CHINAwatch

Xi Jinping's Europe visit implications

Backchat of 10 May 2024 on RTHK (Radio Television Hong Kong) with Prof Joseph Mahoney of East China Normal University, Shanghai, and Professor John Burns of The University of Hong Kong. (My intervention starts from time counter 10:35 in the top bar) 

What does President Xi's visit to Europe signify?

Recorded exclusive interview (in English) with NTV of Russia on 9 May 2024

Challenges and Prospects of the Chinese Economy: an exclusive in-depth video interview with Rome-based World Geostrategic Insights

Video interview of 8 May 2024 with Rome-based World Geostrategic Insights . YouTube link

The online lady interviewer hails from Istanbul, Turkey. 

How the US Keeps Fighting China, Knowing It Won’t Win?

The US has no Plan B, says Professor Radhika Desai, Director of the Geopolitical Economy Research Group, University of Manitoba, on the YouTube Thinkers Forum on 25 January 2024. She goes over paradigm shifts in 2023 on America's hegemony, including Ukraine and Gaza; the long-term impact on US's own economy; Russia's resilience against US-led pushback; questionable durability of the "casino-like" open-market dollar-system; the future of US-China relations; China's more restrained and globally-inclusive diplomatic stance; and the upcoming impactful elections in the United States and the United Kingdom. 

I should add that America's so-called Plan A against China has only four blunt coercive tools: (a) US military dominance, (b) US technological lead, (c) the weaponized dollar, and (d) America's so-called global alliance-network. These are proving less and less effective against China. 

As for (a), China has vastly expanded its military on all fronts. While unwilling and unable to match America's global military presence and supremacy, Chins is well capable of defending its core interests. This includes a mobile, hypersonic, nuclear-capable Inter-Continental Ballistic Missile (ICBM) System with multiple, separately-navigable warheads, a blue-water navy with more warships than the United States, state-of-the-art fifth-generation fighter planes and bombers, not to mention cyberwarfare and AI expertise. 

As for (b), nano-semiconductor-chips excepted for the time being, the Australian Strategic Policy Institute (ASPI) has found that China is leading in 37 out of 44 21st-century cutting-edge technologies. Albeit excluded from the US-led International Space Station project from the very start, which is near the end of its useful life, China has succeed in building and operating its own Tiangong Space Station from scratch. It is the only country able to send a successful robotic probe to the far side of the moon. Its lunar program is picking up speed, partnering with other nations including some advanced countries. 

As for (c), indiscriminate long-arm dollar sanctions have pushed countries in the Global South to bypass the risks of exposure to a weaponized dollar. Some are beginning to transact bilateral trade with China using other currencies including the Renminbi. China's digital sovereign currency (e-CNY) is gaining traction internationally. After all, China is by far the world's largest trader and manufacturer. It remains the larger trading partner for 128 countries compared with America's 57. Seven of the world's top 11 container ports are in China, including Hong Kong. Even not "Made in China", China is embedded in myriad products across the globe, including materials. minerals, components and logistics, decoupling or de-risking regardless. 

As for (d), marginalized for decades under US hegemony, the Global South has become more able to defend their national sovereignty and strategic interests. Witness the massive Regional Comprehensive Economic Partnership (RCEP) comprising ASEAN countries and their main trading partners. Absent the United States, this is the world's largest free trade bloc representing a third of global GDP and a third of world population, where China remains a central trading hub.  More developing countries have also chosen to join the BRICS (Brazil, Russia, India, China and South Africa) Group as well as the Eurasian Shanghai Cooperation Organization (SCO) where China and Russia hold sway. Witness also the more independent tilt of the Middle East and even India. Fact is, most nations in the Global South don't want to be forced to choose between America and China, which remains a key source for economic development, including trade and infrastructure.

The fixation on coercion to serve American interests often ignores stark realities, includinjg Adam Smith's ''comparative advantage". China has been buying a lot of international passenger jets from Boeing and Airbus, as it has yet no comparable alternatives. However, as China is the world's largest manufacturer, the reverse is true for most of China's manufacturing ouput, including its fully-integrated shipbuilding production chains. According to a report of 19 April in Foreign Policy, Chinese businesses manufacture  96 percent of the world’s dry cargo shipping containers. A single Chinese firm, ZPMC, claims that it supplies  70 percent of the world’s cargo cranes. This compares to U.S.shipyards manufacturing fewer than 1 percent of the cargo vessels that ply the global seas. Using coercive sanctions to turn the table is fanciful. 

All in all, as pointed out by Professor Desai, the days of American hegemony are numbered. The sooner America's elites wake up from their pipe-dream of perpetuating American hegemony through brute coercion, the better would be the propsects for a more inclusive and peaceful world, where the United States can still play a crucial role.   

China: Keeping the dragon awake

The above February 2024 report by Allianz Research, part of the global Allianz Group hearquartered in Germany, confirms China's resilient yet slowing economy in search of new drivers for long-term growth.  Download 2024-02-07-China - Allianz

In particular,  

(a) China is heading towards lower trend growth. China's US$17.52 economy (2023), the world's second largest, cannot be expected to continue past high-digit growth indefinitely. Just look at America's trend growth rates in recent decades. 

(b) In 2023, residential completions came in at 724mn square meters (+16% y/y), outpacing for the first time the volume of housing starts (693mn square meters, -21% y/y). This has helped reduce inventories and stabilize prices at the national level. The ongoing crisis may be a necessary adjustment towards a low-growth but more sustainable property market. Beyond the ongoing crisis, the rapidly aging and shrinking population, coupled with slowing urbanization, puts a brake on the long-term growth of the real estate sector. 

(c) With its real estate and foreign investment engines sputtering, China desperately needs new drivers of growth.  The target is for higher value-added manufacturing such as the ‘New Three’ industries of electric vehicles, batteries and solar energy products. .

(d) Exports are still going strong. Supporting the nation's growth, China's centrality in the global supply and value chain remains robust, de-coupling or de-risking regardless. The intensity of critical dependencies on China varies across importers, with the US being the most exposed: nearly 50% of its imports from China are critical dependencies. A shift in concentration of critical dependencies towards higher value-added sectors is clearly visible, especially when it comes to EU imports from China.

(e) According to ASPI's March 2023 Critical Technology Tracker, China is leading by far in research breakthroughs related to critical technologies, but the translation into manufacturing is not yet clear in all cases.

(f) Chinese competitive electric vehicles (EVs) have taken the world by storm in just a few years. China is becoming the "New Detroit" for EVs globally. 

(g) China accounts for more than 80% of the global solar module manufacturing capacity and more than 80% of solar cell exports. It has the largest installed renewable capacity, exceeding 228 gigawatts (GW), more than the rest of the world combined, well ahead of the nation's original 2030 target. This trajectory reflects a broader strategic shift towards securing a dominant position in the global energy transition and making clean technology a cornerstone of national industrial policy. 

(h) The comparison with Japan's "Lost Decade" is overhyped. China’s GDP per capita is roughly 40% of that of Japan in 1991, suggesting significant further room for growth. China’s urbanization rate currently stands at 66%, still a long way from the 78% observed in 1991 Japan. The Chinese economy can still rely to some extent on exports. Unlike 1991 Japan, China does not have an equity market bubble and its capital account is not fully liberlaized. 

(i) Further pockets of growth could be found on the consumer side. Policies to strengthen the social safety net and increased public spending in healthcare and pension-related services would most likely allow Chinese households to save less and consume more. However, comprensive policy support seems to be lacking for now.

(j) Watch out for intensified headwinds such as chips war, protectionism, geopolitical tensions and the risk of creating other situations of excess capacities, inventories and leverage.

China’s Alternative Order, And What America Should Learn From It

Above is a revealing analysis dated 23 April 2024 in Foreign Affairs by Elizabeth Economy, Senior Fellow at Stanford University’s Hoover Institution and former Senior Adviser for China at the U.S. Department of Commerce. She is the author of The World According to China.

Ms Economy's insightful overview calls into question the effectiveness and popularity of America's default policy of maximum coercion, legitimate or otherwise, to realize its vision of an America-led "liberal" world order. This includes the formation and fortfication of exclusive military groups of allies (such as the AUKUS (Australia-UK-US) nuclear-propelled submarine-pact) and long-armed dollar-based sanctions against perceived adversaries, especially China. The latter is now viewed by bipartisan consensus as the prime "existential threat" to America's national interests.   

America's more coercive foreign policy compares with Beijing's more-inclusive and more development-oriented version, particulalry with the Global South, marginalized for decades under U.S. hegemony. While China's image has plummeted across the globe in recent years, there is little doubt that its gravitas has been gaining traction. 

Ms Economy flags up the "four pillars" underpinning China's relatively more impactful international relations: the Belt and Road Initiative (BRI) in 2013, the Global Development Initiative (GDI) in 2021, the Global Security Initiative (GSI) in 2022, and the Global Civilization Initiative in May 2023. China is globally perceived to be relatively consistent in words and deeds. This compares with America's "saying one thing, and doing another" in its most recent attempt to stabilize US-China relations (as pointed out by President Xi at his meeting with US Secretary of State Antony Blinken. on 26 April 2024.)

Ms Economy suggests that the United States should take a leaf from China's book to mount a more robust and more inclusive foreign relations drive, but one centred on "openness, transparency, rule of law, and official accountability, the hallmarks of the world’s market democracies". 

However, the Global South has been resisting American exceptionslism with its "manifest destiny" of reshaping the world in its own image.

To be fair, American supremacy was originally largely restricted to the Western Hemisphere (under the Monroe Doctrine). It was not until the Third Reich's rapid victory over Europe when the Second World War first started that American elites embraced the imperative of shaping the world order according to American ideals, according to Stephen Wertheim's revealing book Tomorrow, the World: The Birth of U.S. Global Supremacy (Belknap Press, An Imprint of Harvard University Press, October 2020).

Following the collapse of the British Empire after the Second World War, the United States had been enjoying the fruits of its "unipolar moment" for decades.  American global supremacy has now become hardwired into the national psyche and bipartisan politics, notwithstanding epochal shifts in global dynamics including the dramatic rise of China with a different civiliztion and ideology, the rapprochement and eastern tilt of opposing factions in the Middle East, the growth of the Global South, and an even more interconnected world embracing the 4th and 5th Industrial Revolutions.  

Unless the United States changes its binary "win-or-lose" mindset, is genuinely prepared to compete with China in the Olympic Spirit rather as a mortal combat, and is prepared to coexist with China despite diametrically-opposed ideology and other differences, a more harmonious world order is unlikley to materialize any time soon, even if America tries to take a leaf from China's book.             

US Secretary of State Blinken to visit China

Exclusive live interview NDTV of India on 22 April 2024

Xi Thinks China Can Slow Climate Change. What if He’s Right?

So asks Jacob Dreyer in a New york Times Guest Essay dated 19 April 2024. Dreyer is a Shanghai-based  American editor and writer focused on the intersection of the Chinese political economy and science.

Dreyer's essay ticks all the right boxes on China;s green energy surge. These include China's powerful state-directed model in achieving all-of-society outcomes to combat Climate Change, its unbeatable cost-competitiveness for green energy businesses including EVs (electric vehicles), and its imperatives of achieving energy security through reduced reliance on imported fossil fuels through hostile transit "choke points" (e.g. the Malacca Strait controlled by America's Seventh Fleet). 

To these should be added China's possession of comprehensive and globally-oriented green-energy supply-and-value-chains, includng rare-earths and other materials, a  manufacturing powerhouse covering all aspects of production and utilization, and external connectivity through global Belt and Road linkages. 

China's current global green energy dominance is well documented in the International Energy Agency (IEA)'s Renewables 2023 Report (released Janury 2024). See its Executive Summary and a Reuters report of 11 January 2024. 

According to the IEA report, China will account for 56% of renewable energy capacity additions in the 2023-28 period. China is expected to increase renewable capacity by 2,060 gigawatts (GW) compared with the rest of the world's 1,574 GW addition. China accounts for almost 90% of the global upward forecast revision, consisting mainly of solar photovoltaic (PV). 

The IEA report flags up China's 80‑95% share of global green energy supply chains. Its solar PV manufacturing capabilities have almost doubled since last year, "creating a global supply glut," says the IEA.

Nevetheless, the IEA points out that China already accounts for 53% of the world's 2,095 GW of operating coal-fired generating capacity, a share likely to increase in coming years as more coal plants are retired in the developed world. So China is likely to achieve its declared goal of net zero carbon emission (carbon neutrality) by 2060 only during the final years before the target.  

China Is Still Rising - Don’t Underestimate the World’s Second-Biggest Economy

Nichlas Lardy, Senior Fellow at the Washington-based Petersen Institute for International Economics, wrote in Foriegn Affairs on 2 April 2024 to debunk some of the popularized myths of China receding into systemic, if not terminal decline. His salient observations are revealing.

Lardy estimates that while slowing in recent years, China is likely to expand at twice the rate of the United States in the years ahead. While from 2021 to 2023, China’s GDP fell from 76 percent of U.S. GDP to 67 percent, by 2023, China’s GDP was 20 percent bigger than it had been in 2019, the eve of the global pandemic, while the United States’ was only 8 percent bigger.

The apparent paradox is due to inflation and interest rate distortions. 

Thanks to massive inflation differences, China's economy is estimated to have grown by 4.6 percent, less than the 5.2 percent that its GDP grew in real terms. The opposite is the case of the United States. Because of high inflation, U.S. nominal GDP in 2023 grew by 6.3 percent, while real GDP grew by only 2.5 percent. 

Since March 2022, the U.S. Federal Reserve has raised interest rates from 0.25 percent to 5.5 percent while China’s central bank cut its base interest rate from 3.70 percent to 3.45 percent. This has depressed the value of the renminbi vis-à-vis the dollar by ten percent, reversing what had been a large inflow of foreign capital into China. Converting a smaller nominal GDP to dollars at a weakened exchange rate results in a decline in the value of China’s GDP when measured in dollars relative to U.S. GDP.

However, U.S. interest rates hikes are coming to an end. The International Monetary Fund forecasts that Chinese prices will pick up this year, which would boost China’s GDP measured in renminbi. According to Lardy, China's  nominal GDP measured in U.S. dollars will almost certainly resume converging toward that of the United States this year and is likely to surpass it in about a decade.

A second misconception is that household income, spending, and consumer confidence in China is weak. However, in 2023, real per capita income rose by 6 percent, more than double the growth rate in 2022, when the country was in lockdown, while per capita consumption climbed by nine percent, 50% higher than per capita income increase. 

A third misconception is that price deflation has become entrenched in China, putting the country on course toward recession. This has not happened because core consumer prices (meaning those for goods and services besides food and energy) actually increased by 0.7 percent.

The prices of tools and raw materials used to produce other goods did fall in 2023, reflecting global declines in the price of energy and other internationally traded commodities as well as relatively weak demand in China for some industrial goods. Rather than  retrenchment, Chinese corporations ramped up borrowing, both in absolute terms and as a share of GDP., expanding investment in manufacturing, mining, utilities, and services. No recession appears on the horizon. 

Another misconception concerns the potential for collapse in property investment. Thanks to robust government intervention, in 2023, housing starts were half what they were in 2021 while completions expanded to 7.8 billion square feet, eclipsing housing starts for the first time. This helped reversed a downward spiral of the property glut.  

Finally, there is the misconception that Chinese entrepreneurs are discouraged and moving their money out of the country. But here again, the pessimism is not supported by the data.

Almost all the decline in the private share of total investment after 2014 resulted from a correction in the property market, which is dominated by private companies. When real estate is excluded, private investment rose by almost ten percent in 2023. Although some prominent Chinese entrepreneurs have left the country, more than 30 million private companies remain and continue to invest. Moreover, the number of family businesses, which are not officially classified as companies, expanded by 23 million in 2023, reaching a total of 124 million enterprises employing about 300 million people.

China's private sector has vastly expanded since the nation's reform and opening up. By 2014, private investment composed almost 60 percent of all investment—up from virtually zero percent in 1978. According to a report in the South Chiuna Morning Post of 15 February 2023, private firms in China contribute more than 50 per cent of tax revenue, more than 60 per cent of the national gross domestic product, more than 70 per cent of hi-tech companies, more than 80 per cent of urban labour employment and more than 90 per cent of the number of businesses.

China's innate strengths are also strongly entrenched.

First, China remains the world's largest trader and manufacturer. According to the Lowy Institute, China has become the larger trading partner for 128 out of 190 countries compared with the United States. Most products across the globe, even not "Made In China", have China embedded in terms of materials, components and logistics. Seven of the top ten largest container ports are in China, including Hong Kong. No amount of decoupling or "de-risking" is likely to reverse China's centrality in the global supply and value chain.

Second, China's economy is deeply interconnected. Internally, China's multitude of mega-city clusters, includng those the eastern seaboard and further inland, are connected by China's impressive high-speed rail, with a design speed of of 350 kilometers per hour, measuring some 45,000 km in total by the end of 2023. Longer than the rest of the world combined, this high-speed network is expected to expand to some 70,000 km by 2035, massively boosting the nation's productivity. 

Third, China is well positioned to embrace the Fourth and Fifth Industrial Revolutions set to redefine how people live, work, and conduct businesses both within and across borders. According to a report dated 3 March 2023 of the IEEE (The American Institute of Electrical and Electronics Engineers with corporate office in New York City and Operations Center in New Jersey), the Australian Strategic Policy Institute (ASPI) finds that China is the leading country in 37 of the 44 critical technologies evaluated, often producing more than five times as much high-impact research as its closest competitor the United States. 

High-end nano-semiconductor chips excepted for the time being, China's technological dominance is perhaps not surprising. Since the mid-2000s, China has consistently been producing more STEM PhDs than the United States. By 2025 Chinese universities will be producing more than 77,000 STEM PhDs per year compared to approximately 40,000 in the United States. Excluding international students, Chinese STEM PhD graduates would outnumber their U.S. counterparts more than three-to-one, according to George Town University's CSET (Center for Security and Emerging Technology)'s Data Brief of August 2021

Fourth, China's global connectivitry has now been further enhanced by its Belt and Road Initiative, including a Digital Silk Road and a Polar Silk Road.    

China will likely continue to contribute about a third of the world’s economic growth while increasing its economic footprint, particularly in Asia. Lardy warns US policy makers against complacency.

Majority in Southeast Asia would choose China over US, survey suggests

The Singapore-based ISEAS-Yusof Ishak Institute finds in its latest State of Southeast Asia 2024 survey that for the first time, 59.9 percent of respondents chose China over the United States as the most influential economic power in the region, compared with  38.9 percent of  such respondents the previous year. Click here

This change of perception may have been influenced by perceived American bias over the Israel-Hamas war, according to a South China Morning Post report.

It may also be due to the reality that China has become the predominant economic power for some SE Asian nations such as Malaysia and Indonesia. Nevertheless, certain SE nations like the Philippines, Vietnam and Singapore, to various degrees, continue to tilt towards thed United States. 

A chart taken from the survey illustrates this dichotomy. Download SE Asian nations - More positive views of China - Singapore Survey

In any event, the above doesn't alter the situation that SE Asian nations prefer a peaceful balance between the United States and China, rather than being forced to take sides, least of all in a military conflict.