji (Mischief Reef). The PLAAF also said this week that it had deployed advanced fighter jets for a “joint combat patrol” over the South China Sea, as part of its training to improve combat abilities. Keeping in mind such moves, ASEAN is hoping to finalize a code of conduct on air encountersby the end of this year.
Tina Kaidanow, US acting assistant secretary of state for political-military affairs, was also in Singapore this week attending the Airshow. She discussed the South China Sea issue there, largely pitching was for ASEAN nations to buy more US arms “not just as a matter of security but also regional balance.”
2. Yang-Tillerson meet: Chinese State Councillor and now Politburo member Yang Jiechi visited Washington this week. This is the first such high-level meeting between the two sides since the release of the US National Security Strategy and National Defense Strategy, which labeled China as a “strategic competitor” and “rival.” Also on Friday, the US made public its new Nuclear Posture Review, inviting prompt criticism from the Chinese side. Trade frictions appeared to be the overriding agenda of the visit, with state media in China focussing primarily on that. The US State Department spokesperson, meanwhile, said that the two sides discussed trade issues along with North Korea, cyber security, human rights and democracy. All of these, it was hinted, would be aspects of the bilateral Diplomatic and Security Dialogue scheduled for later this year. Speaking of diplomatic activities, this Bloomberg report is an interesting read: As U.S. Culls Diplomats, China Is Empowering Its Ambassadors.
Also this week, China announced a probe into US Sorghum subsidies. Chinese Sorghum imports are estimated to be over $1 billion, with the US being the biggest exporter. Given domestic US politics, agriculture was widely believed to be among the key sectors that China would target after Trump hiked tariffs on imported solar panels and washing machines in January. China, along with other countries, has moved at the WTO against those tariffs. Adding further to the trade tensions was fresh data that America’s trade deficit in 2017 had soard to to $566 billion, with China accounting for $375 billion of that. But economic data’s always tricky and depends on how you slice them, as this SCMP report indicates.
3. Economy watch: An editorial in the People’s Daily (Caixin report in English) this week targeted China’s financial regulators, indicating perhaps a tougher CCDI line on regulators going forward. The piece talks about dismantling “revolving door” between financial institutions and regulatory bodies and building a “fire wall” between regulators and the institutions they oversee. Meanwhile, the State Council has listed new measures to reduce leverage of state firms. This builds on statements given earlier by SASAC chairman Xiao Yaqing in January to Reuters. China’s stock markets, meanwhile, have taken a beating this week. The PBOC in response said it has released temporary liquidity amounting to $316 billion to meet cash demand before the Lunar New Year holidays.
Other Stories:
4. China-Vatican talks: China is the best implementer of Catholic social doctrine, says Vatican bishop/ Unholy war of words breaks out over Vatican rapprochement with China
5. China-Taiwan: Taiwan rejects offer of help from China, accepts Japanese expertise on quake relief/ Taiwan Is Bringing Back Cold War Missiles to Deter China/ GOP pressures Trump on Taiwan as China issues threats/ China tries to charm tech-savvy Taiwanese youth as political ties fray
Indian Interests:
1. Maldives turmoil: The island nation of Maldives finds itself at the center of a geo-political tussle. In a ruling last week, the country’s Supreme Court called on the government to release political prisoners, quashing terrorism convictions against nine leading opposition figures. Refusing to comply with the order, on Monday, President Abdulla Yameen’s government imposed a 15-day emergency, arguing that a coup attempt had been averted. Two judges, including the chief justice of the Supreme Court, were later detained. Also reportedly detained was former president Maumoon Abdul Gayoom. Exiled former Maldives President Mohamed Nasheed, meanwhile, publicly called onIndia to “send an envoy, backed by its military, to free the judges and political detainees.”
Following that, Yameen announced that it was sending special envoys to “friendly nations,” including China, Pakistan and Saudi Arabia. The country’s ambassador to India says that an envoy was also being sent to India but New Delhi declined hosting him.
As the crisis unfolded, both India and China issued travel advisories. Beijing has deep stakes in the Maldives and has steadily grown closer to the Yameen regime. It has, therefore, sought to define the situation as an “internal affair” calling on the international community to “play a constructive role on the basis of respecting the sovereignty.” It has reiterated that support to the special envoy sent by Yameen. The Global Times, meanwhile, has lashed out at India for intervening in the Maldives and even triggering the crisis.
The only official statement from the Indian side on the situation so far was issued on Feb 6 by the MEA, stating that India was “disturbed” by the imposition of emergency and “the suspension of Constitutional rights of the people of Maldives.” Indian PM Narendra Modi also discussed the crisis in a call with US President Trump. The UN Security Council is also debating the situation in a closed door meeting on Thursday.
Belt and Road:
1. Concern over BRI courts: China recently announced its intention of setting up tribunals to manage trade and investment disputes arising from BRI. Three courts are to be set up under the guidance of China’s Supreme People’s Court in Beijing, Xi’an and Shenzhen. China claims that investments made by Chinese enterprises in countries involved in the initiative have totaled more than $50 billion already and the courts are needed to address disputes that might arise. It also says that the three tribunals would be modelled after the International Commercial Court in Singapore and the Dubai International Finance Center Courts. The decision is being seen as a challenge to the existing system of international arbitration and analysts expect that it will only deepen divisions among those skeptical of BRI and China. One should recall French President Emmanuel Macron and British PM Theresa May both during their visits spoke about the need for BRI to meet “international standards.” This is pertinent given that the judicial system in China is deeply connected with the Communist Party, with greater efforts to deepening control underway. Also, it is important to consider how this decision impacts issues of jurisdiction with regard to MoUs already signed and projects already underway.
2. CPEC security: Security of Chinese nationals in Pakistan once again came to the fore this week, with the killing of a Chinese national in Karachi. Chen Zhu, the Pakistan general manager of Cosco Shipping Lines Company, was killed by a gunshot in the head in an upmarket area. The killing came soon after China’s ambassador to Pakistan Yao Jing had expressed satisfaction over the security provided to the Chinese nationals working on different CPEC projects. China’s Foreign Ministry has called on Pakistan to “take measures to guarantee the security of its institutions and personnel.” Initial investigations have called it a targeted killing, while Pakistan’s Interior Minister Ahsan Iqbal was quick to point the needle of suspicion in India’s direction. Earlier in the week there were also reports in the Pakistani press about an Interior Ministry had sent a letter to the home department, claiming that India had sent 400 Muslim youngsters to Afghanistan for receiving training to be able to carry out attacks on the CEPC installations. It’s unlikely that the Chinese side really put too much stock in such claims. In November 2017, the Chinese foreign affairs ministry had dismissed similar claims about RAW’s plans to target CPEC by Chairman of Pakistan’s Joint Chiefs of Staff Committee General Zubair Mehmood Hayat.
Couple of other key CPEC stories to take note of:
Other reads:
5. Must read: US may boost projects in Indo-Pacific to counter Beijing’s belt and road plan — Comments by Chinese analysts in this call for Beijing to rethink its BRI strategy.
Military Matters:
1. A naval war in the Indo-Pacific: There has been much talk over the past year at least about the growing strategic competition between India and China in the Indian Ocean. And all of it has intensified as China opened its base in Djibouti, took control of Hambantota and deepens involvement in Gwadar in Pakistan and Kyauk Pyu in Myanmar. A new analytical take by Ben Ho from RSIS offers insight into what could possibly transpire in case of an India-China conflict in the Indian Ocean. Looking at it from an operational perspective, he describes the likely Chinese approach to be “highly defensive and cautious.”
He summaries the piece by arguing: “All in all, the 2020 Great Sino-Indian Naval War might turn out to be highly anticlimactic. Given the odds facing any PLAN CBG deployed to the Indian Ocean during such a conflict, it is not inconceivable that the Chinese CBG commander takes a page from the book of his country’s founding father as well as irregular warfare theorist extraordinaire, Mao Zedong, who advised retreating in the face of superior opposition.”
Other reads:
2. China’s plan to use artificial intelligence to boost the thinking skills of nuclear submarine commanders + Elsa Kania’s excellent thread on this
Beijing’s Take:
It’s my way or…: German carmaker Daimler found itself embroiled in a prickly political controversy this week over an Instagram post by its subsidiary Mercedes Benz. The post carried a rather innocuous quote attributed to the Dalai Lama. However, the “Monday Motivation” post soon turned into a PR nightmare.
Chinese social media users and official media were quick to pick up on it, with outrage ensuing. As Global Times explains, by using the Dalai Lama’s quote, Mercedes “challenged the bottom line of the Chinese people.” It further added, “the issue of sovereignty is where China’s core interests lie and cannot be challenged.” The People’s Daily went a step further calling Mercedes Benz an “enemy of the Chinese people.”
Invariably, after an initial social media apology, which was deemed in, the company has had to issue another detailed apology in a written letter, as per Xinhua. Daimler’s Chairman Dieter Zetsche and Daimler Greater China’s Chairman Hubertus Troika reportedly expressed sincere apology, saying that the company “has no intention of questioning or challenging in any manner China’s sovereignty and territorial integrity.”
The case is just another reminder of Beijing’s toughening attitude towards foreign companies after last month’s cases involving Delta, Marriott and Zara. Sovereignty was again the central issue in those incidents. Another common thread in all of this is the growing clout and potential utility of nationalistic social media users for officialdom. That, however, can be a double-edged sword. And finally, of course, these incidents, particularly the Mercedes case, once again underscore the continuing significance of the Chinese market, which will even result in some foreign firms kowtowing as demanded.
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