Eye on China: 'Complex & Grave' Times

1. Political & Ideological Work

The Standing Committee of the Politburo held a meeting on Monday to examine to a series of work reports. The process of the PSC reviewing work reports from this wide a range of actors began in 2015. The statement issued after the meeting provides a glimpse into the leadership’s thought process. It described the international situation as “complex and grave” and called on “leading Party members’ groups” within key bodies like the NPC, CPPCC, SPC and SPC to “closely follow the CPC Central Committee with Xi at the core in terms of thinking, political orientation and action."

A few other noteworthy points from the statement were the emphasis on party discipline, the eight-point decision on improving Party and government conduct and “fighting against any practice of formalities for formalities’ sake and bureaucratism.” My purpose in emphasising these isn’t to state that this is unusual. Rather, it’s a reminder that translating central policy into local action continues to remain a challenge.

A day before the PSC meeting, Wang Huning met with publicity officials from around the country. During the meeting, Wang called for “better work in publicity under the guidance of Xi Jinping Thought” and to hold “firmly the CPC's leading position in ideological work.” All of this, of course, is happening in the context of the 70th anniversary of the founding of the PRC, which will be celebrated in October. One aspect of this emphasis on Xi Jinping Thought is ideological and political work on campuses. The Global Times reports that the Ministry of Education has released a list of universities that have been selected to build centers to carry out this task. The list includes PKU, Tsinghua and Renmin University among others.

Meanwhile, the Central Commission of Discipline Inspection is holding its plenary session on Friday and Saturday. Ahead of the session, reports tell us that the CCDI and the National Supervisory Commission punished a total of 621,000 people. Among these, 51 officials were at or above the provincial/ministerial level. The data put out supports the point I was making above about translating central policy into local action. For instance, around 55,800 officials were punished for violating rules against undesirable conduct, such as bureaucratism and extravagance, in the first 11 months of 2018.

Xi addressed the CCDI session on Friday, saying that owing to the anti-corruption campaign, the Party was now “radiating with more vitality in the new era.” His vision for Party governance involves efforts that make sure “officials don’t dare to, are unable to and have no desire to commit corruption.” To get to that stage, he put out a six-fold path. He also called on officials “to correctly uphold the authority of the CPC Central Committee, and firmly resist illicit intervention and profit-seeking by central-level leaders’ family members, their work staff, and people who claim to have connections with them.” CCDI chief and PSC member Zhao Leji, who presided over the meeting, then called on “Party organizations at all levels to unify their thinking and action with the spirit of Xi's speech.”

Finally, there’s much speculation about the possibility of the fourth plenum of the 19th CPC Central Committee. Do recall, the third plenary session, which is usually held in Oct-Nov, was held early last year in view of the constitutional amendments that were brought to the NPC in March. So there was no Oct-Nov plenary session last year, which was an unusual change in the Chinese political calendar. Now, Bloomberg reports that “nearly half of China’s 31 regions that normally hold annual legislative and advisory meetings have suddenly rescheduled them this month.” The report claims that this leaves open a window from January 19-22 to hold the session. Trivium China’s take is that “this apparent last-minute gathering is further proof that Beijing is scrambling to respond to the economic slowdown and increasingly tense relations with the US and much of the West."

2. No Deal Yet

China’s Vice President Wang Qishan is heading to Davos later this month for the annual WEF meeting. Also in attendance will be US President Donald Trump. While there is no official confirmation on whether the two men will be meeting, Wang did outline his view on Sino-US ties this week at an event marking the 40th anniversary of the normalisation of the relationship. Here are some pointers from his speech:

China-U.S. relations are one of the most important bilateral ties in the world with the greatest potential.

The two sides should respect each other and seek common ground while shelving differences and adhere to the three joint communiques and important consensus reached by leaders of the two countries.

The two sides should keep seeking and expanding the overlapping interests, deepen and promote pragmatic cooperation to bring the two peoples a greater sense of gain, the vice president said.

No matter how the international landscape may evolve, China will insist on its own development path.

The last of those points leads us to the vice-ministerial level talks that were held in Beijing this week. The general sense is that there is some positive momentum, given that Vice Premier Liu He popped in for a visit and the talks were extended for a day. In the end, both sides issued separate statements. The Chinese Ministry of Commerce said that the two sides “conducted extensive, in-depth and detailed exchanges on trade and structural issues of common concern,” adding that a foundation had been laid for addressing each other’s concerns. USTR’s statementsaid that said the talks focussed on achieving “fairness, reciprocity, and balance in trade relations.” It added that the two sides also discussed structural issues, with the need for “any agreement to provide for complete implementation subject to ongoing verification and effective enforcement.” Along with this, they talked about “China’s pledge to purchase a substantial amount of agricultural, energy, manufactured goods, and other products and services from the United States."

So where are we at when it comes to a deal? Bloomberg reports that Trump and some of his key economic advisors are increasingly eager to strike a deal to soothe battered markets. The piece adds that “China hawks in the administration have grown increasingly concerned about how the market turbulence has been affecting the president’s mood on trade.” WSJ reports that Liu He is expected to visit Washington for talks with USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin on January 30 and 31. The latter told the press on Thursday that Liu was likely to visit Washington later this month, without confirming any dates. Meanwhile, writing for CGTN John Gong, a research fellow at Charhar Institute, argues that the current talks were “more about resolving the trade imbalance issue as opposed to the broader structural issues.” Addressing those will be complex. But the piece does say that these changes “are indeed in China's long-term interests, even though some of them may appear to be painful in the short run." 

This NYT piece is a good read on the complexities of a any deal that involves structural changes. It discusses how China is unlikely fundamentally alter its industrial policy and system of subsidies. In addition on technology transfers, it quotes Donald Clarke, a specialist in Chinese law at George Washington University, as saying: “These forced tech transfers that people complain about don’t occur because some government department issues an order saying, ‘Transfer this tech.’ It’s done through the government department getting involved behind the scenes in the negotiations, or not granting discretionary permission to do something unless some tech is transferred. It’s very hard to stop through a specific rule"

3. Fine-Tuning Money SupplyReuters reports that Chinese policymakers are set to lower the annual GDP target for this year to between 6% to 6.5%. Last year’s target was around 6.5%. The report says that growth of about 6.2% is needed in the next two years to meet the CPC’s goal of doubling gross domestic product from 2010 to 2020. The report also says that data later this month is expected to show China growth slowed to around 6.6% in 2018 from 6.9% the previous year.

Amid the slowdown, PBOC Governor Yi Gang spoke at Tsinghua University this week. Caixin reports that he promised fine-tuning of monetary policy to take the edge off the effects of the economic slowdown and the government’s debt-control campaign. He added that policymakers were prepared to shift their focus from deleveraging to supporting growth. But that does not mean a massive stimulus package. Instead it implies targetted or piecemeal actions. Yi also addressed the press this week, discussing efforts to support small- and micro-sized enterprises and incentives for banks to encourage lending to the real economy. He said that the PBOC will make full use of credit, bonds and equities to help private firms raise fund, and work with other government agencies to improve companies’ access to these financial support. One of the means used to provide this support is the targeted medium-term lending facility, which will be launched soon. Another method is tax cuts. On Wednesday, the State Council announced (Chinese statement) a package of tax cuts worth $30 billion for small and micro-sized businesses per year over the next three years. The meeting also called for the acceleration of the issuance of 1.39 trillion yuan in local government bonds. This should be done now by the end of September. Xinhua says the funds raised will be used on a priority basis to support projects under construction and start new projects projects in transport, water conservation and environmental protection. But there’s a caveat in the State Council’s statement that’s worth nothing: the implicit debts of local governments must be strictly controlled. That, as Trivium China notes, is the regulators trying to have their cake and eat it, too. Moody’s seems to call these “untested” policies.

The other interesting data point on the economy this week was the China Passenger Car Association reporting that China's passenger vehicle sales declined by 6% in 2018, compared with the previous year. This is the first such decline in 20 years. SCMP reports that one key reason for the decline was the end of a government incentive to purchase cars with smaller engines. Ning Jizhe, NDRC vice chairman, says that China is planning to roll out a new set of incentives this year to encourage buying of cars and home appliances as part of a wider effort to stabilise economic growth. (My Thought Bubble: If that’s what’s led to auto sales crashing, then what’s this business about consumption driving growth?) 

That could be helpful for Elon Musk, who has spent the week in China. Work on Tesla’s so-called Gigafactory in Shanghai got underway this week. Musk says that the factory will produce “affordable versions” of Model 3 and Model Y vehicles for the Greater China region, and that the plan is to “finish initial construction this summer, start Model 3 production end of year & reach high volume production next year.” During the event, Musk also hinted that he believes the next CEO of Tesla could be Chinese. Later in the week, Musk met with Premier Li Keqiang. So thrilled is Beijing that Musk is apparently being offered a green card. And why wouldn’t one be, given that this is a big step forward in the projection of reform and opening up.

4. Indo-Pacific & Technology 

Vikram Misri took charge as India’s new ambassador to China this week. In the first few days of his tenure, he’s met with the AIIB President Jin Liqun and SCO Secretary General Vladimir Norov. Also, the Indian embassy in Beijing is now on WeChat. Also in the public eye this week has been Army Chief General Bipin Rawat, who says that “We have been able to maintain peace and tranquillity along the Chinese border, particularly after the Wuhan summit. Common directions were issued and they are being followed.” Notwithstanding that, the PLA has reportedly equipped its forces in Tibet with new vehicle-mounted howitzers. Hindustan Times reports that the deployed weapon is said to be the rarely seen PLC-181 vehicle-mounted howitzer cannons, capable of firing and then rapidly changing positions.

Staying within the security domain, Indian Navy Chief Admiral Sunil Lanba discussed Chinese naval development at the Raisina Dialogue in New Delhi this week. He not only discussed the pace of China’s naval modernisation but also highlighted that at any time at least six to eight PLAN vessels are in the northern Indian Ocean. He further raised the issue of Chinese anti-piracy operations off the Gulf of Aden. China has “deployed submarines for anti-piracy operations,” which is the “most unlikely platform to be used for this role,” he reportedly said. In addition, discussing Indo-US naval cooperation, Admiral Lanba said that “We have a common maritime awareness picture.” Also in attendance at the event were naval heads from the other Quad states. Discussing the Indo-Pacific, Admiral Philip Davidson, Commander of the Indo-Pacific Command, emphasised that it is the responsibility of “all our nations here” to help ASEAN nations in their discussions for a Code of Conduct with China in the SCS.

Finally, turning to the tech sector, Ananth Krishnan writes in The Wire that “since 2015, around $7 billion in Chinese funding has poured into the Indian tech sector. A dizzying range of acquisitions has now left Chinese companies as major shareholders of some of India’s biggest tech companies.” E-commerce, fintech, transportation and travel are among the biggest gainers from this investment. The piece is quite comprehensive and balanced. The central question it raises for policymakers is this: “Is this flood of Chinese money an unalloyed good? To be sure, it has benefits. The infusion of capital has allowed hundreds of Indian start-ups to scale up, thanks to their financing. So it should certainly be welcomed, in some sectors. But are there wider, longer term concerns of Chinese companies acquiring controlling stakes in certain start-ups in certain sectors, and if so, how do we regulate the process?”

5. BRI & East Asia

A new survey by the ISEAS-Yusof Ishak Institute, affiliated with the Singapore government, found that “The overwhelming majority of the respondents (70%) opine that their government should be cautious in negotiating BRI projects, to avoid getting into unsustainable financial debts with China.” Some other key findings are: 

China was seen by 73% of the respondents as having the greatest economic influence in the region… and more influence politically and strategically than the United States.

8.9% see China as a benign and benevolent power, while 45.4% think China will become a revisionist power with an intent to turn Southeast Asia into its sphere of influence.

The majority of the respondents (51.5%) have either little (35.5%) or no confidence (16%) that China will “do the right thing” in contributing to global peace, security, prosperity and governance.

59.1% think US power and influence at the global stage has deteriorated or deteriorated substantially. 31.9% of the respondents have confidence in the US as a strategic partner and provider of regional security.

The “trust” rankings of the major powers based on the combined “positive responses” of the respondents are as follows: Japan (65.9%), the EU (41.3%), the US (27.3%), India (21.7%) and China (19.6%). Conversely, the “distrust” rankings of the major powers are as follows: China (51.5%), the US (50.6%), India (45.6%), the EU (35.2%), and Japan (17%).

While the anxieties around BRI have grown over the past year, there’s also been the this question about whether BRI actually can be viewed as grand strategy. David Fickling’s Bloomberg piece this week discusses this in the context of the 1MDB scandal and other setbacks over the year. He writes, “Despite Xi’s close association with it, the initiative isn’t ultimately a connected master plan for Chinese global ascendancy. Instead, it’s better looked at as a somewhat chaotic branding and franchising exercise, a way for the country’s numerous provincial officials and state-owned companies to slap a presidential seal of approval on whatever project they’re seeking to pursue." 

"If Malaysia’s Belt and Road projects were all part of a grand strategy hatched by China, the execution was incompetent. According to the Journal, former Malaysian Prime Minister Najib Razak did hold talks with Beijing about granting berthing rights to Chinese naval vessels – but the discussion never bore fruit. Then Najib was voted out of office last year, with his successor Mahathir Mohamad seeking to cancel or renegotiate projects he’s labelled a “new version of colonialism.” Another example he offers is that “three of the six trans-Asia ‘economic corridors’ around which the initiative was originally designed are devoid of major projects, while countries well outside its original scope such as Nigeria and Argentina are being brought under the Belt and Road umbrella.” 

6. The Long & Short of It: 

A quick break-down on some interesting stories: 

- More Bases Possible: Three PLAN warships stopped at Cambodia’s Sihanoukville port on Wednesday for a four-day visit. All of this has once again sparked a discussion about a possible PLAN base in Cambodia. Of course, the country’s leader Hun Sen has denied that any such plan is in the works. What’s interesting is that also this week, Lieutenant General He Lei, former vice-president of the PLA Academy of Military Science, discussed the possibility of new overseas Chinese bases. He says that “this matter is primarily determined by whether a new base is needed to help China better fulfill missions given by the United Nations...Second, it depends on the approval of the nation where a new base should be located.” He was also kind enough to advise us to “not overinterpret this matter.” He along with PLA Naval Military Studies Research Institute’s Zhang Junshe, also discussed the South China Sea. They essentially hit out at US FONOPs in the wake of the USS McCampbell, a guided-missile destroyer, sailing near disputed islands the South China Sea on Monday. After that sail through, CCTV reported that the PLA has deployed the DF-26 anti-ship ballistic missiles in northwest China's plateau and desert areas. Why move them inland? Well, the Global Times tells us that a mobile missile launch from deep in the country's interior is more difficult to intercept...During the initial phase of a ballistic missile launch, the missile is relatively slow and not difficult to detect, making it an easier target for enemy anti-missile installations.

- First Canada, Now Poland: Polish authorities have reportedly detained Huawei’s local sales director in the country on spying charges. The Washington Post reports that the individual, identified as Weijing W, was arrested along with a Polish citizen who worked for Huawei’s main local business partner and who once was a senior manager in a Polish intelligence agency. SCMP reports that China’s foreign ministry on Friday expressed grave concerns over the incident. The report also quotes a spokesperson for China’s embassy in Warsaw telling state media that Beijing “attached great importance” to the case. Another European country that’s expressing concern about Huawei is Norway. As the country looks to upgrade and build 5G infrastructure, it’s considering whether to follow other Western actors’ policies regarding Huawei. “We share the same concerns as the United States and Britain and that is espionage on private and state actors in Norway,” Justice Minister Tor Mikkel Wara told Reuters. Asked specifically on Huawei, he added, “Yes, we are considering the steps taken in other countries, that is part of it - the steps taken in the United States and Britain.” Finally, the Canada-China spat continues, with no news on the detained Canadians. Moreover, Lu Shaye, China’s ambassador to Canada, has just made things a little bit worse. In an op-ed this week, he effectively termed the detention of Canadian citizens after Meng Wanzhou’s detention in Canada as “self defense” and went on to charge Ottawa’s approach as being riddled with “Western egotism and white supremacy." 

- Af-Pak Region: “They have been helpful to us in areas I can't even tell.” That’s how Pakistan Prime Minister Imran Khan described his relationship with China in an interview to TRT World. Of course, when asked about the issue of the rights of the Uighurs, he said he didn’t know much about the issue. One type of help is what Ambassador Yao Jing spoke about this week. He said that China was interested to enhance imports of potato, cherry, wheat and rice from Pakistan. Meanwhile, the Afghan national security advisor Hamdullah Mohib was in Beijing this week for talks with Foreign Minister Wang Yi. AP quotes Mohib as saying that he was looking at the possibility of “long-term stability.” Meanwhile, US special envoy to Afghanistan Zalmay Khalilzad is on a four-country visit to the region. He’s currently in India. 

- Kim’s Birthday: North Korea’s Kim Jong Un made his fourth visit to China in the past 12 months for a conversation with Xi Jinping. This week’s visit coincided with Kim’s 35th birthday. Xinhua’s really lengthy report tells us that “in a cordial and friendly atmosphere, the two leaders had an in-depth exchange of views.” There are a couple of interesting bits here. The first, is Xi saying: “The political settlement of the Peninsula issue faces a rare historic opportunity.” The second is him reiterating that “China hopes that the DPRK and the United States will meet each other halfway.” And the third - this really made me chuckle - is Xinhua reporting that Kim said he was grateful to General Secretary Xi for taking time from a busy schedule at the beginning of the year to receive the DPRK delegation. Also, North Korean media has reported that Xi accepted Kim’s invitation to visit the country. But Chinese state media and officials haven’t confirmed this. Meanwhile, South Korean President Moon Jae-in views the Kim-Xi meeting as a precursor to the second Trump-Kim summit. However, he wants some “bold steps” from Pyongyang for Washington to ease up on sanctions.