I. Transgressions, Celebrations and Trade
It’s been a relatively quiet week when it comes to the Sino-Indian news cycle. The Indian Ministry of Defence did share data about transgressions along the LAC in Parliament. There were a total of 1025 transgressions by the PLA between 2016-2018. The breakdown for the three years is 273, 426 and 326. Much of this is down to differing perceptions about the LAC. One wonders how informal summitry will help delineate claim lines to reduce these.
But, until that happens, there’s at least clarity that India and China will commemorate the 70th anniversary of the establishment of diplomatic relations next year with 70 celebratory activities, including cultural, religious and trade promotion events besides military exchanges. The Indian embassy in Beijing put out a list of the 70 activities. There’s a whole bunch there, ranging from drug regulation talks, media engagement, trade and investment talks, business delegations, film events and so on. Not all civilisational, cultural and historical bits are uncontroversial. For instance, both sides are reportedly sparing over the legacy of Sowa-Rigpa, which is a traditional Tibetan system of medicine practised in India’s Himalayan belt. India has apparently approached UNESCO seeking enlisting of Sowa Rigpa as its intangible cultural heritage. China has raised objection to it. Here’s how Hu Zhiyong, from the Shanghai Academy of Social Sciences, responded to the controversy in Global Times: “India set the Tibetan medicine institute in Ladakh on purpose, so that India could assimilate the region in order to merge Ladakh into India. India has been hyping its work on Tibetan medicine” as it wants to transfer its people’s attention away from economic decline by worsening China-India relations.
Anyway, some of the activities in the list of 70 that caught my attention are:
The Indian side will send its naval ships to visit China.
A mid-level tri-service delegation of the Indian armed forces will visit China.
The Indian side will organize Tourism Road Shows in China.
Moving further to a list of other noteworthy stories. First, Foreign Minister S Jaishankar spoke to Nikkei Asian Review, discussing the Sino-Indian trade dynamic. He termed the RCEP has “not fair and balanced,” and spoke about the need for China to open up its IT and pharma sector to Indian goods. What’s interesting is that the report argues, “It has been believed that India is keen to protect its domestic industries from a possible influx of cheap Chinese imports that could flood the Indian market if a free trade deal involving both countries is reached. But Jaishankar's comments seem to suggest that India is growing more interested in expanding its exports to China.” What’s also interesting are a series of reports in the media that suggest that Tokyo wants Delhi in RCEP and is looking to assist in whatever way possible. Bloomberg’s reporting even suggests that Japan may back out of the deal if India isn’t in there.
Second, the Indian government is reportedly considering amending its rules to completely remove the provision under which citizens can receive duty-free ‘gifts and samples’ valued at under Rs 5,000 from overseas, after finding its rampant misuse by Chinese e-commerce vendors. Given this, Chinese e-commerce giant Club Factory has defended its role in India, saying it operates in accordance with Indian laws and based on the “marketplace model.
Third, Sputnik News reports that a Chinese-built bridge on the strategically important Jhelum River was opened on Tuesday. The ‘Hollar Bridge,’ constructed as part of CPEC, connects Rawalpindi with the Pakistan-administered Kotli, which is near Rajouri on the Line of Control. Fourth, China's Envoy in Bangladesh Li Jiming apparently wants India to help China in dealing with the Rohingya issue between Bangladesh and Myanmar. At a public event in Dhaka this week, he said that “India won in India-Pak war in 1971, which resulted in the birth of a new country ‘Bangladesh’. At that time, India played an important role. It can again play a significant role on Rohingya issue and, therefore, it should come forward in this regard."
Fifth, Brookings India put out a new report on higher education in India. There’s an interesting comparative statistic in it with regard to the research ecosystem in India and China. Livemint reports that India and China were spending almost similar portion (0.6%) of their GDP on R&D in 1996 but two decades later China’s expenditure on R&D jumped by more than four-fold whereas India’s expenditure remained largely static. The Brookings report found that India has 216.2 researchers per one million inhabitants, against 1,200 in China, 4,300 in the US, and 7,100 in South Korea. India spends less than 1% of its gross domestic product (GDP) on research and development (R&D), while South Korea spends more than 4.23%, and China 2.11%.
Finally, telecom operators and the Indian government appear to be sparring over 5G spectrum, which has implications for Chinese firms like Huawei. The government says that it is unwilling to reduce the price, while the Cellular Operators Association of India has suggested that it will be delaying 5G network deployment “by at least 4 years” owing to “exorbitant base prices, insufficient spectrum, and unavailability of news bands."
II. In China
Military Education: Xi Jinping this week addressed (English story) the opening of a training session for heads of military academies and schools at the National Defense University. He called for cultivating personnel who are “competent, professional and possess both integrity and ability.” That suggests some sort of a better balance being sought between being red and expert, but then Xi’s also big on political integrity and the party’s leadership over the PLA. So what’s his pathway to achieve this objective?
Well, he wants to transform and upgrade colleges and universities along with curriculum. He believes it is necessary to strengthen the construction of disciplines and specialties adhere to the standards of combat effectiveness, strengthen the construction of a teaching system focusing on courses and teaching materials, and strengthen the combination of scientific research and teaching in colleges and universities.
Xi also wants to “build a high-level faculty, educate and guide the majority of faculty members to strengthen their ideals and beliefs… and cultivate a group of well-known teachers who know modern warfare.”
Also importantly, the “heads of colleges and universities must be political, understand education, fight wars, be good at management, be strict in self-discipline, and be an expert in running schools.”
Another interesting bit from his speech is this: “It is necessary to take the lead in studying military affairs, researching wars, and researching wars, and promote research, teaching, and study wars in colleges and universities to put in place the tactics of educating people for war.
IPR Protection: The Chinese government this week issued guidelines for strengthening intellectual property rights protection. Details are still thin, but the big objective is this: “By 2022, China will strive to effectively curb IPR infringement, and largely overcome challenges including high costs, low compensation and difficulties in providing evidence for safeguarding intellectual property rights. By 2025, social satisfaction with IPR protection in China will reach and maintain a high level.” So what steps will be involved in getting there? This AP story captures them: First, there’ll be new laws to protect IPR; there’s a promise of stricter enforcement; punitive compensation will be increased for infringements of patents, copyrights, trade secrets and source codes; but most importantly IP protection will become a criteria for evaluating local government officials’ performance.
Although not directly related, there’s an interesting report in Foreign Policy, which discusses Chinese efforts to assume the leadership role at the World Intellectual Property Organisation. Colum Lynch reports that earlier this month Beijing nominated Wang Binying, a Chinese national who currently serves as deputy director-general for WIPO’s Brands and Designs Sector, to succeed the agency’s Australian director-general, Francis Gurry, after he steps down in September 2020. He will be facing off against six other candidates in the election in March next year. The US is lobbying against Wang’s candidature. The report quotes James Pooley, a former deputy director-general at WIPO, as saying: “The Trump administration’s view of China is that it is a thief. Why would you want to put the fox in charge of the henhouse?"
Shaky Banks: The People’s Bank of China published its 2019 China Financial Stability Report on Monday. The big takeaways from the report are that while growth is facing more pressure, financial risks are prone to occur. There has been positive movement on controlling illegal financial activities, but the financial market remains “highly sensitive to external shocks.”
The report identified more than 13% (586) of 4,379 lenders in the country as “high risk” entities. There have been a number of cases this year with panic-gripped depositors seeking to withdraw funds from stressed small rural lenders. A case earlier this month saw similar scenes of chaos outside Yingkou Coastal Bank. Keeping these in mind, PBOC says it will step up real-time supervision on stock, bond, foreign exchange markets to prevent cross-sector risk contamination. There was also a glimpse this week about the government’s approach to this. On Tuesday, the PBOC and China Banking and Insurance Regulatory Commission released draft rules for improving the regulatory framework for systemically important financial institutions. The measures will be the basis for the identification of systemically important banks. The total assets of China's financial industry are around 300 trillion yuan ($42.65 trillion, with the banking industry accounting for 89 percent of the total.
Trivium China’s daily tip sheet has a breakdown of some of the other interesting data points in China Financial Stability Report. These include the cutting down of peer-to-peer lending facilities to just 1,490 and shutting down of 173 cryptocurrency platforms. Adding to that, this week, there were reports that the Chinese government wants all existing peer-to-peer lending platforms to transform into small loan providers within two years. Meanwhile, the cryptocurrency crackdown also continues, with Bloomberg reporting that at least five local exchanges have halted operations or announced they will no longer serve domestic users.
Another interesting data point in the report is the fact China’s household debt-to-disposable income ratio has reached a record high. Caixin reports that “outstanding household loans jumped 18.2% to 47.9 trillion yuan ($6.8 trillion), a growth rate 7.5 percentage points higher than that of nominal disposable income... That pushed the ratio up to 99.9% at the end of 2018 from 93.4% in 2017. Outstanding household loans have doubled since 2014, when the figure stood at 23.1 trillion yuan."
III. CPEC & Joint Drill
China’s Ministry of Defense has said that it will stage a joint maritime exercise in Pakistan in January 2020. The ministry’s spokesperson said that China will send destroyers, frigates, supply ships and submarine rescue ships for the exercise. For more on this, check out Suyash Desai’s Takshashila PLA Insight newsletter. Meanwhile, SCMP citing Jane’s Defence Weekly reports that China is boosting its defense cooperation in South Asia, supplying advanced anti-stealth radar to Pakistan as well as frigates to Pakistan, Bangladesh and Sri Lanka. Jane’s Defence Weekly reported that it had identified Chinese-made JY-27A counter-very-low-observable radar from satellite images of Pakistan’s Mianwali Air Base, captured on August 29. Neither Pakistan nor China made the sale of the JY-27A public.
Moving on to CPEC, there was a three-way clash between the US, China and Pakistan on the corridor this week. It all began with remarks by Alice Wells, the Principal Deputy Assistant Secretary of State for South and Central Asia at the U.S. Department of State, criticizing CPEC on cost, debt, transparency and jobs. This was perhaps the most open and direct US criticism of CPEC. Wells also urged Pakistanis to question the projects. “We hope Pakistanis will ask Beijing the tough questions and insist on accountability, fairness and transparency. Ask the Chinese government why it’s pursuing a development model in Pakistan that significantly deviates from what brought China its own economic success."
All of this led to angry responses from China and Pakistan. Chinese ambassador Yao Jing expressed shock and surprise, adding that Wells’ remarks showed “her ignorance of Pakistan-China relations.” Chinese Foreign Ministry spokesperson Geng Shuang also added that US’ accusations on CPEC...China and Pakistan refuted it time and again.” He termed the debt issue as “fabricated,” adding “half of Pakistan's foreign debt is from multilateral financial institutions. More than 80 percent of CPEC projects are funded by direct investment or grants from China, with less than 20 percent using Chinese loans. According to statistics released by the Pakistani side, debt incurred from the CPEC stands at 4.9 billion US dollars, less than one tenth of Pakistan's total debt. I'm afraid certain individuals in the US are not bad at math, but rather misguided by evil calculations.” In Pakistan, Foreign Minister Shah Mehmood Qureshi dismissed Wells’ criticism. PPP’s Sherry Rehman said Wells’ statement was “unfortunately timed and has only proved to create potential hurdles in bilateral ties between Pakistan and the US.” Despite this, there are clearly issues of concern, with Abdul Hafeez Shaikh, Imran Khan’s adviser on finance talking about CPEC-Plus projects, which underscores Pakistan’s desire to get more countries like Saudi Arabia, UAE and potentially Iran involved.
Meanwhile, newly appointed Minister for Planning Asad Umar also defended CPEC, rebutting Wells’ critique. As an aside, it’s interesting to note that Umar’s appointment has apparently got much to do with Chinese frustration with his predecessor. Reports suggest that the Pakistani cabinet’s recent reshuffle came after the Chinese working on CPEC expressed concerns about working of key ministers related to communications, railways, planning and development. A corroboration of the frustration is this remark by Chairman Senate Standing Committee on Foreign Affairs Mushahid Hussain Sayed. He has been reported as saying that Army Chief General Qamar Javed Bajwa had to go to China to control the situation after Pakistan Tehreek-e-Insaf (PTI) ministers levelled baseless allegations regarding CPEC.
One name that Beijing appears to be happy with is that of Lieutenant General Asim Saleem Bajwa, who was appointed this week as the chairperson of the CPEC Authority for a period of four years.
IV. Elections, Protests & US Act
Thee big strands of the developing story in Hong Kong that are noteworthy this week. First, pro-democracy candidates won a landslide majority in Hong Kong’s district council elections on Sunday. Nearly 2.94 million people voted in the election, with pro-democracy candidates winning 85% seats of 452 seats. In the last election in 2015, they had won about a quarter of all elected seats. The pro-government camp won about 13% of seats this time around, versus 65% four years ago. The result means that the pro-democracy camp will now control 17 out of the 18 councils.
Reacting to the result, HK Chief Executive Carrie Lam acknowledged grievances over “deficiencies in governance” and repeated her calls for an end to violent demonstrations. Chinese state media has also largely focussed on discussing the violence and foreign interference, as opposed to a reflection over failed policies over the past year. Here’s China Daily, the Chinese Foreign Ministry, Global Times, and coverage of the People’s Daily and expert opinions in SCMP.
So where does this leave Hong Kong? Well the week so far has been relatively calm. On Friday, the siege at Polytechnic University ended, with police taking control of the campus. And now again there are calls for rallies over the weekend. Antony Dapiran has an interesting take on what we can expect after this week’s events:
“Make no mistake: this election result will not be seen by Beijing as a sign that they need to change tack in their approach to Hong Kong. It will not be the catalyst for some grand compromise. It will be seen as a sign that the Hong Kong people are making the wrong choice, and action needs to be taken to correct them."
What’s likely to add fuel to the fire is Donald Trump’s signing of the Hong Kong Human Rights and Democracy Act into law. While protesters in Hong Kong cheered Trump’s decision, Beijing and the HKSAR government bristled, accusing the US of “sinister intentions” and warning of countermeasures. It’s unclear what these countermeasures could me. But Hu Xijin, editor in chief of Global Times, suggested that those who drafted the legislation could be targeted by Beijing. But amid all this, it’s important to realise that the new law leaves a lot to the discretion of the US president in terms of the decision to impose sanctions and act on annual reviews to assess Hong Kong’s autonomy. In the end, the decisions in this regard could be as much driven by business interests as by political objectives.
V. The Long & Short of It
Phase One Deal: There’s very little that’s been reported, but from what the reportage informs, talks on a trade deal between the US and China are progressing. Donald Trump said on Tuesday that both sides were in the “final throes” of work on a deal. Reuters reports that Trump’s remarks followed a telephone call between Robert Lighthizer and Treasury Secretary Steven Mnuchin with Chinese Vice Premier Liu. The Chinese Commerce Ministry said that both sides discussed core issues related to the phase one deal and reached “a common understanding on resolving relevant problems.”
Politico quoted an unidentified Trump administration spokesperson as saying that the two sides were “millimeters away” from a deal. While it’s unclear if there is a clear deadline to arrive at a deal, the December 15 date for a hike in US tariffs is probably going to be a good guide. If the hike goes into motion, that’ll complicate talks further. This WSJ piece explains further. Another important marker of a softening position is the new US government proposal to secure the Information and Communications Technology and Services Supply Chain. The proposal gives the Commerce Secretary the power to unwind business deals that threaten the country’s telecommunications infrastructure, reports WSJ. The report adds:
"The information and communications ‘supply chain has become increasingly vulnerable to exploitation and is an attractive target for espionage, sabotage, and foreign interference activity,’ the proposed rules said. The rules didn’t define ‘foreign adversary’ and said that such a designation would be made by the secretary of defense and leaders of ot
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