CHINAwatch

China has agreed with US to cancel tariffs in phases

Live TV interview on 7th November 2019 with CNA (Channel News Asia), Singapore's regional TV channel. 

China’s largest utility plans a national power grid integrating Internet of Things technologies

A Report in the South China Morning Post of 26 October reveals a plan to establish a nationwide "internet-of-things" smart power grid employing 5G and artificial intelligence, with the first phase to be completed by 2021 and the second phase by 2024. 

Driving the plan is State Grid Corporation, China’s state-owned monopoly operating some 90% of the country’s electricity grids. It is one of the largest utility companies in the world, making $9.5 billion in profits last year. China is home to roughly half of the world’s 1,000 pilot smart cities, which use 5G and AI technology to improve urban management.

This plan is consistent with the nation's ambition to attain its Two Centenary Goals - (a) to become a moderately well-off country by 2021, the centenary of the Communist Party of China and (b) to become a "strong, democratic, civilized, harmonious, and modern socialist country" by 2049, the centenary of the People's Republic of China. 

China succeeds in mass extraction of combustable methane hydrates in the South China Sea

According to a Weixin report (in Chinese) on 22 October, 2019, using a semi-submersible drilling platform (Blue Whale One) measuring 117m x 92.7m x 118m tall in the South China Sea, China achieved the world's first breakthrough in extracting scalable quantities of methane hydrates ("inflammable ice"). The project was reported in the South China Morning Post on 19 May, 2017

The strategic significance is obvious. As the largest energy consumer, China has to rely on oil and gas imports over long distances through "choke points" (e.g. the Strait of Hormuz and the Malacca Strait) vulnerable to foreign powers. On the environmental front, China is the world's largest coal consumer, contributing to carbon emissions and smogs in many Chinese cities.

Methane hydrates are a lot less polluting but ten times more energy- rich per unit compared to coal, oil, and natural gas. It is estimated that one cubic meter of methane hydrates is equivalent to 160 cubic meters of natural gas.

The global reserve of methane hydrates is twice as much as all other known fossil fuels combined, enough for 1,000 years of human consumption. China's gas hydrates reserve is estimated at 100 billion tons of oil-equivalents, of which 80% lies in the South China Sea.

The successful extraction marks a significant milestone in utilization of alternative sources of energy for China. It also explains why China has been so assertive to safeguard territorial claims in the South China Sea.

State of The Play on US-China Competition - Center for Strategic and International Studies

Audio interview with Steve Hadley, former National Security Advisor, on 8 October, 2019, touching on the debate on U.S.-China competition.  "Is the Washington panic on China out of step with how the rest of the country views China? How can we best encapsulate the current state of the relationship? Are China’s domestic politics or foreign policy shapeable".

McKinsey - China becoming less dependent on the world as the world becomes more dependent on China

In a report China and the world: Inside the dynamics of a changing relationship dated June, 2019, McKinsey Global Institute highlights the following insights:

(a) China’s exposure to the world in trade, technology, and capital has fallen. Conversely, the world’s exposure to China has increased. This reflects the rebalancing of the Chinese economy towards domestic consumption, which contributed 76% of China's GDP growth in 2017-18 while net trade registered a negative contribution.

(b) China’s consumer markets are heavily integrated with the world. Penetration by multinational corporations is considerable. Across the ten large consumer categories, their average penetration was 40% in 2017, compared with 26% in the United States.

(c)  China’s technology value chains are highly integrated globally.  Chinese players have grown rapidly, but they still import critical components such as reduction gears (robotics), power electronics (electric vehicles), and semiconductors.

(d) More or less engagement with China translates into a difference of $22-37 trillion or 15-26% of global GDP by 2040. 

Since the Mckinsey report, intensifying US-China trade war has pushed many manufacturing operations in China to the rest of Asia and other parts of the world. However, many of these operations remain dependent on intermediate inputs from China such as specialized parts, components, and supporting services.

On the one hand, this is likely to deepen exposure to China. On the other hand, in response to US pushback, China is doubling down on technological self-reliance, accelerating China's process of vertical integration.

A Nataxis Report of 21 October, 2019 shows that China's Vertical Integration Leads to Less Dependence on Asian Regional Value Chain. A Nataxis podcast of 31 October reiterates the same trend as regards the European Union on both counts:

"EU Member states are generally becoming more integrated with China’s value chain. The problem with this development, though, is that such integration with China is increasingly asymmetric. Meaning, China imports increasingly fewer intermediate goods from the EU, but it exports increasingly more intermediates to EU member states for their re-export. The EU depends more on Chinese inputs for exports while China relies less on EU goods for its exports."

A further Nataxis Report of 4 November confirms the same situation with the United States:

"Our analysis shows that the US declining participation in the global value chain is driven by both its reduction in exporting of intermediates used for inputs in others’ exports, an area where it generally excels, and its reliance on foreign inputs for its production. At the same time, the US is increasingly dependent on Chinese intermediates for exports while China is reducing its vulnerability to US imports of inputs for exports." 

"Like Europe, the US is not only losing grounds to China in terms of its integration with China’s value chain but also reducing its participation with other regions in the world, such as Latin America, Europe and the rest of Asia.  To this increasingly difficult situation in terms of the external competitiveness of the US, we need to add China’s efforts to move up the ladder as made clear in its landmark plan for industrial policy, namely Made in China 2025......"

As China's Belt and Road Initiative gathers momentum with more extensive infrastructural and other linkages across the globe, the above trend of increasing China dependence is likley to deepen in decades to come, gravitating towards a China-centric world economic order. 

These developments beg the question how successful the current US threat of decoupling China from the world supply and value chain is likely to be. 

China's Greater Bay Area embraces fintech and supports Macao's bid to become China's offshore RMB-denominated NASDAQ

A speech (in Chinese) of 12 October, 2019 by the Party Secretary of Guangdong's Provincial Financial Supervision Bureau reveals the extent of economic and technological transformation of the dynamic Greater Bay Area. Of note is the rise of fintech and the support of Macao's bid to become China's offshore NASDA. 

Following are the salient points - 

(1) Guangdong's traditional strength lies in its 500 "specialization townships" producing special products for the entire world, e.g. Guzhen produces 80% of the world's lighting products; Xiaolan 70% of the world's lock cylinders; Xintang, 70% of the world's jeans etc;

(2) Transsion Holdings' best-selling smart phones account for 48% of Africa's entire market;

(3) Now the province is advancing towards Innovation and High Technology, including finance applications; 

(4) Regardless of quality, filed patent applications in 2017 reached 176,000, 16 times New York, 8 times Tokyo, and 5 times San Francisco;

(5) Blockchain technology enables accumulated commercial credits for SMEs to obtain bank credits on strength of secured orders without collaterals;

(6) Guangdong's 600 listed companies represent only 1.3% of the province's 45,000 national-level high-and-new technology enterprises. The sky is the limit for IPO's. A tailored-made application has been submitted to Beijing to promote Macao as China's offshore RMB-denominated NASDAG; 

(7) A Guangzhou Futures Exchange is expected by year-end, embracing Green Bonds in light of EU's  mandated requirements for Green Belt and Road Projects; 

(8) The Greater Bay Area has a population of 77 million, among the world's youngest population with per capita GDP of US$20,000, within the range for advanced countries, a dynamo amongst consumer markets worldwide, driven by 5G and short video clips; 

(9) Fintech is embraced in cross-border finance. A three-year-old WeBank has reached RMB 3 trillion in loan books, with 150 million subscribers. 70% are blue-collar workers, 37% without any credit records. Average loan amount RMB 8,000 and average interest only RMB 100 for 90% of the loans. Loans below RMB 300,000 are approved on the same day. Driven by blockchain, the Bank has 2,000 staff - half are technologists;

(10) With nearly 100,000 technologists, Ping An Technology owns 1,700 world fintech patents, including world's No. 1 position in Voiceprint Recognition, Facial Recognition, Machine Reading Comprehension, AI Music Composition etc, ahead of the U.S.

 

President Xi's visit to India following Pakistan PM's visit to Beijing

Live TV interview of 8 October, 2019 on IndusNews

Cross Talk: Communist China at 70

Cross Talk debate on RT released on 2 October, 2019. (Broadcasting from Moscow and Washington D.C. channels, RT was the first news channel to break one billion YouTube viewers benchmark. It is now the No.1 TV news network on YouTube with more than nine billion views across its channels and over 14 million subscribers.)

China at 70 has much to celebrate, but its biggest challenges lie ahead

Cary Huang's column of 29 September in the South China Morning Post gives an up-to-date catalogue of China's impressive achievements under the Communist Party of China. In just seven decades, what would have taken the West centuries, a poverty-stricken, internationally weak, and backward Chinese nation has been turned into an economic and geopolitical powerhouse, a leading engine of global growth projecting influence across continents and oceans. A video clip From Ashes to Prosperity shows what breathtaking transformation the nation has undergone since the ravages wrought by the Japanese invasion. 

Huang mentions that "per capita GDP rose from just US$200 in 1979 – when 80 per cent of Chinese lived in absolute poverty in rural areas – to around US$10,000 last year, firmly in middle-income territory." This is singularly instructive, as China seems to have successfully escaped the much-hyped "middle-income trap". 

At his latest address at the United Nations, President Trump suggested that as the world's second largest economy, China is already an advanced country. It cannot pretend to remain a developing nation, thereby gaming the international trading system. Huang's observation is timely that "China is still neither an advanced nor a developed country. Nor can it properly be described as a rich nation. It is a developing giant on the world stage." His assertion is supported by China's GDP per capita below the worldwide average of US$11,570, not to mention backwardness in many other metrics, including the environment and institutions. 

This helps to debunk popular Sinophobia that China is a global superpower threatening to impose an authoritarian model on the rest of the world. "To be a true superpower, a country must wield global influence in many, varied spheres: in economics, in science and technology, in military matters and in soft power." In economics, China perhaps scores an A. But the country still lags far behind the United States in global military capabilities and behind many Western advanced countries, big and small, in scientific breakthroughs. "China has just three Nobel Prizes; one for science, one for literature and one for peace (the last of which was awarded against Beijing’s will)," Huang observes. 

Above all, "Today, every single nation to have joined the 36-member Organisation for Economic Co-operation and Development (OECD) has been not only a market economy, but also a free democracy." Despite its dramatic ascendancy, China's massive deficit of soft power stands in the way of its achievement of great power status. No matter how well China may excel in other fields, and how more influential China becomes globally, this deficit in soft power of universal appeal is likely to remain a stumbling block along the nation's ambitious trajectory. 

The concentration of power under President Xi may be necessary to combat corrupt interests and political detractors in order to steer the nation on course to realize the China Dream of becoming a fully developed nation by 2049, the hundredth anniversary of the Communist Party of China. However, with the rapid rise of a university-educated middle class, the goal's realization is likely to depend on a willingness to embrace modernity in governance – democracy, freedom and the rule of law.  

Trump tweets that China is buckling under his tariffs are grossly over-hyped - Nicolas Lardy of Petersen Institute for International Economics

In the following essays, Nicolas Lardy, Senior Fellow of the Petersen Institute for International Economics, Washington D.C., explains why President Trump has been grossly twisted the truth in making his outsized claims -

China's Growth Is Slowing, but not Because of the Trade War (21 August, 2019)

China's Manufacturing Job Losses Are Not What They Seem (29 August, 2019) 

Are Foreign Companies Really Leaving China in Droves? (`10 September, 2019) 

In short, China's economy is slowing because of deepened economic restructuring, not because of the trade war, and not anywhere to the extent claimed. Since the trade war started, thanks to expanding trade and investments with other countries, job losses have in fact moderated and the number of foreign companies in China is by no means falling over a cliff.