CHINAwatch

Is China heading towards a water crisis?

An April, 2018 Report by Charlie Parton, Special Advisor to the House of Commons Foreign Affairs Committee and a trustee of China Dialogue, a think-tank, points out that while average water resource availability is not serious by international standards,"8 northern provinces suffer from acute water scarcity, 4 from scarcity, and a further two (Xinjiang and Inner Mongolia) are largely desert. These 12 provinces account for 38% of China’s agriculture, 46% of its industry, 50% of its power generation (coal and nuclear use a lot of water), and 41% of its population." 

"The government has discussed raising domestic water prices, but people use only 14% of China’s water. 62% is used in agriculture and 22% in industry/power generation, with 2% for other uses."

As China's freshwater resources have become polluted, addressing water and soil pollution is of paramount importance. However, rather than relying on increasing supply such as the South North Water Transfer Project (SNWTP), Parton suggests that the solution lies in better demand management. Click here

Download China_s_looming_water_crisis_v.2__1_

There is high wastage in water used in agriculture and industry, which account for 84% of total consumption. In addition to water pricing, increasing water use efficiency and reducing wastage may offer quicker and better solution than expanding supply. 

This aspect is supported by a study by Sarah Rogers et.al. of the University of Melbourne, who, however, think that claims of a looming water crisis may be a little exaggerated. First, Chinese people's demand for potable water is much less compared with the West, where a great deal goes to gardening. Second, much of the water used in China can be recycled, as in Beijing, where groundwater levels are now showing signs of improvement rather than depletion. Nevertheless, such optimism is not shared by Charlie Parton, who subsequently filed a riposte.      

In any case, both studies do not dispute that in the long term, water conservation and efficiency, water pricing, pollution containment, inter-basin transfers, new supply infrastructure, regional water trading platforms, and a near-national water grid are needed to prevent water availability from being a major constraint on China's economic trajectory. 

 

 

 

How much is China opening up its financial sector?

An Economist Intelligence Unit article of 30 April, 2018 explains that while a series of opening-up measures are in place, mostly to be completed by the end of 2018, continuing market dominance of Chinese firms and various regulatory obstacles remain to dash expectations of a wide-open field for foreign players in this sector. 

Download Is China really planning to open its financial sector

 

Download Is China really planning to open its financial sector

 

China’s Financial Liberalization: Time to Restart

A research note of 17 May by BBVA, a Spanish bank, suggests that as interest rate liberalization is considered as completed, China is now ready to liberalize its financial market including RMB exchange rate and capital account. This readiness is driven by greater regulatory confidence and increased external pressures, not least increasing trade frictions with the United States and the European Union. 

According to the BBVA report, the following measures will be implemented in the following several months of this year:

• Remove the foreign ownership cap for banks and asset management companies, treating domestic and foreign capital equally.
• Allow foreign banks to set up branches and subsidiaries at the same time.
• Lift the foreign ownership cap to 51% for securities companies, fund managers, futures companies, and life insurers, and remove the cap in three years.
• No longer require joint-funded securities companies to have at least one local securities company as a shareholder.
• Allow eligible foreign investors to provide insurance agent and loss adjuster services in China.
• Lift restrictions on the business scope of foreign-invested insurance brokerage companies, treating them as equals of domestic companies.
• Encourage foreign ownership in trust, financial leasing, auto finance, currency brokerage and consumer finance.
• Apply no cap to foreign ownership in financial asset investment companies and wealth management companies newly established by commercial banks.
• Substantially expand the business scope of foreign banks.
• Remove restrictions on the business scope of jointly-funded securities companies, treating domestic and foreign
  institutions equally.
• Foreign insurance companies will no longer need to have a representative office in China for two consecutive
  years prior to establishing a fully-owned institution.

The report notes that most of the reforms had already been announced during President Trump’s visit to China last November or were scheduled to have been fulfilled after China’s entry to the World Trade Organization (WTO) in 2001. Hence, as the BBVA Report suggests, this time is really different.

Foreign banks and financial institutions are well advised to make an early start to seize strategic high grounds in exploiting this opening up of China's vast financial market frontier. 

Download BBVA - China-Financial-Liberalization May 2018

 

Trade Architecture Needs to Accommodate Both US and Chinese Systems

A Hinrich Foundation article written by Stephen Olsen dated 11 May 2018 points out that the extant international architecture designed after the Second World War has outlived its usefulness. Signs of stress are becoming evident between expectations of the Washington Consensus and aspirations of China's state-directed capitalism. A new model needs to be debated and collectively devised to reconcile and accommodate the emerging conflicts and differences. The looming trade war between the United States and China may well provide a useful forum for this reconciliation. 

An Accounting of China's Deployments to the Spratly Islands

An Asia Maritime Transparency Initiative article of 9 May 2018 provides a series of satellite imagery of China's military installations and deployments at the "Big Three" Spratly outposts near the Philippines - Fiery Cross,  and Mischief, and Subi Reefs. These include a range of patrol, transport and fighter aircraft, China Coast Guard (CCG) vessels, People's Liberation Army (Navy) (PLAN) frigates and landing ships, surface-to-air and anti-ship missiles, radar installations and military shelters. 

A map of effective ranges of China's military deployments in the Paracels and the Spratlys shows how extensive China's power projection has become in the South China Sea and how strategic the region is considered to China's national security.

The Four Traps China may fall into

On various occasions before the last 19th Party Congress, President Xi outlined four traps China realistically has to contend with in realizing the China Dream of national renaissance. These are the Middle Income Trap, the Tacitus Trap, the Thucydides Trap and the Kindleberger Trap. These four traps are explained in an article of 30 October 2017 by Yangzhong Huang on a blog of the Council on Foreign Relations, New York. 

At a time of intensifying tension between the United States and China, it is instructive to bear these four traps in mind by way of perspectives on both sides.